Shares of Caterpillar CAT, a component of the Dow Jones Industrial Average, slipped another 1.7% in morning trading Thursday. The construction equipment maker is continuing to feel the effects of recent reports suggesting that it knowingly committed tax fraud in an effort to boost its share price.
Caterpillar’s legal woes became public last week when federal investigators executed search warrants on three separate company offices, including its headquarters in Peoria, Illinois. Caterpillar maintained that it was cooperating with the investigation, which is said was likely linked to accusations surrounding its Swiss parts subsidiary, CSARL.
The severity of Caterpillar’s alleged wrongdoings became a bit more apparent on Wednesday, as The New York Times published a story that detailed an unreleased report accusing the company of deliberately avoiding taxes (also read: Caterpillar Stock Slides After Report Accuses It of Tax Fraud).
The report, which was viewed by the Times, was authored by Leslie A. Robinson, an accounting professor at Tuck School of Business at Dartmouth College. Robinson apparently concluded that Caterpillar’s noncompliance with U.S. tax law was “deliberate” and “fraudulent rather than negligent.”
The Times pointed out that federal investigators have been probing Caterpillar’s overseas tax affairs for years with no resolution. No new charges have been filed, and it is unclear which federal agency commissioned the report or whether investigators agree with its findings.
The company’s tax strategies first came into the spotlight after a 2014 Senate hearing that revealed a $2.4 billion reduction in taxes over a period of 13 years. The probe accused Caterpillar of moving its earnings of out the U.S. and into CSARL, but the manufacturer has continuously defended its practices as lawful.
Shares of CAT fell more than 2.8% on Wednesday, and investors continued that selloff well into Thursday morning. The stock is now up just about 3% on the year, slightly below its industry’s average year-to-date return of 4.3%. For now, Caterpillar remains a Zacks Rank #3 (Hold).
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