SEC Sues Volkswagen for Concealing Its Diesel Emissions Cheating from Investors

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

The German automaker sold billions of dollars of corporate bonds and asset-backed securities in the U.S. from 2010 to 2015 while concealing its emissions-cheating scheme, according to the complaint filed by the regulator late Thursday in San Francisco federal court. The case 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,” the SEC alleged.

VW said the SEC complaint is “legally and factually flawed” and the company will “contest it vigorously.” It accused the Commission 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 emailed 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.

Volkswagen shares were down 0.2 percent at 148 euros at 9:53 a.m. in Frankfurt.

Allegations that VW wrongfully withheld information about the emission software used in its diesel cars have loomed over the company since the scandal first broke in 2015. The crisis involved as many as 11 million diesel cars worldwide and has cost the Wolfsburg-based company about 28 billion euros ($32 billion) so far.

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

Diesel Breaches

German prosecutors are also carrying out a criminal investigation into whether current Chief Executive Officer Herbert Diess, Chairman Hans Dieter Poetsch, and then-CEO Martin 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 trio. VW also said Tuesday that an administrative probe was opened against the company as part of the case.

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

The case is U.S. Securities and Exchange Commission v. Volkswagen AG, 3:19-cv-01391, U.S. District Court, Northern District of California (San Francisco).

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