VOW3 Volkswagen AG

By Dave Michaels 

WASHINGTON -- A federal judge on Thursday dismissed part of a civil fraud case against Volkswagen AG, a ruling that validated the company's claims that regulators piled on with a 2019 lawsuit over its emissions scandal.

Volkswagen had already settled some of the regulatory claims in a 2016 deal with the Justice Department, wiping out the Securities and Exchange Commission's ability to sue over some bonds that were sold, U.S. District Judge Charles Breyer wrote. The settlement covered claims that Volkswagen's failure to disclose a device that cheated on emissions tests defrauded purchasers of $4.9 billion in asset-based bonds.

The decision is a loss for the SEC, which filed the lawsuit in March 2019 and argued the Justice Department couldn't override its ability to enforce investor-protection laws. Judge Breyer let some of the case proceed -- Volkswagen hadn't sought an outright dismissal -- but he did extinguish certain pillars of the case related to $8.3 billion in other bonds that were sold.

"Volkswagen is pleased with the court's decision to dismiss all of the SEC's claims with regard to almost $5 billion in auto asset-backed securities and to limit the scope of the remaining litigation," said Robert Giuffra, an attorney for the company at Sullivan & Cromwell LLP.

SEC spokesmen didn't respond to a request for comment.

The crux of the SEC's case is that Volkswagen sold more than $13 billion in debt securities at a time when, regulators alleged, senior executives knew that more than 500,000 vehicles in the U.S. grossly exceeded legal emissions limits. The SEC said in its complaint that failing to disclose the cars' vehicle-emissions problems in bond-offering documents defrauded investors.

Judge Breyer previously questioned why the SEC brought securities-fraud claims against Volkswagen years after other government agencies resolved their litigation over the auto maker's diesel-cheating scandal. The judge in 2019 suggested the agency looked like a "carrion hawk" picking over the remains of a crime.

Judge Breyer ordered the two sides to try to settle the case, but the SEC and Volkswagen said in March that they hadn't been able to reach a deal.

Volkswagen pleaded guilty to criminal charges in 2016 and has paid more than $25 billion in fines, penalties and compensation to settle criminal and civil litigation. The company said Thursday that it plans to continue fighting the SEC and believes the SEC isn't entitled to obtain any fines stemming from the bond offerings.

The SEC also sued Martin Winterkorn, Volkswagen's former chief executive. Mr. Winterkorn, who lives in Germany, has been indicted in his home country and in the U.S. in connection with the emissions scandal. Judge Breyer's order allowed the case against Mr. Winterkorn to proceed.

Write to Dave Michaels at dave.michaels@wsj.com

(END) Dow Jones Newswires

August 20, 2020 18:05 ET (22:05 GMT)

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