SEC Charges Volkswagen with Defrauding Bond Investors

Regulator accuses automaker of ‘massive fraud’ to sell bonds at inflated prices.

The SEC has charged automaker Volkswagen, two of its subsidiaries, and former CEO Martin Winterkorn for defrauding US investors by raising billions of dollars through the corporate bond and fixed income markets while making “deceptive claims” about the environmental impact of the company’s so-called “clean diesel” fleet.

According to the complaint filed by the SEC, from at least 2007 through September 2015, Volkswagen perpetrated “a massive fraud,” as Winterkorn and other senior officials “repeatedly lied to and misled” US investors, consumers, and regulators as part of an illegal scheme to sell its “clean diesel” cars.  The SEC said the company marketed billions of dollars of corporate bonds and other securities in the US without disclosing that the cars used a defeat device to conceal emissions problems.

“VW subsequently sold in the US hundreds of thousands of ‘clean diesel’ vehicles containing the defeat device,” said the SEC in its complaint. “Meanwhile, it raised billions of dollars from US investors to fund its expanding sales of ‘clean diesel’ cars across the globe.”

The complaint added that “years later, when US authorities began investigating emissions problems with VW vehicles, the company misled government investigators, concocted a sham software fix, and destroyed thousands of incriminating documents and other evidence.”

Volkswagen issued more than $13 billion in bonds and asset-backed securities in the US markets from April 2014 to May 2015, when senior executives allegedly knew that more than 500,000 vehicles in the US exceeded legal vehicle emissions limits, said the SEC.

The complaint alleges that Volkswagen made false and misleading statements to investors and underwriters about vehicle quality, environmental compliance, and the company’s financial standing. It also says that Winterkorn and other executives knew of the devices used to skirt emissions regulations as early as November 2007. In March of 2017, Volkswagen pled guilty in a US District Court to conspiracy to commit fraud, obstruction of justice, and importing goods by false statements.

The SEC said that by concealing the emissions scheme, Volkswagen collected hundreds of millions of dollars by issuing the securities at more attractive rates for the company.

“Issuers availing themselves of American capital markets must provide investors with accurate and complete information,” said Stephanie Avakian, co-director of the SEC’s division of enforcement.  “As we allege, Volkswagen hid its decade-long emissions scheme while it was selling billions of dollars of its bonds to investors at inflated prices.”

The SEC’s complaint, filed in the US District Court for the Northern District of California, charges Volkswagen AG, its subsidiaries Volkswagen Group of America Finance, LLC and VW Credit, Inc., and Winterkorn with violating the antifraud provisions of federal securities laws. The SEC complaint seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties.  The complaint also seeks an officer and director bar against Winterkorn.

Related Articles:

SEC Charges Four in Elaborate Microcap Stock Fraud

SEC Charges Audit Firm in Failure to Detect Unpaid Taxes





Tags: , ,