German Prosecutors Seek Fine, Prison Time for Executives

By Eyk Henning

STUTTGART--German prosecutors on Thursday urged a regional court to fine Porsche SE EUR807 million ($895.7 million) and sentence two former top executives to more than two years in prison each for allegedly lying to investors during their aborted 2008 take over of rival car maker Volkswagen AG.

Prosecutors allege the Porsche executives concealed their intention to gain control over their bigger rival and then shifted strategy to survival when their attempt unwound. The case is unrelated to Volkswagen's evolving scandal over automotive emission.

A lawyer for former Porsche Chief Executive Wendelin Wiedeking and former Chief Financial Officer Holger Härter on Thursday said prosecutors' assertions were absurd and dismissed any prison sentences for his clients.

The defense makes its closing arguments next week. Presiding judge Frank Maurer is slated to rule early next month. A guilty verdict could serve as a precedent for a separate trial in which hedge funds are seeking as much as EUR5 billion in damages from Porsche.

In October 2008, Porsche disclosed it held 42.6% of Volkswagen shares and controlled another 31.5% through stock options, and that it aimed to increase its stake to above 75% in 2009. Porsche had previously denied that it sought to own 75% of Volkswagen, a crucial threshold for controlling a target company under German law.

The news shocked markets because investors who had bet Volkswagen's stock price would fall suddenly realized there were few shares left to close their bets. Volkswagen's share price climbed above EUR1,000 the following week, making it the world's most valuable company at the time.

Prosecutors in their final arguments said Porsche's statement at the time was fraudulent because Porsche had virtually no cash left to buy a controlling stake in Volkswagen. They also allege that Porsche would have suffered further life-threatening losses if Volkswagen's shares remained flat or fell further.

Porsche "knew exactly that their statement would propel Volkswagen shares," a move necessary to ease the company's stretched financial situation, one of the prosecutors said. Porsche is now a holding company that controls 52% of the shares in Volkswagen. It previously held the Porsche sports car maker, which is now owned by Volkswagen.

Prosecutors for the first time revealed evidence obtained by police that they said showed Porsche had suffered EUR7.5 billion in losses in the weeks prior to October 26 because Volkswagen shares halved during that time. Those losses stemmed from the options it held to buy 31.5% of Volkswagen's stock.

"Porsche would have suffered another EUR7 billion in losses or more if Volkswagen shares had remained stable or declined further in the following week," one of the prosecutors said in final arguments at the Stuttgart regional court.

He added such a scenario was likely dire "and Porsche executives knew this" because the company had virtually no liquidity left.

Public interest in the trial has been strong because Porsche is owned by one of Germany's richest families, the descendants of Beetle creator Ferdinand Porsche. Adding to the intrigue, longtime Volkswagen patriarch Ferdinand Piëch at the time of the attempted takeover chaired the company's supervisory board. The families aren't accused of wrongdoing and the criminal trial's outcome won't directly hit Volkswagen.

Write to Eyk Henning at eyk.henning@wsj.com

(END) Dow Jones Newswires

February 18, 2016 15:22 ET (20:22 GMT)

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