By DANIELLE IVORY and MATT APUZZOMARCH 21, 2014  Federal authorities’ nascent investigation into General Motors is looking in part into whether the automaker committed bankruptcy fraud by not disclosing defects that could lead to expensive future liabilities, a person briefed on the inquiry said on Friday.  The question is whether G.M. knew about the defect — a faulty ignition switch — when it filed for bankruptcy in 2009, and failed to fully disclose the problem, while realizing that it could lead to a cascade of liability claims.  While it has been known that the Justice Department was investigating G.M., the interest in the bankruptcy filing is the first indication of what direction the inquiry may take.  G.M. has told federal regulators that it was alerted as early as 2001 to problems with the switches, which if bumped or weighed down by a heavy key ring, could shut down the engine and disable the air bags. Twice, it told regulators last month, it explored fixes to the switch but failed to do so in 2004 and 2005. G.M. has linked the faulty switches, which were in 1.6 million Chevrolet Cobalts and other small cars that were recalled last month, to 31 crashes and 12 deaths.  The investigation, which also is considering whether G.M. played down the defect problem to safety regulators, is being run by the same group of F.B.I. agents and federal prosecutors in Manhattan that built the fraud case against Toyota that led to a $1.2 billion settlement announced on Wednesday.  In that case, the Justice Department’s four-year investigation found that the company hid information about defects in its cars from consumers and government officials. The faulty parts caused sudden, unintended acceleration in several of its models and put lives at risk.  While bankruptcy fraud is different from the fraud case the Justice Department built against Toyota, it hinges on the same issue: whether company officials failed to tell the government and the public something that it knew to be true.  G.M. has cooperated in the investigation and has provided documents to federal investigators in New York, the person said.  G.M. did not immediately respond to a request for comment. On Tuesday, Mary T. Barra, G.M.’s chief executive, said that she was not aware that any documents had been forwarded to the Justice Department, whose investigation is in its early stages.  Under the 2009 restructuring deal that helped G.M. regain its financial footing, the company was split into old and new corporate entities. As part of the agreement, bad assets like closed assembly plants and liability from accidents that occurred before the bankruptcy remained with the old company.  For victims of those prebankruptcy crashes, the company was shielded from future liability. Any claims pending against the company at the time of the bankruptcy were settled and paid from a limited pool of money.  G.M. is already facing challenges to the bankruptcy agreement.  On Friday, the company and Ms. Barra were sued by a shareholder, who argued that stockholders were defrauded by the company because of delays in disclosing information about the ignition switch defect.  “The news of the company’s recalls through a series of disclosures, and later reports of government criminal and civil investigations into the company, began a sharp decline in the company’s share price, wiping out billions in shareholder value,” the class-action lawsuit said. It was filed by George Pio in a Detroit federal court.  Private lawsuits like Mr. Pio’s are difficult to prove, legal analysts said. But if the suit is successful, it could reopen the bankruptcy and potentially expose G.M. to a new round of lawsuits over crashes related to the recalled cars.  The bankruptcy fraud investigation comes amid mounting pressure on G.M., which is also facing congressional inquiries in the House and Senate, as well as an investigation by the National Highway Traffic Safety Administration.  Also Friday, the Transportation Department said it would conduct an internal audit of the performance of the National Highway Traffic Safety Administration in the events leading up to the recall, tacitly acknowledging the highway agency’s failure to spot a defect trend that has taken at least 12 lives.  The secretary of transportation, Anthony R. Foxx, said in a letter dated Friday to his department’s inspector general, “at the present time, we are not aware of any information to suggest that N.H.T.S.A. failed to properly carry out its safety mission based on the data available to it and the processes it followed.” But “in an abundance of caution,” he wrote, he had ordered the safety agency and the office of general counsel to conduct an internal review.  He also asked the inspector general to conduct an audit of how the agency handled the problem from 2003 to Feb. 7, when G.M. notified regulators of the defect.  The audit would ensure that the Transportation Department “can take corrective actions to enhance N.H.T.S.A.’s safety functions to the extent necessary and appropriate.”  The inspector general conducted a similar audit in the case of the Toyota unintended accelerations.  That audit, begun in February 2010 and published in October 2011, found that the safety agency had followed its own procedures, but that “process improvements” were needed to identify safety defects. One was that the database of safety complaints from consumers was not used to track whether complaints were reviewed promptly. Decisions on which defects to investigate were not well documented, the audit found.  The highway traffic agency, in a statement, said on Friday that it was “constantly looking for ways to improve its efforts to better identify and remedy safety defects,” and it noted that an internal review was underway. It said the inspector general’s audit would provide “a single, comprehensive review of N.H.T.S.A.’s work in this case.”  “In the meantime,” the agency said, “we remain focused on ensuring G.M. addresses its recall as quickly as possible for consumers and continuing our own aggressive investigation regarding the timing of their recall.”  Matt Wald and Bill Vlasic contributed reporting.  A version of this article appears in print on March 22, 2014, on page B1 of the New York edition with the headline: G.M.’s Bankruptcy Drawn Into Defect Inquiry. Order Reprints|Today's Paper|Subscribe
Federal authorities are investigating whether the company failed to disclose in its landmark bankruptcy filing the defects that have now led to the recall of 1.6 million cars.