CAT Subsidiary Admits Cheating Customers

AP Photo/Seth Perlman, File

A Caterpillar subsidiary has agreed to pay $25 million in fines and restitution for unnecessary repairs to rail car customers.

United Industries LLC issued a guilty plea in U.S. District Court for the Central District of California Thursday. United Industries is a wholly owned subsidiary of Caterpillar, Inc.’s Progress Rail Services unit.

Caterpillar had disclosed a criminal investigation concerning the activity to shareholders in 2013.

The Wall Street Journal reported United Industries was charged with cheating customers by making unnecessary rail car repairs and dumping evidence into the ocean.

United Industries encouraged workers to destroy brake parts, gouge wheels and damage handles in order to increase revenue from repairs. There were also other unnecessary repairs performed.

The workers also threw parts into the harbor at the Port of Long Beach to hide evidence from federal inspectors. The report indicated divers working for port police recovered the parts from the ocean floor.

Court documents indicated United Industries’ actions occurred in 2008 and 2009.

United Industries will pay a $5 million fine and $20 million in restitution to be split among three companies: TTX Co., Greenbrier Co. and the Pacer International Unit of XPO Logistics Inc.

Caterpillar, Inc. issued the following statement:

Caterpillar holds itself to the highest standard of integrity and ethical behavior, and takes seriously any report that we have acted inconsistently with our values. As such, the company has cooperated with the investigation into United Industries, one of our rail subsidiaries. It’s important this matter is resolved so we can put it behind us. 

In addition to the government investigation, Caterpillar simultaneously conducted an investigation into the allegations. During the time period in question, regular audits of United Industries’ facilities were conducted, and neither the company nor the government identified any safety issues related to this matter. As a result of the company’s internal investigation, the rail division has taken corrective action against employees involved in this matter, enhanced its compliance program and made restitution to impacted customers. 

Although we disagreed with the government regarding the extent of the additional restitution, we settled the case to avoid the further expense and disruption of litigation. 

Our customers, employees and the communities in which we live and work are critical to our success. We remain dedicated to serving our customers with integrity, and with quality products and support to earn our customers’ business each and every day.

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