VW faces legal fallout from cheating in Germany

BERLIN (Bloomberg) -- Volkswagen's legal problems started in the U.S., but the carmaker is finding the fallout over its cheating on U.S. environmental tests is extending to its home market of Germany.

VW's shares lost nearly a quarter of their value on Monday in Frankfurt, and financial regulator Bafin is looking at possible violations of German rules. VW also faces legal threats from investors and environmental groups.

"Like in comparable cases, with strong share movements we look at the VW stock as to insider trading, market manipulation, and ad-hoc disclosure rules," Bafin spokeswoman Anja Schuchhardt said in an e-mail. "But this is a matter of routine."

VW admitted to fitting its U.S. diesel vehicles with software that turns on full pollution controls only when the car is undergoing official emissions testing, the Environmental Protection Agency said Friday. With 482,000 autos part of the case, the U.S. fine could theoretically total more than $18 billion. The final fine will likely be far less. 

During normal driving, the cars with the software -- known as a “defeat device” -- would pollute 10 times to 40 times the legal limits, the EPA estimated. The discrepancy emerged after the International Council on Clean Transportation commissioned real-world emissions tests of diesel vehicles including a Jetta and Passat, then compared them to lab results.

VW halted sales of the models involved on Sunday and said it is cooperating with the probe and ordered its own external investigation. CEO Martin Winterkorn, who has led the company since 2007, said he was “deeply sorry” for breaking the public’s trust and that VW would do “everything necessary in order to reverse the damage this has caused.”

Andreas Tilp, a lawyer representing investors in German court, says VW may have to pay damages to stockholders in Germany if the allegations of U.S. authorities are upheld. Investors may seek to recover losses incurred because of the stock’s decline.

"We’re convinced that VW failed to properly inform the markets and is liable to investors who can seek billions," Tilp said. "Concealing for years the immense risks of the pollution manipulation and the U.S. probes is a violation of capital market rules.”

Volkswagen spokesman Claus-Peter Tiemann said he can’t comment on the German legal developments and referred to Winterkorn’s earlier comments.

Environmental group Deutsche Umwelthilfe said it will sue carmakers to have diesel vehicles removed from the streets starting 2016. It will also take legal action to have Germany’s Federal Motor Transport Authority revoke licenses for the vehicles.

While rules on emissions are similar in the U.S. and Germany, the Federal Motor Transport Authority isn’t properly controlling its implementation, Juergen Resch, DUH’s director, said in an e-mailed statement.

The German agency isn’t controlling pollution, and should use recalls in case of violations of environmental rules, Resch said. The Federal Motor Transport Authority’s press office didn’t reply to an e-mail seeking comment.

VW has promised to support testing by German authorities of the company's diesel cars, the transport ministry said on Monday. In a statement, it said that Alexander Dobrindt, the transport minister, had talked to Winterkorn and that Winterkorn had expressed his "absolute support" for the independent testing of diesel car models that the minister had ordered.

Earlier the Bild newspaper had said Dobrindt has ordered an examination of Volkswagen diesel cars.