Austal USA will pay out a $24 million fine in a deal with the U.S. Securities and Exchange Commission and Department of Justice to settle an accounting fraud case, Australian parent company Austal announced Tuesday.
The deal stems from last year’s indictment of three former Austal USA executives for conduct between 2013 and 2016 that resulted in the Mobile, Ala.-based shipyard writing down work in 2016.
On top of the $24 million fine, – which the SEC will allot to shareholders who faced losses during the period – Austal USA has reached a plea deal with the Justice Department over the criminal charges, according to the company statement.
“In addition, Austal is in advanced discussions with the U.S. Navy regarding the impact of these issues, and is seeking to enter into an associated Administrative Agreement with the U.S. Navy,” the statement reads.
“This Administrative Agreement would set out the remedial measures taken by the company to date, ongoing commitments to compliance and providing access to U.S. Navy representatives to Management, future reporting obligations, and the retention of an independent compliance monitor,” it continues. “This is a key element of the Company maintaining its standing as a presently responsible contractor to the U.S. Government – a requirement for eligibility to undertake contracts for the U.S. Navy and Coast Guard.”
For three years, the U.S. company will also undergo an “independent monitor” to ensure it’s adhering to the plea deal and administering correct compliance procedures.
Last year, an Alabama grand jury indicted Craig Perciavalle, the former president of Austal USA; Joseph Runkel, the Mobile, Ala.,-based shipyard’s director of financial analysis; and William Adams, Austal USA’s former director for the Littoral Combat Ship and the Spearhead-class Expeditionary Fast Transport (EPF) programs. Austal USA fired Runkel after the indictment came down, USNI News reported at the time.
The three executives were accused of purposely manipulating the company’s earnings and costs to mislead investors about the company’s financial performance, particularly in building the U.S. Navy’s troubled Littoral Combat Ship Program.
Separately, the SEC issued a civil complaint, alleging that the three executives “engaged in a deceptive scheme to fraudulently overstate revenues and earnings before interest and tax” from about January 2013 to July 2016, and “orchestrated the fraud in order to meet or exceed analyst consensus estimates for [earnings before interest and tax], a key financial metric used by analysts and investors.”
John Rothwell, Austal’s former chairman who remains on the board, said in a statement that the deal is the “best outcome” for the company.
“Upon learning of this issue, Austal conducted its own independent investigation,” Rothwell said. “The responsible individuals are no longer with the Company, and we have made numerous governance changes to prevent similar issues from occurring again. Austal is committed to maintaining strong financial systems and controls.”
The U.S. judiciary must accept the deal, the company noted in its statement. If they do, “all investigations into the events leading up to the July 2016 write back” would end.
“In September 2022, Austal resolved an investigation by the Australian Securities and Investment Commission, agreeing to a civil contravention and a A$650,000 penalty,” the company said in the statement. “As the incident occurred from 2013 to 2016, the limitation period for further civil action in Australia has expired.”
Federal agents visited the Alabama yard in January 2019 for an unspecified open investigation, USNI News reported at the time.
