US plane maker Boeing will pay $200 million to settle charges by the US Securities and Exchange Commission (SEC) that it misled investors by not disclosing safety issues of its 737 Max jetliners following two fatal crashes of the aircraft, which killed 346 people.
Boeing and its former chief executive Dennis Muilenburg made “materially misleading public statements” following crashes of the Boeing aircraft in 2018 and 2019, the SEC said on Thursday.
The crashes involving the Boeing 737 Max jets were blamed largely on failures of the flight control function called the Manoeuvring Characteristics Augmentation System (MCAS).
“In times of crisis and tragedy, it is especially important that public companies and executives provide full, fair and truthful disclosures to the markets,” SEC chairman Gary Gensler said.
“Boeing and its former chief executive 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 737 Max was grounded in 2019 after two crashes that killed 346 people in Indonesia and Ethiopia in 2018 and 2019, respectively.
In January 2021, the Chicago-based aircraft manufacturer paid more than $2.5 billion in fines and compensation after reaching a settlement with the US Department of Justice over the two plane crashes.
The settlement, which allowed Boeing to avoid prosecution, included a fine of $243.6m, compensation to airlines of $1.77bn and a $500m crash-victim fund over fraud conspiracy charges related to the plane’s flawed design.
The 737 Max was grounded in March 2019, and the grounding was not lifted until November 2020, after Boeing made significant safety upgrades and improvements in pilot training.
After the first crash, Boeing and Mr Muilenburg knew that MCAS posed an ongoing aircraft safety issue, but assured the public that the 737 Max aircraft was “as safe as any airplane that has ever flown the skies”, according to the SEC statement.
One month after Lion Air Flight 610, a 737 Max jet, crashed in Indonesia in October 2018, Boeing issued a press release, edited and approved by Mr 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, according to the SEC.
That press release also gave assurances of the plane’s safety and failed 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 faults with it, the US markets regulator said.
“The SEC remains committed to rooting out misconduct when public companies and their executives fail to fulfil their fundamental obligations to the investing public,” Mr Gensler said.
About six weeks after the March 2019 crash of Ethiopian Airlines Flight 302, another 737 Max, Mr 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, the SEC statement said.
He also said 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 statement said.
The SEC’s orders against Boeing and Mr Muilenburg said they negligently breached the antifraud provisions of federal securities laws.
Without admitting or denying the SEC’s findings, Boeing and Mr Muilenburg consented to cease-and-desist orders that include penalties of $200m and $1m, respectively. A Fair Fund will be established for the benefit of harmed investors.
“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,” said Gurbir Grewal, director of the SEC’s enforcement division.
“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.”