DETROIT -- During closing arguments on Tuesday, the lead attorney of former Delphi Corp. CEO J.T. Battenberg III said the government has miscast Battenberg as a scheming executive who profited from alleged accounting misdeeds in 2000.
Instead, Battenberg took great care to ensure proper accounting at Delphi, said Battenberg's attorney, William Jeffress Jr.
Accounting procedures used in 2000 that later landed Battenberg and co-defendant Paul Free in trouble with the Securities and Exchange Commission were vetted and approved by legal counsel inside and outside of Delphi, Jeffress said.
Moreover, the government provided no evidence during the eight-week federal civil trial to support its claim that Battenberg and senior executives of Delphi received higher bonuses because of the way they accounted for payments to General Motors in 2000, Jeffress told the 10-person jury in U.S. District Court in Detroit.
The SEC accuses Battenberg of deceiving investors in 2000 by improperly booking a large payment to General Motors and for signing allegedly fraudulent regulatory disclosures. Delphi settled its case with the SEC in 2006; 11 other former Delphi managers and people who did business with the supplier also have settled.
The SEC alleges Battenberg, now 67, was directly involved in a September 2000 settlement to pay General Motors $237 million for warranty claims on Delphi parts that were delivered to GM before Delphi was spun off in 1999. The government says Battenberg booked the payment mostly as pension expenses, artificially inflating Delphi's profits.
Battenberg contends he relied on his accounting and legal staffs to account for the payment.
In the government's closing arguments, SEC attorney Gregory Miller said Battenberg “lied” to Delphi investors when Delphi booked the payment in 2000 as predominantly for post-retirement benefit costs instead of warranty claims. By doing so, Delphi was able to post higher earnings in the third quarter of 2000 and for the year, Miller said.
The motivation, Miller said, was so Battenberg and other executives could meet their earnings targets and receive bigger bonuses.
But Jeffress said the government not only couldn't say how much they allegedly benefited, but that any costs Delphi would have paid for pre-separation claims would not have counted in any bonus formula.
To the contrary, Battenberg and the company were very aboveboard about how Delphi accounted for the GM payment, Jeffress said.
As throughout much of the trial, Jeffress today painted Battenberg as a victim of GM's heavy-handedness rather than as a participant in fraud.
Shortly after the spinoff of Delphi in 1999, GM started demanding money for pre-separation warranty claims that GM earlier had said it would not seek, Jeffress said.
While Battenberg and other Delphi executives thought the demands unfair, GM purchasing executives at the time threatened to keep Delphi from bidding on future supply business if they didn't pay up, Jeffress said.
With its nearly complete reliance on GM for business, that could have caused Delphi to liquidate, he said.
Moreover, the automaker could have withheld the $237 million from the nearly $2 billion it paid Delphi every pay period, Jeffress said. That, too, could have caused a cash crisis at Delphi, he said.
Battenberg retired from Delphi in 2005, a few months before the parts supplier filed for Chapter 11 bankruptcy protection.
The trial is expected to go to the jury Wednesday after scheduled closing arguments by defendant Free in the morning and rebuttal by the government.
Free faces additional charges to Battenberg. He is accused of not only participating in the GM warranty episode, but of participating in so-called round-trip trades of parts and materials with suppliers.
In those trades, Delphi temporarily sold the materials to boost earnings, then bought the materials right back without any product ever changing hands.