U.S. Navy Shipbuilder Pleads Guilty To “Fraud Scheme,” Department Of Justice Announces

A shipbuilder that constructs vessels for the U.S. Navy and U.S. Coast Guard has pleaded guilty to a financial accounting fraud scheme and agreed to pay a $24 million fine.

The U.S. Department of Justice said Austal USA, based in Mobile, Alabama, obstructed a Defense Department audit.

U.S. Navy Shipbuilder Pleads Guilty to Financial Accounting Fraud Scheme and Obstructing a Defense Department Audit

: https://t.co/XgcUatpds9 pic.twitter.com/kcYMnkQhpB

— Criminal Division (@DOJCrimDiv) August 27, 2024

“Austal USA, a shipbuilder for the U.S. military, engaged in a years-long scheme to illegally inflate its profits on ships the company was building for the U.S. Navy, reporting false financial results to investors, lenders, and its auditors,” said Principal Deputy Assistant Attorney General Nicole M. Argentieri, head of the Justice Department’s Criminal Division.

“The investing public, the U.S. Navy, and the Defense Contract Audit Agency relied on Austal USA to tell the truth about its financial condition and its performance on U.S. Navy contracts. Today’s guilty plea underscores the Department of Justice’s commitment to holding U.S. government contractors accountable for their criminal misconduct and ensuring that they engage honestly with the U.S. government,” Argentieri added.

From the Department of Justice:

According to court documents, from at least in or around 2013 through at least in or around July 2016, Austal USA and its co-conspirators conspired to mislead Austal Limited’s shareholders, independent financial statement auditors and the investing public about Austal USA’s financial condition. Specifically, Austal USA artificially suppressed an accounting metric known as an “estimate at completion” (EAC) in relation to multiple Littoral Combat Ships that Austal USA was building for the U.S. Navy. Suppressing the EACs had the effect of falsely overstating Austal USA’s profitability on those shipbuilding efforts and Austal Limited’s earnings reported in its public financial statements. Austal USA and its co-conspirators manipulated the EAC figures in part by using so-called “program challenges,” which were false plug numbers to hide growing shipbuilding costs that should have been incorporated into the company’s financial statements. Austal USA did this to maintain and increase the share price of Austal Limited’s stock. When the higher costs were eventually disclosed to the market, Austal Limited wrote down over $100 million, and the stock price was significantly negatively impacted.

The Justice Department said Austal USA conspired to mislead shareholders and investors about its financial condition. https://t.co/q8kq5jCM02

— Navy Times (@NavyTimes) August 28, 2024

US Navy shipbuilder Austal USA agrees to pay $24 million to settle accounting fraud probe https://t.co/bIQzuAMNVw

— The Associated Press (@AP) August 28, 2024

“Austal USA is a wholly owned subsidiary of Austal Limited, an Australian company that is publicly traded on the Australian Securities Exchange and was traded over-the-counter in the United States via American Depositary Receipts,” the Justice Department noted.

According to Defense News, the shipbuilder “builds littoral combat ships for the Navy that are designed to operate in shallow coastal waters.”

Per Defense News:

Court documents show the company agreed to settle complaints by the Securities and Exchange Commission and the Justice Department. A sentencing hearing is scheduled for Nov. 25.

The Justice Department said the appropriate criminal penalty would be $73 million, but that was reduced because of Austal USA’s inability to pay. In addition to the $24 million criminal fine, the company is also on the hook for $24 million in restitution for shareholder losses.

Austal USA has also agreed to retain an independent compliance monitor for three years and implement a compliance and ethics program.

Three former Austal USA executives were indicted last year on accounting fraud charges. They are awaiting trial.

This is a Guest Post from our friends over at 100 Percent Fed Up.

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