In re GENERAL MOTORS

UNITED STATES OF AMERICA 
Before the 
SECURITIES AND EXCHANGE COMMISSION 
 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No.  79825 / January 18, 2017 
 
ACCOUNTING AND AUDITING ENFORCEMENT 
Release No.  3850/ January 18, 2017 
 
ADMINISTRATIVE PROCEEDING 
File No.  3-17797 
 
 
In the Matter of 
 
GENERAL MOTORS 
COMPANY,  
 
Respondent. 
 
 
 
 
 
 
ORDER INSTITUTING CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO 
SECTION 21C OF THE SECURITIES 
EXCHANGE ACT OF 1934, MAKING 
FINDINGS, AND IMPOSING A CEASE-
AND-DESIST ORDER 
  
I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
Exchange Act of 1934 (“Exchange Act”), against General Motors Company (“GM” or 
“Respondent”).  
 
II. 
 
In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, and without admitting or denying the 
findings herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 
Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, 
Making Findings, and Imposing a Cease-and-Desist Order (the “Order”), as set forth below. 
 
 
 

 
2 
 
III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds that:  
 
Respondent 
 
1. GM, a Delaware corporation based in Detroit, Michigan, designs, builds and sells 
cars, trucks, crossovers and automobile parts worldwide.  GM common stock is registered under 
Section 12(b) of the Exchange Act and has been publicly traded since November 2010 on the New 
York and Toronto stock exchanges.  GM is the successor entity solely for accounting and financial 
reporting purposes to General Motors Corporation (“Old GM”), which filed a voluntary petition 
for relief under the United States Bankruptcy Code in June 2009.  In July 2009, NGMCO, Inc., an 
acquisition vehicle principally formed by the United States Department of the Treasury 
(“Treasury”), acquired substantially all of the assets and assumed certain liabilities of Old GM in 
connection with the bankruptcy proceedings and eventually changed its name to General Motors 
Company.  Old GM changed its name to Motors Liquidation Company at the time of the sale and 
became a privately held company whose sole purpose was liquidating the remaining assets and 
liabilities of Old GM.  On December 9, 2013, Treasury announced that it had sold all of its 
remaining holdings of GM stock.  Old GM was a Delaware Corporation formed in 1916 and based 
in Detroit, Michigan that was engaged in the development, production and marketing of cars, 
trucks and automobile parts.  Prior to July 2009, Old GM’s common stock was registered under 
Section 12(b) of the Exchange Act and was publicly traded on the New York stock exchange and 
other exchanges.  
 
Background 
 
 2. Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a 
system of internal accounting controls  sufficient to provide reasonable assurances that, among 
other things, transactions are recorded as necessary to permit preparation of financial statements in 
conformity with generally accepted accounting principles (“GAAP”).   
 
 3. The Accounting Standards Codification (“ASC”) is the principal source of GAAP.  
ASC 450 provides guidance for the recognition and disclosure of a loss contingency.  The ASC 
defines a loss contingency as an existing condition, situation, or set of circumstances involving 
uncertainty as to possible loss to an entity that will ultimately be resolved when one or more future 
events occur or fail to occur.  The term loss, as used in ASC 450, includes many charges against 
income that are commonly referred to as expenses and others that are commonly referred to as 
losses. 
 
4. ASC 450 requires issuers to assess the likelihood that the future event or events will 
confirm the loss or impairment of an asset or the incurrence of a liability is remote, reasonably 
possible or probable.  “Probable” means the future event or events is likely to occur.  A loss is 
considered “reasonably possible” when the chance of the future event or events occurring is more 

 
3 
 
than remote but less than likely.  A loss is considered “remote” when the chance of the future event 
or events occurring is slight.   
 
5. When a loss is deemed probable and the amount of the loss can be reasonably 
estimated, ASC 450 requires the issuer to accrue the estimated loss.  If a loss is probable but a 
reasonable estimate of the amount of the loss cannot be made, the issuer is required to disclose the 
nature of the contingency and provide an estimate of the loss or range of loss or a statement that 
such an estimate cannot be made.  Disclosure is preferable to accrual when a reasonable estimate 
of loss cannot be made.  ASC 450 also requires consideration of whether a loss contingency is 
reasonably possible and estimable, and whether disclosure is necessary.  Neither accrual nor 
disclosure is required under ASC 450 if the loss contingency is remote.   
  
