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Caterpillar Under Investigation for Tossing Train Parts Into the Ocean to Conceal Evidence


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Wall Street Journal / November 22, 2013

Federal investigators are probing a subsidiary of Caterpillar Inc. to determine whether it was dumping train parts into the ocean near the Port of Long Beach, California, as part of a possible scheme to bill railroad companies for unneeded repairs.

The Peoria, Ill.-based maker of heavy equipment disclosed in a securities filing three weeks ago that it had received a federal grand jury subpoena to provide documents and information on its Progress Rail unit, which repairs locomotives and railcars. But Caterpillar hasn't provided details about the criminal investigation or how it arose.

The grand jury investigation is being conducted by the U.S. Attorney for the Central District of California, based in Los Angeles. It is examining whether Progress Rail was dumping brake parts and other items as a way of concealing evidence that Progress Rail was charging owners of rail equipment for replacing parts that were still in good shape.

Union Pacific Corp., a major railroad operator, was one customer believed to have been affected by the alleged Progress Rail activities.

The U.S. Attorney got involved in this case because of suspicions that Progress Rail was breaking environmental laws, according to a person familiar with the situation.

In its disclosure three weeks ago, Caterpillar said it was cooperating with the authorities. "We currently believe that this matter will not have a material adverse effect on the company's consolidated results of operation, financial position or liquidity," Caterpillar said at that time.

Caterpillar acquired Progress Rail in 2006 for about $800 million. Progress Rail, which had its origins in the metal-scrap business, was founded by William P. "Billy" Ainsworth, an Alabama native who built up a nationwide business repairing and refurbishing rail equipment.

Mr. Ainsworth has remained head of Progress Rail. He oversaw Caterpillar's diversification into production of railroad locomotives via the 2010 acquisition of Electro-Motive Diesel, or EMD, formerly owned by General Motors Co.

Progress Rail is based in Albertville, Alabama, and has more than 90 branches across the U.S. It competes with small independent shops as well as large railcar manufacturers, such as Union Tank Car Co. and Greenbrier Cos., that also do repair work.

Railcar owners, such as chemical producers and leasing companies, and the railroads hire Progress Rail to make repairs or replace worn brake shoes, wheels and other components. Railroad inspectors routinely pull cars out of service if they discover a problem.

Industry experts say repair shops that billed for more work than necessary were once common in the industry. But better monitoring of repairs and greater emphasis on standards for replacing parts have reduced the frequency of disputes between equipment owners and repair shops.

"There's more policing than there used to be," said Mike Francis, an equipment consultant from Texas who inspects repairs on behalf of railcar owners. "Twenty or 30 years ago, repair shops were like the wild, wild West."

Even today, Mr. Francis said, "the opportunity to take advantage of folks is high. If you're in Chicago and your car is in Florida and somebody says you need repairs, you don't know that. You're not there."

The investigation marks a possible second embarrassment in a year for Caterpillar. Last January, the company was forced to make a $580 million writedown in the value of ERA Mining Machinery Ltd., a Chinese maker of roof supports for coal mines, acquired in 2012 for about $700 million. Caterpillar blamed accounting "misconduct" by several former senior managers of the acquired company.

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  • 3 weeks later...

Progress Rail wasn't always the greatest name in the railroad industry, they have a history of cheating railroads. There just isn't anyone else to call for some things in some areas and their bids are cheaper than other contractors.

"Any Society that would give up a little LIBERTY to gain a little SECURITY will Deserve Neither and LOSE BOTH" -Benjamin Franklin

"If your gonna be STUPID, you gotta be TOUGH"

"You cant always get what you want, but if you try sometimes you get what you need"

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  • 3 years later...

Caterpillar to Pay Millions for Crimes Against Customers, Including XPO Logistics

Transport Topics  /  December 8, 2017

A wholly owned subsidiary of Caterpillar Inc. will pay tens of millions of dollars for intentionally cheating its customers with unnecessary repairs and dumping rail car parts into the ocean to cover up its actions.

The Wall Street Journal reported on Dec. 7 that United Industries part of Caterpillar’s Progress Rail Services unit, will pay a $5 million criminal fine and $20 million in restitution.

The company’s guilty plea was expected during a Dec. 7 hearing in U.S. District Court for the Central District of California, according to the U.S. Attorney’s Office in Los Angeles. Caterpillar did not immediately respond to a request for comment.

The United Industries case covers unnecessary repairs to rail cars owned by three companies: TTX Co., Greenbrier Co. and the Pacer International Unit of XPO Logistics Inc. The restitution will be split among them.

XPO Logistics ranks No. 3 on the Transport Topics Top 100 list of the largest North American for-hire carriers.

As part of the scheme, certain United Industries supervisors encouraged employees to smash brake parts with hammers, gouge wheels with chisels and yank handles loose in order to increase revenue by making repairs. Other unnecessary repairs were randomly selected and performed.

United Industries employees then threw parts into the harbor at the Port of Long Beach to hide evidence from inspectors with the Federal Railroad Administration and Association of American Railroads. Divers working for port police later located the discarded parts on the ocean floor.

The actions described in court documents occurred in 2008 and 2009. Caterpillar first disclosed the criminal investigation to shareholders in November 2013.

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Its always ultimately rooted in greed isn't it? VW did it with emissions cheating and now Cat has been caught with their hand in the cookie jar. 

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Money, sex, and fire; everybody thinks everyone else is getting more than they are!

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