GM to set payouts in ignition switch crisis

Kenneth Feinberg worked with One Fund Boston to administer money to victims of the Marathon bombings.
Yoon S. Byun/Globe staff/file 2013
Kenneth Feinberg worked with One Fund Boston to administer money to victims of the Marathon bombings.

WASHINGTON — A prominent compensation expert hired by General Motors is scheduled to announce a plan here Monday to distribute money to victims of accidents caused by the automaker’s defective ignition switch.

But the payouts — which could cost GM billions of dollars — may not fully put the worst safety crisis in the company’s 106-year history behind it. While many victims and their families will finally get their due, federal prosecutors and congressional investigators say GM remains in their cross hairs for possible criminal behavior related to the handling of the defective vehicles.

Efforts by GM to move beyond the ignition issue, both through the compensation plan developed by the expert, Kenneth R. Feinberg, and a recently unveiled internal investigation by the former U.S. attorney Anton R. Valukas, have done nothing to slow or redirect the criminal investigations, according to federal and state investigators, who spoke on the condition of anonymity because they were not authorized to discuss the case.


Although the 325-page report by Valukas absolved GM’s senior management and board of directors of any wrongdoing, some investigators said they put little stock in the conclusions and questioned whether the effort was truly as “unvarnished” as promised. The report, they said, provided a helpful guide to crucial names and dates in the recall controversy but otherwise had no effect on the course of their investigations.

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“When you get to the part about the senior management, it sort of drops off,” said Rep. Diana DeGette of Colorado, the ranking Democrat on the House Energy and Commerce subcommittee on oversight and investigations.

“Firing or allowing a few people to retire is certainly not enough to answer for what went wrong,” Rep. Fred Upton, R-Mich., chairman of the House Energy and Commerce Committee, said in an email response to questions.

Valukas, who did not respond to requests for comment, is chairman of Jenner & Block, a law firm that has represented GM in numerous matters.

The U.S. attorney’s office in Manhattan is overseeing the criminal investigation along with the FBI, and several state attorneys general and the Securities and Exchange Commission have opened their own inquiries.


The investigators are examining a number of issues, including the role of senior management and whether GM committed fraud during its bankruptcy proceedings five years ago by not disclosing a defect that could lead to extensive future liabilities. Prosecutors are also looking into whether the company failed to comply with laws requiring timely disclosure of vehicle defects, people briefed on the matter said, and misled federal regulators about the extent of the problems.

To draw the criminal inquiry to New York, the people said, the U.S. attorney’s office argued that it was better equipped to handle the case than prosecutors in Michigan, even though the problems unfolded in Detroit. The New York prosecutors found a convenient, if unconventional, path for the investigation.

In discussions with the Justice Department in Washington, which mediates turf wars among U.S. attorneys’ offices, the New York prosecutors noted that GM had filed for bankruptcy in Manhattan, the people briefed on the matter said. The bankruptcy approach continues to be a focus of the investigation, the people said.

“We have openly acknowledged that the Southern District of New York is looking into activities at General Motors,” a GM spokesman, Greg Martin, said in an email statement, adding, “As we have said before, we are fully cooperating and will continue to do so.”

GM has linked the faulty switch — which can, if jostled or bumped, suddenly shut down power in a moving car — to 13 deaths and 54 accidents. The automaker has recalled 2.6 million older Chevrolet Cobalts and other small cars with a defective ignition switch, part of the more than 20 million recalls it has made this year.


Testifying in early April on Capitol Hill about the company’s decade-long delay in recalling cars known to have the defective part, GM’s chief executive, Mary T. Barra, repeatedly invoked Valukas’ investigation as likely to answer questions that she could not respond to at the time.

When his report was released in early June, it amounted to a harsh dressing down of GM’s corporate culture, which Valukas concluded led to years of fruitless study and inaction over the safety problem. The conclusions led to the dismissal of 15 GM employees, including at least three lawyers in the general counsel’s office and a corporate vice president.

The company has refused to provide names of the dismissed employees. But some of those portrayed in the report as having intimate involvement in internal discussions about the flawed switch are still working at GM.

“We still have questions about others’ knowledge of the problems and why they were spared,” Upton said.

As with the Valukas investigation, the Feinberg compensation plan is intended to be a critical part of GM’s strategy to move beyond the ignition crisis.

Feinberg is to unveil his formulas for calculating the amounts that will go to victims and the criteria for qualifying for payments at a news conference on Monday morning. Among other things, his plan will indicate how far GM is willing to acknowledge victims beyond the 13 deaths it has publicly linked to the defect.

But as with Valukas’ work, the risk remains that some will not be satisfied. If the dollar amounts are too low or the criteria for qualifying too rigid, GM is certain to be headed for long and costly court battles that could take years to resolve.

Feinberg has overseen funds set up to compensate victims in numerous catastrophes, including the shootings at Virginia Tech and an Aurora, Colorado, movie theater, the Sept. 11 terrorist attacks and the Boston Marathon bombings. In this case, since the party making the payments also caused the problem, some people feel the payments should be higher.

“Some of the other funds he’s administered were set up by the nonculpable parties,” said Mandeep Sihota, a principal in the valuation and forensic services group at Citrin Cooperman, who dealt with Feinberg on the 9/11 fund. “In this situation he’s got a situation where GM is culpable. So he’s got to quantify that intangible. I would think it would increase their responsibility in terms of the payouts.”

In a hearing this month, Barra told a House panel that the automaker would not cap the overall amount it planned to spend on victims and would pay anyone with a legitimate claim under the Feinberg formula. But in accepting the payments, victims and their families would forgo their right to sue.

“It may seem really generous to have GM say, ‘We’re going to do this fund,’” DeGette said. “In reality, it’s the best financial decision GM could make.”