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Some Additional Details on the Questionable Dealings Between Fiat and the US DOJ

Morgen on June 9, 2009 at 5:31 pm

I posted earlier today on a link between a criminal prosecution deal between Fiat and the U.S. Department of Justice and the acquisition of Chrysler by Fiat. Fiat was implicated in the UN “oil for food” scandal, and the agreement with the DOJ was finalized on 12/22/08, just weeks prior to the initial announcement of the acquisition deal between Fiat and Chrysler.

The timing of this deal alone would seem to be enough to raise serious questions regarding whether there was any political influence exerted on the DOJ to execute this agreement in order to clear the decks for the coming Fiat-Chrysler arrangement. And the fact that the deal was announced in the week leading into the Christmas holiday, and received scant media attention, is also notable.

But there is another connection which further establishes the link. It turns out that the law firm which represented Fiat in the case with the DOJ – Sullivan & Cromwell, just so happens to be the lead attorney in representing Fiat with the Chrysler deal. Further, as this article makes clear, a Partner with Sullivan & Cromwell was brought in by the Fiat CEO to help put together the initial Chrysler proposal.

In late December, Cerberus Capital Management, the owner of terminally ill Chrysler LLC, got an offer it couldn’t refuse from Italian automaker Fiat SpA and its bold CEO, Sergio Marchionne. Fiat would provide Chrysler with access to its small-car technology and platform and to Latin American and European auto markets. All Fiat asked for in return was a stake in Chrysler and access to the American car market.

The plan was the brainchild of Marchionne, 56, a charismatic race car fanatic who managed to turn Fiat’s fortunes around in just two years on the job.

Marchionne quickly pulled regular outside counsel Scott Miller, a Sullivan & Cromwell partner resident in Palo Alto, into the plan to lead the negotiations for Fiat.  (ed. emphasis added)

Although this article does not expressly say so, if this offer was first presented to Cerberus Capital in late December, the implication is that Scott Miller from Sullivan & Cromwell would have been involved at a much earlier date in helping to formulate and prepare the offer. And it wouldn’t have taken a legal genius to figure out that an ongoing criminal investigation by the U.S. DOJ would likely pose problems with any possible Fiat-Chrysler combination. Given that at this stage, the only reason Chrysler was not already in bankruptcy was a $4 billion loan provided by the U.S. government.

So whether it was Fiat and their surrogates who initiated the discussions with the DOJ, or whether as Ed Morrissey speculates it was the Bush and/or Obama economic team who approached Fiat using this case as leverage, the implication remains the same. Someone within the prior Administration or the Obama transition team exerted some degree of influence or pressure in order clear the “oil for food” case as an obstacle to a possible deal.

It’s not only the timing of this which raises an ethical question here. Keep in mind that the DOJ also agreed to settle a criminal case in exchange for only a relatively small financial consideration. (Stop and consider where a Fiat-Chrylser deal would have gone had the DOJ decided to move forward and actually charge or indict Fiat related to this case.)

One other point of note. The Fiat-Chrysler deal is still pending review from the Supreme Court – literally the decision on this could come down at any moment at which time there will be no reversing it. If there remains any question as to whether the DOJ would really get involved in what should be strictly a private business transaction, than tell me why the Obama Justice Department today was directly petitioning the Supreme Court for the prompt finalization of the Fiat sale? Perhaps the real urgency for finalizing this is so that the sordid details of all this don’t come out until it’s too late.

Update: John points out that the SEC also settled a similar kickback and fraud case against Fiat for the “oil for food” scandal the same week as the DOJ settlement. Which only further reinforces the degree of coordination that must have taken place within the government in order to get this done…right before Christmas…in the waning weeks of a lame-duck Administration. And as it turns out, within just days of when Fiat first presented their offer to Chrysler.

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