Boeing to pay SEC $200m to settle charges it misled investors over 737 MAX safety
Ex-CEO also on the hook for $1m after skipping over known software issues
Boeing has agreed to pay $200 million to settle charges brought by the Securities and Exchange Commission (SEC) claiming the aviation giant misled investors about the safety of its 737 MAX airplane.
The 737 MAX was involved in two crashes that killed all aboard in 2018 and 2019, now understood to be at least partly caused by flaws in the aircraft's Maneuvering Characteristics Augmentation System (MCAS) software. Boeing admitted MCAS played a role in both accidents.
MCAS was intended to automatically kick in and help prevent the 737 Max from stalling in a particular flight scenario where the aircraft's angle of attack (AoA) becomes too high. It did so through adjusting the airliner's trim, pushing the aircraft's nose down in 10-second bursts.
If MCAS is fed erroneous data from the aircraft's AoA probe, it may wrongly decide the aircraft is at risk of stalling and start winding on nose-down trim. It emerged that pilots were not made aware of what MCAS was, how it worked or how to safely disable it.
The airliner returned to service in 2021, but not before software updates and substantial investigations and fines over Boeing's handling of the affair.
The $200 million to the SEC, little more than an administrative expense compared to the $2.5 billion-plus Boeing has already had to pay in penalties and compensation, reflects statements made by the company regarding the 737 MAX's safety following the fatal crashes.
The SEC holds that, a month after the first crash of Lion Air Flight 610 off the coast of Indonesia in October 2018, Boeing issued a press release, approved by former CEO Dennis A Muilenburg, that "selectively highlighted certain facts from an official report of the Indonesian government suggesting that pilot error and poor aircraft maintenance contributed to the crash. The press release also gave assurances of the airplane's safety, failing to disclose that an internal safety review had determined that MCAS posed an ongoing 'airplane safety issue' and that Boeing had already begun redesigning MCAS to address that issue."
In other words, Boeing and Muilenburg knew that MCAS posed an ongoing safety issue, but assured the public that the 737 MAX airplane was "as safe as any airplane that has ever flown the skies."
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Some six weeks after the March 2019 crash of Ethiopian Airlines Flight 302 and the grounding of the entire 737 MAX fleet, the SEC said Muilenburg, "though aware of information calling into question certain aspects of the certification process relating to MCAS, told analysts and reporters that 'there was no surprise or gap ... that somehow slipped through [the] certification process' for the 737 MAX and that Boeing had 'gone back and confirmed again ... that we followed exactly the steps in our design and certification processes that consistently produce safe airplanes.'"
The SEC found that Boeing and Muilenburg "negligently violated the antifraud provisions of federal securities laws." The company and ex-CEO have consented to cease-and-desist orders that include penalties of $200 million and $1 million, respectively, without admitting or denying the SEC's findings. The money will go toward reimbursing investors.
SEC chair Gary Gensler said: "There are no words to describe the tragic loss of life brought about by these two airplane crashes. In times of crisis and tragedy, it is especially important that public companies and executives provide full, fair, and truthful disclosures to the markets.
"The Boeing Company and its former CEO, Dennis Muilenburg, failed in this most basic obligation. They misled investors by providing assurances about the safety of the 737 MAX, despite knowing about serious safety concerns. The SEC remains committed to rooting out misconduct when public companies and their executives fail to fulfill their fundamental obligations to the investing public."
Gurbir Grewal, director of the SEC's Enforcement Division, added: "Boeing and Muilenburg put profits over people by misleading investors about the safety of the 737 MAX all in an effort to rehabilitate Boeing's image following two tragic accidents that resulted in the loss of 346 lives and incalculable grief to so many families.
"But public companies and their executives must provide accurate and complete information when they make disclosures to investors, no matter the circumstances. When they don't, we will hold them accountable, as we did here."
A spokesperson for Boeing told The Register: "We will never forget those lost on Lion Air Flight 610 and Ethiopian Airlines Flight 302, and we have made broad and deep changes across our company in response to those accidents – fundamental changes that have strengthened our safety processes and oversight of safety issues, and have enhanced our culture of safety, quality, and transparency.
"The settlement announced today fully resolves the SEC's previously disclosed inquiry into matters relating to the 737 MAX accidents. The settlement specifies that Boeing does not admit or deny the findings in the SEC's statement of facts, which concern company statements made in late 2018 and early 2019.
"Today's settlement is part of the company's broader effort to responsibly resolve outstanding legal matters related to the 737 MAX accidents in a manner that serves the best interests of our shareholders, employees, and other stakeholders." ®