Porsche Acquittals May Portend Trouble for Hedge-Fund Suits

  • Ex-Porsche CEO Wiedeking, Ex-CFO Haerter cleared in Stuttgart
  • Judge: `nothing to the allegations, absolutely nothing.'

Former Porsche Chief Executive Officer Wendelin Wiedeking and ex-Chief Financial Officer Holger Haerter were acquitted of charges of manipulating Volkswagen AG shares during a failed takeover, a decision that may derail hedge-fund lawsuits seeking billions over the issue.

The decision is a boost for Porsche, which is facing civil lawsuits by investors alleging that the pair had secretly plotted for months to acquire a majority in VW while misleading markets about the plan. The trial of the two former executives, which began in October, ended Friday with dismissive remarks by the judge who cited a long list of bad conclusions by prosecutors.

“There is nothing to the allegations, absolutely nothing,” Presiding Judge Frank Maurer said when delivering the verdict. “There was no secret plan to take over VW."

The case centered on Porsche’s statements about VW in 2008. From March to October that year, the company denied five times that it was seeking a takeover. When the carmaker reversed course Oct. 26 and disclosed that it held 74.1 percent of VW, partly through options, short sellers scrambled to cover their positions and drove up the price of VW shares. Porsche gave up the plan after funding dried up amid the financial crisis. In the end, Volkswagen had to rescue Porsche, buying the automotive business and leaving a holding company, whose only asset is VW shares, as the publicly-traded entity.

Shares

On Friday, shares of Porsche Automobil Holding SE rose 1.34 cents, or 3 percent, to 45.17 euros at 2:44 p.m. in Germany after jumping as much as 3.6 percent following the acquittals. VW shares climbed 1.05 euros, or 1.1 percent, to 115.85 euros.

The Porsche case dominated local headlines for years as the highest profile crisis by a German automaker, but has been eclipsed by the emissions scandal at VW.

While VW wasn’t involved in the trial, Porsche is. Plaintiffs in civil suits are seeking as much as 5 billion euros ($5.6 billion) from Porsche. Lawyers in those cases were hoping that the criminal trial would reveal evidence that could bolster their cases. So far, Porsche had won dismissal in all civil suits that have reached a judgement.

Prosecutors had asked for prison terms of 30 months for Wiedeking and 27 months for Haerter plus fines of 1 million euros each. They also sought a fine of 807 million euros for Porsche, which was found to be an associated party in the criminal case.

"We’re happy about the decision," Porsche spokesman Albrecht Bamler said after the verdict. "It will also give us a boost in the civil cases."

Judge Criticism

The judge said prosecutors misread Porsche’s moves to come to a view that Wiedeking and Haerter had committed to a takeover in early 2008. The reality, he said, was the executives considered several options during the year, based on briefings on the chances and risks involved.

“From no viewpoint of the facts could we have rationally come to a conviction,” Maurer said.

All those testifying who had worked with the executives denied that a final decision was made before Oct. 26, 2008, the judge said. Prosecutors were attempting to use hindsight and documentation to make allegations that the path was decided much earlier in the year, he said.

No Clue

"Is it possible that Wiedeking and Haerter were long determined to go for the takeover and the people working closest with them didn’t notice a thing?," Maurer stated. "That would be like Julius Caesar going to war and nobody had a clue."

The discussions at Porsche were open and there was “no trace” of a secret decision to pursue a takeover, he said. It wouldn’t have made sense for the pair to go over options with lawyers and consultants if they’d already decided on a bid, Maurer said.

"Or do prosecutors think Wiedeking and Haerter staged a comedy over months to have a defense ready for a possible criminal trial?" the judge asked.

Wiedeking’s lawyer Hanns Feigen called Maurer’s reasoning a "judicial execution of the prosecution." The former CEO expressed frustration about the length of the case.

"With this, seven years of repeated allegations, reproaches and public suspicions by prosecutors come to end for which there was not one single piece of evidence," Wiedeking said.

Haerter said he wanted prosecutors to immediately say they wouldn’t appeal.

Prosecutor Heiko Wagenpfeil said he "accepts the court’s words,” but will consider his next step. In Germany, prosecutors can appeal acquittals.

Maurer scolded prosecutors for repeatedly changing their theories on what the executives were attempting with the Oct. 26 disclosures. One theory said Porsche sought to increase the VW share price, while others suggested that Porsche wanted to push it down. Even in closing arguments, prosecutors came up with a new version, in which they miscalculated losses they claim Porsche had at the time, he said.

He also dismissed another of their theories: that Porsche hid its own interests in the Oct. 26 release and was trying to make others buy the stock. A Porsche press release isn’t equivalent to an analyst note or a informational letter, he said.

"It’s clear to everyone that if Porsche issues press releases, it’s not doing it for altruistic motives," Maurer said. "Porsche isn’t Mother Theresa."

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