Judge grills SEC lawyer about why Volkswagen lawsuit was filed so late

SAN FRANCISCO -- The federal judge who oversaw the multi-billion-dollar settlement of claims against Volkswagen AG for emissions cheating appeared to side with the automaker Friday over a new lawsuit concerning the same issues filed by the U.S. Securities and Exchange Commission.

U.S. District Judge Charles Breyer of the Northern District said he was "totally mystified" about why the SEC waited until after "all of this litigation, all of these settlements and all of these efforts" to sue Volkswagen.

"I want to remind you that the symbol of the SEC is the symbol right up there, of the eagle," he said. "It is not a carrion hawk that simply descends when everything is all over and sees what it can get from the defendant."

The judge ordered the SEC to explain why it waited until March to file its complaint and identify when it learned of each of the factual allegations set forth in its 69-page complaint. He gave the commission 60 days to file both declarations and said the case will not proceed any further until he is "satisfied that [it] acted properly in connection with employing resources now of the court to this litigation."

SEC attorney Daniel Hayes defended the commission's timing, saying "we moved as quickly as we could." The investigation took as long as it did because he was focused on securities fraud and had to interview overseas investors and foreign defendants, he continued.

"We were not totally in the dark, in the sense that obviously the public may not have known, but we were well known to Volkswagen, [former CEO Martin] Winterkorn and the other players," he said. "There were settlement negotiations."

Breyer responded that he is "somewhat skeptical because everybody else was able to move years before you moved."

The SEC alleged Volkswagen and Winterkorn led a "massive fraud" and should have informed investors about the scope of the scandal sooner. The automaker, in turn, has maintained investors were never actually harmed, and it was unclear how much liability it actually faced.

Volkswagen said it will "vigorously contest" the lawsuit -- a change in course in the clean diesel litigation in which the automaker settled most claims. United States Securities and Exchange Commission v. Volkswagen AG, 19-CV1391 (N.D. Cal., filed March 14, 2019).

The commission had until 2020 to sue the automaker, but there was a tolling agreement.

"The SEC has brought an unprecedented complaint over securities sold only to sophisticated investors who were not harmed and received all payments of interest and principal in full and on time," according to a Volkswagen statement at the time of the filing. The company added the commission is "piling on" top of claims that have largely been settled.

The 9th U.S. Circuit Court of Appeals affirmed Volkswagen's $10 billion settlement with more than 475,000 vehicle owners last July, praising it for delivering "substantial benefits" to class members. The automaker has already paid $50 million to settle similar claims by the U.S. Department of Justice, according to a filing by lead defense attorney Robert J. Giuffra Jr. of Sullivan & Cromwell LLP.

Breyer also granted final approval of a $48 million settlement in a lawsuit brought by American Depository Receipts, which alleged that Volkswagen defrauded investors by making false and misleading statements on its financial condition and regulatory compliance, while indicating the remaining class plaintiffs still pursuing claims against the automaker could go to trial as early as January.