BMW to pay $18 million sales probe penalty

25 September 2020

25 September 2020

BMW AG and two of its US subsidiaries will pay $18 million (€15.5 million) to settle charges with the Securities and Exchange Commission (SEC). The probe concerned the carmaker disclosing ‘inaccurate and misleading information’ about its sales while raising approximately $18 billion from investors in a number of corporate bond offerings.

The SEC said from 2015 to 2019, BMW inflated its reported retail sales in the US, which it says helped the carmaker close the gap between its actual volume and internal targets, while publicly maintaining a leading position against its competitors.

‘The bank’

The 2019 SEC probe found that BMW of North America (BMW NA) ‘maintained a reserve of unreported retail vehicle sales,’ which it referred to internally as ‘the bank.’ This was used to meet internal monthly sales targets without regard to when the underlying sales occurred. The SEC said BMW NA also paid dealers to label vehicles as demonstrators or loan vehilces so it could count them as having been sold to customers.

The report went on to detail that BMW NA ‘improperly adjusted its retail sales reporting calendar in 2015 and 2017 to meet internal sales targets or bank excess retail sales for future use.’ The SEC explained that this meant the information passed to investors in bond offerings and to credit rating agencies contained material misstatements and omissions about BMW’s US sales.

‘Companies accessing US markets to raise capital have an obligation to provide accurate information to investors,’ said Stephanie Avakian, director of the division of enforcement. ‘Through its repeated disclosure failures, BMW misled investors about its US retail sales performance and customer demand for BMW vehicles in the US market while raising capital in the US.’

Antifraud provisions

The SEC outlines that ‘BMW AG, BMW NA, and BMW US Capital violated antifraud provisions of Sections 17(a)(2) and (3) of the Securities Act of 1933.’ However, without admitting or denying the probe’s findings, the three companies agreed to pay a joint penalty of $18 million and to discontinue any future violations.

'The BMW Group is pleased to have resolved, after substantial cooperation, the US Securities and Exchange Commission’s inquiry which started in late 2019 focusing on retail sales reporting practices of BMW of North America,' the carmaker said in a statement sent to Autovista Group.

'According to the Order issued by the SEC, BMW was found to have provided inaccurate information regarding US retail sales,' the manuafctuer said. 'Much of the conduct at issue in the SEC settlement occurred over three years ago. The Order is based on U.S. securities laws which can be satisfied by negligence. There is no allegation or finding in the order that any BMW entity engaged in intentional misconduct.'

'The SEC has ordered a fine of $18 million USD which the BMW Group has accepted. The BMW Group attaches great importance to the correctness of its sales figures and will continue to focus on thorough and consistent sales reporting,' it added.

The SEC did note BMW’s significant cooperation during the investigation amid challenges posed by the coronavirus (COVID-19) pandemic. This included travel restrictions, work from home orders and office closures. The carmaker’s cooperation was accordingly considered when the penalty was imposed. 

‘This settlement illustrates the significant benefits to companies for providing concrete cooperation that substantially advances the quality and efficiency of our investigations once contacted by agency staff,’ said Anita B. Bandy, an associate director in the division of enforcement. ‘As we continue to vigorously pursue wrongdoing during the COVID-19 pandemic, companies wishing to receive credit should be forthcoming in their approach to cooperation.’

This article has been updated to reflect a statement sent by BMW Group.