GM’s Recall Process and Related Internal Accounting Controls  
 
 6. In 2012 and continuing until the third quarter of 2014, GM used two different 
approaches for accruing estimated losses associated with vehicle recalls.  For small recall 
campaigns – up to $5 million – GM used an actuarial-based estimation technique by which the 
company took a per-vehicle accrual at the time each vehicle was sold to account for the amount the 
company could expect to spend on small recalls over each vehicle’s lifetime.  For large recall 
campaigns, defined as recalls exceeding $5 million, GM recorded a specific accrual for each recall 
at the time the recall became probable and estimable.   
 
7. Prior to the third quarter of 2014, GM had a formal recall process called the Field 
Performance Evaluation, or “FPE,” process.  The FPE process included an investigation and, when 
merited, a recall decision-making process that relied on three committees (together “the FPE 
committees”): The Field Performance Evaluation Team (“FPET”), which had no recall decision 
making authority but was tasked with gathering information relevant to executing a potential recall 
should one occur; the Field Performance Review Committee (“FPERC”), which made a 
preliminary determination about whether an issue qualified as a safety defect and made a 
recommendation regarding recall decisions to the ultimate recall decision-making body, the 
Executive Field Action Decision Committee (“EFADC”), which made a final recall decision.   
 
8. In typical cases, an issue would advance through the FPE process as follows. 
Engineers in the Product Investigations (“PI”) group were responsible for investigating suspected 
safety and compliance issues with GM vehicles.  Once the PI group determined that an issue 
warranted moving forward in the recall decision-making process, it would present its evaluation of 
the problem to decision makers at an Investigation Status Review (“ISR”) meeting.  If the ISR 
decision makers agreed that the issue should proceed in the process, the issue would be escalated 
into the FPE committees.  Typically, the issue would be sent to the FPET first. Typically, at 
roughly the same time as review by the FPET, the issue would be reviewed by the FPERC, which 
would make a recommendation to the EFADC, which had the sole authority to issue a recall.  
 

 
4 
 
9. Prior to the second quarter of 2014, when a problem was moved from the ISR into 
the FPE committees, it was placed on the Emerging Issues List.  At that point, GM generally 
considered the potential recall to be “probable and estimable” under ASC 450.  The Warranty 
Group, those responsible for the accounting treatment of possible losses related to potential field 
actions, received the Emerging Issues List and would record the accrual based on information 
available at that point.     
 
10. The Warranty Group had no role in determining if or when issues were placed on 
the Emerging Issues List and they were not consistently provided with the relevant information 
from other parts of GM’s organization necessary to assess the likelihood of a liability arising out of 
a potential recall other than through the Emerging Issues List.  As a result, from 2012 through the 
first quarter of 2014, the Warranty Group was not able to consistently consider whether a loss was 
“reasonably possible” under ASC 450 and for which disclosure was necessary prior to the point at 
which GM considered the potential field action for an accrual.  Accordingly, the Warranty Group 
did not typically assess items beyond those placed on the Emerging Issues list through the FPE 
process.  If the engineers in the PI group were aware of a problem but determined the evidence did 
not establish that there may be a defect requiring consideration for a potential recall, the issue 
would generally not be entered into the FPE process and therefore would not be placed on the 
Emerging Issues List until additional information became available or additional analysis was 
done.   
 
The Ignition Switch Investigation 
 
 11. On February 7, 2014, GM notified the National Highway Traffic Safety 
Administration (“NHTSA”) that it was recalling 619,122 vehicles, including model year 2005 – 
2007 Chevrolet Cobalts, to repair a defective ignition switch (the “Defective Switch”).  The defect 
at issue was a low-torque ignition switch installed in certain vehicles which, under certain 
circumstances, may move out of the “Run” position.  If this occurred, the driver would lose the 
assistance of power steering and power brakes.  Moreover, if a collision occurred while the 
switch was in the “Accessory” or “Off” position, the vehicle’s airbags may fail to deploy.  This 
recall, the first of three related to the Defective Switch, followed years of internal reviews. 
 
