Volkswagen AG’s two top leaders, Chief Executive Officer Herbert Diess and Chairman Hans Dieter Poetsch, were charged with market manipulation in Germany over allegations they failed to inform investors early enough about the diesel-emission scandal.
Former CEO Martin Winterkorn was also charged in the case, according to the indictment filed by Braunschweig prosecutors on Tuesday. The shares fell as much as 2.7% in Frankfurt, the most in almost six weeks.
“The company has meticulously investigated this matter with the help of internal and external legal experts for almost four years. The result is clear: the allegations are groundless,” VW’s management board member for legal and integrity Hiltrud Werner said in an emailed statement. VW remains confident it fulfilled all reporting obligations under capital markets law.
“If there is a trial, we are confident that the allegations will prove to be unfounded,” she said.
With their top managers now in the firing line, Volkswagen is facing a dramatic setback in the scandal that has been haunting the carmaker since September 2015 when the company admitted that it used a software in 11 million diesel vehicles to cheat on emissions tests.
The toll at the Wolfsburg, Germany-based company has reached 30 billion euros ($33 billion) in fines and other expenses so far.
The market-manipulation probe was prompted by Germany’s financial regulator Bafin, which in mid-2016 asked prosecutors to investigate Winterkorn and Diess.
Three months later, Poetsch was added as a suspect. Diess was chief of the VW brand at the time and had joined the company only in July 2015, just months before the rigging became public.
The criminal case may also dim VW’s prospects in a related investor mass suit by shareholders seeking more than 9 billion euros in damages over the same allegations.
VW has earmarked 5.5 billion euros in contingent liabilities for diesel-scandal matters and 3.4 billion euros are related to the investor lawsuits, Chief Financial Officer Frank Witter told analysts on May 2. At the same time, VW added a 1 billion-euro provision for legal costs.
The Braunschweig Regional Court now has to review the indictment and decide whether to try the men on the charges. In a complex matter like this one, the review usually takes months and the lawyers for the accused will get the opportunity to comment on the indictment before the three judges rule. That means any trial could take place next year at the earliest.
It would not be the first time that the head of one of Germany’s most prominent companies had to stand trial while running a globally-operating enterprise. Deutsche Bank AG has lived through it three times.
When Josef Ackermann was CEO of the lender, he was tried in 2004 in relation to his role in the Vodafone Group Plc takeover of Mannesmann AG. The case was settled after an initial acquittal was overturned on appeal.
About a decade later, his successor Juergen Fitschen was tried in Munich over the collapse of the Kirch media company and was acquitted in 2015 together with four other accused, including Ackermann.
Market-manipulation cases are rare in Germany and prosecutors haven’t been particularly lucky with them. Former Porsche Automobil Holding SE CEO Wendelin Wiedeking and ex-CFO Holger Haerter were acquitted in 2016 from such allegations.
At the time, Porsche’s defense was orchestrated by its General Counsel Manfred Doess who later moved to its board when it became the VW majority shareholder. He’s now VW’s head lawyer and will use his Stuttgart trial experience in the battle ahead.
Braunschweig investigators in July opened an administrative proceeding against VW in the market-manipulation probe. VW settled an earlier regulatory probe related to the investigation into the software rigging in June for 1 billion euros.
Poetsch, Winterkorn and former CEO Matthias Mueller are facing a similar investigation in Stuttgart into allegations the three didn’t properly inform the markets about the impact VW’s trouble caused by the diesel saga on its main shareholder Porsche. The three were on Porsche’s board in September 2015.
It’s the second indictment by Braunschweig prosecutors over the diesel scandal. Winterkorn and three other VW managers were charged in April for defrauding customer by selling rigged cars.