A new criminal indictment by German prosecutors on 15 April 2019 against Martin Winterkorn and four further unnamed individuals could have a positive impact on the model case proceeding launched by investors against Volkswagen AG (VW) in Germany last year. One of the key hurdles for investors to hold VW liable for violation of ad-hoc duties is to prove board member knowledge of the use of a defeat device before it became public in September 2015.
German prosecutors indicted VW’s former chief executive and four others for their part in the company’s diesel emissions scandal. The four other individuals have not yet been named, but they have been identified as senior management (“Führungskräfte”).
The charges include allegations of serious fraud and unfair competition, and could result in substantial fines, the return of nearly 11 million euros in salaries and bonuses, and a prison sentence of up to 10 years.
The indictment also covers a very broad period of alleged illegal activities dating back to 15 November 2006 for certain individuals. This is the date on which the infringing software was first being developed by VW.
Winterkorn is accused of gaining knowledge of the use of defeat devices in diesel vehicle engines on 25 May 2014. According to the indictment, he violated his duties as “guarantor” by failing to inform regulators and consumers in the US and Europe from that date. This comes after Winterkorn was criminally indicted in the US in May 2018 in relation to the same acts. Prosecutors there also allege that he was informed about the use of illegal software in May 2014.
During the most recent VW hearing on 25 March 2019, the court provided its preliminary opinion that ad-hoc responsibility could not be limited to VW board members, but that it extends to second-tier management levels.
While the German court’s decision makes the latest indictment less critical, it nevertheless indicates mounting and continued pressure on VW and Winterkorn. Both were also recently (15 March 2019) indicted by the Securities and Exchange Commission in the US on charges of issuing bonds and asset-backed securities between April 2014 and May 2015 at a time when senior executives were aware that VW diesel vehicles sold in the US exceeded permitted emissions levels.
