German prosecutors open fraud inquiry into former VW CEO

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By Andreas Cremer | BERLIN

BERLIN German prosecutors are investigating
former Volkswagen chief executive Martin Winterkorn
on suspicion of fraud, looking into when he first knew that the
carmaker was rigging diesel emissions tests.

It is the second investigation into Winterkorn’s role in the
scandal by prosecutors in the German town of Braunschweig near
Volkswagen’s (VW) Wolfsburg headquarters. The former CEO is
already being investigated over possible market manipulation.

VW’s acknowledgement in September 2015 that it had used
software to reduce emissions levels when cars were being tested
in the United States wiped billions of euros from its market
value, forced Winterkorn’s resignation and led to investigations
and lawsuits around the world.

VW has said its executive board did not learn of the
software violations until late August 2015 and formally reported
the cheating to U.S. authorities in early September that year.

Appearing before German lawmakers last week Winterkorn
refused to say when he first learned about systematic exhaust
emissions cheating but said it was no earlier than VW has
officially admitted.

“For now, Dr. Winterkorn is sticking with the statement he
made before a German parliamentary committee of inquiry (into
the scandal) on Jan. 19,” Felix Doerr, a Frankfurt-based lawyer
for Winterkorn, said in an emailed statement.

PROPERTIES SEARCHED

Braunschweig prosecutors said on Friday they had searched 28
homes and offices in connection with their investigation this
week. The number of people accused in connection with the
emissions scandal had risen to 37 from 21, including Winterkorn.

“Sufficient indications have resulted from the
investigation, particularly the questioning of witnesses and
suspects as well as the analysis of seized data, that the
accused (Winterkorn) may have known about the manipulating
software and its effects sooner than he has said publicly,” they
said in a statement.

It will take weeks to sift through everything found in this
week’s raids, prosecutors said.

VW pledged full cooperation with prosecutors but declined
further comment. Its shares were trading down 1.7 percent at
149.90 euros at 1420 GMT.

The latest investigation will add to the carmaker’s legal
headaches and encourage investors seeking 8.8 billion euros
($9.4 billion) in damage claims in Germany for the collapse of
VW’s share price after the scandal broke.

“Lawyers looking to sue VW for market manipulation would
certainly have more ammunition, in our view, if the former CEO
was found guilty of fraud,” said London-based Evercore ISI
analyst Arndt Ellinghorst who has a “Buy” recommendation on the
stock.

Winterkorn, 69, and the 36 other people are under
investigation on suspicion of fraud and violating competition
law, prosecutors said.

The separate market manipulation probe announced last June
centred on whether VW should have disclosed the possible
financial damage caused by the manipulation prior to Sept. 22,
2015 when it admitted to its actions.

Winterkorn denied any wrongdoing when he quit on Sept. 23,
2015 but said he was clearing the way for a fresh start at VW
with his resignation.

Winterkorn ran VW for more than eight years and oversaw a
doubling in sales and an almost tripling in profit.

Europe’s largest automaker took a major step this month
towards ending its biggest-ever corporate crisis when it agreed
to plead guilty in a $4.3 billion deal with the U.S. Justice
Department.

In total, VW has now agreed to spend up to $22 billion in
the United States to address claims from owners, environmental
regulators, U.S. states and dealers.
($1 = 0.9354 euros) (Additional reporting by Jan Schwartz)



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