By William Boston
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (September 25, 2019).
BERLIN -- German prosecutors Tuesday 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 636-page indictment, 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 maker's 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 September 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.
After an emergency meeting Tuesday, the company's top directors,
a small powerful committee that includes Wolfgang Porsche,
patriarch of the Porsche-Piech clan that controls a majority of the
company's stock, the state of Lower Saxony and the representatives
of the IG Metall trade union, dismissed the charges against Messrs.
Diess and Pötsch as unfounded and said the company wouldn't take
any action against them.
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.
A trial is months if not years away, giving the slow grind of
Germany's courts. But if the defendants were found guilty of the
charges, it would boost claims by shareholders who are seeking
around EUR9 billion ($10 billion) in damages to recoup share losses
after the emissions cheating was disclosed. Volkswagen cites the
shareholder suit in the risk section of its annual reports.
The prosecutors indictment said Mr. Winterkorn had been aware of
the potential damages at least since May 2015, and that Mr. Diess,
who had joined the company only 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.
The prosecutor's will have to prove in court that Volkswagen
executives were aware already in 2015 of the unprecedented
magnitude of the penalties they would face in the U.S.
"These charges will trigger a long lasting court case and we
believe it to be unlikely that VW will face material negative
financial and/or management consequences," said Arndt Ellinghorst,
an automotive analyst at Evercore ISI, a brokerage.
The new indictments are the result of investigations into
various potential violations that began immediately following
disclosure of the emissions cheating.
The prosecutors are still investigating 35 individual suspects,
now largely former Volkswagen employees, in its main investigation
into the origins of the scandal. Mr. Winterkorn was also indicted
in April along with four other people who have not been identified
on charges of fraud and unfair competition practices. In another
case, the prosecutors are investigating a former member of
Volkswagen's legal team on suspicion of destroying evidence.
The diesel scandal has also reached into Volkswagen subsidiaries
Audi and Porsche. Rupert Stadler, former Audi CEO and a close ally
of Mr. Winterkorn, was arrested and detained for months in 2018 and
officially indicted on fraud charges in July in connection with
Audi's role in the emissions cheating.
Two former Volkswagen executives pleaded guilty to violations of
U.S. law in the aftermath of the diesel affair and are serving time
in U.S. prisons.
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
September 25, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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