SEC is wasting resources in suing Volkswagen, US judge says

A federal judge effectively told the Securities and Exchange Commission it was wasting its scarce resources pursuing a securities suit against Volkswagen when he ordered the two parties to discuss a settlement during a status conference Friday.

"I'm attempting in my own way to determine the progress of the case, and in particular the allocation of resources to prosecuting an action in which many aspects of the case have already been settled years ago," U.S. District Judge Charles R. Breyer said Friday in a San Francisco courtroom, according to an official transcript.

Years after Volkswagen dished out $23 billion to settle multiple disputes arising from the "dieselgate" scandal in which the Environmental Protection Agency found Volkswagen intentionally installed a "cheat device" in certain vehicles to help them pass laboratory emissions tests, the SEC filed its own securities suit.

In March it accused Volkswagen and its former CEO, Martin Winterkorn, of defrauding U.S. investors, raising billions of dollars through the corporate bond and fixed income markets while making a series of deceptive claims about the environmental impact of the company's "clean diesel" fleet. U.S. Securities and Exchange Commission v. Volkswagen, 19-CV01391 (N.D. filed March 14, 2019).

Represented by New York-attorney Robert J. Giuffra Jr. of Sullivan & Cromwell LLP, Volkswagen says the bonds at issue in the complaint did not default and were sold only to sophisticated investors who received all payments of interest and principal in full and on time.

Breyer said Friday even if Volkswagen were found liable, the penalties for such violations would be assessed against the penalties it has already paid in other "diesel gate"-related settlements. Referring to SEC v. Gold Standard Mining Company, a securities suit filed in the Central District of California in 2016, he said there are a number of factors to consider when assessing penalties. One of the factors being "'Whether the penalty should be reduced to account for other sanctions that the defendant faces or has paid, whether criminal or civil.'" Breyer said. "So, if that's the correct statement of the law ... then whatever penalty, tier 1, tier 2, tier 3 or tier 20, whatever it is, on the one side of the ledger will be the fact that they've [Volkswagen] paid 22, 23, 24, 25 billion dollars."

This is not the first time Breyer has criticized the SEC and its complaint against Volkswagen. At a May 10 hearing, he openly chided the enforcement agency for waiting so long to file charges after Volkswagen had already settled with multiple companies.

"I want to remind you that the symbol of the Securities Exchange Commission is the symbol right up there of the eagle," Breyer said. "It's not a carrion hawk that simply descends when everything is all over and sees what it can get from the defendants. So I am totally mystified as to why you waited three years before you surfaced."

Responding in March, Daniel J. Hayes of the SEC's Enforcement Division -- who was unavailable for comment Friday -- said the enforcement agency opened an investigation as soon as it could.

At the end of Friday's status conference, Breyer stayed all discovery and ordered the two parties to meet and confer at a time of their choosing to discuss a settlement.

A spokesperson for Volkswagen declined to comment Friday.