Caterpillar Fined $5m for Cheating its Customers

Caterpillar Fined $5m for Cheating its Customers

The stock of earth moving equipment manufacturer Caterpillar Inc. (NYSE: CAT) hit a new 12-month high of $145.19 last week. A strong rise in orders from Chinese construction industry and Trump’s tax reform acted as a catalyst to the rally. However, the company, which had been fined or investigated for breaking the law in the past, was once again caught for cheating its customers. As discussed below, the incident is expected to reflect in its share price, which closed at $143.77 on Monday.

According to Wall Street Journal, United Industries, LLC., a division of Caterpillar’s Progress Rail Services Unit, was caught cheating its customers by performing unnecessary repairs and dumping rail car parts into the ocean to cover up its misdeeds.

The United Industries employees’ performed unnecessary repairs to rail cars owned by Greenbrier Co., TTX Co., and Pacer International Unit (XPO Logistics). The supervisors in United Industries encouraged its employees to gouge wheels with chisels, smash brake parts with hammers, and turn handles loose in order to increase revenues from repairs. Depending on the situation, many more unwanted repairs were performed in a random manner. To hide the evidence from inspectors from the Association of American Railroads and Federal Railroad Administration, the company threw the damaged parts into the ocean at the Long Beach Port. The port police employed divers to locate and recover the parts from the ocean bed. The entire sequence of events happened between 2008 and 2009, but was informed to shareholders only in 2013.

Last week, the US District Court of California ordered Caterpillar to pay $5 million as a criminal fine and $20 million in restitution. The amount will be shared among the three companies affected by the malpractice of United Industries employees.

Earlier in October, Antrim Crown Court slapped Caterpillar with a fine of £7.500 for discharging 40,000 litres of diesel into the Irish Sea at Larne. The oil spill incident took place in June 2016.

Similarly, in December 2015, the company was ordered to pay $74 million to Miller UK Ltd., after a US District court found Caterpillar guilty of stealing trade secrets. In addition, March 2017 saw the company raided by US officials on suspicion of accounting malpractices to save up to $2.4 billion in 13 years. The news is expected to turn the sentiment bearish towards the stock in the week ahead.

Technically, the stock has formed a doubled top as shown in the image below. The accumulation indicator is also declining. Thus, we can expect a downtrend in the stock.

Caterpillar - Technical Analysis - 12th December 2017

We may trade the probable downtrend by acquiring a put option from a reliable binary broker listed here. The option should not expire before December 20. Further, the stock of Caterpillar should be trading at about $143 in the NYSE.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading. 

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