Mich. Auto Parts Maker Delphi Announces Settlement of Fraud Lawsuit

Struggling auto parts maker Delphi Corp. announced on Friday, Aug. 31 that there is a settlement of lawsuits by investors who have accused the company’s former managers of fraud.

The plaintiffs, including about 40,000 current and former employees and several large pension funds, contended the former Delphi managers fraudulently inflated the company’s financial results to make it look more attractive to investors.

Under the agreements, participants in Delphi’s employee retirement plans will receive $24.5 million in allowed interest in Delphi’s Chapter 11 bankruptcy case and $22.5 million in cash from the company’s insurance carriers.

Purchasers of Delphi’s debt and equity securities will receive $204 million in combined allowed interest and about $90 million in cash from other defendants and insurance carriers. The lead plaintiffs in that class include the Teachers Retirement System of Oklahoma and the Public Employees Retirement System of Mississippi.

Settlement terms still must be approved by U.S. District Judge Gerald Rosen in Detroit and a federal bankruptcy judge in New York, Delphi said in a statement.

Delphi, in its second-quarter earnings release, reported charges of $332 million related to the litigation. The company previously had set aside $8 million.

“Last year, Delphi settled with the Securities and Exchange Commission, and now we are pleased to have reached settlement agreements in these cases, which we believe will allow us to close this chapter in our history and move forward,” said David M. Sherbin, Delphi vice president and general counsel.

The lawsuits against Troy-based Delphi and its former managers contended that Delphi, which filed for Chapter 11 protection in 2005, made fictitious asset sales to inflate its results. The company bought the assets back after money from the sales boosted results, according to the lawsuit.

Delphi was the parts-making arm of General Motors Corp. before being spun off as a separate company in 1999.

The lawsuit named Delphi’s former chief executive, J.T. Battenberg, and other former executives as defendants.

The U.S. Securities and Exchange Commission in October said it had settled charges of accounting fraud against Delphi and six people, not including Battenberg. The government said in a statement that the Troy-based company had settled its charges and will not face penalties because it cooperated with investigators.

Delphi, which recently finalized an agreement for investors to pump up to $2.55 billion into the company, said it plans to emerge from bankruptcy protection by the end of the year.