Volkswagen AG was accused in a lawsuit of scheming to defraud U.S. investors who paid artificially inflated prices for the company’s foreign shares while it cheated on vehicle emissions tests.
In what may be the first investor suit over Volkswagen’s use of so-called defeat device software to pass smog tests, a Michigan pension fund alleges that holders of the company’s American depositary receipts lost hundreds of millions of dollars. The receipts have fallen 29 percent in the week since the scandal became public.
The fund is seeking to represent other such holders, who may be the only investors able to collect on any claims against the company, based in Wolfsburg, Germany.
While Volkswagen shares have plummeted this week, only a small fraction of the company’s investors will be able to claim securities fraud in U.S. courts. A 2010 decision by the U.S. Supreme Court will block most investors from recouping losses, said attorney Salvatore Graziano, of Bernstein Litowitz Berger & Grossman LLP in New York.
The court’s decision in an investor lawsuit involving National Australia Bank determined that U.S. securities laws don’t protect foreign investors who buy stock in non-American companies on overseas exchanges. That limits the U.S. suits to holders of the ADRs.
“It enables VW to avoid billions of dollars” in potential payments to shareholders, Graziano said. Graziano, who represented shareholders in the recent settlement with General Motors Co. over stock price drops connected to recalls of defective ignition switches, said his firm won’t be filing a securities class action over Volkswagen as a result.
Volkswagen is also facing more than 80 federal court lawsuits by consumers alleging the company committed fraud by cheating on emissions tests, inducing them to pay more for their vehicles. Those lawsuits were filed as class actions representing all consumers in the U.S. or individual states who leased or bought the vehicles.
Bob Hilliard, one of the lawyers representing car owners, said Friday in a statement that his firm was the first to obtain a court order in a Texas state court barring sales of vehicles equipped with the defeat device software. Volkswagen had earlier agreed to stopped selling the vehicles.
The investor suit was filed Friday in federal court in Alexandria, Virginia, by the City of St. Clair Shores Police and Fire Retirement System. The company’s Volkswagen Group of America unit is located in nearby Herndon, Virginia.
Jeannine Ginivan, a Volkswagen spokeswoman, declined to comment on the complaint.
ADRs allow U.S. investors to buy shares in a foreign company through negotiable certificates issued by an American bank. The certificates represent a specified number of shares in a foreign stock that is traded on a U.S. exchange.
The St. Clair fund wants to represent holders who purchased the company’s ordinary and preferred ADRs from Nov. 19, 2010, to Sept. 21, according to the complaint. The proposed class would not have purchased VW ADRs at the prices they paid had they been aware they were artificially inflated, the fund said in the complaint.
The fund’s case is City of St. Clair Shores Police and Fire Retirement System v. Volkswagen AG, 15-01228, U.S. District Court, Eastern District of Virginia (Alexandria).
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