DETROIT – The quest by former Delphi Corp. CEO J.T. Battenberg III to clear his name against government charges that he intentionally misled Delphi investors is in the hands of a jury.
In closing arguments today, government attorney Jan Folena said Battenberg had an obligation to ensure that Delphi accurately disclosed a $237 million payment it made to General Motors in 2000 whether or not the automaker was strong-arming the supplier in the matter.
Battenberg, 67, and former Delphi Chief Accounting Officer Paul Free are accused of defrauding investors by misstating transactions in financial disclosures in 2000 and 2001. The misstatements had the effect of artificially boosting earnings in those years, the U.S. Securities and Exchange Commission alleges.
The case went to a 10-person jury today after an 11-week trial in U.S. District Court in Detroit. Both men face fines if found liable; neither faces criminal charges.
Delphi's tense relationship with GM in the months and years after its spinoff from GM in 1999 has been center stage during the trial.
The charges against Battenberg revolve around how Delphi in 2000 booked costs for warranty claims that GM, then Delphi's dominant customer, demanded of the supplier for parts delivered before the spinoff.
At the time, Battenberg and Free agreed that it was OK for Delphi in financial disclosures to report $202 million of the $237 million GM settlement as relating to pension and retirement claims and only $35 million for warranty.
That treatment, which Battenberg knew or should have known was inaccurate, helped Delphi meet earnings targets for the third quarter and year of 2000, the government argued.
In closing arguments to the jury today, SEC attorney Folena said it didn't matter in this case whether GM was pressuring Delphi with being shut out of future business if it didn't pay the $237 million.
Attorneys for Battenberg and Free argued throughout the trial that GM bullied Delphi for the money, even though Delphi felt the demands were grossly unfair and exaggerated.
‘You don't pay a shakedown'
Regardless, Battenberg and Free needed to book the payment as an expense to give investors a true picture of what was happening at the company, Folena said.
“You don't pay a shakedown,” she said, and call it a pension and retirement payment.
Battenberg's lead attorney, William Jeffress Jr., said Tuesday in closing arguments that his client relied on the advice of Delphi accounting staff and outside auditors to book the GM payment the way Delphi did. Free made the same arguments during the trial.
The charges against Battenberg only focused on the GM transaction.
Free faces additional charges relating to other Delphi transactions. 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 back the materials without any product ever changing hands.
The SEC originally charged 13 people at Delphi or Delphi suppliers in the fraud case. Delphi settled its case in 2006 and all but Battenberg and Free settled their charges without going to trial.