12. By 2012, GM engineers were reviewing airbag non-deployment claims in certain 
vehicles that had occurred over several years.  In or about early April 2012, a GM electrical 
engineer reported to his supervisor his view that a probable root cause of the airbag non-
deployment problem was the Defective Switch moving out of the Run position to the Accessory 
or Off position.  The same day, the supervisor reported this to the PI Senior Manager and a GM 
attorney.  At this point, in approximately Spring 2012, certain GM personnel understood the 
Defective Switch presented a safety issue.  However, the issue was not added to the Emerging 
Issues List at that time and thus the Warranty Group was not informed of it.   
 
13.  Yet, from approximately Spring 2012 until the fourth quarter of 2013, no one 
advised Warranty Group of the problems with the Defective Switch.  Therefore, Warranty Group 

 
5 
 
could not evaluate the likelihood of losses resulting from a potential recall of cars with the 
Defective Switch under ASC 450.   
  
 14. On April 29, 2013, during a deposition in a case arising from a crash of a GM 
vehicle with the Defective Switch, the plaintiff’s attorney showed evidence that a component of 
the Defective Switch in a model year 2008 Cobalt differed from the same component in an 
earlier model year Cobalt.   
 
 15. In July 2013, an expert retained by GM confirmed that Cobalts from model years 
2008 through 2010 had a different ignition switch component than those in model years 2005 
and 2006.  The Warranty Group remained uninformed of this information and thus unable to 
assess the possible losses related to the potential recall of vehicles with the Defective Switch at 
this time.    
 
 16. In late October 2013, GM received documentary confirmation from the supplier 
of the ignition switch that there had been a part change in the Defective Switch.  At this point, 
the engineers were satisfied that they understood the problem and they initiated the formal FPE 
process, which, as explained above, did not include the Warranty Group until a later stage.   
 
 17. In November 2013, the Warranty Group received information about the potential 
recall.  In December 2013, the Defective Switch was placed on the Emerging Issues List and the 
Warranty Group accrued approximately $41 million for estimated costs of recalling three models 
with the Defective Switch, which on an after tax basis, represented less than 0.7% of GM’s $3.8 
billion net income for the year 2013.    
 
GM’s Internal Accounting Controls Failed to Timely Identify and Evaluate Loss 
Contingencies Related to the Defective Switch 
 
 18. Under GM’s system of internal accounting controls in place in 2012 through the 
second quarter of 2014, GM’s processes were focused on recall accruals and thus generally only 
provided Warranty Group with information about vehicle issues at the point at which a recall was 
considered probable and the costs of such a recall were estimable, and did not provide information 
about potential vehicle issues to the Warranty Group prior to this point.  The Warranty Group was 
therefore unable to make a timely evaluation of whether certain potential recall campaigns were 
reasonably possible and should be considered for disclosure, as required by ASC 450.  In the case 
of the Defective Switch in the Cobalt, certain GM personnel understood that the Defective Switch 
presented a potential safety issue by approximately the Spring of 2012.  Yet, GM’s Warranty 
Group did not learn of the issue until the FPE Director informed them of the likely recall in 
November 2013, and, as a result, prior to this time the Warranty Group were unable to evaluate the 
likelihood of a loss related to the potential recall of the Defective Switch to determine if disclosure 
of the nature of the potential recall or an estimate of the possible loss or range of loss was 
required.   

 
6 
 
 
19. GM made fundamental organizational changes in 2014 in its processes for 
investigating and deciding on potential recall campaigns.  As part of those organizational changes, 
information is required to be provided to the Warranty Group earlier in the process and separate 
from an Emerging Issues List, such that a timely reasonably possible disclosure determination can 
be made.    
Violation 
 
 20. As a result of the conduct described above, for large recall campaigns for the period 
2012 through the second quarter of 2014 GM violated Section 13(b)(2)(B) of the Exchange Act by 
not devising and maintaining a system of internal accounting controls sufficient to provide 
reasonable assurances that transactions were recorded as necessary to permit preparation of 
financial statements in conformity with generally accepted accounting principles.  
 
