Sources tell the Wall Street Journal that a Caterpillar (CAT) subsidiary has come under federal scrutiny over allegations that it improperly discarded train components to hide unnecessary repair charges billed to its railroad clients.
Caterpillar’s Progress Rail unit is the subject of a grand jury investigation. The construction equipment maker revealed that it had been subpoenaed to turn over documents relating to the unit in regulatory filings earlier this month. According to unnamed insiders, the probe is focusing on whether Progress Rail dumped parts into the sea not far from the Port of Long Beach, Calif., in an effort to conceal overcharging customers — including Union Pacific Corp. (UNP) — for repairs their trains didn’t require.
One source indicated that the U.S. Attorney launched the investigation after concerns were raised that Progress Rail had violated environmental restrictions, but the probe is said to be in a very preliminary stage.
Caterpillar noted in earlier filings that it was cooperating with the probe.
Last month, Caterpillar stock tumbled after the company reported disappointing quarterly earnings and revenue.
Shares of Caterpillar climbed slightly in Friday pre-market trading.