DETROIT -- A forensic accountant testifying at former Delphi CEO J.T. Battenberg's civil fraud trial today said that the auto supplier recorded on its books a payment to its largest customer, General Motors, “totally differently from” the actual transaction conducted by the supplier and its former parent company.
The Securities and Exchange Commission accuses Battenberg and other former Delphi officials of fraud through intentionally disguising most of a $237 million payment to GM in 2000 for faulty parts as a payment for pension-related costs stemming from Delphi's 1999 spinoff from GM.
Improperly accounting for that transaction made Delphi's bottom line look better than it really was, the SEC alleges, and lies at the heart of the government's civil case against Battenberg, 67.
Testifying for the SEC today, forensic accountant Al Vondra said the thousands of internal Delphi documents he and his team of 85 accountants reviewed in 2004 “all reflected that this was a warranty dispute,” between GM and Delphi.
Vondra, hired by Delphi's board in 2004 to look into potential irregular accounting in prior years, said a simmering dispute between Delphi and GM at the time over which company should pay what for employee pensions, health care and other spinoff-related costs “had nothing to do with” the $237 million settlement the two sides agreed to in September 2000.
“This was always about a warranty transaction, but that at the very end, it wasn't accounted for as a warranty transaction,” said Vondra, the first witness to testify in the trial.
In all, the SEC alleges four fraudulent transactions occurred between 2000 and 2004, artificially boosting Delphi's earnings and thus its share price. Battenberg is accused of helping orchestrate only the allegedly improper accounting of the GM warranty payment.
William Jeffress, Battenberg's attorney, sought to buttress his argument from opening statements last week that the former CEO relied on advice from experts when signing off on accounting matters. Jeffress pointed out during his cross-examination of Vondra that the former CEO signed SEC filings in 2005 that restated Delphi's earnings from 2000 to 2004 because of improper accounting.
Jeffress also pointed out that, at the time of its payment to GM, Delphi had a $270 million reserve set up to pay warranty claims. Tapping that account, rather than presenting the warranty payments as a charge, would have prevented a hit to its earnings also, implying that executives had no need to hide the payment through dubious accounting.
Defense attorneys for Battenberg and another former Delphi official on trial also tried to dent Vondra's credibility. They presented documents showing that Vondra's firm has been paid more than $500,000 in the past for Vondra's serving as an expert witness in other cases.
On trial along with Battenberg are Paul Free, former Delphi controller and chief accounting officer; Milan Belans, former director of capital planning and pension analysis; and Catherine Rozanski, former accounting director.