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Toyota Recall: Feds Open Criminal Investigation, Issue Grand Jury Subpoena For Documents

KEN THOMAS and DAN STRUMPF   02/22/10 10:15 PM ET   AP

Toyota Recall

WASHINGTON — Federal prosecutors have launched a criminal investigation into Toyota Motor Corp.'s safety problems and the Securities and Exchange Commission was probing what the automaker told investors, the company disclosed Monday. Newly released internal documents showed that Toyota officials visited with U.S. regulators years ago who "laughed and rolled their eyes in disbelief" over safety claims.

The twin developments created new public relations challenges for Toyota plus the prospects – however likely or unlikely – of hefty federal fines or even indictments against executives in the U.S. and Japan. They also complicate Toyota's ability to discuss details driving its recall of 8.5 million vehicles because anything executives say could be used against the company inside a courtroom.

Top Toyota executives were expected to testify at hearings Tuesday and Wednesday on Capitol Hill. One lawmaker said he believed Toyota misled owners about the repairs and relied upon a hastily arranged study to reassure the public.

In an opinion piece published by The Wall Street Journal, Toyota's president acknowledged the automaker had stumbled badly.

"It is clear to me that in recent years we didn't listen as carefully as we should – or respond as quickly as we must – to our customers' concerns," wrote Akio Toyoda, who is the grandson of the company's founder.

In a new filing with the SEC, Toyota said it received the grand jury request from the Southern District of New York on Feb. 8 and got the SEC requests Friday.

It wasn't immediately clear what U.S. laws Toyota might have broken. A subpoena would specify why prosecutors sought company documents, but Toyota would not comment beyond its disclosure with the SEC. A spokeswoman with the U.S. Attorney's Office for the Southern District of New York declined to comment, saying it does not confirm or deny its investigations as a matter of policy.

The government could be looking into product safety law violations or whether Toyota made false statements to a federal safety agency involving unintended acceleration or the Prius braking system, said Peter Henning, a law professor at Wayne State University in Detroit. The SEC is seeking documents related to unintended acceleration as well as to its disclosure policies and practices, Toyota said.

Legal experts said the fresh subpoenas could affect how Toyota executives respond to the questions from lawmakers.

Eric Dezenhall, a crisis management consultant in Washington, said the subpoena might cause Toyota to limit its testimony because apologies are admissible in court. He predicted the company would walk a line between carefully phrased testimony and enough disclosure to describe the cars' mechanical problems and steps Toyota had taken to make the vehicles safer.

In his opinion piece, Toyoda vowed to oversee "fundamental changes" in the way the automaker handles current and future safety problems. He said he was looking forward to discussing the "back-to-basics" approach Wednesday when he is scheduled to testify before U.S. lawmakers.

House investigators said they believe Toyota intentionally resisted the possibility that electronic defects caused unintended acceleration in their vehicles and then misled the public into thinking its recalls would fix all the problems.

Toyoda contends the automaker simply did a poor job of diagnosing the safety issues. "While we investigated malfunctions in good faith, we focused too narrowly on technical issues without taking full account of how our customers use our vehicles," he wrote in the Journal.

Rep. Bart Stupak, D-Mich., who will run Tuesday's hearing, said documents and interviews demonstrate that the company relied on a flawed engineering report to reassure the public that it found the answer to the problem.

In a letter to Toyota, Stupak said a review of consumer complaints shows company personnel identified sticking pedals or floor mats as the cause of only 16 percent of the unintended acceleration reports.

Some 70 percent of the acceleration incidents in Toyota's customer call database involved vehicles that are not subject to the 2009 and 2010 floor mat and "sticky pedal" recalls.

In a letter to Transportation Secretary Ray LaHood, Stupak's committee raised questions about whether the agency lacked the expertise to review defects in vehicle electronics and said NHTSA was slow to respond to 2,600 complaints of sudden unintended acceleration from 2000 to 2010.

The government conducted only one investigation, beginning in March 2004, into whether electronic throttle controls could lead to sudden acceleration in Toyota vehicles and closed it a few months later. Since 2004, NHTSA has rejected four petitions from owners asking for investigations into sudden unintended acceleration in Toyotas.

As regulators looked into reports that accelerator pedals were becoming jammed in floor mats on Lexus ES350 sedans, a Toyota safety official told colleagues that NHTSA didn't appear to be concerned.

