DETROIT -- J.T. Battenberg III and Harry Pearce went way back as General Motors colleagues.
It was Pearce who, as GM's vice chairman in the mid-1990s, first approached Battenberg about taking the top job at GM's in-house parts division, which eventually was spun off as Delphi Corp. in 1999.
But over lunch on July 27, 2000, the erstwhile colleagues were far apart on a dispute that had flared up between the executive suites at both companies.
Last week, Pearce testified in Battenberg's civil securities-fraud trial that GM was demanding that Delphi pay its fair share of $526 million in expenses from recalls of faulty parts provided by Delphi.
Pearce said Battenberg didn't think Delphi was liable because those parts were supplied to GM while Delphi was still part of the automaker. Battenberg also thought that the $53 million reserve GM had set up to cover Delphi's warranty exposure after the separation was woefully short, Pearce testified.
"The challenge was how we were going to sort out who was responsible for what," Pearce said last week in U.S. District Court in Detroit.
Several weeks after the 2000 lunch, Battenberg and other Delphi executives agreed to pay $237 million to settle 27 recalls involving Delphi parts, Pearce said. A decade later, the accounting of that payment has led to Battenberg's fight to clear his name of fraud allegations.
The Securities and Exchange Commission accuses Battenberg, now 67, and other former Delphi officials of intentionally disguising most of that $237 million payment as pension-related costs stemming from Delphi's separation from GM. The SEC says booking the payment as a loss on Delphi's pension plan improperly bypassed the company's quarterly income statement, artificially inflating its profits by more than $130 million.