Report: Caterpillar unit probed over possible parts dumping

(MoneyWatch) A subsidiary of heavy equipment manufacturer Caterpillar (CAT) is being investigated by federal officials over charges it dumped train parts into the Pacific Ocean in an effort to bill railroad companies for unneeded repairs, according to published reports.

The Wall Street Journal, citing unnamed sources, reports a grand jury investigation is being conducted by the U.S. Attorney for the Central District of California. The grand jury is said to be examining whether Caterpillar subsidiary Progress Rail dumped parts into the ocean near the Port of Long Beach, Calif., to conceal the fact that Progress was charging owners of rail equipment for replacing parts that were still in good shape.

In a securities filing three weeks ago the Peoria, Ill.-based company reported it had received a federal grand jury subpoena to provide information on Progress, which repairs locomotives and railcars. So far Caterpillar hasn't made public any other details about the criminal investigation.

The grand jury has just begun examining the case and these investigations frequently do not produce an indictment. Caterpillar's stock was up 28 cents to $82.40 in mid-day trading on Friday.

Railroad giant Union Pacific (UNP) is one of the customers reportedly harmed by the alleged actions by Progress. While disputes between railroads and repair shops over billing are a regular thing, those disputes are usually resolved without the courts or law enforcement officials being involved. In this case the U.S. Attorney got involved because of suspicions Progress Rail broke environmental laws.

In its disclosure three weeks ago, Caterpillar said, "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."

If charges are brought this would be the second legal embarrassment this year for Caterpillar. In January, the company had to write down the value of ERA Mining Machinery Ltd., a Chinese maker of roof supports for coal mines, by $580 million. Caterpillar bought ERA last year for about $700 million. The company said accounting "misconduct" by several former senior managers of the acquired company were to blame.

  • Constantine von Hoffman On Twitter»

    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald,, CSO, and Boston Magazine.