Volkswagen Group’s two top leaders, CEO 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 automaker’s diesel-emissions scandal.
Former CEO Martin Winterkorn was also charged in the case. Prosecutors in Brunswick in VW’s home state of Lower Saxony, Germany, filed the indictment on Tuesday, the authority said in a statement.
The executives intentionally failed to inform investors in time about the financial impact of the scandal, the prosecutors’ office said.
VW said it is confident it fulfilled all reporting obligations under capital markets law.
“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,” said VW’s management board member for legal and integrity, Hiltrud Werner. “If there is a trial, we are confident that the allegations will prove to be unfounded,” she said.
VW said its full supervisory board would convene on Wednesday to discuss the indictments.
Lawyers for the three accused said they would contest the charges that they knowingly held back vital information.
Diess’s lawyer said the indictment would not hinder him in his role as CEO.
Diess joined VW Group in July 2015 as head of the VW brand, just months before the rigging became public. He could not have foreseen the scandal would have such a huge impact on the company, his lawyer Tido Park said.
Poetsch’s lawyer said the charge was “implausible” and “unfounded.” Poetsch, who was VW’s chief financial officer, when he scandal broke, could not have foreseen that the exhaust gas manipulations were deliberate nor the financial sanctions of the US authorities, said his lawyer Norbert Scharfmit.
Winterkorn’s lawyer said the former CEO had no early knowledge of the use of prohibited engine control software in the automaker’s diesel cars. Essential information that would have enabled Winterkorn to judge the problems correctly did not reach him at the right time, his lawyer Felix Doerr said.
Winterkorn, resigned in the days after the scandal broke. He told German lawmakers in early 2017 that he did not find out about the cheating any earlier than VW had officially admitted.
VW shares lost up to 37 percent in value in the days after the scandal broke. If investors had known about VW’s cheating, they might have sold shares earlier or not made purchases, plaintiffs have argued.
The Brunswick prosecutors said the U.S. authorities had been investigating whether VW’s diesel cars had been fitted with a “defeat device” to disguise high NOx emissions since 2014 and the situation deteriorated further in the spring of 2015 with “growing and persistent inquiries” from the authorities.
“Due to the considerable financial consequences resulting from the explosive nature of the issue, the defendants were aware that the capital market had to be informed. However, they deliberately refrained from the necessary ad-hoc announcement in order to keep the stock market price of VW shares at the previous level and to avoid losses of VW AG,” the prosecutors said.
Prosecutors said that Winterkorn knew no later than May 2015 of the illegal manipulation, and that Poetsch was in the know from June 29 of that year. Diess had complete knowledge of the matter from July 27, less than a month after he had joined the company. The scandal wasn’t brought to the public’s attention until Sept. 18 via a so-called “notice of violation” by U.S. authorities.
With their top managers now in the firing line, VW is facing a dramatic setback in the scandal that has been haunting the automaker since September 2015, which is when the company admitted that it used a software in 11 million diesel vehicles to cheat on emissions tests.
The toll at the 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.
Juergen Pieper, an analyst at Bankhaust Metzler, said Winterkorn and Poetsch “face a certain risk” from the lawsuit, but said it would be hard to prove a formal break of rules will be harder, and even more so for Diess. “In Diess’ case I find it absurd to bring him to court,” Pieper said.
Winterkorn, who swiftly stepped down in the wake of the scandal unfolding, maintained early on that this was the deed of a small group of rogue engineers. That view contradicts Winterkorn’s legendary attention to detail and his deep involvement in all sorts of mundane minutiae, a reputation he built over more than a decade of overseeing the sprawling company.
The criminal case may dim VW’s prospects in a related investor mass suit by shareholders seeking more than 9 billion euros in damages over the same allegations.
Volkswagen’s risks are “limited at the moment,” Evercore ISI analyst Arndt Ellinghorst said in a note. These include material claims from investors and the possibility that Diess would be weakened or even forced to leave the company.
The Brunswick court now has to review the indictment and decide whether to try the accused 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.
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.