VW Legal Battles Incriminating Ex-CEO, VW Patriarch Draws Scrutiny

By suggesting his former CEO, Martin Winterkorn, tried to cover up Dieselgate, VW patriarch Ferdinand Piëch may also become a new focus of interest in the investigation.
Martin Winterkorn und Ferdinand Piech

It's been clear for a while there's no love lost between Volkswagen's former chairman, Ferdinand Piëch, and Martin Winterkorn, his ex-CEO-turned-adversary. But at the end of last year, Mr. Piëch created real problems for his golden boy-turned rival. The VW patriarch gave evidence to prosecutors which implies his former CEO may have known about VW's emissions problems in the U.S. months before he said he did.

Now, Mr. Winterkorn, who recently surfaced before a special committee of the Bundestag to again deny prior knowledge of the systematic criminal deception, could be facing serious criminal charges.

Mr. Piëch told investigators that as early as the end of February 2015 -- seven months before Mr. Winterkorn said he learned of the scandal that would become Dieselgate -- an informant had told him VW had big problems in the United States. The automaker was manipulating emissions tests.

If the media reports over the contents of Mr. Piëch's statement prove to be true it will become clear to the general public that VW's defense strategy is also based on manipulation and lies. Nadine Herrmann, U.S. law firm Quinn Emanuel

U.S. authorities, in a document, had already hinted to VW that they knew about it, Mr. Piëch told investigators.

As news magazine Der Spiegel reported, Mr. Winterkorn supposedly assured his boss that such a document didn't exist. Mr. Piëch's statement to investigators implies that Mr. Winterkorn, who resigned days after the scandal came to light, lied and has continued to lie to the public, shareholders and police.

After Mr. Piëch's meeting with investigators at the end of last year, prosecutors in Braunschweig, which is located near VW's Wolfsburg headquarters in northern Germany, broadened their investigation into Mr. Winterkorn.

Now it's not just about possible stock market manipulation related to shares of VW stock and the board's responsibility to inform investors about market-moving information, but about fraud.

Mr. Winterkorn's lawyer, Felix Dörr, said his client only learned a few days ago about Mr. Piëch's statement to prosecutors. He said he would respond as soon as he had a chance to see the prosecutor's files.

The new report by Der Spiegel suggests a reason for the public falling out -- previously unexplained -- that took place between then CEO Winterkorn and Mr. Piëch in the months leading up to the Dieselgate scandal. In April 2015, Mr. Piëch told Der Spiegel that he and his family were "distancing'' themselves from Mr. Winterkorn. The brief statement to the magazine offered no explanation for the falling out between the two men, who together had worked to put Volkswagen on a path to overtake Toyota as the world's largest automaker.

Mr. Piëch's statement to the magazine ignited a power struggle within VW's supervisory board, which Mr. Piëch, the non-executive chairman, surprisingly lost, outvoted apparently by his own relatives and representatives of VW's unions and the state of Lower Saxony, owner of 20 percent of its shares. In a huff, Mr. Piëch resigned his chairmanship, saying he was severing ties with the company he had helped shape into a global automaking powerhouse.

But Mr. Piëch did not sell his stake in VW.

VW's Dieselgate-01

The spat -- unusual for its public nature involving Mr. Piëch, one of Germany's most reclusive billionaires -- was never explained at the time. Seemingly validated with the supervisory board's backing, Mr. Winterkorn continued to manage the automaker for another five months -- until Dieselgate became public, and he resigned days later.

By speaking with investigators -- the circumstances of who approached who have not been made public -- Mr. Piëch seems to be exacting revenge on his former protege but some legal experts say he may have also broken his fiduciary duty to inform investors of VW's coming crisis. As former chairman of VW's supervisory board, which hires and fires the CEO and sets policy, he could hardly have been content to just pass the information on to Mr. Winterkorn.

If the statement is true, it raises the question “of whether Professor Piëch was fulfilling his responsibilities as a member of the supervisory board,” said Jörg Hofmann, head of the IG Metall union which represents VW line workers and who is also a member of VW's supervisory board, in an interview with the Frankfurter Allgemeine Sonntagszeitung newspaper.

In that case, the VW patriarch, whose family and the family of a cousin, Ferdinand Porsche, are controlling shareholders in Volkswagen, should be held to the same standards of accountability as Mr. Winterkorn. This could mean that VW might file claims against Mr. Piëch, something the company is examining doing with respect to Mr. Winterkorn.

Mr. Piëch's defense counsel, Gerhard Strate, told Handelsblatt he did not wish to comment while legal proceedings were in progress.

Mr. Piëch's admissions have been welcomed by shareholders who are suing VW, alleging the company informed them too late of the scandal, causing them to lose millions on their investments.

Some mighty adversaries are lining up for a final legal reckoning: Blackrock, California State Teachers’ Retirement System, Vanguard and State Street. The Norwegian pension fund Norges Bank Investment Management is also seeking damages.

“If the media reports over the contents of Mr. Piëch's statement prove to be true,” said Nadine Herrmann, a lawyer at U.S. firm Quinn Emanuel, “it will become clear to the general public that VW's defense strategy is also based on manipulation and lies.”

“VW has been denying that management had any knowledge of the emissions cheating in the U.S.A. until shortly before the scandal blew wide open,” Ms. Herrmann said. “That was never really plausible, especially when one thinks of the famously detail-obsessed management style of the company's head at the time.”

Mr Piëch's statement appears to confirm what has until now only been surmised and based on isolated clues. VW needs to consider carefully if it may not be wise to make an approach to settle with its suing shareholders.

The court is soon to decide on a test case , which will then be used as legal precedent. For VW, ad-hoc actions such as shareholder suits are the greatest financial threat, after its expensive settlement with the U.S. Justice Department. As one of VW's biggest shareholders, the Piëch clan also stand to make significant financial losses.

The VW group is also being attacked on other fronts. The first German lawsuit against VW has been filed. The fish processor Deutsche See is suing for €11.9 million ($12.8 million) damages -- a relative pittance compared to VW's potential $24 billion in U.S. settlements -- because 500 vehicles in its fleet had the illegal software that hid their true level of diesel emissions.

Until the scandal broke, VW had advertised its fleet of diesel vehicles as "clean diesel,'' and the environmental claim was a big reason Deutsche See entered its partnership with VW, according to a company spokesman, who added the fish processor felt betrayed by the automaker.


Martin Murphy and Volker Votsmeier are reporters at Handelsblatt who cover the auto industry. To reach them: [email protected] and [email protected]