Former executives at sports carmaker Porsche, including ex-CEO W. Wiedeking, have gone on trial for alleged market manipulation in one of the biggest cases in German corporate history.
Shortly before the trial opened in the Stuttgart district court on Thursday, ex-Porsche chief Wendelin Wiedeking again denied the charges, saying he was "not guilty" of market manipulation in connection with his failed bid to takeover bigger rival Volkswagen Group in 2008.
Prosecutors claim Wiedeking and his former finance chief Holger Härter failed to adequately inform investors and regulators about their plans - a charge that could bring the pair a hefty fine or even jail sentences of up to five years.
David vs. Goliath
October 26, 2008 was a particularly bad day for 35 American hedge funds because German sports carmaker Porsche announced that it owned 42.6 percent of Volkswagen's common stock and had acquired options for another 31.5 percent that would bring its total stake in the company to 74.1 percent. The announcement then declared Porsche was seeking to obtain 75 percent of VW shares, resulting in a frenzy of trading activity.
Hedge fund managers had long been betting that the price of VW stock would fall. The financial crisis caused demand for cars to fall in the US, driving down American automakers' share prices. They figured it was only a matter of time until German carmakers suffered a similar fate. As a result, their funds were borrowing VW shares and selling them on in the hope they could buy them back later at a lower price - a speculative strategy known as "short selling."
But Porsche's weekend announcement drove VW's stock price up from 290 euros to 1,005 euros per share, making it the world's most valuable company for a short period of time. Estimates say the speculators lost about 15 billion euros ($19 billion) in two days of trading as a result.
Campaign of misinformation
In the trial, prosecutors are set to argue that Porsche managers issued several public denials between March and October 2008 that it was planning to raise its stake in VW, while in reality they were in the process of building up Porsche's stake in VW.
Prosecutors allege the Porsche press releases created a false impression and were actually "misleading" the public.
The takeover plan eventually unraveled in 2009 after Porsche ran into problems trying to finance a 10 billion-euro loan, leading to the VW group mounting a rescue operation that led to acquiring Porsche. Wiedeking and Härter were finally forced to resign.
The trial in Stuttgart will be especially watched by the US hedgefunds, including Elliott International and Perry Capital, which are collectively suing the Porsche holding company for more than 5 billion euros in separate civil proceedings.
uhe/cjc (dpa, Reuters, AFP)