Caterpillar sinks as accounting misconduct uncovered

Ruh roh.

Caterpillar uncovered “deliberate, multi-year, coordinated accounting misconduct” at a subsidiary of a Chinese company it acquired last summer, leading it to write off most of the value of the deal and wiping out more than half its expected earnings for the fourth quarter of 2012.

Caterpillar, the world's largest maker of tractors and excavators, said on Friday it would take a non-cash goodwill impairment charge of $580 million, or $0.87 per share, in the quarter.

“It came as a complete surprise to us," the former board member said of the fraud, speaking on condition of anonymity because of the sensitivity of the situation. "It was presented to us as a pretty straightforward transaction. It's a shame. It should have been investigated further.”

The source said the driving force behind the deal was Ed Rapp, the former Caterpillar chief financial officer who now serves as a group president with responsibility for China, among other operations. The source said it was Rapp who presented the deal to the board and pushed for its completion.

A Caterpillar spokesman declined to comment on Rapp's role in the deal. Rapp could not be immediately located for comment.

Caterpillar (CAT : NYSE : US$97.72), Net Change: 0.10, % Change: 0.10%, Volume: 8,261,110

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Canaccord Genuity Inc. is a global investment banking and institutional brokerage firm. Their website is www.canaccordgenuity.com.

For disclosures of any equities mentioned here please see: http://www.canaccordgenuity.com/en/ODD/pages/disclosures.aspx.

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