S&C Curbs SEC Claims Against Volkswagen

August 28, 2020

In an August 20, 2020, decision, Judge Charles Breyer of the Northern District of California significantly curbed claims brought by the Securities and Exchange Commission against Volkswagen. The Judge held that Volkswagen's 2017 deal with the DOJ to resolve emissions claims, including FIRREA claims over $5 billion in asset-backed securities (ABS), released the claims that the SEC asserted over those ABS in a March 2019 complaint.

Before the SEC sued Volkswagen, the company paid $14.7 billion in 2016 to settle emissions claims, including with U.S. consumers, franchise dealers, the Environmental Protection Agency, and the Federal Trade Commission. In March 2017, the company reached a $4.3 billion criminal and civil settlement with the DOJ, including settling the United States' claims over the ABS.

Sixteen months later, the SEC sued, claiming that Volkswagen misled investors when it sold $13 billion of securities in 2014 and 2015 by failing to disclose its use of defeat devices to evade U.S. emissions laws. These securities consisted of $5 billion of ABS that were the subject of the DOJ settlement and $8 billion of bonds sold in a private placement.
Judge Breyer dismissed the claims involving the ABS securities and narrowed the claims involving the bonds, rejecting the SEC's argument that Volkswagen's generic statements in the bond offering documents about the possibility of recalls or quality drops were misleading. As for Volkswagen's motion to dismiss the SEC's request for injunctive relief, the judge stated he would decide that request at a later stage of the proceedings, as is the norm for injunctions. He also deferred ruling on Volkswagen's motion to dismiss the government's claims for disgorgement, but importantly recognized that Volkswagen's previous payments can be considered.
The S&C team representing Volkswagen was led by Robert Giuffra Jr., Suhana Han and Matthew Schwartz.