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Feds Investigate Caterpilliar Division for Alleged Dumping of Train Parts into Ocean

Federal officials are reportedly investigating one of Caterpillar's (NYSE: CAT) subsidiaries for allegedly dumping train parts into the Pacific Ocean off of Southern California.

According to The Wall Street Journal, the heavy equipment manufacturer recently disclosed it had gotten a federal supoena about its Progress Rail division. The Journal says a grand jury looking into allegations that Progress Rail dumped train brakes and other items into the ocean near the Port of Long Beach, California – while charging the owners of that equipment for unnecessarily part replacements.

Among the companies thought to be affected by the allegations is railroad giant Union Pacific (NYSE: UNP).

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The investigation was reportedly sparked by suspicions Progress Rail might be breaking environmental laws. Caterpillar, meanwhile, says it is cooperating with federal officials.

We currently believe that this matter will not have a material adverse effect on the company's consolidated results of operation, financial position or liquidity," the WSJ quotes Caterpillar's disclosure statement.

Alabama-based Progress Rail was acquired by Caterpillar in 2006 for around $800 million – reportedly as part of Caterpillar's efforts to diversify into railroad locomotive production. Progress Rail has branches all over the country, and competes against other rail car makers for repair work.

Related: Caterpillar Is Pulling Its Weight

While there is currently more supervision of rail repair shops, the industry was known in the past for disputes with equipment owners over unnecessary repairs.

"There's more policing than there used to be," Mike Francis, an equipment consultant, told the Journal. But even now, he said, "the opportunity to take advantage of folks is high. If you're in Chicago and your car is in Florida and somebody says you need repairs, you don't know that. You're not there."

Earlier this year, alleged accounting “misconduct” by senior managers at ERA Mining Machinery -- a Chinese company Caterpillar acquired for around $700 million last year, prompted Caterpillar to take a $580 million writedown on the acquisition.

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