A US Supreme Court ruling five years ago is expected to limit Volkswagen’s D&O exposure in the United States.
Look to Robert Morrison et al. v. National Australia Bank Ltd. The highest court’s 2010 ruling here said US securities laws are restricted to investors who buy shares on US exchanges.
At least one securities class-action lawsuit has been filed against VW following the revelations and consequences of its emissions-testing scandal. The suit has been brought by a police pension fund on behalf of buyers of VW’s American depository receipts (ADRs)—a stock issued by a US bank or brokerage that trades in the US but represents a specified number of shares in a foreign corporation.
According to Kevin LaCroix, executive vice president of RT ProExec, “it will be interesting to see how valuable the US-based securities case turns out to be for the plaintiff class.” That is, if the lawsuit makes it through motions to dismiss.
*Read LaCroix’s blog, D&O Diary, to learn more about this angle in much more detail*
There aren’t many VW ADRs in the US. In fact, there aren’t a whole lot of private VW investors because more than 50 percent of the company’s shares are held by the Porsche family, 20 percent are owned by the German state of Lower Saxony, and 17 percent is in the pockets of a wealth fund owned by Qatar. VW’s supervisory board is made up by these stakeholders. Will they sue VW’s management board? Unlikely, LaCroix said.
Private investors hold about 12 percent of the company and US ADRs are a small fraction of that. And then there is this tidbit: VW ADRs trade over-the-counter, not on an exchange.
LaCroix wondered if investors will look to file suit against VW’s directors and officers in German courts since much more of the vehicle manufacturer’s share ownership was bought over the Frankfurt stock exchange. Non-US companies have been on the receiving end of US securities litigation but, since a large majority of shares of the companies involved in these cases were traded outside the US, it was difficult for US investors to seek damages.
“In many of these cases, the investors who purchased their securities in the US will likely be able to recover on their losses, while the investors who purchased their shares on exchanges in the countries’ home countries may go empty-handed,” LaCroix said.
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I’ve been thinking about another possible angle to appear from the cloud of VW’s diesel emissions.
I have read several articles related to Volkswagen’s possible bankruptcy. Some investor experts look at the potential fines, falling stock prices and a drop in sales and see financial disaster for the maker of one out of every nine vehicles in the world.
Volkswagen is much more than the “bug.” It includes the likes of Audi, Porsche, Bentley, Bugatti, Seat, Lamborhini and Ducati. The company employs 600,000 people, with almost 13,000 direct and indirect supplier employees in the US.
Even if the stories related to a possible bankruptcy are bit overblown, the manufacturer is surely about to face years of financial strain, no? If yes, then we might expect lay-offs, right? And what typically happens when there are mass layoffs—especially in the US? Litigation.
That may be looking over the horizon on this bumpy road Volkswagen is on. But I saw 600,000 people employed and thought, “They can’t all make it through this.”
Chad Hemenway is Managing Editor of Advisen News. He has more than 15 years of journalist experience at a variety of online, daily, and weekly publications. He has covered P&C insurance news since 2007, and he has experience writing about all P&C lines as well as regulation and litigation. Chad won a Jesse H. Neal Award for Best Single Article in 2014 for his coverage of the insurance implications of traumatic brain injuries and Best News Coverage in 2013 for coverage of Superstorm Sandy. Contact Chad at 212.897.4824 or [email protected].
