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Update: US SEC sues Volkswagen for securities fraud related to emissions scandal

The U.S. SEC sued Volkswagen AG two of its financial arms; and the group's former CEO, Martin Winterkorn, for allegedly defrauding U.S. investors by making "deceptive" claims about the company's diesel cars. The securities regulator has sought civil penalties and repayment of hundreds of millions of dollars in "ill-gotten gains" made by Volkswagen in the bond and fixed income markets.

In a complaint filed March 14 with the U.S. District Court for the Northern District of California, the SEC charged VW, the Volkswagen Group of America Finance LLC and VW Credit Inc. units, and Winterkorn with violating the antifraud provisions of the federal securities laws.

The regulator alleged that the German car group issued more than $13 billion in bonds and asset-backed securities from April 2014 to May 2015 in the U.S. markets despite senior executives, including Winterkorn, knowing that more than 500,000 vehicles in the U.S. exceeded legal vehicle emissions limits.

The SEC has accused VW of making false and misleading statements to investors and underwriters about vehicle quality, environmental compliance, and VW's financial standing.

The company marketed the bonds without disclosing that its so-called clean diesel cars were fitted with defeat devices.

"By concealing the emissions scheme, Volkswagen reaped hundreds of millions of dollars in benefit by issuing the securities at more attractive rates for the company," according to the complaint.

The securities regulator is seeking permanent injunctions, repayment of "ill-gotten gains" with prejudgment interest, civil penalties for Volkswagen, and an officer and director bar against Winterkorn.

In a statement, Volkswagen said it would fight the suit. "The SEC's complaint is legally and factually flawed, and Volkswagen will contest it vigorously. 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," the company said.

It added: "Regrettably, more than two years after Volkswagen entered into landmark, multibillion-dollar settlements in the United States with the Department of Justice, almost every state and nearly 600,000 consumers, the SEC is now piling on to try to extract more from the company."

Winterkorn could not be reached by S&P Global Market Intelligence.

In 2015, Volkswagen admitted that it installed about 11 million diesel cars with defeat devices in order to pass emissions tests.

In May 2018, Winterkorn was charged with conspiracy and wire fraud in relation to the emissions scandal, widely dubbed "dieselgate."

The dieselgate scandal sent shockwaves across the automotive industry, prompting more stringent rules over car emissions across the world.

The SEC's lawsuit came a day after Volkswagen released its annual report for 2018, in which the automaker confirmed that it is facing legal proceedings in and outside the U.S., including against regulatory bodies, over its violation of the Environment Protection Agency's Clean Air Act.

On March 13, Volkswagen unveiled new cost-saving initiatives to support its electrification efforts. Volkswagen noted that the dieselgate scandal has cost the company about €3.6 billion in 2018 and €28 billion since 2015.