Military shipbuilder to pay $24 million fine in accounting fraud case

Austal USA, an Alabama-based shipbuilder for the Navy and the Coast Guard, will pay a $24 million fine to settle a Justice Department investigation into an accounting fraud case stemming from last year’s indictment of three company officials.

The company, a subsidiary of Australian shipbuilder and defense contractor Austal, also will pay $24 million restitution to its shareholders.

Austal USA engaged in a “years-long scheme” to illegally inflate its profits on ships the company was building for the U.S. Navy. It reported false financial results to investors, lenders, and auditors, the Justice Department said this week.

“The investing public, the U.S. Navy, and the Defense Contract Audit Agency relied on Austal USA to tell the truth about its financial condition and its performance on U.S. Navy contracts,” Deputy Assistant Attorney General Nicole Argentieri, head of the Justice Department’s Criminal Division, said Tuesday. 

Federal prosecutors said Austal USA suppressed an accounting metric known as an “estimate at completion” for several Littoral Combat Ships the company was building for the Navy. It had the effect of falsely overstating Austal USA’s profitability on the LCS projects and the earnings it reported on public financial statements.

“Austal USA and its co-conspirators manipulated the EAC figures in part by using so-called ‘program challenges’ which were false numbers to hide growing shipbuilding costs that should have been incorporated into the company’s financial statements,” the Justice Department said in a statement.

The Naval Criminal Investigative Service (NCIS) headed the investigation of Austal USA’s accounting practices.

“Defense contractors that engage in fraud erode the public’s trust in our armed forces,” NCIS Director Omar Lopez said after the plea deal was announced.

Company officials orchestrated the scheme to maintain and increase the share price of Austal’s stock. The company had to write down more than $100 million in losses when the higher costs were eventually disclosed to the market. It “significantly negatively impacted” the company’s stock price, U.S. officials said.