Around 800 different funds, including the California State Teachers’ Retirement System (CalSTRS) and European pension funds, are backing a lawsuit filed in Germany against Volkswagen (VW) by lawyers Quinn Emanuel.
The claims, estimated in total at €1.5bn-2bn, are for losses related to the material fall in share price experienced by VW shares on the German stock exchange during the week commencing Monday 21 September 2015, after the disclosure that the car manufacturer had used ‘defeat device’ software on thousands of diesel vehicles sold in the US, enabling them to violate emissions standards.
Around €25bn was wiped off the company’s market capitalisation on German exchanges in two days following revelations of the fraud by US environmental agencies, with the share price plummeting from €160 to €100.
The losses, however, are not simply based on the fall in share price but must reflect the risks associated with the scandal.
This figure can be extrapolated from the share price reactions in September 2015, but it also needs to account for general market movements.
The case has been filed in the Braunschweig District Court (Landgericht Braunschweig) in the federal state of Lower Saxony, the home state of VW’s headquarters in Wolfsburg.
It is being financed by Bentham Europe (BE), a third-party litigation funder.
Jeremy Marshall, CIO at Bentham Europe, said: “Most investors have been upset about the arrogance of approach taken by VW – for instance, claiming they knew nothing about the fraud, then saying it wasn’t their fault.”
But he said it had been difficult to find exactly who had been investing in VW, as some investors were reluctant to come forward.
“Everybody believed VW was an environmentally friendly business, and investors now feel they have been made to look foolish,” he said.
Bentham said the chances of reaching a settlement depended on whether VW could defend the charge of negligence in managing its business.
He said: “We suspect it will be death by a thousand cuts – regulators, media, whistle-blowers – and there is going to be a point where people will start to go through the books, and the company will want to avoid that.”
Brian Bartow, general counsel and chief compliance officer at CalSTRS, said: “Companies must be held accountable when they engage in such widespread deliberate deceit that destroys shareholder value, damages their reputation and harms the public.
“As a long-term shareholder, CalSTRS has serious concerns about Volkswagen’s internal controls, governance and oversight by the Board.
“This action seeks to recover not only CalSTRS’s economic losses to the pension fund but ultimately to implement much-needed corporate governance reforms going forward at Volkswagen.”
Plans are afoot to file a further lawsuit against VW on behalf of other institutional investors, in late August; work to prepare the case in line with complexities of the German legal system is still in progress.
A similar lawsuit was filed against VW in Brunswick by nearly 300 institutional investors, including CalPERS, last March.
Bentham said: “The reason for the two groups is a function of market competition, and that this is what happens in the US. It is no bad thing, as there are so many active shareholders, and it doubles the impact of the lawsuits.”
Quinn Emanuel said the Braunschweig Appellate Court would be likely to consolidate the model case applications and select a so-called model plaintiff.
Bentham Europe is inviting investors that wish to participate in the second wave of litigation to indicate their interest by 30 July 2016.
Meanwhile, the Boston Retirement System has become the first institutional investor to file a bondholders’ class action against VW in the US.
The lawsuit has been filed in the California Northern court by lawyers Labaton Sucharow and relates to bonds issued by VW between 23 May 2014 and 22 September 2015.