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Harley Davidson shares on the skids after U.S. government files lawsuit

New Harley-Davidson motorcycles sit on display outside Starved Rock Harley-Davidson in Ottawa, Illinois, April 22, 2014.
Daniel Acker | Bloomberg | Getty Images

Harley Davidson has settled a lawsuit with the Environmental Protection Agency that alleged the company sold motorcycles and after-market parts that did not meet EPA requirements.

"This settlement is not an admission of liability but instead represents a good faith compromise with the EPA on areas of law we interpret differently, particularly EPA's assertion that it is illegal for anyone to modify a certified vehicle even if it will be used solely for off-road/closed-course competition," said Ed Moreland, Harley-Davidson's government affairs director, in a statement. "For more than two decades, we have sold this product under an accepted regulatory approach that permitted the sale of competition-only parts. In our view, it is and was legal to use in race conditions in the U.S."

The motorcycle manufacturer's stock dropped 8 percent before almost completely recovering in morning trading. The stock ended the day down about 1.7 percent.

The suit alleges Harley-Davidson sold more than 12,000 motorcycles not covered by a certification ensuring the engines meet federal standards, according to a statement from the EPA.

The suit also alleged the company sold 340,000 after-market engine tuners that, once installed, "caused motorcycles to emit higher amounts of certain air pollutants than what the company certified to EPA," the statement said.