By on September 7, 2018

VW logo, Image: Volkswagen

Volkswagen Group will be staring down the barrel of a courtroom next week, which isn’t anything new. The automaker’s investors want 9.2 billion euros ($10.7 billion) in compensation after arguing the carmaker should have informed shareholders about a diesel emission scandal before regulators got the word out in 2015.

The lawsuit groups 1,668 individual claims, primarily those brought in by VW’s institutional shareholders, who previously accused the automaker of failing to inform investors about the scope of a scandal. Volkswagen’s excuse has always been that top brass had no idea the issue would be serious enough to cost the company 27.4 billion euros in punitive fines. But new evidence continues to emerge that upper management was well aware of the defeat devices’ existence. 

Shareholders claim that, if Volkswagen opened up early on the problem, they could have limited the losses stemming from the scandal. Instead, the Environmental Protection Agency blew the whistle in September of 2015 and VW shares plummeted as details emerged. Reuters estimates that shares dropped 37 percent in value within the first few days following the EPA’s announcement. That valuation would continue to fall sharply for the remainder of the month.

Volkswagen has since admitted to emissions cheating and accepted its penance, but continues to deny any wrongdoing as far as the regulatory disclosure is concerned. The company has remained steadfast in its assertion that board members, including Volkswagen’s current chief executive Herbert Diess and chairman Hans Dieter Poetsch, have not violated any official disclosure rules.

“Neither the management board nor individual board members caused or were involved with the compliance violation in the United States,” VW’s court filing said.

The trial is scheduled to begin on Monday in Braunschweig, Germany — near VW’s Wolfsburg headquarters. Presiding Judge Christian Jaede will be running the show.

Because Germany doesn’t allow U.S.-style class-action lawsuits, the case, brought by Deka Investment GmbH, will serve as a proof for future litigation. The Wall Street Journal reports that the outcome would serve to inform the rulings on the multitude of pending lawsuits seeking $10.7 billion in damages. It also claimed that a victory for shareholders was far from certain, as it is not common practice for German courts to grand such large awards for damages in civil litigation cases.

[Image: Volkswagen]

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10 Comments on “Ein Problem: Volkswagen Facing $10.7 Billion Investor Lawsuit Over Diesel Scandal...”

  • avatar
    SCE to AUX

    “…the carmaker should have informed shareholders about a diesel emission scandal before regulators got the word out in 2015”

    Precisely how does a company do that – slide it into their 10-K report? That sort of news is so hot that you could only inform shareholders a few minutes before the regulators squawked. Besides, it took many months and multiple raids before VW confessed to any wrongdoing.

    I don’t see how the shareholders have a case, but this is one of the ugly repercussions of investing in a company that could turn out crooked (which could happen with any investment). They weren’t complaining when VW’s deceit earned them a large share of the diesel car market.

    • 0 avatar
      R Henry

      Of course the premise of the suit is frivolous…at least from my American perspective. That said, German law and procedures are quite different from those in USA. As a person with no background in German law, it would be unwise to speculate how this is going to shake out.

    • 0 avatar

      You have to remember VW had full knowledge that they were under investigation long before the story broke. VW had already responded to the initial allegations by issuing a software update that was just another cheat in hopes that the EPA would be further fooled. All it did was keep it in emission compliant mode for twice as long as the test, since that is how the EPA and CARB figured it out in the first place by running the test again from the start w/o shutting off the car.

      No way upper management didn’t know that they were under investigation nor is it very likely that the board had no clue either. Now it is possible that they didn’t initially know just how extensive the cheating was. The engineers may have initially said, “Oh that is just a honest mistake in the programming and only effects the model currently under investigation”, and not admitted that it was intentional and had been going on for years.

      • 0 avatar
        Tele Vision

        They knew that sh!t was in the wind in 2013. A good and quick read from Der Spiegle:

    • 0 avatar

      Well, I don’t know German law, but basically VW lied to them about the existence of this huge scandal, thereby costing them a bunch of money. The ultimate answer is that VW shouldn’t have done it in the first place, but in the amoral world of investing the problem is that they had a duty to inform the investors of all relevant information.

      I guess they probably sold their shares or otherwise they’ll be paying their own settlement to themselves, more or less, but I can see the bones of a legal claim. VW had duty, VW violated duty, loses resulted.

  • avatar

    Well, that’s interesting. If VW brass had informed investors in secret, wouldn’t that have made the investors complicit in the criminal cover-up? And therefore liable to fines and penalties, not only for keeping it a secret (even if for one day), but also because any trading in shares after that point, no matter how innocuous, would be potentially criminal insider trading?

    • 0 avatar

      yes, and on thop of that, even the 2nd CEO replacement and now CEO Driess supposedly knew of that..he of course is denying everything…
      interesting case, but diCaprio shouldn`t get his hopes too high as to that Hollywood-movie…this screams for a TV-show moreso..

  • avatar
    johnny ro

    Shareholder lawsuits are weird.

    The suit is on behalf of shareholders, who bear the profits and losses of VAG.

    Lets pretend they win their $10b. Where does it come from? From VAG shareholder equity. A forced dividend, paid out by current shareholders to the 2015 shareholders?

    Wonder if German lawyers will take the top 30% of the settlement?

    • 0 avatar

      This occurred to me as well. If you’re suing a company you own a part of, you’re hurting your own investment. Kind of like suing your spouse for damaging your shared car that was fixed with money from your joint account.

      Now, if they went after Winterkorn, Piech, et al, personally, that would be worthwhile. Strip ’em down to the shorts.

  • avatar

    as a german i know a bit more, so here it is:
    one memo-styled letter appeared, written by some mid-level manager of VW at then CEO Winterkorn, informing him of the potentiality of a possible lawsuit in the US months before the CEO took any `action`- if you want to call it that.

    This mid-level manager stands by his word and the rest is to be decided..

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