VW Stalled Bond Probe, SEC Says -- Update
July 08 2019 - 8:21PM
Dow Jones News
By Dave Michaels
WASHINGTON -- Volkswagen AG dragged out a federal investigation
into whether it defrauded U.S. bond investors by omitting details
about its efforts to cheat on diesel-emissions tests, according to
the government.
The Securities and Exchange Commission, in a Monday federal
court filing, explained why it took so long to sue Volkswagen and
its former chief executive officer after the auto maker pleaded
guilty in 2017 to criminal charges over the diesel-cheating
scandal. In May, a federal judge in San Francisco questioned the
SEC over the delay and said he was "totally mystified" by the
regulator's move.
Representatives for VW didn't immediately respond to requests
for comment.
The SEC said its probe began in September 2015 and struggled
with "long delays by VW in producing documents and other
information, uncooperative witnesses who were reluctant or
altogether refused to speak to the staff and efforts (with mixed
success) to navigate cumbersome procedures for collecting evidence
located abroad."
The agency's filing provides a rare, detailed timeline of one of
its enforcement investigations, which examined Volkswagen's sale of
$13 billion in bonds in the U.S. from April 2014 to May 2015. The
SEC claims senior executives knew more than 500,000 vehicles in the
U.S. grossly exceeded legal emissions limits during that
period.
The SEC said Volkswagen's costs of funding would have been
higher if the company had disclosed the burgeoning legal risks to
purchasers of its debt.
In its March civil lawsuit, the SEC said former CEO Martin
Winterkorn heard about an emissions cheating device from two
engineers in November 2007.
The SEC said it first sought a settlement with Volkswagen in
mid-2016, but the company excluded it from settlement talks with
the Department of Justice and other agencies.
"VW's counsel informed DOJ and the [SEC] staff that VW viewed
the SEC's securities investigation differently than the other
government investigations," the SEC wrote.
Volkswagen has said in prior court filings that the SEC's
lawsuit was "driven by hindsight bias and is an unfortunate example
of 'piling on.'" The company previously paid $50 million to settle
the Justice Department's civil fraud claims over some of the bonds
that are the basis of the SEC's March lawsuit.
The SEC said it didn't learn about $8 billion in other bonds
that Volkswagen issued until 2017, although it acknowledges that
bondholders sued the company and Mr. Winterkorn over the securities
in June 2016. The SEC's filing Monday said its staff didn't know
about that lawsuit, including media reports about it, until April
2017.
The SEC said it encountered obstacles abroad too. Germany's
financial regulator, the Federal Financial Supervisory Authority,
rejected the SEC's request for help obtaining documents and
interviews of key witnesses.
The SEC wrote that it then asked the Justice Department for its
assistance in arranging interviews but that it also turned the
agency down.
Volkswagen was slow to produce documents that identified
employees and officers involved in its bond offerings, the SEC
said. The company sent the SEC millions of pages of requested
documents but didn't include a spreadsheet that listed the names of
employees involved in preparing its bond disclosures, according to
the SEC.
U.S. District Judge Charles Breyer ordered the SEC in May to
make the filings it produced Monday. The regulator is seeking civil
penalties and disgorgement through its lawsuit.
The material filed Monday includes a 113-page statement from an
SEC supervisor in Chicago, Jeffrey Shank, that explains when the
SEC discovered each factual claim in its lawsuit.
Write to Dave Michaels at dave.michaels@wsj.com
(END) Dow Jones Newswires
July 08, 2019 20:06 ET (00:06 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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