A lawsuit filed in the U.S. by investors seeking damages in the aftermath of Volkswagen AG’s emissions-cheating scandal can go forward, a U.S. court has ruled. Holders of Volkswagen’s American depositary receipts (ADRs), which are a proxy instrument for its shares, filed a number of lawsuits in 2015 against the company. The cases were later consolidated and the court appointed the Arkansas State Highway Employees Retirement System lead plaintiff in January 2016. The Miami Police Relief and Pension Fund is also named plaintiff in the case.
Federal Judge Charles Breyer made the decision to allow the lawsuit to proceed. The former CEO of the company and other top executives are also named in the suit as defendants. According to the lawsuit, Volkswagen failed to inform investors in a timely fashion about financial risks from the scandal and also understated the risks.
In September 2015, Volkswagen acknowledged rigging the engines on as many as 11 million diesel cars world-wide with software to evade emissions testing. The admission came after more than a year of misleading U.S. environmental authorities. The German auto maker’s share price dropped considerably after the reports emerged, losing about $63 billion in market value when the scandal became public.
Volkswagen says the investors’ claims are unfounded and is seeking to have the lawsuit dismissed. According to a statement from the company, “Volkswagen believes that the claims of purchasers of its American depositary receipts are without merit, which we intend to demonstrate as this case proceeds.”
Volkswagen argued that it didn’t withhold information from investors or understate the financial risks, but acted on assumptions. Those assumptions indicated that the penalties would be much lower, which wouldn’t have required disclosure. In November 2014, former Chief Executive Martin Winterkorn estimated total liabilities from the emissions violation of no more than €20 million ($21 million) in an internal memo. To date, the company has reached three settlements with consumers and dealers with potential costs of as much as $17.5 billion.
Volkswagen also argued the suit should be heard in Germany and claimed that the U.S. has no jurisdiction in the case, but Judge Breyer disagreed. The company isn’t listed directly in the U.S. However, the ADRs are sold and purchased in the U.S., so U.S. law applies, according to the decision.
The decision means that Volkswagen will potentially face additional costs to resolve the scandal. The Boston Retirement System and Puerto Rico Government Employees and Judiciary Retirement Systems Administration are also suing for compensation for holders of privately traded Volkswagen bonds. Criminal penalties are still being discussed with the U.S. Justice Department.