A federal judge on Friday asked the U.S. Securities and Exchange Commission on the timing of its civil suit submitted in March alleging Volkswagen AG of defrauding investors and demanded the agency describe its rationale.
Volkswagen was caught using illegal software to evade U.S. pollution tests in 2015, causing a global backlash against diesel vehicles that cost it 29 billion euros until now.
At a status conference on Friday in San Francisco, U.S. District Judge Charles Breyer was also concerned with the SEC’s “lateness” in suing VW over two years after the company settled the Justice Department’s criminal investigation, pleading guilty to three felonies and paying $4.3 billion in fines.
“My basic question is what took you so long,” Breyer stated, adding he was “totally mystified” why the SEC waited until this year.
A person knowledgeable about the matter stated the SEC served its first official subpoena on Volkswagen in January 2017 and released a formal Wells notice in June 2018.
“I want to remind you that the symbol of the SEC is the symbol right up there, of the eagle. It’s not a carrion hawk that simply descends when everything is all over and sees what it can get from the defendant,” Breyer stated.
Daniel Hayes, a lawyer for the SEC, informed Breyer the agency “moved as quickly as we could” and also said that there were settlement negotiations that did not result in a deal.
“We started an investigation, we carried out an investigation that specifically focused on whether there were violations of the security fraud. That takes time,” Hayes stated.
Breyer directed the SEC to describe by July precisely when the agency was made aware of the factual allegations and to submit a declaration detailing its “reasoning for waiting until March of this year to file this complaint.”
Regulators and investors debate VW should have told them sooner regarding the scope of the scandal, while VW states it was unclear it would face billions of dollars in fines and penalties as others had paid out much lower sums.
VW issued over $13 billion in bonds and asset-backed securities in U.S. markets during a time when senior executives were aware of over 500,000 U.S. diesel vehicles grossly exceeded legal vehicle emissions limits, the SEC complaint states.
The automaker reaped hundreds of millions of dollars by releasing the securities at more attractive charges for the company, the SEC stated.
The SEC suit also named former Volkswagen CEO Martin Winterkorn, seeking to prohibit him from serving as an officer or director of a public U.S. company.
VW has stated the SEC complaint is lawfully and factually flawed, and the automaker “will contest it vigorously.”