The Securities and Exchange Commission on March 14 charged Volkswagen, two of its subsidiaries, and its former CEO, Martin Winterkorn, with defrauding U.S. investors, raising billions of dollars through the corporate bond and fixed income markets while making a series of deceptive claims about the environmental impact of the company’s “clean diesel” fleet.

According to the SEC’s complaint, from April 2014 to May 2015, Volkswagen issued more than $13 billion in bonds and asset-backed securities in the U.S. markets at a time when senior executives knew that more than 500,000 vehicles in the United States grossly exceeded legal vehicle emissions limits, exposing the company to massive financial and reputational harm. The complaint alleges that Volkswagen made false and misleading statements to investors and underwriters about vehicle quality, environmental compliance, and VW’s financial standing. By concealing the emissions scheme, Volkswagen reaped hundreds of millions of dollars in benefits by issuing the securities at more attractive rates for the company, according to the complaint.

“Issuers availing themselves of American capital markets must provide investors with accurate and complete information,” said SEC Enforcement Division Co-Director Stephanie Avakian in a release.  “As we allege, Volkswagen hid its decade-long emissions scheme while it was selling billions of dollars of its bonds to investors at inflated prices.”

The SEC’s complaint, filed in the U.S. District Court for the Northern District of California, charges Volkswagen, its subsidiaries Volkswagen Group of America Finance and VW Credit, and Winterkorn with violating the anti-fraud provisions of the federal securities laws.  

The SEC complaint seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties. The complaint also seeks an officer-and-director bar against Winterkorn.

In its annual report, Volkswagen said the SEC had “requested information from Volkswagen regarding potential violations of securities laws in connection with issuances of bonds and asset-backed securities as a result of non-disclosure of certain Volkswagen diesel vehicles’ noncompliance with U.S. emission standards. The SEC informed Volkswagen that it had issued a formal order of investigation in January 2017; this investigation is ongoing. The SEC Staff subsequently informed Volkswagen that the SEC might bring an enforcement action against Volkswagen arising out of this investigation.”

In January 2017, Volkswagen pleaded guilty and paid a total of $4.3 billion in criminal and civil penalties to U.S. authorities. In June 2018, German authorities fined Volkswagen a total of €1 billion (U.S. $1.2 billion)—the maximum penalty legally allowed—resulting from the company’s long-running emissions-cheating scandal.

At Compliance Week 2018, Hiltrud Werner, head of integrity and legal affairs at Volkswagen Group, spoke candidly about how Volkswagen is recovering from the scandal and trying to emerge a stronger, better company.