Boeing and former CEO Dennis Muilenburg have agreed to pay large fines to settle allegations by the Securities and Exchange Commission that they misled the public about the safety of the 737 Max following two crashes in 2018 and 2019. CNN.
The SEC alleges that following the October 2018 crash of a Lion Air 737 Max that killed 189 people, Boeing and Muilenburg knew that part of the plane’s flight control system was an ongoing safety issue but told the public that the 737 Max was safe to fly. After a fatal 737 Max crash on March 10, 2019, the SEC alleges that Boeing and Muilenburg knowingly misled the public about “lapses” and “gaps” in the certification process for that flight control system.
“In times of crisis and tragedy, it is especially important that public companies and directors provide complete, accurate and truthful information to the markets,” SEC Chairman Gary Gensler said in a statement. “The Boeing Company and its former CEO, Dennis Muilenburg, failed to comply with this basic obligation. They misled investors by offering assurances about the safety of the 737 MAX, even though they knew there were serious safety issues.”
Boeing will pay $200 million in damages
In a statement, Boeing said the settlement “fully resolves the SEC’s previously disclosed investigation into matters related to the 737 MAX accidents.”
“Today’s settlement is part of the company’s broader effort to responsibly resolve outstanding legal issues related to the 737 MAX accidents in a manner that serves the interests of shareholders, employees and other stakeholders,” Boeing said.
The company and Muilenburg agreed to settle allegations of violating the anti-fraud provisions of US securities laws, but did not admit or deny the SEC’s allegations. Boeing agreed to pay $200 million in damages, and Muilenburg agreed to pay $1 million.
Boeing and Muilenburg put profit before people
“Boeing and Muilenburg put profits before people by misleading investors about the safety of the 737 Max, all in an effort to rehabilitate Boeing’s image after two tragic accidents that resulted in the loss of 346 lives and a incalculable pain for so many families,” Gurbir Grewal, director of the SEC’s Enforcement Division, said in a statement.
Muilenburg lost the top job at Boeing in December 2019. But he walked away with stock options and other assets worth about $80 million at the time — though Boeing shares have lost more than half their value since then. It is not known what Muilenburg did with his Boeing stock and options after his departure.
While $200 million may seem like a substantial fine for a company, it’s a small fraction of the losses already caused by the two fatal crashes that killed a total of 346 people and grounded the company for 20 months. Boeing’s best-selling plane.
Investors lost even more than Boeing
Boeing has already disclosed that the firm took a $21 billion hit to its bottom line due to lost sales revenue and increased costs — and that’s not including potential legal liability to victims’ families. Therefore, the $200 million fine represents less than 1% of the previously declared losses.
Investors have lost even more: Boeing’s stock market capitalization has plunged about 58%, or $115 billion, since the first crash of a 737 Max shortly after takeoff from Indonesia in October 2018. While about 100 billions of that amount occurred during the pandemic that affected flight demand and aircraft purchases, Max’s prolonged grounding opened the door for airlines to cancel hundreds of orders for the planes without penalty.