Volkswagen Characterizes SEC Emissions Fraud Suit as “Me Too Litigation”

Volkswagen has taken the unusual step of arguing that a case brought by the SEC on behalf of defrauded bond investors is “me too” litigation and that the SEC claims are “inequitable.”

In 2015, the EPA determined that the huge auto maker installed “defeat devices” in millions of “clean diesel” vehicles that were specifically engineered to cheat EPA emissions testing.  Those devices included secret software that could sense when a car was on an EPA treadmill and alter its normal performance to lower emissions. The discovery of this cheating scheme led to a tremendous number of lawsuits by federal and state regulatory agencies as well as by individuals.  Most of those cases have settled, with the automaker paying out over $25 billion dollars.

However, protracted settlement discussions with the SEC did not result in a settlement regarding the SEC’s claims that the auto giant defrauded bond buyers with false statements that failed to disclose the emissions cheating scheme.  According to the SEC, Volkswagen issued misleading offering documents that conveniently left out Volkswagen's use of defeat devices, that kept more than 500,000 U.S vehicles' nitrogen oxide emissions within legal limits during test conditions but allowed emissions to spike during normal driving conditions.

The SEC case is based on alleged false statements and misleading disclosures by Volkswagen related to its private placement of bonds under SEC Rule 144A and asset-backed securities and its failure to disclose the emissions cheating scheme and liability associated with it.  Volkswagen’s response was that the disclosures were "accurate on their face," because they did not reference Volkswagen's compliance with U.S. emissions laws.

Now the auto maker appears to be asking the trial court to decide that it is too late for the SEC claim to proceed, arguing that the company has suffered enough.  In its motion to dismiss, filed on April 10, 2020, the company argued: "Permitting the SEC to collect its own pound of flesh based on the diesel emissions issue - for which Volkswagen has already been severely punished - is inequitable piling on…"   Volkswagen AG, Volkswagen Group of America Finance LLC and VW Credit Inc. assert other arguments as well in opposition to the SEC's suit which includes allegations that they offloaded more than $13 billion in the  144A bonds and asset-backed securities at inflated prices from April 2014 to May 2015.  The company also argued: “it is me too litigation alleging an omission to disclose ‘illegal defeat devices in millions of diesel vehicles.’”

The case is U.S. Securities and Exchange Commission v. Volkswagen AG et al., case number 3:19-cv-01391, in the U.S. District Court for the Northern District of California.  The MDL is In re: Volkswagen "Clean Diesel" Marketing, Sales Practices and Products Liability Litigation, case number 3:15-md-02672, in the U.S. District Court for the Northern District of California.