IV. 
 
In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
agreed to in Respondent GM’s Offer. 
 
 Accordingly, it is hereby ORDERED that: 
 
A.  Pursuant to Section 21C of the Exchange Act, GM cease and desist from committing or 
causing any violations and any future violations of Section 13(b)(2)(B) of the Exchange Act. 
 
B.  GM shall, within 10 days of the entry of this Order, pay a civil money penalty in the 
amount of $1,000,000 to the Securities and Exchange Commission for transfer to the general fund 
of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If timely payment is not 
made, additional interest shall accrue pursuant to 31 U.S.C. §3717. 
 
Payment must be made in one of the following ways:   
 
(1) Respondent may transmit payment electronically to the Commission, which 
will provide detailed ACH transfer/Fedwire instructions upon request;  
 
(2) Respondent may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
 
(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  
 
 
 
 

 
7 
 
 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
 
Payments by check or money order must be accompanied by a cover letter identifying 
General Motors Company as the Respondent in these proceedings, and the file number of these 
proceedings; a copy of the cover letter and check or money order must be sent to Sanjay Wadhwa, 
Senior Associate Regional Director, Division of Enforcement, Securities and Exchange 
Commission, Brookfield Place, 200 Vesey Street, Room 400, New York, NY 10281. 
 
 C.  Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
treated as penalties paid to the government for all purposes, including all tax purposes.  To 
preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any 
award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a 
Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order granting 
the Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the 
Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be deemed 
an additional civil penalty and shall not be deemed to change the amount of the civil penalty 
imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” means a 
private damages action brought against Respondent by or on behalf of one or more investors based 
on substantially the same facts as alleged in the Order instituted by the Commission in this 
proceeding. 
 
 By the Commission. 
 
 
 
       Brent J. Fields 
       Secretary 
 

UNITED STATES OF AMERICA 

Before the 

SECURITIES AND EXCHANGE COMMISSION 

 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No.  79825 / January 18, 2017 

 

ACCOUNTING AND AUDITING ENFORCEMENT 

Release No.  3850/ January 18, 2017 

 

ADMINISTRATIVE PROCEEDING 

File No.  3-17797 

 

 

In the Matter of 

 

GENERAL MOTORS 

COMPANY,  

 

Respondent. 

 

 

 

 

 

 

ORDER INSTITUTING CEASE-AND-

DESIST PROCEEDINGS PURSUANT TO 

SECTION 21C OF THE SECURITIES 

EXCHANGE ACT OF 1934, MAKING 

FINDINGS, AND IMPOSING A CEASE-

AND-DESIST ORDER 

  

I. 

 

 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-

and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 

Exchange Act of 1934 (“Exchange Act”), against General Motors Company (“GM” or 

“Respondent”).  

 

II. 

 

In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the 

findings herein, except as to the Commission’s jurisdiction over it and the subject matter of these 

proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 

Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, 

Making Findings, and Imposing a Cease-and-Desist Order (the “Order”), as set forth below. 

 

 

 



 

2 

 

III. 

 

 On the basis of this Order and Respondent’s Offer, the Commission finds that:  

 

Respondent 

 

1. GM, a Delaware corporation based in Detroit, Michigan, designs, builds and sells 

cars, trucks, crossovers and automobile parts worldwide.  GM common stock is registered under 

Section 12(b) of the Exchange Act and has been publicly traded since November 2010 on the New 

York and Toronto stock exchanges.  GM is the successor entity solely for accounting and financial 

reporting purposes to General Motors Corporation (“Old GM”), which filed a voluntary petition 

for relief under the United States Bankruptcy Code in June 2009.  In July 2009, NGMCO, Inc., an 

acquisition vehicle principally formed by the United States Department of the Treasury 

(“Treasury”), acquired substantially all of the assets and assumed certain liabilities of Old GM in 

connection with the bankruptcy proceedings and eventually changed its name to General Motors 

Company.  Old GM changed its name to Motors Liquidation Company at the time of the sale and 

became a privately held company whose sole purpose was liquidating the remaining assets and 

liabilities of Old GM.  On December 9, 2013, Treasury announced that it had sold all of its 

remaining holdings of GM stock.  Old GM was a Delaware Corporation formed in 1916 and based 

in Detroit, Michigan that was engaged in the development, production and marketing of cars, 

trucks and automobile parts.  Prior to July 2009, Old GM’s common stock was registered under 

Section 12(b) of the Exchange Act and was publicly traded on the New York stock exchange and 

other exchanges.  

