The former chief executive of Porsche is facing a criminal trial over his actions during the failed takeover attempt of Volkswagen, hailed in some quarters as one of the biggest alleged trading scandals outside of the banking industry.
Under then-boss Wendelin Wiedeking, Porsche secretly built up a huge stake in VW, using intermediaries to build up a controlling position over nearly 75 per cent of the company before informing the market of Porsche’s intention to buy the company. When that shock announcement finally came, in October 2008, it triggered a staggering rise in the VW share price.
London and Wall Street hedge funds, who had been betting against VW’s shares, were left nursing an estimated $24bn (£14.5bn) of losses as their price rocketed. The “hedgies” losses were made worse by the fact that short-sellers like them had to buy VW stock at the new, sky-high price in order to make good their bad bets.
Such huge demand for the shares sent their value up even higher to a point where, briefly, VW became the world’s most-valuable company. Porsche’s own paper profit on the increase in the shares’ value at one point touched more than $100bn – dwarfing its revenues from car sales.
Now, Mr Wiedeking and ex-chief financial officer Holger Haerter are to be tried for allegedly hiding their takeover plan from the market, creating a false share price before they made plain their intentions.
Lawyers for the men, and Porsche, said the charges were unfounded and without merit. The men’s lawyers said in a joint emailed statement that Porsche’s press releases about the takeover were accurate at all times.
The decision by the Stuttgart Higher Regional Court overrules a previous decision and says prosecutors indicate it “seems quite likely” the company concealed its plan. The judges said it was likely Porsche’s board “de facto” approved of the project on 3 March, 2008.
The court listed “numerous indications that could suggest there was a hidden decision to increase the stake”, a spokesman said.
One such was an instance in March 2007 where Mr Wiedeking went on the record at the Geneva auto show to say there was no plan to raise Porsche’s stake above 30 per cent, even though the family shareholders approved such an increase the following day.
Other pieces of evidence include a memo of a meeting with state officials in February 2008 regarding Porsche’s intentions for its stake in VW and testimony from Mr Wiedeking’s former chief counsel who testified that she was convinced Porsche’s leaders sought a takeover.
Among the losers from the VW trade were Adolf Merckle, one of the world’s richest men, who committed suicide in 2009 after his family empire lost heavily betting against VW shares. The spectacular losses jeopardised his life’s work building up a business conglomerate with 100,000 employees.
For hedge funds, it was seen as the biggest single loss-making event ever, with famous names like London’s Crispin Odey said to have taken a hit when Porsche finally showed its hand.
Until that moment, “shorting” VW shares had been dubbed “the safest play in the market” given falling demand for mid-priced cars during the recession.