Boeing Co. will pay $200 million to settle civil charges by the U.S. Securities and Exchange Commission that it misled investors about its 737 MAX, which was grounded for 20 months after two fatal crashes killed 346 people, the agency said on Thursday. Boeing knew after the first crash that a flight control system posed a safety issue, but assured the public that the 737 MAX airplane was “as safe as any that has ever flown the skies,” the SEC said in announcing the settlement.
The SEC also said former Boeing Chief Executive Dennis Muilenburg had agreed to pay $1 million to settle charges. Both Boeing and Muilenburg did not admit or deny the SEC’s findings, the agency said. A fund will be established for the benefit of harmed investors, it said. Boeing shares rose 0.4% in after-hours trading.
“In times of crisis and tragedy, it is especially important that public companies and executives provide full, fair, and truthful disclosures to the markets,” SEC Chair Gary Gensler said in a statement. Boeing and Muilenburg “failed in this most basic obligation,” he said. The SEC charged Boeing and Muilenburg “with making materially misleading public statements following crashes of Boeing airplanes in 2018 and 2019.”
Boeing, which noted that it did not admit or deny wrongdoing in the settlement agreement, said it had made “fundamental changes that have strengthened our safety processes” and said the “settlement is part of the company’s broader effort to responsibly resolve outstanding legal matters related to the 737 MAX accidents.”
The first crash, of a Lion Air flight in Indonesia, occurred in October 2018. After the second crash, in Ethiopia in March 2019, the SEC said, “Boeing and Muilenburg assured the public that there were no slips or gaps in the certification process with respect to MCAS, despite being aware of contrary information.”
Boeing has resolved most claims from the two fatal crashes. Last year it acknowledged liability for compensatory damages in lawsuits filed by families of the 157 people killed in the 2019 Ethiopian Airlines 737 MAX crash. A small number of trials are expected to begin in 2023 to help resolve claims.
The Federal Aviation Administration required 737 MAX pilots to undergo new training to deal with MCAS as well as mandating significant new safeguards and other software changes to the flight control system before allowing the planes to return to service. The crashes cost Boeing more than $20 billion and led Congress to pass sweeping legislation reforming how the FAA certifies new airplanes. Boeing faces a December deadline to win approval from the FAA of the 737 MAX 7 and 10 variants, or it must meet new modern cockpit-alerting requirements.
In January 2021, Boeing agreed to pay $2.5 billion in fines and compensation to resolve a U.S. Justice Department criminal investigation into the 737 MAX crashes. The Justice Department settlement, which allowed Boeing to avoid prosecution, included a fine of $243.6 million, compensation to airlines of $1.77 billion, and a $500 million crash-victim fund over fraud conspiracy charges related to the plane’s flawed design.
The families of some people killed in the Boeing crashes have asked a judge to declare the government violated their legal rights when it reached the settlement. In December 2019, Boeing fired Muilenburg after the company clashed with regulators over the timing of the 737 MAX’s return to service. A lawyer for Muilenburg, who did not admit or deny wrongdoing, did not immediately respond to a request for comment.
Muilenburg departed Boeing with $ but received no severance pay. “Boeing and Muilenburg put profits over people by misleading investors about the safety of the 737 MAX all in an effort to rehabilitate Boeing’s image following two tragic accidents that resulted in the loss of 346 lives and incalculable grief to so many families,” said SEC Enforcement Director Gurbir Grewal.
Last November, Boeing’s current and former company directors reached a $237.5 million settlement with shareholders to settle a lawsuit over the board’s safety oversight of the 737 Max.
Critics by Leslie Josephs
agreed to pay more than $2.5 billion to settle a criminal probe with the U.S. Justice Department, which accused the company of concealing information about its 737 Max airplane that was involved in two crashes that claimed 346 lives, federal prosecutors announced Thursday. The deferred prosecution agreement closes the DOJ’s roughly two-year probe and drops all charges after three years if there aren’t additional violations.
Prosecutors said Boeing “knowingly and willfully” conspired to defraud the United States by undermining the Federal Aviation Administration’s ability to evaluate the safety of the plane. Boeing admitted that two of its 737 Max flight technical pilots “deceived” the FAA about the capabilities of a flight-control system on the planes, software that was later implicated in the two crashes, the Justice Department said.
The $2.51 billion fine consists of a $243.6 million criminal penalty, a $500 million fund for crash victims family members and $1.77 billion for its airline customers. The company said it already accounted for a bulk of those costs in prior quarters and expects to take a $743.6 million charge in its 2020 fourth-quarter earnings to cover the rest.
“The tragic crashes of Lion Air Flight 610 and Ethiopian Airlines Flight 302 exposed fraudulent and deceptive conduct by employees of one of the world’s leading commercial airplane manufacturers,” Acting Assistant Attorney General David P. Burns of the Justice Department’s Criminal Division, wrote in a release. “Boeing’s employees chose the path of profit over candor by concealing material information from the FAA concerning the operation of its 737 Max airplane and engaging in an effort to cover up their deception.”
The company admitted to the wrongdoing and waived its rights to a trial as part of its deal with the DOJ to settle the charges. The agreement also didn’t implicate top executives there, saying the misconduct wasn’t pervasive nor were senior managers involved. “This is a substantial settlement of a very serious matter, and I firmly believe that entering into this resolution is the right thing for us to do — a step that appropriately acknowledges how we fell short of our values and expectations,” CEO Dave Calhoun said in a note to Boeing employees.
The crashes plunged Boeing into its worst-ever crisis that has cost Boeing about $20 billion. They sparked a worldwide grounding of its bestselling plane that lasted nearly two years, numerous investigations and damaged the reputation of one what was the world’s biggest aircraft manufacturer.
Two damning congressional investigations after the crashes found management, design and regulatory lapses in the 737 Max’s development and certification. This led to new legislation passed last year to reform aircraft certification, giving more control over the process to the FAA. House Transportation and Infrastructure Committee Chairman Peter DeFazio, an Oregon Democrat whose committee led one of the reports and introduced the new certification law, slammed the settlement with the Justice Department.
“This settlement amounts to a slap on the wrist and is an insult to the 346 victims who died as a result of corporate greed,” he said in a statement. “Not only is the dollar amount of the settlement a mere fraction of Boeing’s annual revenue, the settlement sidesteps any real accountability in terms of criminal charges.”
Last month, the FAA approved software and other safety changes Boeing made to the planes, clearing airlines to start flying them again. American Airlines last month became the first U.S. carrier to return the planes to commercial service. United Airlines expects to start flying them again next month and Southwest Airlines is set to follow suit in March.
Lawyers representing the family members of victims in Ethiopian Airlines Flight 302 said they intend to continue with their lawsuit against Boeing. “This agreement, including the ‘crash-victim beneficiaries fund’, has no bearing on the pending civil litigation against Boeing, which we plan to prosecute fully to ensure the families receive the justice they deserve,” they said.