German prosecutors widen VW net

In a bad weekend for the Volkswagen Group, German investigators have widened their probe into the company's share-market manipulation scandal to include the Supervisory Board’s Chairman Hans Dieter Pötsch.

The investigation from the Braunschweig public prosecutor is running parallel to its Dieselgate investigations and it became serious enough on Friday for Volkswagen to issue an extraordinary statement on Sunday denying Pötsch, the Group’s former Chief Financial Officer, had done anything wrong.

The denial comes at the same time that the head of the German Transport Department (KBA) countered Volkswagen’s claims that its Dieselgate emissions-cheating cars didn’t actually break EU law.

The KBA on Saturday morning insisted the Dieselgate cars were actually non-compliant with EU law, putting a major dent in Volkswagen’s hopes of avoiding a multi-billion euro, US-style compensation package for affected owners.

And it came at the same time that the California Air Review Board found another software coding cheat with Audi’s already-tainted 3.0-litre turo-diesel V6 engines, built from 2009 to 2015.

It found a code triggered by the right throttle loadings and less than 15 degrees of steering angle input that would put the car into “low output mode” for lower CO2 and NOx emissions.

But dragging Pötsch into a share-market manipulation scandal he was once cleared of has Volkswagen most worried.

“Volkswagen AG announces that the Braunschweig public prosecutor's office has extended its investigation against two members of the Company's Board for alleged market manipulation to include Hans Dieter Pötsch,” Volkswagen’s statement read.

“Based on careful examination by internal and external legal experts, the Company reaffirms its belief that the Volkswagen Board of Management duly fulfilled its disclosure obligation under German capital markets law.

“The proceedings refer to the period during which Hans Dieter Pötsch served as the Group Chief Financial Officer. The Company and Hans Dieter Pötsch will continue to give the inquiries by the public prosecutor's office their full support.”

The heart of the investigation relates to the timing of Volkswagen’s public admissions of guilt over Dieselgate, versus when it admitted to CARB and the US EPA that it had cheated.

It admitted its fault to CARB and the EPA on September 3 last year, but didn’t make that admission public until two weeks later, on September 22.

Volkswagen has been sued by people, shareholders, hedge funds, pension funds and even government sovereign wealth funds who insist that the two-week period amounted to manipulation of the share market.

Volkswagen claimed that the September 18 'Notice of Violation' from the EPA was a surprise, which was patently untrue given the brand’s admissions of September 3, insisting its discussions were developing well.

The issue has been that people who bought Volkswagen Group shares on, say, September 7, had no idea that Volkswagen shares were about to collapse in scandal when Volkswagen should have made them aware of it.

Volkswagen’s argument is that the maximum penalty of $US18 billion had never been applied in an EPA-cheating case before, with the largest previous fine being just $US100 million, which would have been a far more palatable, absorbable figure for a company of Volkswagen’s size. Instead, it lost a quarter of its market value.

Volkswagen’s argument is that it couldn’t have realistically anticipated a major drop in its share price, so the timing didn’t matter, even though 11 million cars were caught in the scandal.

There are other reasons Pötsch has been brought back into the investigation, which revolve around a European Court law that not only the event that moves the stock price, but the intermediate steps of that process need to be disclosed.

Ironically, the EU law stemmed from a 2012 ruling related to Daimler, when Juergen Scrempp’s resignation discussions weren’t made public.