Caterpillar shares hit as it faces search warrant (updated)

Caterpillar shares suffered their biggest one-day drop in eight months following reports that law-enforcement authorities are executing a search warrant at some of its facilities.

(Chart: Bloomberg)

Shares of the heavy-machinery maker fell as much as 5.8 per cent — its biggest one-day drop since last June — following news reports about the search by various local media in Illinois, where the targeted facilities are located. The company confirmed in a statement:

“Law enforcement is present in various Peoria-area Caterpillar facilities executing a search warrant. Caterpillar is cooperating.”

A representative for the US attorney’s office in the Central District of Illinois said that agents from the Internal Revenue Service’s Criminal Investigation Division, the Office of Export Enforcement at the US commerce department and the FDIC conducted searches at three Caterpillar facilities in Peoria, East Peoria and Morton, Illinois.

Caterpillar is headquartered in Peoria.

The prosecutors’ office said that no arrests have been made and that it was not immediately clear whether the searches were continuing.

According to the US Commerce Department’s website, the Export Enforcement office focuses on “sensitive exports to hostile entities or those that engage in onward proliferation; prohibited foreign boycotts; and related public safety laws.”

Caterpillar disclosed in a regulatory filing last month that it had received a subpoena from the US district court in central Illinois requesting “documents and information from the company relating to, among other things, financial information concerning U.S. and non-U.S. Caterpillar subsidiaries (including undistributed profits of non-US subsidiaries and the movement of cash among US and non-US subsidiaries).”

It said in the same filing that it had received additional subpoenas connected to that investigation regarding, among other things, “the purchase and resale of replacement parts” by Caterpillar and various foreign subsidiaries.

“The company is cooperating with this investigation,” the filing said. “The company is unable to predict the outcome or reasonably estimate any potential loss; however, we currently believe that this matter will not have a material adverse effect on the Company’s consolidated results of operations, financial position or liquidity.”