VOW Volkswagen AG

By William Boston 

BERLIN -- German prosecutors said they have filed charges against Volkswagen AG Chief Executive Herbert Diess, Chairman Hans-Dieter Pötsch, and former CEO Martin Winterkorn for allegedly misleading shareholders in the months before the 2015 emissions-cheating scandal.

In the surprise indictment on Tuesday, prosecutors in Braunschweig, near Volkswagen's Wolfsburg headquarters, argued that the executives withheld information about the scandal from shareholders in an attempt to prop up the auto makers share price.

Volkswagen shares were down 2.8% in early afternoon trading in Europe.

The indictment of Mr. Diess, in particular, is a blow to the company and its repeated efforts to put the emissions scandal behind it amid a rough patch for global car makers, which are facing slowing demand and an expensive and risk-fraught transition to electric vehicles.

After U.S. authorities disclosed in Sept. 2015 that Volkswagen had rigged millions of diesel-powered vehicles to cheat emissions tests for nearly a decade, the company's shares lost nearly half their value. In the ensuing criminal and civil cases, Volkswagen accrued fines, penalties and compensation totaling around $30 billion.

Volkswagen and the three accused rejected the indictment as groundless. Mr. Diess, through his lawyer, said he would continue to perform his duties as CEO.

The prosecutors argue that the three executives knew about the cheating and the potential damages in the summer of 2015 at the latest and should have informed financial markets about the U.S. investigation at that time.

"But instead, each one of them intentionally and with full awareness decided not to publish an ad hoc statement in order to keep Volkswagen's share price at its current level and prevent losses for VW AG," prosecutors said in their statement.

Mr. Diess, who joined the company in July 2015 and became chief executive in April 2018, has been leading Volkswagen through one of the biggest and most costly strategic transformations in its history as it pushes into electric vehicles and new self-driving technology.

Mr. Diess is the third chief executive to lead Volkswagen since the scandal broke out and the one most clearly associated with the company's efforts to change its image, not just by making an expensive bet on electric technology but also by changing a top-down corporate culture some analysts have blamed for the scandal.

Mr. Diess' attorneys said the charges against him were unjustified.

"Newly arrived in July 2015, Dr. Diess wasn't in any position to foresee the magnitude of the economic consequences actually resulting from the diesel emissions fraud," Dortmund-based attorneys Tido Park and Tobias Eggers said in a statement.

Prosecutors, citing their 636-page indictment, said their investigation showed that Mr. Winterkorn had been aware of the potential damages at least since May 2015, that Mr. Diess, who had only joined the company three weeks prior, was informed about the cheating and the potential legal consequences for the company at a meeting on July 27, 2015. Mr. Pötsch, who was then the company's finance chief, was informed on June 29, 2015, according to the charges.

Attorneys for Mr. Pötsch, who became chairman in 2015, said the indictment was unfounded.

"In the summer of 2015, no obligation to inform the capital market arose at any time even from a purely capital-market law perspective," they said.

Attorneys for Mr. Winterkorn, who was forced to resign when the scandal became public, issued a statement that said the former Volkswagen CEO "had no prior knowledge of the intentional use of illegal engine control software in U.S. diesel cars," and dismissed the prosecutor's indictment as unfounded.

Mr. Winterkorn has long argued that internal reports about the illegal software that manipulated the cars' emissions never reached him and that he relied on his associates responsible for such issues to obey the law.

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

September 24, 2019 08:58 ET (12:58 GMT)

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