Photographer: Jason Alden/Bloomberg

VW’s Lost, Destroyed Phones Are 'a Bright Red Flag,' FTC Says

  • Lost, ‘bricked’ phones called red flag in diesel scandal
  • Regulator asks judge to order further questioning of witness

The Federal Trade Commission is seeking to further question Volkswagen AG’s U.S. officials about whether evidence including mobile phones was destroyed amid the probe of diesel vehicles rigged to cheat emissions tests.

“In the context of the massive scandal at the center of this case, 23 lost or bricked phones is a bright red flag, especially when they include phones that belonged to important individuals,’’ FTC attorneys said in a court filing Thursday. The agency “should not have to accept VW’s assurance that there is nothing to see and that we should just move along.’’

The FTC asked the San Francisco judge overseeing most of the consumer and government claims against the carmaker to order further questioning of a company witness. While Volkswagen Group of America contends its “designated corporate witness” has already answered thousands of questions during a deposition, the FTC said the person provided “nonsensical or evasive responses” when questioned about whether the company intentionally destroyed evidence.

Witness ‘Unprepared’

The witness, Manuel Sanchez, “was either unprepared or otherwise unable to provide responsive information,’’ the FTC said.

Sanchez “answered ‘I don’t know’ or some variation thereof over 250 times, including in response to questions he should have been able to answer,’’ the FTC said. This included questions about the 23 phones that had been lost or had been “wiped,” the FTC said.

The FTC request comes amid criminal investigations of the company in the U.S. and Germany spurred by VW’s admission last year to systematically rigging cars to evade environmental laws. VW has repeatedly said that top management was unaware of the decision to install software, so called defeat devices, to cheat emissions tests.

Any missing evidence may have implications for the criminal and civil probes, increasing potential fines, said Erik Gordon, a University of Michigan law professor.

“VW may soon push the government to believe the company and its top executives are obstructing justice,” Gordon said. “The FTC could consider it a false and misleading trade practice for the company to make public claims that it is cooperating with regulators.”

Applying Pressure

The FTC sued VW over its emissions scandal and is part of $16.5 billion in settlements that the company reached in the U.S. with consumers, dealerships and federal and state regulators. Those accords cover about 480,000 models with 2.0-liter diesel engines. The company is scheduled to return to court on Dec. 16 to report progress on efforts on an agreement to either repair models with 3.0-liter engines or get them off the road.

The FTC’s motion is an attempt to “apply litigation pressure’’ on VW during settlement negotiations on 3-liter vehicles and to “obtain protected information regarding the investigation currently being conducted’’ by the Jones Day law firm, the company said in its response Dec. 1.

VW’s supervisory board hired the U.S. law firm last year to run an internal investigation. Those lawyers report to the U.S. Department of Justice and VW’s supervisory board, which created a special six-member committee to deal with the emissions scandal. Information from the Jones Day probe is not only protected from disclosure but the U.S. unit doesn’t have it, company lawyers said in the Dec. 1 filing. 

A hearing on the FTC request is set for Dec. 22.

The case is In Re: Volkswagen ‘Clean Diesel’ Marketing, Sales Practices and Product Liability Litigation, 15-md-02672, U.S. District Court, Northern District of California (San Francisco).

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