 

Background 

 

 2. Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a 

system of internal accounting controls  sufficient to provide reasonable assurances that, among 

other things, transactions are recorded as necessary to permit preparation of financial statements in 

conformity with generally accepted accounting principles (“GAAP”).   

 

 3. The Accounting Standards Codification (“ASC”) is the principal source of GAAP.  

ASC 450 provides guidance for the recognition and disclosure of a loss contingency.  The ASC 

defines a loss contingency as an existing condition, situation, or set of circumstances involving 

uncertainty as to possible loss to an entity that will ultimately be resolved when one or more future 

events occur or fail to occur.  The term loss, as used in ASC 450, includes many charges against 

income that are commonly referred to as expenses and others that are commonly referred to as 

losses. 

 

4. ASC 450 requires issuers to assess the likelihood that the future event or events will 

confirm the loss or impairment of an asset or the incurrence of a liability is remote, reasonably 

possible or probable.  “Probable” means the future event or events is likely to occur.  A loss is 

considered “reasonably possible” when the chance of the future event or events occurring is more 



 

3 

 

than remote but less than likely.  A loss is considered “remote” when the chance of the future event 

or events occurring is slight.   

 

5. When a loss is deemed probable and the amount of the loss can be reasonably 

estimated, ASC 450 requires the issuer to accrue the estimated loss.  If a loss is probable but a 

reasonable estimate of the amount of the loss cannot be made, the issuer is required to disclose the 

nature of the contingency and provide an estimate of the loss or range of loss or a statement that 

such an estimate cannot be made.  Disclosure is preferable to accrual when a reasonable estimate 

of loss cannot be made.  ASC 450 also requires consideration of whether a loss contingency is 

reasonably possible and estimable, and whether disclosure is necessary.  Neither accrual nor 

disclosure is required under ASC 450 if the loss contingency is remote.   

  

GM’s Recall Process and Related Internal Accounting Controls  

 

 6. In 2012 and continuing until the third quarter of 2014, GM used two different 

approaches for accruing estimated losses associated with vehicle recalls.  For small recall 

campaigns – up to $5 million – GM used an actuarial-based estimation technique by which the 

company took a per-vehicle accrual at the time each vehicle was sold to account for the amount the 

company could expect to spend on small recalls over each vehicle’s lifetime.  For large recall 

campaigns, defined as recalls exceeding $5 million, GM recorded a specific accrual for each recall 

at the time the recall became probable and estimable.   

 

7. Prior to the third quarter of 2014, GM had a formal recall process called the Field 

Performance Evaluation, or “FPE,” process.  The FPE process included an investigation and, when 

merited, a recall decision-making process that relied on three committees (together “the FPE 

committees”): The Field Performance Evaluation Team (“FPET”), which had no recall decision 

making authority but was tasked with gathering information relevant to executing a potential recall 

should one occur; the Field Performance Review Committee (“FPERC”), which made a 

preliminary determination about whether an issue qualified as a safety defect and made a 

recommendation regarding recall decisions to the ultimate recall decision-making body, the 

Executive Field Action Decision Committee (“EFADC”), which made a final recall decision.   

 

8. In typical cases, an issue would advance through the FPE process as follows. 

Engineers in the Product Investigations (“PI”) group were responsible for investigating suspected 

safety and compliance issues with GM vehicles.  Once the PI group determined that an issue 

warranted moving forward in the recall decision-making process, it would present its evaluation of 

the problem to decision makers at an Investigation Status Review (“ISR”) meeting.  If the ISR 

decision makers agreed that the issue should proceed in the process, the issue would be escalated 

into the FPE committees.  Typically, the issue would be sent to the FPET first. Typically, at 

roughly the same time as review by the FPET, the issue would be reviewed by the FPERC, which 

would make a recommendation to the EFADC, which had the sole authority to issue a recall.  

