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Justice Department could use $1.2B Toyota fine as template across industries

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WASHINGTON, DC - MARCH 19: U.S. Secretary of Transportation Anthony Foxx (L) speaks as Attorney General Eric Holder (R) listens during an announcement at the Justice Department March 19, 2014 in Washington, DC. The Justice Department announced a deferred prosecution agreement with a $1.2 billion fine regarding Toyota Motor Corporations misleading to its consumers on the unintended acceleration issues in the cars the company manufactured. (Photo by Alex Wong/Getty Images)

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By Reuters
Wednesday, March 26, 2014, 12:01 a.m.

WASHINGTON — Federal prosecutors are considering using the legal theory behind a $1.2 billion penalty imposed on Toyota to go after misconduct in industries ranging from auto and airplane makers to mining, a Justice Department official told Reuters.

The charges of wire fraud against Toyota for concealing safety problems marked the first criminal case of its kind against an auto company. The announcement last week of the settlement between the Department of Justice and Toyota immediately prompted speculation about its ramifications for General Motors, which is under investigation over its handling of a problem with ignition switches.

Prosecutors generally have used a narrower approach in criminal cases against companies for misleading the public over safety issues. Pharmaceutical firms, for example, have been prosecuted under a law that makes it a crime to market drugs for uses other than those that have been approved as safe by the FDA.

Auto companies, too, are subject to a specific law that makes it a crime for them to mislead regulators about safety defects.

Rather than prosecute Toyota under that law, known as the TREAD Act, the Justice Department relied on a broad theory arguing that misleading statements about major safety issues constitute wire fraud.

That theory could be applied across industries, including against companies that build planes or trains, or potentially the mining and oil sectors, the DOJ official and legal experts said.

“A case of this size is designed to set an example to entire industries,” said Brandon Garrett, a University of Virginia Law School professor and expert on corporate crime.

“This isn't a cautious foray into criminal investigations and prosecutions in the auto area,” he said. “This case is designed to send a big message.”

The framework gives prosecutors the ability to go after industries that haven't been subject to much criminal prosecution in the past.

Criminal cases involving corporate malfeasance are often hard to prove against specific individuals, so it is unclear whether the Justice Department's new framework could also target executives responsible for the conduct. No Toyota executives were charged for their roles in the misconduct.

While he did not refer to GM specifically, Attorney General Eric Holder said when announcing the Toyota deal that he expected that settlement to serve as a model for how prosecutors would approach future cases involving “similarly situated companies.”

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