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By William Boston
BERLIN -- German prosecutors Tuesday said they have filed charges against Volkswagen AG Chief Executive Herbert Diess, Chairman Hans Dieter Pötsch and former CEO Martin Winterkorn for allegedly misleading shareholders in the months before the 2015 emissions-cheating scandal.
In the surprise 636-page indictment, prosecutors in Braunschweig, near Volkswagen's Wolfsburg headquarters, argued that the executives withheld information about the scandal from shareholders in an attempt to prop up the auto maker's share price.
Volkswagen shares were down 2.8% in early afternoon trading in Europe.
The indictment of Mr. Diess, in particular, is a blow to the company and its repeated efforts to put the emissions scandal behind it amid a rough patch for global car makers, which are facing slowing demand and an expensive and risk-fraught transition to electric vehicles.
After U.S. authorities disclosed in September 2015 that Volkswagen had rigged millions of diesel-powered vehicles to cheat emissions tests for nearly a decade, the company's shares lost nearly half their value. In the ensuing criminal and civil cases, Volkswagen accrued fines, penalties and compensation totaling around $30 billion.
Volkswagen and the three accused rejected the indictment as groundless. Mr. Diess, through his lawyer, said he would continue to perform his duties as CEO.
The prosecutors argue that the three executives knew about the cheating and the potential damages in the summer of 2015 at the latest and should have informed financial markets about the U.S. investigation at that time.
"But instead, each one of them intentionally and with full awareness decided not to publish an ad hoc statement in order to keep Volkswagen's share price at its current level and prevent losses for VW AG," prosecutors said in their statement.
The company's top directors, a small powerful committee that includes Wolfgang Porsche, patriarch of the Porsche-Piech clan that controls a majority of the company's stock, the state of Lower Saxony and the representatives of the IG Metall trade union, are expected to meet later on Tuesday, ahead of an extraordinary meeting of the supervisory board this week, according to people familiar with the matter.
Directors are expected to voice their support for Mr. Diess or Mr. Pötsch, according to the people.
"Anything else would be a surprise," one of the people said.
Mr. Diess, who joined the company in July 2015 and became chief executive in April 2018, has been leading Volkswagen through one of the biggest and most costly strategic transformations in its history as it pushes into electric vehicles and new self-driving technology.
Mr. Diess is the third chief executive to lead Volkswagen since the scandal broke out and the one most clearly associated with the company's efforts to change its image, not just by making an expensive bet on electric technology but also by changing a top-down corporate culture some analysts have blamed for the scandal.
Mr. Diess' attorneys said the charges against him were unjustified.
"Newly arrived in July 2015, Dr. Diess wasn't in any position to foresee the magnitude of the economic consequences actually resulting from the diesel emissions fraud," Dortmund-based attorneys Tido Park and Tobias Eggers said in a statement.
A trial is months if not years away, giving the slow grind of Germany's courts. But if the defendants were found guilty of the charges, it would boost claims by shareholders who are seeking around EUR9 billion ($10 billion) in damages to recoup share losses after the emissions cheating was disclosed. Volkswagen cites the shareholder suit in the risk section of its annual reports.
The prosecutors indictment said Mr. Winterkorn had been aware of the potential damages at least since May 2015, that Mr. Diess, who had only joined the company three weeks prior, was informed about the cheating and the potential legal consequences for the company at a meeting on July 27, 2015. Mr. Pötsch, who was then the company's finance chief, was informed on June 29, 2015, according to the charges.
Attorneys for Mr. Pötsch, who became chairman in 2015, said the indictment was unfounded.
"In the summer of 2015, no obligation to inform the capital market arose at any time even from a purely capital-market law perspective," they said.
Attorneys for Mr. Winterkorn, who was forced to resign when the scandal became public, issued a statement that said the former Volkswagen CEO "had no prior knowledge of the intentional use of illegal engine control software in U.S. diesel cars," and dismissed the prosecutor's indictment as unfounded.
Mr. Winterkorn has long argued that internal reports about the illegal software that manipulated the cars' emissions never reached him and that he relied on his associates responsible for such issues to obey the law.
The prosecutor's will have to prove in court that Volkswagen executives were aware already in 2015 of the unprecedented magnitude of the penalties they would face in the U.S.
"These charges will trigger a long lasting court case and we believe it to be unlikely that VW will face material negative financial and/or management consequences," said Arndt Ellinghorst, an automotive analyst at Evercore ISI, a brokerage.
The new indictments are the result of investigations into various potential violations that began immediately following disclosure of the emissions cheating.
The prosecutors are still investigating 35 individual suspects, now largely former Volkswagen employees, in its main investigation into the origins of the scandal. Mr. Winterkorn was also indicted in April along with four other people who have not been identified on charges of fraud and unfair competition practices. In another case, the prosecutors are investigating a former member of Volkswagen's legal team on suspicion of destroying evidence.
The diesel scandal has also reached into Volkswagen subsidiaries Audi and Porsche. Rupert Stadler, former Audi CEO and a close ally of Mr. Winterkorn, was arrested and detained for months in 2018 and officially indicted on fraud charges in July in connection with Audi's role in the emissions cheating.
Two former Volkswagen executives pleaded guilty to violations of U.S. law in the aftermath of the diesel affair and are serving time in U.S. prisons.
Write to William Boston at firstname.lastname@example.org
(END) Dow Jones Newswires
September 24, 2019 10:13 ET (14:13 GMT)
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