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S.E.C. Accuses Volkswagen of Fraud in Diesel Scandal Ex-VW Chief Knew of Diesel Scheme Years Earlier Than He Admitted, S.E.C. Says
(about 1 hour later)
The top securities agency in the United States has accused Volkswagen of undertaking a “massive fraud” and lying to investors, the latest in an ongoing diesel emissions scandal that has beleaguered the German carmaker. Volkswagen’s chief executive knew about a “massive” emissions fraud years earlier than he or the company have previously admitted, the Securities and Exchange Commission says in a new lawsuit that could bolster the claims of investors seeking billions of dollars in damages from the German carmaker.
The Securities and Exchange Commission said late Thursday that it was suing Volkswagen and Martin Winterkorn, its former chief executive, in a case related to a decade-long scheme undertaken by one of the world’s biggest carmakers to fudge its diesel emissions testing. The suit, filed late Thursday, accuses Martin Winterkorn, the company’s chief executive until late 2015, of knowing in November 2007 about a plan to deceive American regulators about the exhaust levels of its diesel vehicles by using software to cheat on emissions tests.
The agency is seeking to bar Mr. Winterkorn from being an executive director of any publicly listed company in the United States. It is also seeking to recover what it called “ill-gotten gains” from Volkswagen. Federal prosecutors criminally charged Mr. Winterkorn in 2018 with conspiring to hide the emissions cheating, elevating the scandal at the automaker to the very top of its management. The suit indicates Mr. Winterkorn knew of the scheme about seven years before the March 2014 date cited by federal prosecutors in a criminal indictment filed against him and several other Volkswagen executives last year. That timeline severely undercuts Volkswagen’s claim that the fraud was entirely the work of lower-level employees.
Volkswagen said in a statement that it had raised money from sophisticated investors who got back their principal and interest, and that the S.E.C. “is now piling on to try to extract more from the company.” Mr. Winterkorn has consistently denied wrongdoing, including in testimony to the German Parliament, saying he was unaware of the scheme until shortly before it became public in September 2015. His lawyer, Steven Molo, did not immediately respond to a request for comment.
“The S.E.C.’s complaint is legally and factually flawed, and Volkswagen will contest it vigorously,” the statement read. Besides potentially exposing Volkswagen to substantial new fines in the United States, the suit is likely to strengthen legal claims filed by German and American investors who say the carmaker failed in its legal obligation to inform them of the risks it was taking. The investors’ suits are a significant threat to Volkswagen, which is now spending heavily on developing electric cars as it tries to move past the scandal.
Mr. Winterkorn has denied wrongdoing in the past, including in testimony in front of the German Parliament. Steven Molo, Mr. Winterkorn’s lawyer, did not immediately respond to a request for comment. Fines and legal settlements tied to the diesel scandal have already cost the carmaker well over $30 billion, increasing the pressure to cut costs. Volkswagen said this week that it would cut 7,000 jobs in Germany over the next four years, primarily by not replacing workers who retire.
In the automaker’s most recent annual report, it flagged the possibility of a lawsuit and said that the S.E.C. had requested information related to potential violations of securities laws. In its suit, the commission seeks to bar Mr. Winterkorn from being an executive director at any publicly listed company in the United States. It also seeks to recover what it calls Volkswagen’s “ill-gotten gains.”
It entered into a $14.7 billion settlement to settle shareholder claims arising from the diesel cheating scandal. It was the biggest consumer class-action settlement in the United States at the time. Responding to the suit, Volkswagen said in a statement that it had raised money from sophisticated investors who got their principal and interest back, and that the S.E.C. was “piling on to try to extract more from the company.” The company had noted in its most recent annual report that such a suit was possible and that the S.E.C. had requested information related to potential violations of securities laws.
Volkswagen acknowledged in 2015 that it had placed illegal software in 11 million cars around the world that could help them cheat on pollution tests. “The S.E.C.’s complaint is legally and factually flawed, and Volkswagen will contest it vigorously,” the company said in the statement responding to the commission’s suit.
While it cheated on those tests, it raised money from American investors. Between April 2014 and May 2015, Volkswagen raised more than $13 billion from American investors in the bond and securities markets, even as top management knew that hundreds of thousands of its diesel vehicles exceeded vehicle emissions limits by a large margin, the S.E.C. said in its complaint, which was filed in San Francisco. Volkswagen agreed in 2016 to a $14.7 billion settlement to settle shareholder claims arising from the diesel-cheating scandal. At the time, it was the largest consumer class-action settlement ever in the United States. The agreement came about a year after the company admitted that it had placed illegal software in 11 million cars around the world to help the vehicles cheat on pollution tests.
Mr. Winterkorn and other Volkswagen executives were told about devices that were being used to conceal emissions problems as early as November 2007, at a meeting with engineers about problems with the carmakers “clean diesel” cars, the regulator said in its complaint. The S.E.C. says in its suit that even as top executives were aware that hundreds of thousands of Volkswagen diesel vehicles were exceeding emissions limits by large margins, the company was taking in more than $13 billion from American investors via the bond and securities markets.
“Although at least one meeting participant warned that putting the existing vehicles on the road in the U.S. would damage VW’s reputation if the vehicles’ high emissions were later discovered, those concerns were ignored,” the S.E.C. said in its complaint. Mr. Winterkorn and other Volkswagen executives were told about the devices being used to conceal emissions problems as early as November 2007, at a meeting with engineers about problems with the carmakers “clean diesel” cars, the complaint says.
By lying, Volkswagen was about to reap hundreds of millions of dollars from investors on more favorable terms for the company, it said. “Although at least one meeting participant warned that putting the existing vehicles on the road in the U.S. would damage VW’s reputation if the vehicles’ high emissions were later discovered, those concerns were ignored,” the complaint says.
Volkswagen made “false and misleading statements to investors and underwriters about vehicle quality, environmental compliance, and VW’s financial standing,” the S.E.C. said on Thursday. By making “false and misleading statements to investors and underwriters about vehicle quality, environmental compliance, and VW’s financial standing,” the commission says, Volkswagen positioned itself to reap hundreds of millions of dollars from investors on terms that were more favorable for the company.