(Bloomberg) -- A shipbuilder for the US Navy agreed to pay $24 million and plead guilty to federal charges linked to a yearslong fraud that involved inflating profits and misleading investors and auditors.
Austal USA LLC, an Alabama-based company that builds vessels for the Navy and Coast Guard, overstated the profitability of its operations to prop up the share price of its publicly traded Australian parent company, Austal Ltd., the US Justice Department said in a statement Tuesday.
According to the Securities and Exchange Commission, which filed a parallel lawsuit, Austal and its parent company artificially reduced the estimated costs of finishing projects for the Navy by tens of millions of dollars, despite knowing costs were increasing. When the higher costs were eventually disclosed, the company was forced to write down more than $100 million.
“The investing public, the US Navy, and the Defense Contract Audit Agency relied on Austal USA to tell the truth about its financial condition and its performance on US Navy contracts,” said Nicole Argentieri, the head of the Justice Department’s criminal division.
Austal USA agreed to plead guilty to securities fraud and obstructing a federal audit in a deal that must be approved by a federal judge. The company also agreed to pay the $24 million fine to settle the Justice Department and SEC probes.
Austal USA and a lawyer for the company didn’t immediately respond to requests for comment. Three former Austal USA executives were charged with fraud in 2023 and are awaiting trial.
Commander Tim Hawkins, a US Navy spokesman, said in a statement responding to questions that the service wasn’t “directly harmed by Austal’s actions” and “Austal USA’s plea does not automatically result in its exclusion from federal contracting.” He said the Navy’s Acquisition Integrity Office “is evaluating Austal USA’s compliance programs, policies and practices to ensure that Austal USA remains a responsible contractor.”
Austal and Lockheed Martin Corp. produced competing versions of the Littoral Combat Ship, a craft intended for near-shore operations that is being discontinued after its cost soared and the lightly armed craft was considered vulnerable to attack.
But Austal USA enjoyed steadfast support from US lawmakers, especially from the Alabama delegation. It created thousands of high-skilled shipbuilding jobs in Mobile, Alabama, where it’s based, and is considered one of the area’s largest employers. Despite trouble with the Littoral Combat Ship, lawmakers have fought to keep money flowing into the program until it was discontinued.
(Updates with Navy comment, Austal’s support in Congress starting in sixth paragraph)
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