 



 

4 

 

9. Prior to the second quarter of 2014, when a problem was moved from the ISR into 

the FPE committees, it was placed on the Emerging Issues List.  At that point, GM generally 

considered the potential recall to be “probable and estimable” under ASC 450.  The Warranty 

Group, those responsible for the accounting treatment of possible losses related to potential field 

actions, received the Emerging Issues List and would record the accrual based on information 

available at that point.     

 

10. The Warranty Group had no role in determining if or when issues were placed on 

the Emerging Issues List and they were not consistently provided with the relevant information 

from other parts of GM’s organization necessary to assess the likelihood of a liability arising out of 

a potential recall other than through the Emerging Issues List.  As a result, from 2012 through the 

first quarter of 2014, the Warranty Group was not able to consistently consider whether a loss was 

“reasonably possible” under ASC 450 and for which disclosure was necessary prior to the point at 

which GM considered the potential field action for an accrual.  Accordingly, the Warranty Group 

did not typically assess items beyond those placed on the Emerging Issues list through the FPE 

process.  If the engineers in the PI group were aware of a problem but determined the evidence did 

not establish that there may be a defect requiring consideration for a potential recall, the issue 

would generally not be entered into the FPE process and therefore would not be placed on the 

Emerging Issues List until additional information became available or additional analysis was 

done.   

 

The Ignition Switch Investigation 

 

 11. On February 7, 2014, GM notified the National Highway Traffic Safety 

Administration (“NHTSA”) that it was recalling 619,122 vehicles, including model year 2005 – 

2007 Chevrolet Cobalts, to repair a defective ignition switch (the “Defective Switch”).  The defect 

at issue was a low-torque ignition switch installed in certain vehicles which, under certain 

circumstances, may move out of the “Run” position.  If this occurred, the driver would lose the 

assistance of power steering and power brakes.  Moreover, if a collision occurred while the 

switch was in the “Accessory” or “Off” position, the vehicle’s airbags may fail to deploy.  This 

recall, the first of three related to the Defective Switch, followed years of internal reviews. 

 

12. By 2012, GM engineers were reviewing airbag non-deployment claims in certain 

vehicles that had occurred over several years.  In or about early April 2012, a GM electrical 

engineer reported to his supervisor his view that a probable root cause of the airbag non-

deployment problem was the Defective Switch moving out of the Run position to the Accessory 

or Off position.  The same day, the supervisor reported this to the PI Senior Manager and a GM 

attorney.  At this point, in approximately Spring 2012, certain GM personnel understood the 

Defective Switch presented a safety issue.  However, the issue was not added to the Emerging 

Issues List at that time and thus the Warranty Group was not informed of it.   

 

13.  Yet, from approximately Spring 2012 until the fourth quarter of 2013, no one 

advised Warranty Group of the problems with the Defective Switch.  Therefore, Warranty Group 



 

5 

 

could not evaluate the likelihood of losses resulting from a potential recall of cars with the 

Defective Switch under ASC 450.   

  

 14. On April 29, 2013, during a deposition in a case arising from a crash of a GM 

vehicle with the Defective Switch, the plaintiff’s attorney showed evidence that a component of 

the Defective Switch in a model year 2008 Cobalt differed from the same component in an 

earlier model year Cobalt.   

 

 15. In July 2013, an expert retained by GM confirmed that Cobalts from model years 

2008 through 2010 had a different ignition switch component than those in model years 2005 

and 2006.  The Warranty Group remained uninformed of this information and thus unable to 

assess the possible losses related to the potential recall of vehicles with the Defective Switch at 

this time.    

 

 16. In late October 2013, GM received documentary confirmation from the supplier 

of the ignition switch that there had been a part change in the Defective Switch.  At this point, 

the engineers were satisfied that they understood the problem and they initiated the formal FPE 

process, which, as explained above, did not include the Warranty Group until a later stage.   

