Porsche Automobil Holding SE won dismissal of two lawsuits over claims the company cost hedge funds more than $2 billion when it misled short-sellers in its acquisition of Volkswagen AG shares in 2008.
U.S. District Judge Harold Baer in Manhattan today dismissed the complaints filed by hedge funds Elliott Associates LP and Black Diamond Offshore and representing a total of 39 U.S. and foreign-based funds. The suits accused Stuttgart, Germany-based Porsche of secretly cornering the market in Volkswagen shares.
The short sellers claimed that Porsche misled investors by denying through much of 2008 that it intended to acquire Volkswagen and by using manipulative trades to hide its stock positions. Porsche said on Oct. 26, 2008, that it controlled most of Volkswagen’s common stock, causing the shares to surge as short sellers raced to cover their positions.
In his opinion, Baer said he relied on a recent U.S. Supreme Court ruling that fraud claims such as those in the suits against Porsche apply only to securities listed on domestic exchanges and domestic transactions in other securities. Baer said his ruling today applies to other similar complaints against Porsche.
‘Functional Equivalent’
The swaps at issue in the case “were the functional equivalent of trading the underlying VW shares on a German exchange,” Baer wrote. “Accordingly, the economic reality is that plaintiffs’ swap agreements are essentially transactions conducted upon foreign exchanges and markets and not domestic transactions.”
Porsche took another step toward its planned merger with Volkswagen, based in Wolfsburg, Germany, and Europe’s largest carmaker, after the company’s shareholders on Nov. 30 backed a 5 billion-euro stock sale to lower debt. The sports-car maker agreed to combine with VW in August 2009 after a failed attempt by Porsche to gain control of VW.
The court also dismissed claims against Porsche SE’s former chief executive officer, Wendelin Wiedeking, and its former chief financial officer, Holger Harter. Porsche announced the ruling in an e-mailed statement today without commenting on it.
David Parker, a lawyer representing Elliott Associates, didn’t immediately return a call seeking comment after business hours.
The case is Elliot Associates, Black Diamond Offshore, Ltd. v. Porsche Automobil Holding SE, 10-0532, U.S. District Court, Southern District of New York.