"I ran into a lot of different investigators and (Office of Defect Investigations) staff and when asked why I was there, when I told them for the (Lexus) ES350 floor mats, they either laughed or rolled their eyes in disbelief," wrote Chris Santucci, a former NHTSA employee who works for Toyota.

Toyota said it was reviewing the Stupak letter and would cooperate with the committee's inquiry. Transportation Department officials did not immediately comment on the letters from the congressional panel.

A month later, NHTSA issued an "equipment recall" of floor mats involving 55,000 Toyota Camry and Lexus ES350. In an internal presentation, the company later said the limited recall saved Toyota $100 million or more. The slide was marked "Wins for Toyota – Safety Group."

The internal presentation, obtained by The Associated Press, was dated July 6, 2009, less than two months before a high-speed crash near San Diego killed a California highway patrol officer and his family and renewed concerns over sudden acceleration in Toyotas. In October 2009, Toyota issued its largest-ever U.S. recall, involving about 4 million vehicles, to address pedals getting stuck in floor mats.

The documents could raise concerns in Congress over whether Toyota put profits ahead of customer safety and pushed regulators to narrow recalls' scope.

"You can feel that the staff were thinking more about company profits than customers," said Mamoru Kato, an analyst at Tokai-Tokyo Securities.

Toyota has said its "first priority is the safety of our customers" and promised changes, including an outside review of company operations, more focus on responding to customer complaints and improving communication with federal officials.

The House Energy and Commerce Committee is holding its hearing Tuesday with Jim Lentz, president of Toyota Motor Sales USA, and LaHood. The House Oversight and Government Reform Committee follows Wednesday with testimony from Toyoda, Yoshimi Inaba, president and chief executive of Toyota Motor North America Inc., NHTSA Administrator David Strickland and LaHood, and safety experts and family members of victims. A Senate committee is planning a March 2 hearing.

Stupak, who leads the investigative panel of the House Energy and Commerce Committee, said he would ask Toyota executives about potential electronic problems and complaints of sudden unintended acceleration.

In his letter to Lentz, Stupak wrote that the committee's "preliminary assessment is that Toyota resisted the possibility that electronic defects could cause safety concerns, relied on a flawed engineering report, and made misleading public statements concerning the adequacy of recent recalls to address the risk of sudden unintended acceleration."

Stupak said the documents show the sole report produced by Toyota on the acceleration issue purported to test and analyze potential electronic causes. The report, by consulting firm Exponent Inc., "was initiated just two months ago and appears to have serious flaws," Stupak wrote.

He said experts interviewed by the committee demonstrated that the report used an extremely small sample that would not get to the root of the problem. One of the primary authors of the Exponent report said they did not examine any vehicles or components that had the unintended accelerations.

When owners complained about unwanted acceleration, Stupak said Toyota representatives "commonly responded ... by concluding that the events the consumer described could not have happened." Stupak also accused Lentz of misleading the public in television interviews in which he said Toyota studied the problem and the cause was the sticky pedals and floor mats.

Dozens of Toyota dealers from around the U.S. plan to lobby members of Congress Tuesday and Wednesday to stress the automaker's safety efforts and remind lawmakers that the company is a source of jobs in every congressional district. The visits, coordinated with Toyota, will also involve factory employees.

Separately Monday, Toyota said it would install a brake override system in its 2005-2010 Tacomas, 2009-2010 Venzas and 2008-2010 Sequoias. The backup safety system overrides the accelerator if the gas and brake pedals are pressed at the same time. Toyota previously said it was installing the systems in five other existing models and in all future models worldwide.

Quinn Gillespie & Associates, a prominent lobbying firm, meanwhile, said it had stopped representing Toyota because of a conflict that posed with another client. Quinn Gillespie officials would not identify the other client, but an auto industry official speaking on condition of anonymity to reveal private information said it was State Farm, the giant auto insurer that told federal regulators in 2004 and 2007 about reports of unexpected acceleration in some Toyotas.

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Strumpf reported from New York. Associated Press writers Larry Margasak and Alan Fram in Washington, AP Auto Writer Tom Krisher in Detroit and AP writers Kelly Olsen and Malcolm Foster in Tokyo contributed to this report.

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Filed by Ryan McCarthy  |