When a Car Recall Leads to a Securities Lawsuit

New York, NYA recent car recall has led to a securities fraud lawsuit being filed against an automaker. The lawsuit, filed against Fiat Chrysler, alleges the company made false and misleading statements linked to its securities.

The Detroit News (11/6/15) reports that the lawsuit was filed against Fiat Chrysler Automobiles NV, CEO Sergio Marchionne and CFO Richard Palmer. The lawsuit was filed after Fiat Chrysler agreed to pay $105 million to settle allegations made by the National Highway Traffic Safety Administration (NHTSA) that Fiat Chrysler had improperly handled two dozen recalls affecting 11 million vehicles.

The lawsuit was filed on behalf of all investors in Fiat Chrysler from August 1, 2014 and July 24, 2015. Plaintiffs allege that thanks to multiple recalls the value of Fiat Chrysler’s stock dropped, and claim Fiat Chrysler made false and misleading statements, including failing to disclose problems within the company’s manufacturing process.

According to court documents (Pirnik v. Fiat Chysler Automobiles, et al, case number 1:15-cv-07199 in US District Court, Southern District of New York), penalties from the NHTSA were linked to violations that included “misleading regulators, inadequate repairs, and failure to alert affected car owners in a timely manner.” Furthermore, the NHTSA reportedly noted that “Fiat Chrysler’s pattern of poor performance put millions of its customers, and the driving public, at risk.” (as noted in court documents).

Among the recalls that caused concern, according to the lawsuit, were a June 28, 2015 recall in which 65 2015 Jeep Grand Cherokee and Dodge Durango SUV owners were advised that their vehicles may have been inadvertently equipped with components that could break; a July 24, 2015 recall involving around 1.4 million Jeep Grand Cherokee and Dodge Durango SUV owners who were advised that a security flaw could lead to their vehicles being vulnerable to remote electronic manipulation; and a September 10, 2015 recall involving around 1.7 million newer model Dodge Ram pickups with potentially faulty airbags and steering components.

“As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages,” the lawsuit states.

The CEO and CFO are named in the lawsuit because plaintiffs allege they had knowledge of the false and misleading statements or, if they did not have knowledge of the statements, acted with reckless disregard for the truth. The lawsuit seeks damages on behalf of the plaintiff and the proposed class.

(Edited to correct a figure in paragraph 5 stating 65 million vehicle owners were affected when 65 vehicle owners were affected.)