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Volkswagen faces $10.6 billion lawsuit from investors

German auto major Volkswagen’s (VOW) is yet again in the news due to the dieselgate scandal. The company is facing a trial in the German court from a barrage of more than 1,600 investors claiming $10.6 billion as damages due to the stock price crash post the emission scandal news broke out.

In September 2015, US Environmental Protection Agency (EPA) unearthed the violations from diesel engine emission tests, which resulted in the company’s share plunging nearly 40% resulting in nearly $29 billion loss to investors. It’s worth noting that the Volkswagen has already spent above a whopping $30 billion due to the scandal in the form of settlement, product recalls and penalties.

The company has been sued by investors, which includes the likes of German-based Deka investment fund and US-based California State Teachers’ Retirement System (CalSTRS) and a subsidiary of Elliott Management.

Volkswagen already has been in a rough patch post the emission debacle due to lost in credibility and customer confidence across the globe. To put things back on track, the auto major early this year appointed Herbert Diess to restore consumer confidence. The company also came up with a new strategy to focus on electric vehicles to tackle the global slump in diesel car sales.

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The moot point raised by the plaintiffs is that the Wolfsburg-based company has failed to update investors about the dieselgate scandal and its impact on the stock price in a timely manner. If they are aware of the issue earlier, they could have avoided losses by trimming down their holdings. It’s important to remember that German law stipulates listed companies to disclose all kinds of risks to investors who could impact the stock price.

The plaintiffs’ claim that the company’s top brass knew about the issue even before the EPA brought it to the limelight. However, the auto major has refuted these claims and added that since it was in settlement talks with the regulator, there was no question of violation of rules from its end. Given the magnitude of the issue, the litigation is expected to take more than a year for final judgment.

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Volkswagen has been already fighting multiple legal battles since the emission scandal was unearthed in 2015. If the judgment goes against the company, it will put more pressure on its balance sheet which would impact its other strategic plans lined up over the next few years. The company’s shares are down nearly 20% in the current year.

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