The Wall Street Journal: Caterpillar rail unit pleads guilty to bogus repairs, dumping evidence in ocean

A unit of Caterpillar Inc. admitted that it cheated customers by performing unnecessary repairs to their railcars and agreed to plead guilty to dumping brake shoes and other parts into the ocean to hide evidence, according to court documents.

United Industries LLC, part of Caterpillar’s Progress Rail Services unit, agreed to pay a criminal fine of $5 million fine as well as a total of $20 million in restitution to three railcar-owning companies: TTX Co., Greenbrier Co. and the Pacer International unit of XPO Logistics Inc. The fine and restitution are modest for a large company like Caterpillar CAT, +1.82%  , but the case represents a blow against its reputation for quality service.

The Illinois-based manufacturing giant was due in U.S. District Court for the Central District of California Thursday afternoon to enter its guilty plea, according to the U.S. Attorney’s office in Los Angeles. Caterpillar didn’t have an immediate comment.

The Wall Street Journal reported three years ago that some workers at the Caterpillar unit had resorted to smashing brake parts with hammers, gouging wheels with chisels or using chains to yank handles loose, according to current and former employees. The dumping described in the plea agreement occurred in 2008 and 2009. Mark A. Williams, an assistant U.S. attorney in Los Angeles, said the case dragged on for years because of the complexity of the investigation and calculations regarding restitution to the railcar owners.

An expanded version of this report appears on WSJ.com.

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