 

 17. In November 2013, the Warranty Group received information about the potential 

recall.  In December 2013, the Defective Switch was placed on the Emerging Issues List and the 

Warranty Group accrued approximately $41 million for estimated costs of recalling three models 

with the Defective Switch, which on an after tax basis, represented less than 0.7% of GM’s $3.8 

billion net income for the year 2013.    

 

GM’s Internal Accounting Controls Failed to Timely Identify and Evaluate Loss 

Contingencies Related to the Defective Switch 

 

 18. Under GM’s system of internal accounting controls in place in 2012 through the 

second quarter of 2014, GM’s processes were focused on recall accruals and thus generally only 

provided Warranty Group with information about vehicle issues at the point at which a recall was 

considered probable and the costs of such a recall were estimable, and did not provide information 

about potential vehicle issues to the Warranty Group prior to this point.  The Warranty Group was 

therefore unable to make a timely evaluation of whether certain potential recall campaigns were 

reasonably possible and should be considered for disclosure, as required by ASC 450.  In the case 

of the Defective Switch in the Cobalt, certain GM personnel understood that the Defective Switch 

presented a potential safety issue by approximately the Spring of 2012.  Yet, GM’s Warranty 

Group did not learn of the issue until the FPE Director informed them of the likely recall in 

November 2013, and, as a result, prior to this time the Warranty Group were unable to evaluate the 

likelihood of a loss related to the potential recall of the Defective Switch to determine if disclosure 

of the nature of the potential recall or an estimate of the possible loss or range of loss was 

required.   



 

6 

 

 

19. GM made fundamental organizational changes in 2014 in its processes for 

investigating and deciding on potential recall campaigns.  As part of those organizational changes, 

information is required to be provided to the Warranty Group earlier in the process and separate 

from an Emerging Issues List, such that a timely reasonably possible disclosure determination can 

be made.    
Violation 

 

 20. As a result of the conduct described above, for large recall campaigns for the period 

2012 through the second quarter of 2014 GM violated Section 13(b)(2)(B) of the Exchange Act by 

not devising and maintaining a system of internal accounting controls sufficient to provide 

reasonable assurances that transactions were recorded as necessary to permit preparation of 

financial statements in conformity with generally accepted accounting principles.  

 

IV. 

 

In view of the foregoing, the Commission deems it appropriate to impose the sanctions 

agreed to in Respondent GM’s Offer. 

 

 Accordingly, it is hereby ORDERED that: 

 

A.  Pursuant to Section 21C of the Exchange Act, GM cease and desist from committing or 

causing any violations and any future violations of Section 13(b)(2)(B) of the Exchange Act. 

 

B.  GM shall, within 10 days of the entry of this Order, pay a civil money penalty in the 

amount of $1,000,000 to the Securities and Exchange Commission for transfer to the general fund 

of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If timely payment is not 

made, additional interest shall accrue pursuant to 31 U.S.C. §3717. 

 

Payment must be made in one of the following ways:   

 

(1) Respondent may transmit payment electronically to the Commission, which 

will provide detailed ACH transfer/Fedwire instructions upon request;  

 

(2) Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  

 

(3) Respondent may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to:  

 

 

 

 



 

7 

 

 

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

 

Payments by check or money order must be accompanied by a cover letter identifying 

General Motors Company as the Respondent in these proceedings, and the file number of these 

proceedings; a copy of the cover letter and check or money order must be sent to Sanjay Wadhwa, 

Senior Associate Regional Director, Division of Enforcement, Securities and Exchange 

Commission, Brookfield Place, 200 Vesey Street, Room 400, New York, NY 10281. 

 

 C.  Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 

treated as penalties paid to the government for all purposes, including all tax purposes.  To 

preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 

Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any 

award of compensatory damages by the amount of any part of Respondent’s payment of a civil 

penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a 

Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order granting 

the Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the 

Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be deemed 

an additional civil penalty and shall not be deemed to change the amount of the civil penalty 

imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” means a 

private damages action brought against Respondent by or on behalf of one or more investors based 

on substantially the same facts as alleged in the Order instituted by the Commission in this 

proceeding. 

 

 By the Commission. 

 

 

 

       Brent J. Fields 

       Secretary