By on January 6, 2012

Why are Volkswagen and Porsche living together, but are not married? Because VW is worried about the outstanding lawsuits brought against Porsche by irate investors. Now suddenly Volkswagen lost that protection. Lawsuits are piling up right in front of Volkswagen’s own doorstep. At the court in Braunchweig, 20 miles away from Wolfsburg, billion dollar lawsuits are snowballing at an alarming rate.

An hour ago, Reuters reported that claims against Porsche and Volkswagen filed at the Braunschweig court have reached 1.8 billion euros ($2.3 billion).

A few minutes ago, the German finance wire BoerseGo reported that another €2 billion ($2.55) billion lawsuit was filed in Stuttgart, also against Porsche and Volkswagen. The German magazine Witschaftswoche says that in the meantime, there are more than 70 litigants.

Adding a just amended lawsuit for another €351 million ($448 million,) BoerseGo now reports that the lawsuits are standing at “approximately €4 billion” (approximately €5.1 billion.) That as of this morning.

To make the matter even more juicier, arbitration proceedings have been initiated against Christian Wulff, President of Germany. The President (a figurehead in Germany, the power is with the Chancellor) was Premier of Lower Saxony while it happened, and as such he sat on the Supervisory Board of Volkswagen. He is also being sued for €1.89 billion. Which he does not have.

Here is what Reuters says about the grounds for the pricey lawsuits:

“Massive demands for damages have been brought by enraged investors who took wrong-way bets on a decline in VW shares in 2008. They claim they were misled by the sportscar maker about how many shares in VW it held at the time, leading to a “short squeeze” that turbo-charged VW shares.

When Porsche revealed it controlled 74.1 percent of VW’s voting stock in October 2008, shares of Volkswagen topped 1,000 euros apiece, having more than quadrupled within just days.

Incredulous investors who had bet on an imminent end to the surge saw VW briefly become the world’s biggest company by market value.”

Lawsuits in the U.S. that followed a similar line of reasoning so far failed. Bringing suit in Germany is the right venue, but it can be much riskier and costlier. In Germany, those who bring suit, have to front hefty court costs. Those who lose, pay the whole court costs, plus the other side’s legal expenses.  My calculator says that bringing a €4 million lawsuit can mean exposure of around half a million Euro. The calculator goes on strike at 4 billion.

Which may be €8 billion when the day ends. Someone is attaching big checks to legal papers.

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9 Comments on “Volkswagen And Porsche In A World Of Hurt...”

  • avatar
    The Doctor

    I know everyone had a good chuckle at seeing hedge funds getting their fingers burnt but Porsche admitted to selling some of its VOW holdings back to the market. Since a formal take-over bid had been announced, that strikes me as market manipulation (yes, it is possible to get dispensations from BaFin, but not in the timescale that Porsche acted…)

  • avatar

    Volkswagen’s 6 Month Profit Likely To Exceed Combined Detroit 3

    On July 28, 2011, Volkswagen reported a first half, after-tax profit of €6.5 billion ($9.3 billion), and sat on “a cash pile of €19.4 billion ($27.9 billion)”, having turned 4.1 million cars on an operating profit of 7.8% per car.

    I’m guessing that cash pile got a little bigger in the second half of 2011, which means VW is not without means to possibly settle every single lawsuit listed here, and still come out in the black.

    Jack’s Christmas Wish #2 is probably still unlikely.

  • avatar

    ” He is also being sued for €1.89 billion. Which he does not have.”

    I wonder two things:

    One. Does the company indemnify him continuously for his time in service?

    Two. Is his D & O insurance still in force?

  • avatar

    I understand the rationale behind the lawsuits against Porsche AG, but on what basis are VW and Wulff being sued? They did not buy VW shares, as I recall, so how would they be jointly (?) liable?

  • avatar

    The grounds of this suit are just ridiculous.

  • avatar

    Given that European courts have historically been FAR more rational than US courts, I really hope these Masters of the Universe financial types who are sueing over thier own stupidity get thier asses handed to them. I’m not saying Porsche was 100% right in what they were doing, but these clowns certainly knew the risk they were taking.

  • avatar

    Short squeezes are awesome.

  • avatar

    They claim they were misled by the sportscar maker about how many shares in VW it held at the time, leading to a “short squeeze” that turbo-charged VW shares.

    Well, Porsche is known for using turbochargers, not superchargers.

    Actually, I can’t believe that an editor let such a lame automotive metaphor get published.

  • avatar

    frivolous lawsuits IMO

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