Throwing Ex-CEO Under the VW Bus Could Leave a Mark

(Bloomberg) -- Forcing former Volkswagen Chief Executive Officer Martin Winterkorn to pay for at least some of the 25 billion euros ($29.9 billion) stemming from the diesel-rigging scandal could backfire on the automaker.

U.S. criminal charges, disclosed earlier this month, gives Volkswagen an opportunity to go after Winterkorn as German law requires companies to make executives pay for corporate wrongdoing.

Throwing Ex-CEO Under the VW Bus Could Leave a Mark

Any effort to throw Winterkorn under the bus, however, could bolster investors suing VW for 9 billion euros for failing to inform the market about the diesel issue earlier and even drag other top executives -- Chairman Dieter Poetsch and new CEO Herbert Diess -- into the fray.

"VW is in a predicament: if the facts allow them to seek damages from Winterkorn, then most likely the investors will also have a valid case," said Adrian Mueller-Helle, a lawyer at Wegnerpartner in Berlin. "The supervisory board normally has to sue, but in a conflict like this, some people argue there’s leeway. It’s tricky."

VW has been shrouded in regulatory and legal woes since 2015 when U.S. regulators said the company had been rigging software to help millions of diesel vehicles pass emissions tests. The company has earmarked more than 25 billion euros to pay fines, settlements and other costs, and the Winterkorn charges add to a growing list of executives indicted in the U.S. criminal probe.

Nicolai Laude, a spokesman for VW, said the company’s supervisory board explores continuously whether claims can be brought against former executives. The board’s sole guideline for that is the interest of the company, he said. A lawyer for Winterkorn didn’t return a call seeking comment.

Claims against former managers elapse within five years so VW still has time to decide what to do.

The company may be delaying any decision to take on the former CEO because VW has little insight into what German and U.S. prosecutors have discovered. In a court filing earlier this year, the carmaker argued there’s no evidence Winterkorn should have reacted differently.

What the former CEO, who left VW shortly after the scandal erupted in September of 2015, knew when about emission rigging is the subject of several criminal probes in Germany and the U.S. A key moment is a July 2015 meeting with engineers at Volkswagen’s Wolfsburg headquarters where U.S. prosecutors claim Winterkorn was told about the cheating, but didn’t take any action.

VW, however, has drawn a different picture in the investor cases, saying engineers didn’t tell Winterkorn cars were equipped with a defeat device, nor were potential penalties an issue. Rather, Winterkorn was given the impression there was a limited issue in the U.S. about approval for 2016 models that was under control. That also goes for Diess, who attended the meeting as a freshman board member.

Finger Pointing

Diess might not be the only VW leader dragged deeper into the scandal if the company tries to place the blame on Winterkorn.

If VW sued Winterkorn, he could react by drawing Poetsch and Diess into the dispute. Before the scandal broke, Poetsch was chief financial officer, serving on the management board alongside Winterkorn and Diess. All three had some sort of knowledge about the trouble in the U.S., in the critical time during 2015, VW has said in a court filing.

Under German law, top executives are jointly liable, allowing Winterkorn to make Poetsch and Diess part of any litigation against him.

“When the gloves come off, Winterkorn could point to Poetsch and Diess and say ‘You were on the board, you’ll hang with me,’" said Mueller-Helle. "He could create a lot of noise and trouble company leaders usually seek to avoid."

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