Toyota Charged With Criminal Wire Fraud, 1.2 Billion Penalty

Toyota must pay $1.2 billion for hiding the truth about sticky gas pedals.

Posted in News

— Toyota has been charged with criminal wire fraud, accused of defrauding consumers by using misleading statements about safety issues in Toyota and Lexus vehicles.

The charges were brought by numerous agencies, including the Attorney General of the United States, the U.S. Secretary of Transportation, the U.S. Attorney for the Southern District of New York, the Inspector General of the U.S. Department of Transportation, and the Assistant Director-in-Charge of the New York Field Office of the FBI.

There probably won't be any jail time involved, but Toyota will pay a $1.2 billion penalty and will have an independent monitor looking over their shoulder to review and assess policies, practices and procedures relating to Toyota’s safety-related public statements and reporting obligations.

If Toyota abides by all of the terms of the agreement, the government will defer prosecution for three years and then seek to dismiss the charge.

In court documents, Toyota admits that it misled U.S. consumers by concealing and making deceptive statements about two unintended acceleration safety issues affecting its vehicles.

The documents accuse Toyota of fraud starting in the fall of 2009 when Toyota deceived consumers and the National Highway Traffic Safety Administration (NHTSA) about the causes of unintended acceleration in eight Toyota models. Toyota deceived the public and NHTSA by claiming the problem would be fixed by changing the type and location of floor mats.

The court documents say Toyota knew that it had not recalled some cars with design features that made them just as susceptible to floor-mat entrapment as some of the recalled cars. Furthermore, Toyota knowingly hid from NHTSA that unintended acceleration could also be caused by accelerators getting stuck at partially depressed levels, known as “sticky pedal.”

Toyota Floor-Mat Entrapment

In 2007, NHTSA opened a defect investigation into the Lexus ES350 and identified several other Toyota and Lexus models because of complaints of unintended acceleration.

Toyota conducted its own investigation that found all-weather floor mats could cause entrapment of the gas pedal. Toyota denied a need to recall the vehicles and negotiated a limited recall with NHTSA, but for the floor mats only, not the vehicles.

Toyota considered this a major financial victory, as shown in an internal memo:

“had the agency . . . pushed for recall of the throttle pedal assembly (for instance), we would be looking at upwards of $100 million + in unnecessary costs.”

However, a four-fatality accident in 2009 finally caused Toyota to recall the actual vehicles. The 2009 San Diego accident killed a family of four after a Lexus ES350 crashed at full throttle because the gas pedal was stuck.

The car was a loaner and was driven by a California Highway Patrol officer as his personal vehicle. A 911 call made by a passenger described the horror of trying to stop the Lexus, a call that ended with the sound of a violent crash.

“We’re in a Lexus . . . and we’re going north on 125 and our accelerator is stuck . . . there’s no brakes . . . we’re approaching the intersection . . . Hold on . . . hold on and pray . . . pray.”

That accident caused Toyota to finally recall the actual vehicles (instead of just the floor mats) but at the same time, Toyota went into damage control by giving the public false and misleading statements.

Toyota said the recall “addressed the root cause of unintended acceleration” and all the affected cars had been recalled. However, Toyota now admits additional models should have been recalled, including the top-selling Corolla, a fact hidden from NHTSA at the time.

Sticky Toyota Gas Pedals

While all this was happening, Toyota was hiding another problem they knew about, and it had nothing to do with floor mats.

As early as 2008, Toyota knew that cars were experiencing unintended acceleration in Europe. Toyota blamed the problem on the plastic material used inside the gas pedals, made by a company called A-Pedal. The accelerator pedal could become mechanically stuck in a partially depressed position in numerous models, including the Camry, Matrix, Corolla, and the Avalon.

Internal Toyota documents show they knew the pedals were dangerous and if a customer complained about unintended acceleration, dealers should replace the pedal with a pedal made by a company other than A-Pedal.

Toyota described the sticky pedal problem as a “defect” that was “[i]mportant in terms of safety because of the possibility of accidents.”

Toyota failed to inform NHTSA about the sticky pedals and did not order a U.S. recall. Instead, documents show Toyota asked the A-Pedal company to change the design of the gas pedals.

By this time numerous U.S. drivers were complaining about sticky pedals and unintended acceleration problems. Toyota internal documents show that engineers were fully aware of the problems and even sent a memo to Japan about a “critical” and “unintended acceleration” problem in an accelerator pedal of a Toyota Matrix car in Arizona.

Toyota continued to receive reports and warranty claims related to sticky pedals, yet in 2009, Toyota canceled the design change to the gas pedal. Toyota told employees to hide this fact by not putting anything in writing about the cancelation so NHTSA would see no paper trail.

The cat and mouse game continued with Toyota misleading the buying public until early 2010 when Toyota finally ordered recalls to address the unintended acceleration issues it had concealed throughout the fall of 2009.

Court documents show that Toyota provided the public, NHTSA, and the United States Congress an inaccurate timeline of events that made it appear as if Toyota was on top of their game when in fact they were hiding the truth.

“Rather than promptly disclosing and correcting safety issues about which they were aware, Toyota made misleading public statements to consumers and gave inaccurate facts to Members of Congress. When car owners get behind the wheel, they have a right to expect that their vehicle is safe. If any part of the automobile turns out to have safety issues, the car company has a duty to be upfront about them, to fix them quickly, and to immediately tell the truth about the problem and its scope. Toyota violated that basic compact. Other car companies should not repeat Toyota’s mistake: a recall may damage a company’s reputation, but deceiving your customers makes that damage far more lasting.” - Attorney General Eric Holder

News Report of San Diego Lexus Crash (Four Killed)