Navy shipbuilder Austal settles fraud with SEC

Mobile, Alabama-based shipbuilder Austal USA and its Australian-based parent company, Austal Limited, have agreed to a $24 million civil penalty to settle fraud charges by the Securities and Exchange Commission.

The SEC alleged that, from at least January 2013 to July 2016, the Austal companies artificially reduced the estimated cost to complete certain shipbuilding projects for the U.S. Navy by tens of millions of dollars. According to the complaint, Austal USA knew its costs were rising but arbitrarily lowered the estimates to meet its revenue budget and projections. Further, Austal Limited allegedly prematurely recognized revenue, thereby meeting or exceeding analyst consensus estimates for earnings before interest and tax. 

The SEC alleges that both companies “acted knowingly or with severe recklessness in connection with the scheme,” which was allegedly carried out by Austal USA former president Craig Perciavalle, former director of financial analysis Joseph Runkel and former director of the Littoral Combat Ships program William Adams. The three executives were previously charged with accounting fraud in March 2023. The litigation is ongoing.

“Transparency is a hallmark of financial reporting, and investors rely on companies to accurately and fairly represent their financial condition so that they can make informed decisions,” Jason Burt, director of the SEC’s Denver Regional Office, said in a statement. “The terms of this settlement make it clear that when companies manipulate their financial results to avoid falling short of analyst expectations — and those actions harm U.S. investors — the SEC will hold those companies accountable, wherever they are located.”

The complaint was filed in the U.S. District Court for the Southern District of Alabama, and charges Austal Limited and Austal USA with violating the antifraud provisions of the Securities Exchange Act of 1934. Austal Limited and Austal USA each agreed to permanent injunctions, and Austal USA agreed to the penalty. The settlements are subject to court approval, and the SEC plans to create a Fair Fund to distribute the penalty to harmed investors.