The SEC sues Volkswagen, former CEO, for alleged fraud on investor issues

WASHINGTON / FRANKFURT (Reuters) – The US Securities and Exchange Commission (SEC) is suing Volkswagen (VW) and its former chief executive, Martin Winterkorn, for the German automaker's diesel emissions scandal, alleging "massive fraud." "against American investors.

In 2015, VW was caught using illegal software to deceive pollution tests in the United States, which provoked a brutal reaction against diesel which cost it 29 billion euros ( $ 32.8 billion).

Regulators and investors say VW should have informed them earlier of the scale of the scandal, but there was no reason to expect fines and penalties of billions of dollars to be imposed on it, others paid much less for similar offenses.

The SEC said Thursday in its civil suit that, from April 2014 to May 2015, VW had issued more than $ 13 billion of bonds and debt-backed securities in US markets at a time when senior executives knew that more than 500,000 diesel vehicles in the United States far exceeded the vehicle emission limits.

VW "has reaped hundreds of millions of dollars in benefits by issuing securities at more attractive rates for the company," the SEC said, adding that she "repeatedly lied and induced US investors, consumers and regulators erred in connection with an illegal ploy selling its allegedly "clean" cars and billions of dollars worth of corporate bonds and other securities in the United States ".

The lawsuit in San Francisco seeks to prevent Winterkorn from acting as an officer or director of a US public corporation and from recovering "ill-gotten gains", penalties and civil interest.

Winterkorn, who resigned a few days after the scandal became public in September 2015, was indicted by US prosecutors in 2018 and accused of conspiring to cover up cheating diesel emissions from the German automaker.

A Winterkorn lawyer, who stays in Germany, declined to comment on the SEC's action.

VW said in a statement that the SEC's complaint "is legally and factually wrong, and Volkswagen will vigorously challenge it." The SEC has filed an unprecedented complaint over securities sold only to sophisticated investors who have not suffered any and who have received all interest and principal payments in full and on time. "

The automaker added that the SEC "does not argue that the people involved in the bond issue knew that Volkswagen's diesel vehicles were not complying with US emissions rules when these titles were sold ", but repeats the claims that Winterkorn" would have played no role in sales ".

The German market regulator, Bafin, could not be contacted to find out whether he was working with the SEC or not.

"OBTAINED FRAUDULENT"

VW has spent billions of dollars paying claims from VW owners, US-based environmental regulators, states and dealers, and has offered to buy around 500,000 polluting US vehicles. This figure included $ 4.3 billion in criminal and civil fines in the United States.

But the SEC said that VW "has never paid back the hundreds of millions of dollars in fraudulently obtained benefits."

VW admitted to secretly installing software in 500,000 US vehicles to cheat the government's exhaust emissions tests and pleaded guilty in 2017 to crime charges. Thirteen people were indicted in the United States, including Winterkorn and four Audi directors.

The lawsuit is also known as VW Credit and Volkswagen Group of America Finance LLC, the entity that sold the securities.

VW is also facing investor lawsuits in Braunschweig, Germany.

Critics argue that VW should have informed investors on September 3, 2015 of the use of a "cheat device" to cheat emissions tests, the same day that VW executives admitted to using illegal software with US regulators.

Investors were informed of VW's diesel fraud after US regulators whistled the whistle on September 18, 2015.

VW argues that it was not necessary to inform investors earlier as it did not expect to face significant fines.

VW management had tried to close an agreement with US regulators behind closed doors, a process that would make the costs "generally controllable with respect to the Volkswagen Group's business activities," says a VW document.

A defense file filed in the Braunschweig court indicates that VW's chief financial officer was informed of the possibility of a problem with the US authorities on 14 September 2015.

At the time, VW thought it could repair polluting vehicles with a software update and assessed the potential financial risk at around 150 million euros, says the Braunschweig paper.