DETROIT -- In early 2001, then General Motors accounting director Peter Bible was sifting through the annual financial filing of GM’s biggest supplier, Delphi, when he spotted something that made his blood boil.
Delphi had recorded the bulk of a $237 million payment that it made to GM the previous September as a loss on the supplier’s balance sheet related to pension and other benefit expenses. Bible knew he had recorded that same payment on GM’s books as something very different: As a payment entirely to cover the cost of faulty parts Delphi had supplied GM.
“That was very troubling to me because I was not aware of any part of the agreement that related to” pensions or employee benefits, Bible testified today during the civil securities-fraud trial of former Delphi CEO J.T. Battenberg III.
The Securities and Exchange Commission says it knows why Delphi booked the payment that way. The SEC accuses Battenberg, 67, and other former Delphi officials of intentionally disguising $202 million of the GM payment as pension-related costs stemming from Delphi’s 1999 separation from the automaker. That allowed Delphi to bypass the company’s quarterly income statement, artificially inflating its profits by more than $130 million, the SEC says.
Angry phone call
Bible told the court he immediately picked up the phone and called Paul Free, Delphi’s controller and chief accounting officer at the time -- as well as Bible’s former coworker and golf buddy. When Bible asked Free, now on trial along with Battenberg, why Delphi booked the payment that way, Free responded that “he believed [Delphi] felt it was related to pension obligations” and abruptly ended the call, Bible said.
Bible told the court he hung up the phone and immediately yelled to his administrative assistant: “You’re never going to believe what these assholes at Delphi did.”
When questioned by Free’s attorney, Bible acknowledged that he never read the settlement agreement, which had been signed by Bo Andersson, then GM’s global purchasing chief. Bible said nobody at GM told him the settlement included payments to GM for pension and benefit expenses.
Free’s attorney, Matthew Lund, referring to Bible’s heated phone exchange with Free, said: “At that point, you were questioning his … integrity without even knowing that your colleague, Bo Andersson, signed the agreement?”
Bible agreed, but later said that any changes to GM’s pension structure would have had to go through him as the chief accountant and that it was irrelevant that he hadn’t read the agreement.
One of several disputes
Defense attorneys so far have sought to establish that the pension issue was hotly contested around the same time as the warranty dispute. They say the ultimate agreement between GM and Delphi was broadened to include the issue of pension and health benefit obligations, along with warranty claims.
Earlier this week, jurors were shown a copy of the two-page settlement agreement, which said Delphi’s payment released the parts maker not only from GM’s warranty claims but also cleared up “certain other issues,” including some obligations related to pensions and other benefits.
Atul Pasricha, a former assistant treasurer at Delphi, testified yesterday that GM had been griping for months that Delphi got a sweet deal in the split. GM got stuck with a disproportionate share of pension and benefit costs for thousands of workers who initially transferred to Delphi but later flowed back to the automaker. Health care expenses for those workers were running much higher than expected, letting Delphi off the hook for costs that ran several hundred million dollars a year.
Attempting to blame GM
Also today, in what has become a theme at the trial, defense attorneys asked U.S. Judge Avern Cohn to allow evidence that the defense says shows GM wasn’t acting in good faith on the warranty issue. Defense lawyers argued during opening statements last week that GM knew it was sticking Delphi with huge warranty liabilities and gave the fledgling company only a fraction of the cash it would need to cover those payments once it split from GM.
The defense also has said GM essentially was trying to extort the $237 million from Delphi. Battenberg attorney William Jeffress has said the cash, booked by GM as income, allowed the automaker to hit its profit forecast that quarter by a penny per share.
Cohn has consistently reigned in the defense’s attack on GM as irrelevant and unproven in the evidence so far. He repeated that sentiment today with the jury out of the room.
“I don’t think how GM set up Delphi and whether in doing so it did it on the cheap ... so that Delphi was born in a malnourished fashion ... relates to [Delphi’s] accounting treatment of the $237 million,” he said.
Later in the day, though, Cohn said he would consider limited testimony and evidence regarding the fairness of how GM treated Delphi on the warranty issue relative to its pre-split agreements. But he warned defense lawyers that he still questions their relevance in the case.
Said Cohn: “I’m still disturbed by the defense’s suggestion that ‘if we are extorted, we may manipulate the extortion payment so that it’s not a charge against earnings.”