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SEC: VW Securities Fraud

3948 Views 14 Replies 5 Participants Last post by  KenC
More dieselgate fallout.

The US Securities and Exchange Commission is suing Volkswagen, accusing the German carmaker of carrying out "a massive fraud" by cheating on emissions tests.

The American market regulator said late Thursday that Volkswagen (VLKAF) and former CEO Martin Winterkorn fraudulently raised billions of dollars from investors, including by overplaying the firm's environmental credentials.
https://www.cnn.com/2019/03/15/business/volkswagen-winterkorn-sec-emissions/index.html

To which VW replied. "nuh-uh"

They could be on the hook for hundreds of millions of dollars in inflated stock value at time the stock was sold, so fighting the charges is not a surprise.
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Going with "Double Jeopardy for $1000" Alex.

Not a fan of VW, but government needs to prosecute once per crime. Exactly how did VW make billions by cheating on emissions and getting caught?
 

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Discussion Starter · #4 ·
SEC is not the EPA. Different crimes. Like a felon robbing a bank with a gun. I think there are at least two crimes there. And if the getaway car was parked in a no parking zone, there's a third. :)
 

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SEC is not the EPA. Different crimes. Like a felon robbing a bank with a gun. I think there are at least two crimes there. And if the getaway car was parked in a no parking zone, there's a third. :)
If you allow every Federal agency to sue somebody, that's like 4,000 lawsuits. If half of them are on holiday.

VW already lost billions, and the SEC is going to sue them making billions?
 

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Discussion Starter · #6 · (Edited)
The SEC is targeting fraudulent stock sale. They are claiming VW knew they had a problem and deliberately hid the fact from investors who then paid more for the stock they bought than they would have if the scandal had been known. Ever see one of those stock prospectuses where the company lists all the possible ways the company (and stock) could go south? The reason for the disclosures is to make sure the investor is informed before purchase. There is liability for misstatements in a prospectus.

http://www.mca.gov.in/SearchableActs/Section35.htm

The issue here is fraud in the prospectus disclosure, not that VW polluted more than it should. That EPA cheat was and is a separate crime/issue.

Say you burn down your house (arson), and then you finagle a loan based on the value of your unburnt home (fraud) and maybe bribe the appraiser for good measure. You can be charged with arson and loan fraud. Your loan fraud will not be ignored simply because you were caught and punished for the arson.

VW already lost billions, and the SEC is going to sue them making billions?
The SEC charges may result in hundreds of millions in fines, not billions. From the article:

The lawsuit alleges that the company made false and misleading claims about its financial health and the environmental impact of its technology in order to sell the securities to investors at inflated prices.

The SEC alleges that senior Volkswagen executives were aware when the securities were sold that more than 500,000 of the company's vehicles in the United States breached vehicle emissions limits.

"By concealing the emissions scheme, Volkswagen reaped hundreds of millions of dollars in benefit by issuing the securities at more attractive rates for the company," the SEC said in a statement. The complaint targets Volkswagen, two of its US subsidiaries and Winterkorn.

The SEC is seeking to recover "ill-gotten gains" from the automaker and impose civil penalties.
 

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They would have to prove damages. The stock is down from highs but so is almost every other auto stock with the down turn in auto industry. Would have to prove it's because of cheating rather than market forces.
 

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what stocks are now has no bearing on this investigation, it is what the value was at the time the infraction occurred.
Not now but if they can't prove any stock devaluation after cheating was revealed was caused by with holding information and not by market conditions they are out of luck. That's why the VW response.
 

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Discussion Starter · #11 ·
Until the courts decided against VW, they had no obligation to tell shareholders they lost before it went to trial.
You are conflating later events. The SEC is claiming VW knew they were cheating the diesel tests and they knew that the image they were projecting of the environmental impact of its technology was predicated on a lie, and that they knew or should have known that the cheating risked a negative impact on sales and liabilities. That's a lot of bad news they deliberately kept from investors. Had investors known, they would not have paid top dollar for the stock. The stock would have been beaten bloody and sold at a lower price.

At least, that seems the SEC's position.

VW will argue that investors would not have paid less had they known the company was cheating (lol) and the liability that cheating exposed them to, and they will claim no one at the company who were involved with the stock knew (lol) about the cheating.

Failing that, they will then argue about how much actual damages (based on the inflated purchase price) the investors suffered. One way of looking at that is to compare the stock price the days before the cheating scandal hit the fan to where it went after.
 

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Nothing to do with stock or stock sales. The issue is when VW raised money thru the sale of bonds or other notes, to fund building a new factory, etc. The idea is that VW got a lower rate of interest than they would have gotten if diesel gate had been known. I suppose bondholders lost some potential interest, but you can't assume the same bondholders would have held VW bonds, if they had a different rating, as many institutional investors are restricted to the quality of bonds they hold.

A SEC fine makes sense, but I'm not sure bondholders will have much success if they decide to do a class-action lawsuit.
 

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Nothing to do with stock or stock sales. The issue is when VW raised money thru the sale of bonds or other notes, to fund building a new factory, etc. The idea is that VW got a lower rate of interest than they would have gotten if diesel gate had been known. I suppose bondholders lost some potential interest, but you can't assume the same bondholders would have held VW bonds, if they had a different rating, as many institutional investors are restricted to the quality of bonds they hold.

A SEC fine makes sense, but I'm not sure bondholders will have much success if they decide to do a class-action lawsuit.
Ugghh... It was VW's contention at the time that they broke no laws. Only later did a court make the decision they did. So you are saying VW should have informed the planet directly instead of the hundreds of news stories, that while they consider themselves not guilty, nobody should buy their stock?
 

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Discussion Starter · #14 · (Edited)
Nothing to do with stock or stock sales.
Correct, bonds and other cash raising financial instruments, my mistake.

Ugghh... It was VW's contention at the time that they broke no laws.
And the bank robber denied robbing the bank.

VW were cheating but denied and lied about, lied about it, lied about, until they could not lie anymore and the hammer came down. Hard. It was not one guy who went rogue and nobody knew, it was teams of people deliberately cheating the emissions test for something like a decade and the execs knew. It was institutionalized. The SEC says Winterkorn was in on the whole diesel emissions cheating scheme as far back as 2007. That's 8 years before the cheating was exposed. That's why they ended up in such a huge, ugly, expensive mess. And that's why the SEC can go after them. Whether and how much they will collect, who knows?
 

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Ugghh... It was VW's contention at the time that they broke no laws. Only later did a court make the decision they did. So you are saying VW should have informed the planet directly instead of the hundreds of news stories, that while they consider themselves not guilty, nobody should buy their stock?
I have no idea what your post has to do with mine.
 
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