SEC Charges BorgWarner for Materially Misstating its Financial Statements
BorgWarner Inc. materially misstated its financial statements from 2012 to 2016 by failing to account for $703.6 million in asbestos liabilities despite having decades of data, leading to a $950,000 SEC penalty and restated financials after relying on untested assumptions.
BorgWarner Inc. was charged by the SEC for failing to report over $700 million in asbestos-related liabilities between 2012 and 2016, despite possessing nearly 40 years of historical claims data. The company erroneously claimed it could not estimate these liabilities, relying on untested assumptions such as product uniqueness and the inapplicability of industry benchmarks, resulting in materially misstated financial statements. In 2018, BorgWarner restated its financials to reflect $703.6 million in liabilities, disclosed ineffective internal controls, and agreed to pay a $950,000 penalty without admitting or denying the allegations.
BorgWarner Inc., a Michigan-based motor vehicle parts manufacturer, violated federal securities laws by materially misstating its financial statements from 2012 to 2016 through its failure to account for approximately $703.6 million in asbestos-related liabilities. Despite having nearly four decades of raw claims data, the company relied on untested assumptions—such as the uniqueness of its products and the inapplicability of industry benchmarks—to justify its claim that it could not reasonably estimate these liabilities. The SEC found that this accounting error rendered BorgWarner’s financial reports inaccurate and that its internal controls over financial reporting were ineffective. In early 2017, BorgWarner recognized a charge for these claims and subsequently restated its financial statements in 2018 to reflect the liabilities retroactively to 2012. The company disclosed the material weakness in its internal controls and agreed to pay a $950,000 penalty and cease-and-desist from future violations without admitting or denying the SEC’s findings. The SEC emphasized that companies cannot evade liability estimation when sufficient data is available, and the enforcement action underscored the importance of rigorous quantitative analysis in financial reporting. The investigation was led by SEC enforcement staff under the supervision of senior officials, highlighting the agency’s focus on accountability in corporate accounting practices.
Exhibits & Attached Documents (1)
Extracted insights
- $703.60M $703.6 million $100M–$1B
- $700.00M $700 million $100M–$1B
- $950K $950,000 $100K–$1M
- company borgwarner inc.
- person Carolyn Welshhans
- person certain asbestos liabilities
- person david estabrook
- person financial statements
- person laura b. josephs
- person lory stone
- person rebecca schendel norris
- agency sec investigation
- agency Securities and Exchange Commission
- SEC announced settled charges against BorgWarner Inc.
- BorgWarner Inc. is headquartered in Auburn Hills, Michigan
- BorgWarner Inc. failed to account for Certain Asbestos Liabilities
- BorgWarner Inc. failed to report Over $700 Million in Liabilities (2012-2016)
- BorgWarner Inc. did not conduct Substantive Quantitative Analysis to Estimate Asbestos Claims
- BorgWarner Inc. erroneously relied on Untested Assumptions Regarding Asbestos Liabilities
- BorgWarner Inc. had materially misstated Financial Statements
- BorgWarner Inc. reported charge in Early 2017
- BorgWarner Inc. restated financial statements in 2018
- BorgWarner Inc. aggregated $703.6 Million Related to Asbestos Claims
- BorgWarner Inc. disclosed Ineffective Internal Controls Over Financial Reporting
- BorgWarner Inc. violated Reporting, Books and Records, and Internal Accounting Controls Provisions
- BorgWarner Inc. agreed to pay $950,000 Penalty
- Carolyn Welshhans is Associate Director in the Division of Enforcement
- Lory Stone conducted SEC Investigation
- Rebecca Schendel Norris conducted SEC Investigation
- David Estabrook supervised SEC Investigation
- Laura B. Josephs supervised SEC Investigation
The Securities and Exchange Commission today announced settled charges against BorgWarner Inc., a motor vehicle parts manufacturer headquartered in Auburn Hills, Michigan, for materially misstating its financial statements by failing to account for certain asbestos liabilities. The SEC’s order finds that from 2012 to 2016, BorgWarner failed to report over $700 million in liabilities associated with future asbestos claims. According to the SEC’s order, BorgWarner did not conduct any substantive quantitative analysis to estimate these asbestos claims, despite possessing nearly 40 years of historical raw claims data. According to the order, BorgWarner erroneously relied on untested assumptions in concluding that it could not estimate its liabilities for these claims, including, for instance, that its products were unique among asbestos defendants and that industry benchmarks were inapplicable for purposes of calculating an estimate. The SEC order finds that as a result of this accounting error, BorgWarner’s financial statements were materially misstated. As set forth in the SEC’s order, in early 2017, BorgWarner reported a charge for these claims and, in 2018, BorgWarner restated its financial statements to report the charges in the appropriate periods dating back to 2012, aggregating $703.6 million related to the asbestos claims. BorgWarner also disclosed that its internal controls over financial reporting were ineffective. “Companies cannot claim an inability to reasonably estimate liabilities when the data they need to do so is available,” said Carolyn Welshhans, Associate Director in the Division of Enforcement. “BorgWarner relied on untested assumptions surrounding its asbestos-related liabilities, which ultimately led to its materially misstated financial statements.” The SEC’s order finds that BorgWarner violated the reporting, books and records, and internal accounting controls provisions of the federal securities laws. Without admitting or denying the order’s findings, the company agreed to pay a penalty of $950,000 and to cease and desist from future violations of these provisions. The SEC’s investigation was conducted by Lory Stone and Rebecca Schendel Norris, under the supervision of David Estabrook, Laura B. Josephs, and Ms. Welshhans.
The Securities and Exchange Commission today announced settled charges against BorgWarner Inc., a motor vehicle parts manufacturer headquartered in Auburn Hills, Michigan, for materially misstating its financial statements by failing to account for certain asbestos liabilities. The SEC’s order finds that from 2012 to 2016, BorgWarner failed to report over $700 million in liabilities associated with future asbestos claims. According to the SEC’s order, BorgWarner did not conduct any substantive quantitative analysis to estimate these asbestos claims, despite possessing nearly 40 years of historical raw claims data. According to the order, BorgWarner erroneously relied on untested assumptions in concluding that it could not estimate its liabilities for these claims, including, for instance, that its products were unique among asbestos defendants and that industry benchmarks were inapplicable for purposes of calculating an estimate. The SEC order finds that as a result of this accounting error, BorgWarner’s financial statements were materially misstated. As set forth in the SEC’s order, in early 2017, BorgWarner reported a charge for these claims and, in 2018, BorgWarner restated its financial statements to report the charges in the appropriate periods dating back to 2012, aggregating $703.6 million related to the asbestos claims. BorgWarner also disclosed that its internal controls over financial reporting were ineffective. “Companies cannot claim an inability to reasonably estimate liabilities when the data they need to do so is available,” said Carolyn Welshhans, Associate Director in the Division of Enforcement. “BorgWarner relied on untested assumptions surrounding its asbestos-related liabilities, which ultimately led to its materially misstated financial statements.” The SEC’s order finds that BorgWarner violated the reporting, books and records, and internal accounting controls provisions of the federal securities laws. Without admitting or denying the order’s findings, the company agreed to pay a penalty of $950,000 and to cease and desist from future violations of these provisions. The SEC’s investigation was conducted by Lory Stone and Rebecca Schendel Norris, under the supervision of David Estabrook, Laura B. Josephs, and Ms. Welshhans.