Former Porsche SE Chief Financial Officer Holger Haerter was fined 630,000 euros ($824,000) by a German court for credit fraud in a criminal case over the refinancing of a 10 billion-euro loan during a failed bid to buy Volkswagen AG (VOW) in 2009.
Haerter downplayed Porsche’s liquidity needs and failed to disclose the correct number of put options on VW shares Porsche held during negotiations with BNP Paribas SA (BNP) about the lender’s 500 million-euro share of the syndicated loan, Stuttgart Regional Court Presiding Judge Roderich Martis said today.
“The information given by the defendants was wrong,” Martis said. “It doesn’t matter that they gave the correct information earlier in the process. It’s true also in normal life that a lie doesn’t disappear just because you once said the truth some time before.”
Today’s case is the first criminal verdict in a string of proceedings related to the takeover bid in which Porsche was using an options strategy. Stuttgart-based Porsche is also facing civil suits seeking a total of about 5.5 billion euros in Germany, and prosecutors have extended their market-manipulation probe to cover the 2008 members of Porsche’s supervisory board.
“Many things said by the court today were wrong -- we will appeal,” Haerter said after his conviction. “We are sure we will win.”
Porsche preferred shares dropped as much as 1.4 percent after the ruling and closed 0.3 percent higher in Frankfurt trading.
In a separate indictment in December, prosecutors charged Haerter and former Chief Executive Officer Wendelin Wiedeking over the use of VW options in the bid. It hasn’t been decided yet whether that case, in which both have denied wrongdoing, should go to trial.
The head of Porsche’s finance unit was also convicted alongside Haerter today. The man, who can be identified only as Christian N., was fined 63,000 euros. His lawyer, Renate Verjans, declined to comment.
The two defendants downplayed the company’s liquidity needs by 1.4 billion euros if it was to acquire a 20 percent stake in VW (VOW) and failed to disclose that Porsche, at the time, held 45 million put options against which it had no call options, Martis said.
The case centered on an e-mail about the amount of money needed to exercise the options to acquire 20 percent of VW common stock. Prosecutors claimed the document was about the sports-car maker’s liquidity needs for such a scenario.
The defense argued the e-mail was discussing the success of an option strategy over a period of time, rather than the exercise price of the options Porsche held on VW shares.
“It’s been clear between all the persons involved here, at BNP and Porsche, that the term ‘net purchase price post collateral’ was used here to describe what amount would have to be paid at that time to increase the stake in VW by 20 percent,” Martis said. “You may call that liquidity or, as a BNP manager did, ‘cash out of the pocket,’ it doesn’t matter which term you use.”
The e-mail was sent on March 19, 2009, six days after Paris-based BNP had decided to participate in the syndicated loan. The deal was signed on March 24. A Frankfurt-based BNP manager, who negotiated the agreement, had drafted the e-mail seeking additional information and asked Haerter to sign it. After the text was edited and changed by a Porsche tax manager, the ex-CFO and Christian N. signed it and sent it back.
Haerter was under pressure at the time since Porsche would have had to file for bankruptcy if the loan wasn’t refinanced, the judge said. The court took that into account when measuring the sentences, which are at the lower end of what can be imposed, he said.
“Even if you are economically forced to do whatever it takes to save your company, you still have to abide to the laws,” the judge said.
Fines are calculated under German law by the average daily income of a defendant, which is normally the average salary. The court estimated Haerter’s daily income at 3,500 euros, including his personal assets of 35 million euros into the calculation, according to the judge. Christian N.’s daily income was set at 700 euros, stemming mostly from his pay and bonus at Porsche.
Prosecutors had sought a suspended prison term of one year and a payment of 1 million euros for Haerter. They sought a fine of 225,000 euros for the finance manager.
“We will analyze the ruling and will determine later whether to appeal, as the court left the sanctions significantly under what we had sought,” prosecutor Johannes Gerds said.
Porsche spokesman Albrecht Bamler declined to comment.
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