Fiat Chrysler Automobiles NV is under investigation by the U.S. Justice Department for fraud, according to people familiar with the matter.

Prosecutors are scrutinizing whether the carmaker violated U.S. securities laws, they said. The inquiry is in early stages, according to two people, who asked not to be identified because the investigation is confidential and declined to specify what conduct is being investigated.

A civil lawsuit against Fiat Chrysler may provide clues about what prosecutors are looking at. A Chicago-area dealer alleges the company inflated its U.S. car sales by paying dealers to report selling more vehicles than they actually did.

Shawn Morgan, a spokeswoman for Auburn Hills, Michigan-based Fiat Chrysler, didn’t immediately respond to a telephone and e-mail request for comment. A Justice Department spokesman declined to comment. A spokeswoman for the Securities and Exchange Commission, which typically investigates securities fraud cases along with the Justice Department, declined to comment.

Record Sales

A criminal investigation could deliver a blow to the automaker, which has posted record vehicle sales since Fiat acquired full control of Chrysler in 2014 through a government-backed bailout that brought the maker of Jeep and Dodge brands out of bankruptcy in 2009. In December, Fiat Chrysler said it had the best month of U.S. sales in the company’s 90-year history with 217,527 vehicles sold — recording its 69th consecutive month of year-over-year sales gains.

That performance was challenged in a private lawsuit filed in January by dealerships in Illinois and Florida that alleged the sales were padded through a scheme by which dealers — sometimes unbeknownst to their owners — were paid to create false New Vehicle Delivery Reports. Similar claims were made in a 2015 lawsuit filed by a dealer of Fiat Chrysler-owned Maseratis.

Fiat Chrysler, in a Jan. 14 regulatory filing, said an internal investigation concluded the padding allegations were baseless and that the lawsuit was “nothing more than the product of two disgruntled dealers.”

In the sales-padding cases, a federal judge in Chicago is considering Fiat Chrysler’s request to dismiss one of the lawsuits while a judge in Brooklyn is deciding whether to merge two other cases.

Similar Claims

Fiat Chrysler isn’t the only carmaker accused of boosting sales numbers by getting dealers to inflate their figures. Similar claims have also been made against Bayerische Motoren Werke AG, also known as BMW, for paying its dealers as much as $1,750 a vehicle in December to put new models in their service fleets, the cars owners use when their vehicles are being worked on. Dealers booked the sales immediately, and the deliveries helped the company hit its target, people familiar with the practice told Bloomberg News in February.

BMW beat Lexus for the year by about 1,400 cars and Daimler AG’s Mercedes by almost 3,000, setting a record for its U.S. sales, according to Autodata Corp., a research company. BMW has said it sometimes gives dealers incentives to refresh their loaner fleets with new cars, which it says is an important part of its marketing plan.

Investor Claims

Fiat Chrysler is also fighting investor claims that the auto maker played down the economic impact of manufacturing problems that led to expensive recalls. A lawsuit, filed in September in federal court in Manhattan by a group of investors, alleges the company made false and misleading statements about flaws in its manufacturing process and quality control that led to at least 11 million vehicles being recalled.

To back up their claim, the plaintiffs refer to the $105 million penalty imposed in July 2015 by the U.S. National Highway Traffic Safety Administration related to the company’s handling of recalls for 23 issues. The settlement with the regulator caused Fiat Chrysler in October to increase its reserves by $866 million to cover future warranty and recall costs.

Fiat Chrysler has asked the judge to dismiss that case, arguing in part that the company was unable to predict the outcome of the regulator inquiry at the time it put away funds for a possible resolution.

Topics USA Auto Fraud