SEC v. Austal Limited and Austal USA, LLC Civil Action No. 24-cv-00307

From at least January 2013 through at least July 2016 (the “Relevant Period”), Defendants Austal Limited (“Austal”) and Austal USA, LLC (“AUSA”) (collectively “Defendants”) engaged in a deceptive scheme to fraudulently overstate revenues and earnings before interest and tax (“EBIT”). Through the actions of certain personnel of AUSA, Austal, an Australian defense contractor, and AUSA, Austal’s wholly owned United States subsidiary, orchestrated the fraud in order to meet or exceed analyst consensus estimates for Austal’s EBIT, a key financial metric used by analysts and investors.

Defendants’ misconduct involved AUSA using artificially low estimates at completion (“EAC”) for certain Littoral Combat Ships (“LCS”) that AUSA built for the United States Navy (“Navy”). This misconduct allowed AUSA to reduce the EACs by tens of millions of dollars for certain ships that AUSA built for the Navy. The artificially low EACs caused AUSA to report inflated revenue and EBIT to Austal. In turn, Austal publicly reported overstated revenue and EBIT in its filings that were available to United States investors.

Defendants, through the actions of certain personnel of AUSA, carried out the scheme by improperly reducing estimated costs from the EACs for the LCS program. AUSA personnel were instructed to arbitrarily lower EACs for the LCS program to meet AUSA’s budgets (and, in turn, increase revenue from period to period). As a result of the deceptive scheme, by no later than the financial period ended December 31, 2013, through at least the financial period ended June 30, 2015, Austal prematurely recognized revenue and met or exceeded analyst consensus estimates for EBIT. During the time period of these false financial filings, Austal’s stock price (as represented in Australian dollars (“AUD”)) increased in value – going from approximately 0.88 AUD per share during late February 2014 to approximately 2.40 AUD per share by late November 2015.

By engaging in this deceptive conduct, Defendants violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), and Exchange Act Rules 10b-5(a) and (c) thereunder, 17 C.F.R. § 240.10b-5(a) and (c). In addition, Austal violated Exchange Act Section 10(b) and Exchange Act Rule 10b-5(b) thereunder, 17 C.F.R. § 240.10b-5(b), and AUSA aided and abetted Austal’s misconduct by knowingly or severely recklessly providing substantial assistance to Austal’s violations of Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5 thereunder. As part of the proposed settlement with the SEC, Austal USA will pay a $24 million civil penalty.

The settlements are subject to court approval.

For more information, please contact the Commission:

Office of Distributions

Email: ENFOfficeofDistributions@sec.gov