The Volkswagen Soap Opera Rises From The Dead As Perry, Elliott And Glenhill Sue For Alleged Stock Manipulation
Update: It appears Larry Robbins does in fact have the money to pay for legal representation, and is involved in the lawsuit as GCM. The question of when the fund will rise above the high water mark, however, still stands.
Regular readers know our fascination with the Volkswagen "soap opera" which, as a result of a massive short squeeze in late 2008, resulted in VOW stock being the single most expensive stock in the world, albeit for a short period of time. In fact, last February we noted:
"At first sight it is glaringly obvious that Porsche did not act in good
faith during the sequence of events disclosing its stake accumulation
especially considering the resultant profits to the company - in 2008
Porsche generated a €1 billion profit from car sales and €6.8 billion from Volkswagen option trades... If hedge funds are successful at proving manipulation, which this
disclosure may have made significantly easier, Porsche could be on the
hook for a full refund of the option proceeds, in addition to further
civil disgorgement and/or criminal liabilities. While the luxury
carmaker is currently in swimming financial health with a huge cash war
chest thanks to the options trades, any regulatory escalation could
result in a rapid and dramatic downfall of the company which has a €10
billion term loan maturity in March, as banks may run away from a
debtor that may be liable for a €7 billion cash outflow. And if the
dominoes really collapse and Adolf Merckle's suicide is found to be a
result of the alleged stock market manipulation, the life of Porsche
CEO Wendelin Wiedeking may get really ugly fast."
Sure enough, today the life of Porsche, and its now-former CEO Wendelin Wiedeking, just got pretty ugly. Dow Jones reports, that the bulk of the hedge funds, that were in the groupthink trade de jour at that time, the very same hedge funds we speculated may sooner or later end up suing the carmaker-cum-busted hedge fund, just came out, guns blazing, and are alleging stock manipulation.
A group of investment funds Monday filed a lawsuit in the U.S. against German sports car maker Porsche Automobil Holding SE (PAH3.XE), its former chief executive Wendelin Wiedeking and former chief financial officer Holger Haerter seeking to recover more than $1 billion in losses related to Porsche's ill-fated takeover bid for Volkswagen AG (VOW.XE).
The complaint, which was filed in federal court in Manhattan, "explains in detail how Porsche SE manipulated the price of VW stock as it secretly accumulated control over almost all of VW's freely traded shares," the funds said in a joint statement.
As expected, the funds doing the suing, are those that got burned the most. Surprisingly, Larry Robbins' Glenview is strangely absent. One would think after a massive P&L surge in 2009 (granted still below the high water mark), they should be able to fund their share of legal fees.
The investment funds include Elliott Associates LP, Glenhill Capital LP and Perry Partners LP. The funds are represented by U.S law firm Bartlit Beck Herman Palenchar & Scott LLP.
And here are the details from the lawsuit:
During Porsche's takeover attempt, Volkswagen shares in October 2008 briefly soared to more than EUR1,000 a piece as short-sellers scrambled to cover positions after Porsche revealed that it had access to almost the entire free float of VW's outstanding shares. Many investors were wrong-footed by the announcement.
"Porsche released billions of euros worth of shares into the short squeeze for its own profit," the funds said, adding that "the defendants repeatedly misled investors and lied about Porsche SE's positions and intentions with respect to VW."
"Porsche SE should be held accountable in a court of law," said Phil Beck, a lawyer for the funds. "We will do whatever it takes to make sure the rule of law is upheld."
Unfortunately for Porsche, the company may not have the clout of GM's unions to bail it out should the world economy take a second dip, and with average ASP well into the stratosphere, and Germany having bigger fish to fry, this development was likely the last thing the carmaker needed. Speaking of, where is PORSCH CDS EUR SR 5YR trading these days?