Case alleging former Navistar CEO misled investors moves forward

A federal judge ruled this week that a civil case alleging Navistar’s former CEO misled investors about a failed engine technology can move forward.

The Securities and Exchange Commission filed the complaint last year against Dan Ustian, who served as the company’s president and CEO between 2010 and 2012. The complaint alleged Ustian engaged in securities fraud and falsely led the company’s investors to believe Navistar was able to produce an engine technology that could meet strict Environmental Protection Agency standards, despite knowing that wasn’t the case.

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Ustian had moved to have the complaint thrown out on several grounds, but this weeks’ ruling means the case will proceed.

The Lisle, Ill.-based manufacturer is a major employer in Clark County with more than 1,500 workers at its Springfield manufacturing plant, including management and contractors. Thousands of the company’s retirees also live in the region.

Navistar reached a $7.5 million settlement with the SEC last year in which it neither admitted nor denied charges that the company misled investors regarding its attempts to develop the engine technology. The complaint against Ustian was filed the same day.

Neither Ustian’s attorneys nor officials from the SEC responded to a request for comment Thursday. Navistar officials declined comment.

“Because the SEC sufficiently alleges that Ustian’s statements were misleading and material to the investing public and that Ustian knew this, the SEC sufficiently states a claim for securities fraud,” wrote Illinois federal Judge Sara Ellis. “The SEC also sufficiently alleges that Navistar violated the securities laws and that Ustian is liable for Navistar’s violations.”

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The SEC argued in the initial complaint that Ustian mislead investors regarding Navistar’s attempts to develop a truck engine technology that ultimately failed to meet U.S. EPA standards.

“The United States Securities and Exchange Commission alleges that Defendant Daniel C. Ustian, Navistar’s former CEO and president, was so driven by a desire to produce an engine that the EPA would approve and customers would buy, he engaged in securities fraud and misled investors to think that Navistar had such an engine despite knowing that Navistar could not produce an engine that could satisfy both the EPA and Navistar’s customers …” court documents say.

However, Ellis also ruled the SEC didn’t support allegations that Ustian is liable for statements to investors in 2012 at an analyst conference call, and so cannot proceed on those claims.

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Ustian has since retired from the company. Troy Clarke, a former chief labor negotiator for GM, took over as CEO in 2013.

Court records show Ustian is expected to respond to the SEC’s complaint by late February.

The truckmaker's Springfield plant faced an uncertain future just a few years ago, but the company has since made significant investments in the facility and two separate deals with GM that are expected to add hundreds of jobs.

Navistar has also formed an alliance with Volkswagen Truck and Bus in which the German automaker will invest about $256 million in Navistar in a deal that includes agreements to share technology and resources.

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