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Federal prosecutors open criminal probe of GM recall: source

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[March 12, 2014]  By Emily Flitter, Aruna Viswanatha and Ben Klayman

NEW YORK / WASHINGTON / DETROIT (Reuters)  Federal prosecutors are examining whether General Motors is criminally liable for failing to properly disclose problems with some of its vehicles that were linked to 13 deaths and led to a recall last month, according to a source familiar with the investigation.

The New York-based probe is in its early stages, and the source did not elaborate on the legal theory behind the potential criminal liability.

Federal investigators are reviewing information about how GM handled reports of problems with ignition switches that first came to light 10 years ago, according to the source.

The source did not want to be named because the probe has not been disclosed publicly.

GM declined to comment on Tuesday. Shares of GM closed down 5 percent to $35.18 on the New York Stock Exchange.

The federal probe by the U.S. attorney in Manhattan adds to a growing list of U.S. authorities examining the recall, which GM announced in February. The National Highway Traffic Safety Administration (NHTSA) previously opened an investigation into whether GM reacted swiftly enough in its recall.

Earlier on Tuesday, Reuters reported that a U.S. Senate committee chairman is seeking a hearing on the issue. The U.S. House Energy and Commerce Committee also ordered GM and NHTSA to turn over information about GM's ignition switch problems.


The problems in some instances allowed the engine and other components, including front airbags, to turn off while the vehicle was traveling at high speed. More than 1.6 million older vehicles are affected.

The failure is believed to be caused when weight on the ignition key, road conditions or some other jarring event causes the ignition switch to move out of the "run" position, turning off the engine and most of the car's electrical components mid-drive, with sometimes catastrophic results.

GM has recommended that owners use only the ignition key with nothing else on the key ring.

The supplier of the ignition switch, Delphi Automotive Plc, said in a statement on Tuesday that the part had not been provided to any other automaker.

One analyst said the recall could have a longer-term impact on GM. "The immediate financial impact is insignificant; however, there could be some reputational risk which could impact share," RBC Capital markets analyst Joseph Spak said.

"Obviously, the longer this stays in the headlines the worse it could be for GM," he said.

TWO WEEKS TO RESPOND

GM is conducting an internal investigation into the matter and announced earlier this week that the probe would be led by Anton "Tony" Valukas, the chairman of law firm Jenner & Block.

The criminal probe of GM opened by Manhattan U.S. Attorney Preet Bharara follows an investigation conducted by the same office into Toyota's disclosure in 2009 of driver complaints of unintended acceleration by some of its vehicles.

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Toyota has been engaged in negotiations with Bharara's office to settle that probe, which is also criminal, a source familiar with the investigation previously told Reuters.

The House committee examining the GM issue, led by Michigan Republican Fred Upton, gave the company and NHTSA until March 25 to turn over information about their responses to consumers' complaints about the problem.

The committee has asked GM officials to provide a briefing no later than March 18 on how GM has responded to reports of incidents since 2003 and its interaction with NHTSA since then on problems related to the ignition defect.

Upton led the 2000 investigation into Firestone tire failures on Ford Motor Co vehicles, resulting in the TREAD Act that requires automakers to report complaints of defects to the NHTSA.

That law also makes it a crime to intentionally mislead the agency about defects that lead to serious accidents.

The Justice Department can only open a grand jury investigation into such allegations at the request of the U.S. Transportation Secretary, according to the law.

"We are in communication with the Department of Justice but have not asked Justice to investigate because we are still in the midst of our own investigation regarding the timing of GM's recall," a Transportation Department spokesman said in a statement.

The person familiar with the criminal probe declined to discuss whether prosecutors were considering liability under the TREAD Act.

(Additional reporting by Eric Beech and Richard Cowan; editing by Karey Van Hall and Andrew Hay)

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