Porsche Asks Court to Throw Out VW Shareholder's Case, Former CEO Partially Exonerated

Porsche is looking to draw a line under the ongoing legal wrangling concerning the company's dealings in Volkswagen (VW) shares during its abortive takeover attempt by asking the U.S. court to dismiss the case brought by disgruntled shareholders on technical grounds. According to a Dow Jones Report the Porsche holding company, Porsche Automobil Holding SE, which was the vehicle used to acquire VW shares and cash-settled options, will formally ask the New York court hearing the case brought by United States-based shareholders to throw the case out as it does not regard the court as having legal authority over the dispute. Porsche will make the request following a legal precedent that is seemingly relevant to the case that was established in the United States earlier in the year. In June the U.S. highest judicial authority, the Supreme Court, ruled that the country's Exchange Act did not apply to foreign stocks traded on foreign exchanges. This ruling originally came in a lawsuit against National Australia Bank, with the court further decreeing that investors buying shares in foreign companies outside the United States cannot claim for damages in the United States in the event of alleged legal irregularities (see United States: 28 June 2010: Ruling May Halt U.S. Hedge Fund Legal Action Against Porsche).

The case against Porsche was brought by a group of U.S. investors mainly comprising hedge funds that lost a combined figure in the billions when Porsche revealed to the markets that it has a much larger share of VW shares under its control than had been anticipated by other shareholders. Through the use of cash-settled share options, Porsche announced in October 2008 that it controlled 74.1% of VW's total stock, holding 42.6% of its stock in wholly owned shares with a remaining 31.5% under its control in the form of cash-settled options. German stock market regulations did not require Porsche to disclose to the market the number of cash-settled options it controlled. As a result hedge funds which had chosen to "short" VW shares in the hope that their value would go down were left to buy a small pool of available shares of around 6% of the company's overall stock as they scrabbled to cover these positions. The resulting squeeze on VW shares saw the company's stock price rocket to a high of 1,005 euro, approximately 15 times higher than its natural level. A BBC story in the immediate aftermath of the VW share spike put the combined losses ion the hedge funds at around US$28 billion, although this figure is at the upper end of the scale of estimates.

Meanwhile in a separate development, Stuttgart prosecutors investigating claims of share manipulation has partially exonerated the architects of the aborted Porsche takeover of VW, the company's former chief executive Wendelin Wiedeking and firm's chief financial officer Holger Härter. According to a Handelsblatt report, the prosecutors did not see enough evidence to continue the current investigation into insider trading. However, a spokesperson for the prosecutors office said that the authorities would decide by the end of the year whether to persist in the investigation against the former Porsche managers for stock exchange manipulation.

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