Porsche Automobil Holding SE can’t be sued for securities fraud in the U.S. by hedge funds seeking billions of dollars over claims the luxury-car maker’s executives lied about a plan to take over Volkswagen AG to hold down the share price, a federal appeals court ruled.
The U.S. Court of Appeals in Manhattan today upheld the dismissal of lawsuits over claims the company misled investors by denying through much of 2008 that it intended to acquire Wolfsburg, Germany-based Volkswagen.
Porsche has been battling market-manipulation allegations since it disclosed in October 2008 that it had access to 74 percent of VW, partly through cash-settled options. The legal wrangling ultimately scuttled the planned merger and led Porsche’s holding company, in a deal completed Aug. 1, 2012, to sell its sports-car business to Volkswagen as debt soared.
“The complaints concern statements made primarily in Germany with respect to stock in a German company traded only on exchanges in Europe,” the appeals court said in its ruling. Allowing the case to go forward, the judges said, would allow the funds to “hale the European participants in the market for German stocks into U.S. courts and subject them to U.S. securities laws.”
Some of the cases had already been dropped in the U.S. so investors could press claims in Germany, where Porsche scored its fourth victory in the battle last month when a Braunschweig court dismissed a suit by a private investor.
In April, Stuttgart judges threw out criminal charges over the issue against former Porsche Chief Executive Officer Wendelin Wiedeking and ex-Chief Financial Officer Holger Haerter. Prosecutors have appealed that ruling. The Braunschweig tribunal dismissed two smaller civil cases in 2012.
Today’s appeals court decision upholds a December 2010 ruling by U.S. District Judge Harold Baer in New York.
Baer said in his decision that he relied on a U.S. Supreme Court ruling that fraud claims such as those in the lawsuits against Porsche apply only to securities listed on domestic exchanges and domestic transactions in other securities. The hedge funds appealed that ruling in January 2011, and subsequently filed a New York state court suit over the same allegations.
The hedge funds that sued in the U.S. included Paul Singer’s Elliot International LP, which along with some other funds dropped their appeals of Baer’s ruling in March 2013.
A group that sued Porsche in New York state court, including David Einhorn’s Greenlight Capital Inc., agreed in February 2013 to not appeal a December 2012 ruling dismissing their case after Porsche agreed to not contest the timing of any lawsuits they filed in Germany.
Today’s ruling is “an important decision for Porsche” and also may limit the reach of U.S. securities-fraud laws involving offshore transactions, particularly in cases related to swaps, said Robert J. Giuffra Jr., an attorney for the automaker with Sullivan & Cromwell LLP.
While the appeals court gave permission to the plaintiffs to ask the lower court to refile their suits to show that the claims apply to securities that were subject to U.S. laws, Giuffra said in an e-mail that the ruling should end the litigation over the statements in the U.S.
A lawyer for two of the plaintiffs remaining in the case, ParkCentral Global Hub Ltd. and Seneca Capital LP, said he was gratified the appeals panel gave the plaintiffs permission to ask to amend their lawsuits. Marc L. Greenwald, the lawyer, said he was still reviewing the decision with his clients to decide whether to do so.
The case is ParkCentral Global Hub Ltd. v. Porsche Automobil Holding SE, 11-403, U.S. Court of Appeals for the Second Circuit (Manhattan).