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March 19, 2019

Volkswagen Fraud – Former CEO Defrauding Bond Investors

Last week, the Securities and Exchange Commission charged Volkswagen AG, its subsidiaries Volkswagen Group of America Finance, LLC and VW Credit, Inc., and it’s former CEO, Martin Winterkorn, with defrauding U.S. bond investors in connection with its clean diesel scandal.

In its complaint, the SEC alleges that between April 2014 and May 2015, Volkswagen issued more than $13 billion in bonds and asset-backed securities to U.S. investors when the senior executives knew that more than a half of a million Volkswagen vehicles in the U.S. grossly exceeded vehicle emissions limits imposed by U.S. law, exposing the company to huge legal risks. By marketing these securities without disclosing the company’s legal exposure, VW was able to sell its bonds to investors at inflated prices.

According to the SEC, in as early as 2007, Winterkorn and other senior executives were aware that a “defeat device” was installed in VW vehicles to conceal emissions problems. At the time, Winterkorn was enacting an aggressive plan to make VW the most profitable and environmentally friendly automaker in the world by 2018, the cornerstone of which was its revolutionary “clean diesel” engines which promised to provide both fuel efficiency and a reduction of toxic vehicle emissions. Winterkorn’s plan was funded by selling bonds and asset-backed securities in the U.S. markets. The offering documents touted the company’s commitment to developing energy-efficient vehicles and reducing vehicle emissions. Unbeknownst to investors, the VW’s clean diesel vehicles emitted pollutants which far exceeded legal emissions standards and contained “defeat devices” to allow the vehicles to pass emissions tests.

In 2015, VW admitted it made false statements regarding its clean diesel technology to U.S. regulators.  In 2017, VW pled guilty in a United States District Court to conspiracy to commit fraud, obstruction of justice, and importing goods by false statements.  VW paid the U.S. Department of Justice a 2.8-billion-dollar penalty for those crimes. In addition, VW has also paid billions to resolve civil claims brought by consumers, the EPA, and state attorneys general. However, VW has never repaid the money fraudulently obtained by selling bonds and asset-backed securities to U.S. investors. In its Complaint, the SEC states “Had the truth been known, VW never would have gotten away with charging U.S. investors artificially inflated prices for its bonds and ABS.”

The complaint seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties against the corporate defendants, as well as permanent injunctions, civil penalties and an officer-and-director bar against Winterkorn. A copy of the SEC’s complaint can be found at https://www.sec.gov/files/complaint-2019-03-14_0.pdf

If you believe that you have been a victim of securities fraud, please call the Costello Law Group at 410-832-800 (or Toll-Free 877-418-0003) for a free consultation.