VOW3 Volkswagen AG

By Dave Michaels 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 17, 2019).

A federal judge on Friday ordered Volkswagen AG and the Securities and Exchange Commission to seek a settlement over allegations the auto maker defrauded U.S. investors, rather than continue an expensive legal fight.

U.S. District Judge Charles Breyer told the SEC and Volkswagen to return as soon as Oct. 4 with an idea of how to resolve the dispute, which could engender a battle over evidence on two continents and whether the company should face liability for securities fraud after settling similar claims with the U.S. Justice Department.

"Whatever you work out today will be less expensive to everybody than what you would work out in the future," Judge Breyer said at a hearing Friday in San Francisco. The judge said the settlement would be better for the SEC, which has "scarce resources."

Judge Breyer previously questioned why the SEC sued Volkswagen years after other government agencies resolved their litigation over the auto maker's diesel-cheating scandal. The judge in May suggested the agency looked like a "carrion hawk" picking over the remains of a crime.

The SEC's lawsuit, filed in March, centers on claims that Volkswagen defrauded investors by selling billions of dollars of bonds while making misleading statements about the environmental impact of the company's "clean diesel" fleet. The SEC also sued Martin Winterkorn, Volkswagen's former chief executive. Mr. Winterkorn, who lives in Germany, has been indicted in his home country and in the U.S. in connection with the emissions scandal.

Volkswagen paid a hefty price for rigging diesel engines to pass U.S. emissions tests. The German auto maker pleaded guilty to the charges in 2016 and has paid more than $25 billion in fines, penalties and compensation to settle criminal and civil litigation.

The SEC opened its investigation in 2015 and said Volkswagen stalled the probe with long delays in producing documents and other information, according to a court filing submitted last month. The regulator tried to settle with Volkswagen years ago but was excluded from the company's settlement talks with the U.S. Department of Justice and other agencies, according to SEC court filings.

Judge Breyer's latest instructions put pressure on the SEC to resolve the lawsuit, perhaps by accepting a reduced penalty. The judge said Friday that he didn't have an opinion on the case's legal merits, but said "many aspects of the case have already been settled years ago."

He said his goal is "to get this thing resolved," especially given the limited resources at the SEC.

An SEC spokesman didn't respond to a request for comment Friday. A spokesman for Volkswagen declined to comment. An attorney for Mr. Winterkorn declined to comment.

Judge Breyer, who handled the earlier litigation against the auto maker, said any penalties that result from litigation would likely be lowered to account for fines that Volkswagen already paid. He didn't allow the SEC's lawyers or the company's attorneys to make arguments in court Friday.

"On the one side of the ledger will be the fact that they have paid...$25 billion," he said. "That is where I see the case evolving if the SEC is correct in their allegations that there is liability."

Write to Dave Michaels at dave.michaels@wsj.com

(END) Dow Jones Newswires

August 17, 2019 02:47 ET (06:47 GMT)

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