When a controlling shareholder in a corporation sells shares to the public, and the corporation subsequently discloses damaging information known to it at the time of the sale, the SEC normally gets to work investigating a possible crime. Withholding such data can be a crime, defrauding investors by withholding material information.

 It would appear that something like that happened when the federal government sold GM shares to the public. In the private sector, it would be time to call in the criminal defense lawyers.

Writing at The Federalist, Sean Davis notes, “GM Sure Recalled A Lot Of Cars Right After The Feds Sold Their Shares”:

…at least GM acted as soon as it knew there was a problem. Because it’s not like the company would sit on the information and do nothing about it, right? Right?

Not so much.

GM knew about serious problems with the ignition switch for years, going back to at least 2007. At that time, GM had hard data from multiple crashes showing that some of its ignition switches had failed to function properly. The U.S. government officially bailed out the automaker in December of 2008. Throughout the five-year period of U.S. government ownership, nothing was done to address the deadly switch. According to one timeline of events, GM’s new CEO, Mary Barra, claims she did not even learn of the problem until December of 2013, which just so happens to be when the federal government sold its final shares of GM stock (at a loss of $10 billion, naturally).

Even though the company had data demonstrating a faulty ignition switch for years, it didn’t initiate a full investigation or recall until February of 2014, two months after the government sold its stake in the company. The National Highway Transportation Safety Administration (NHTSA) didn’t initiate a full investigation of the issue until later that month, even though the U.S. government had owned the company for 5 years. The Justice Dept. also showed up late to the party, confirming that same month that it had initiated a criminal probe into the matter.

The timing of claimed knowledge of the problems is so suspicious that a full scale criminal probe by the SEC is warranted. That would be the case if any private shareholder had sold shares under similar circumstances.

Law professor and Instapundit blogger Glenn Reynolds sarcastically remarks, “I’m sure the SEC will be right on this.”

But even if the SEC doesn’t take action, buyers of GM shares have a case to make in civil court, if they take a loss on the GM shares. In such cases, the doctrine that a CEO “should have known” the damaging information applies.

I can assure you that executives at Toyota and other foreign automobile manufacturers are noticing that Toyota was fined a record $1.2 billion for failing to disclose safety-related complaints relating to sudden acceleration, while GM was fined a paltry $35 million for filing to disclose safety-related complaints for ignition switch problems involving 2 million vehicles and fatalities. This looks a lot like a national government putting its thumb on the butcher’s scale to favor its own producers.

We have entered a phase of corporatism in the United States, withy the government rigging the game for favored companies, it would appear. And in the world of corporate integrity, appearances are as important as reality.