VW Sued by SEC for Misleading Bondholders on Diesel Cheating

Akos Stiller/Bloomberg News

Volkswagen AG and its former CEO were sued by the U.S. Securities and Exchange Commission over claims they failed to disclose to investors that diesel vehicles violated emissions standards, the latest twist in a software cheating scandal that already has cost the company more than $30 billion.

The German automaker sold billions of dollars of corporate bonds and asset-backed securities in the United States from 2010 to 2015 while concealing its emissions-cheating scheme, according to the complaint filed by the regulator March 14 in San Francisco federal court. The case, also filed against ex-CEO Martin Winterkorn, could give fresh impetus to similar efforts for redress from European investors.

“The investors did not know that VW was lying to consumers to fool them into buying its ‘clean diesel’ cars and lying to government authorities in order to sell cars in the U.S. that did not comply with U.S. emission standards,” SEC alleged.

VW said the SEC complaint is “legally and factually flawed,” and the company will “contest it vigorously.” It accused SEC of “piling on to try to extract more from the company” more than two years after settlements with the Justice Department.

“The SEC has brought an unprecedented complaint over securities sold only to sophisticated investors who were not harmed and received all payments of interest and principal in full and on time,” spokesman Christopher Hauss said in an e-mail statement.

“The SEC does not charge that any person involved in the bond issuance knew that Volkswagen diesel vehicles did not comply with U.S. emissions rules when these securities were sold, but simply repeats unproven claims about Volkswagen AG’s former CEO, who played no part in the sales,” he added.

Allegations that VW wrongfully withheld information about the emissions software used in its diesel cars have loomed over the company since the scandal broke in 2015. The scam involved as many as 11 million diesel cars worldwide and has cost the Wolfsburg-based company about 28 billion euros so far.

A court in the German city of Braunschweig is assessing a group action covering suits brought by thousands of investors with claims exceeding 9 billion euros. It has scheduled the next hearing in the case for March 25.

German prosecutors also are carrying out a criminal investigation into whether current CEO Herbert Diess, Chairman Hans Dieter Poetsch and Winterkorn informed investors too late about VW’s diesel breaches and their potential impact. The prosecutors will decide this year whether to pursue allegations of market manipulation against the three. VW also said March 12 that an administrative probe was opened against the company as part of the case.

VW repeatedly has said that it informed markets properly at all times, and the three managers have denied the allegations. SEC informed the company that it might bring an enforcement action related to an investigation that formally began in January 2017, VW said March 12 in its annual report.