By David Goldman, CNN Business
Updated: Fri, 23 Sep 2022 12:36:13 GMT
Source: CNN Business
Boeing and its former CEO Dennis Muilenburg agreed to pay hefty fines to settle charges from the Securities and Exchange Commission that they misled the public about the safety of the 737 Max following two fatal crashes in 2018 and 2019.
The SEC alleges that, following an October 2018 crash of a Lion Air 737 Max jet that killed 189 people, Boeing and Muilenburg knew that part of the plane's flight control system posed an ongoing safety concern yet told the public that the 737 Max was safe to fly. After a March 10, 2019 fatal 737 Max crash, the SEC alleges that Boeing and Muilenburg knowingly misled the public about "slips" and "gaps" in the certification process of that flight control system.
"In times of crisis and tragedy, it is especially important that public companies and executives provide full, fair, and truthful disclosures to the markets," said SEC Chair Gary Gensler in a statement. "The Boeing Company and its former CEO, Dennis Muilenburg, failed in this most basic obligation. They misled investors by providing assurances about the safety of the 737 MAX, despite knowing about serious safety concerns."
In a statement, Boeing said that the settlement "fully resolves the SEC's previously disclosed inquiry into matters relating to the 737 MAX accidents."
"Today's settlement is part of the company's broader effort to responsibly resolve outstanding legal matters related to the 737 MAX accidents in a manner that serves the best interests of our shareholders, employees, and other stakeholders," Boeing said.
The company and Muilenburg agreed to settle charges of violating the antifraud provisions of US securities laws, but they did not admit or deny the SEC's allegations. Boeing agreed to pay a $200 million settlement and Muilenburg agreed to pay $1 million.
"Boeing and Muilenburg put profits over people by misleading investors about the safety of the 737 Max all in an effort to rehabilitate Boeing's image following two tragic accidents that resulted in the loss of 346 lives and incalculable grief to so many families," said Gurbir Grewal, director of the SEC's Enforcement Division in a statement.
Muilenburg lost the top job at Boeing in December 2019. But he left with stock options and other assets worth about $80 million at that time — though Boeing shares have lost more than half their value since then. It is unknown what Muilenburg did with his Boeing shares and options after his departure.
While $200 million may seem like a substantial fine for a company, it is a small fraction of the losses already caused by the two fatal crashes that killed 346 people in total and led to a 20-month grounding of Boeing's best-selling plane.
Boeing already disclosed the company has taken a $21 billion hit to its bottom line because of lost sales revenue and increased costs — and that doesn't include potential legal liability to families of the victims. So the $200 million fine represents less than 1% of its previously disclosed losses.
Investors have lost even more: Boeing's market capitalization has plunged about 58%, or $115 billion, since the first crash of a 737 Max soon after take-off from Indonesia in October 2018. While about $100 billion of that has occurred in the pandemic era that has hurt demand for flying and aircraft purchases, the prolonged grounding of the Max opened the door for airlines to cancel hundreds of orders for the planes without penalty.
Shares of Boeing fell more than 3% Thursday but rose slightly in after-hours trading following the SEC's announcement.