Dive Brief:

• The Securities and Exchange Commission settled charges Wednesday against BorgWarner, a motor vehicle parts manufacturer, for materially misstating its financial statements by failing to account for asbestos liabilities.
• From 2012 to 2016, the Auburn Hills, Mich.-based company failed to report over $700 million in liabilities associated with future asbestos claims, the agency says.
• "Companies cannot claim an inability to reasonably estimate liabilities when the data they need to do so is available," associate director in the SEC's enforcement division Carolyn Welshhans said.

Dive Insight:

In its order, the SEC says the company, despite possessing nearly 40 years of historical raw claims data, relied on untested assumptions to conduct its assessments.

For instance, it assumed its products were unique among asbestos defendants and that industry benchmarks were inapplicable for purposes of calculating an estimate.

"BorgWarner relied on untested assumptions surrounding its asbestos-related liabilities, which ultimately led to its materially misstated financial statements," Welshhans said, adding the company's internal controls over financial reporting were ineffective.

In 2017, BorgWarner reported a charge for the claims and, in 2018, restated its financial statements to report the charges dating back to 2012, aggregating $703.6 million related to the claims. 

The SEC alleges BorgWarner violated reporting, books and records, and internal accounting controls provisions of 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.