Dieselgate: VW execs face market manipulation charges

VOLKSWAGEN AG chief executive Herbert Diess, chairman Hans Dieter Poetsch and former CEO Martin Winterkorn have all been charged with market manipulation for allegedly taking too long to inform investors about the dieselgate emissions cheating scandal.

Prosecutors in the city of Braunschweig, just outside VW’s hometown of Wolfsburg, have accused the trio of flouting their legal obligations by deliberately withholding information about the financial implications of the diesel emissions scandal as it unfolded five years ago.

Translated from German, the prosecutor alleges the VW executives were “aware of the considerable financial consequences resulting from the explosive nature of the issue that it would have had to inform the capital market”.

“However, they would have consciously and intentionally refrained from the required ad hoc announcement in order to keep the stock market price of the VW shares at the current level and to avoid losses of the VW AG.”

Volkswagen AG and lawyers representing the accused executives have denied these allegations and will contest them in court.

A statement issued by the company says its board of management “did not have sufficiently concrete indications that would have led to the obligation to inform the capital market immediately” prior to receiving the notice of violation from United States authorities in September 2015.

The prosecution alleges that by the northern hemisphere spring of 2015, VW would have had “increasing awareness” that it was under investigation due to “persistent demands” from US authorities that began their probe into VW’s use of emissions defeat devices in 2014.

It accuses Mr Winterkorn of concealing this knowledge since at least May 2015, with Mr Poetsch and Mr Diess respectively doing so since June 29 and July 27 of the same year.

VW’s counter argument to this is that “US authorities published their allegations completely unexpectedly during ongoing discussions with Volkswagen” and that the board “could not foresee this change in the approach of the US authorities”.

It is alleged that VW intended to reach a settlement with US authorities “without disclosing all relevant circumstances, in which the wording should speak of technical problems, not of fraud against authorities and customers”.

But VW’s statement appears to call out poor advice from US law firm Kirkland & Ellis that it should safely assume that “a mutually agreed solution would first be worked out with the US authorities and then presented to the public in a joint statement”.

The prosecution suggests that US authorities sprung the notice of violation on VW due to “annoyance over the stalling tactics hitherto practiced by the VW AG”.

To this end, VW’s former US-based environmental and engineering general manager Oliver Schmidt, arrested in early 2017 while on holiday in Miami and subsequently sentenced to seven years in prison, was accused of lying to US regulators both in person and during tele-conferences while being probed over dieselgate in 2015.

In addition to claims for damages, the prosecutor lists a number of dieselgate-related costs it alleges VW could have predicted, including €16 billion ($A26b) for the buy-back of half a million affected vehicles, €19b ($A31b) in fines – $US37,500 ($A55,305) per affected vehicle – and another potential €4b ($6b) in lost sales due to the type approval of incoming 2016 models being at risk.

VW Group financials published in May this year put the cost of dieselgate so far at more than €30b ($A39b). The company has admitted to equipping 11 million vehicles with defeat devices.

Among this cost was a €1b ($A2n) fine handed down by the Braunschweig public prosecutor in June last year, said to be one of the largest financial penalties ever imposed by German authorities against a company.

However, it paled in comparison to the $US4.3b ($A6.3) slug imposed via a barrage of civil and criminal penalties from the US Department of Justice in January 2017.

In Australia, VW announced that it has reached an in-principle settlement with the Australian Competition and Consumer Commission (ACCC) over accusations it engaged in misleading or deceptive conduct over diesel emissions claims.

The case embroils 57,000 VW-branded vehicles sold in Australia and a separate ACCC action over 12,000 Audis is yet to be settled. Both brands are also dealing with multi-million-dollar class action lawsuits in Australia.