By Grant McCool
NEW YORK, Jan 25 (Reuters) - A group of investment funds sued Porsche SE and two of its former top executives on Monday accusing them of fraud in a 'short squeeze' that caused the funds to lose more than $1 billion from Porsche's attempted takeover of Volkswagen AG in 2008.
The lawsuit filed in Manhattan federal court alleged that Porsche Automobil Holding SE and former Chief Executive Officer Wendelin Wiedeking and former Vice President of Finance Holger Haerter repeatedly misled investors and lied about Porsche's positions and intentions with respect to VW.
The U.S.-based funds were victims of what the financial media called 'a massive short squeeze' and a 'short squeeze of historic proportions,' the lawsuit alleged. The complaint accused Porsche of securities fraud by manipulating the market.
A spokesman for Porsche in Stuttgart, Germany, said the company disputes the validity of the claims. He said Porsche 'always abided by current capital markets law.'
VW shares briefly topped 1,000 euros apiece in 2008 -- making Volkswagen the world's most valuable company -- in a vicious 'short squeeze' triggered when Porsche revealed it controlled about three-quarters of VW's voting stock in October 2008.
Saddled with debt just as global markets collapsed, Porsche last year abandoned the takeover attempt for its much larger rival and agreed to pursue a merger that is supposed to culminate next year. Wiedeking and Haerter both left the company last year.
State prosecutors in Germany are investigating the role of Wiedeking and Haerter. A probe mandated by the sportscar maker concluded that Wiedeking and Haerter committed no legal transgressions, Porsche said in December.
CORNERED MARKET
In Monday's lawsuit, the funds alleged that 'Porsche cornered the market in VW shares by breaking the law. Specifically, Porsche cornered the market in VW shares with false denials of its intent to take over VW and by engaging in a series of manipulative derivatives trades to hide the extent to which Porsche controlled VW shares.'
The funds, which had short positions in Volkswagen stock, 'did not know that they were effectively borrowing shares controlled by Porsche and that Porsche and these counterparties had launched a secret plan to take over VW.
'The consequence was a short squeeze in which the price of VW shares shot upwards,' the court document said.
Porsche had stated it was using cash-settled stock options to raise its stake, which eludes disclosure thresholds under German law, since only stock options that are settled in shares are counted toward a stake.
The funds said they were suing Porsche and the former executives in New York because they believed that their conduct had a substantial impact on investors in the United States, among other reasons.
It said that Porsche made 'massive profits' while plaintiffs lost 'tremendous amounts of money covering short positions at artificially high prices.'
In a separate press release, the funds said they were seeking to recover more than $1 billion from Porsche.
'The plaintiffs attempted to reach an out-of-court resolution,' a spokeswoman for the funds said. 'Having been rebuffed, however, this suit became the only remaining avenue for the funds to protect their rights.'
The funds include Elliott Associates LP, Elliott International LP, The Liverpool Limited Partnership, Glenhill Capital LP, Glenhill Capital Overseas Master Fund LP, Glenhill Concentrated Fund LP, Glenview Capital Partners LP, Glenview Institutional Partners LP, Glenview Capital Master Fund Ltd, GCM Little Arbor Partners LP, GCM Little Arbor Institutional Partners LP, GCM Little Arbor Master Fund Ltd, GCM Opportunity Fund LP, Glenview Capital Opportunity Fund LP, Glenview Offshore Opportunity Master Fund Ltd, Perry Partners LP and Perry Partners International Inc.
The case is Elliott Associates LP et al v Porsche Automobil Holding SE, U.S. District Court for the Southern District of New York, No. 10-0532.
(Reporting by Grant McCool, additional reporting by Christiaan Hetzner and Michael Shields in Frankfurt; Editing by Tim Dobbyn and Matthew Lewis) Keywords: PORSCHE FUNDS/LAWSUIT (grant.mccool@thomsonreuters.com; + 1-212-393-9461; Reuters Messaging: grant.mccool.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, Jan 25 (Reuters) - A group of investment funds sued Porsche SE and two of its former top executives on Monday accusing them of fraud in a 'short squeeze' that caused the funds to lose more than $1 billion from Porsche's attempted takeover of Volkswagen AG in 2008.
The lawsuit filed in Manhattan federal court alleged that Porsche Automobil Holding SE and former Chief Executive Officer Wendelin Wiedeking and former Vice President of Finance Holger Haerter repeatedly misled investors and lied about Porsche's positions and intentions with respect to VW.
The U.S.-based funds were victims of what the financial media called 'a massive short squeeze' and a 'short squeeze of historic proportions,' the lawsuit alleged. The complaint accused Porsche of securities fraud by manipulating the market.
A spokesman for Porsche in Stuttgart, Germany, said the company disputes the validity of the claims. He said Porsche 'always abided by current capital markets law.'
VW shares briefly topped 1,000 euros apiece in 2008 -- making Volkswagen the world's most valuable company -- in a vicious 'short squeeze' triggered when Porsche revealed it controlled about three-quarters of VW's voting stock in October 2008.
Saddled with debt just as global markets collapsed, Porsche last year abandoned the takeover attempt for its much larger rival and agreed to pursue a merger that is supposed to culminate next year. Wiedeking and Haerter both left the company last year.
State prosecutors in Germany are investigating the role of Wiedeking and Haerter. A probe mandated by the sportscar maker concluded that Wiedeking and Haerter committed no legal transgressions, Porsche said in December.
CORNERED MARKET
In Monday's lawsuit, the funds alleged that 'Porsche cornered the market in VW shares by breaking the law. Specifically, Porsche cornered the market in VW shares with false denials of its intent to take over VW and by engaging in a series of manipulative derivatives trades to hide the extent to which Porsche controlled VW shares.'
The funds, which had short positions in Volkswagen stock, 'did not know that they were effectively borrowing shares controlled by Porsche and that Porsche and these counterparties had launched a secret plan to take over VW.
'The consequence was a short squeeze in which the price of VW shares shot upwards,' the court document said.
Porsche had stated it was using cash-settled stock options to raise its stake, which eludes disclosure thresholds under German law, since only stock options that are settled in shares are counted toward a stake.
The funds said they were suing Porsche and the former executives in New York because they believed that their conduct had a substantial impact on investors in the United States, among other reasons.
It said that Porsche made 'massive profits' while plaintiffs lost 'tremendous amounts of money covering short positions at artificially high prices.'
In a separate press release, the funds said they were seeking to recover more than $1 billion from Porsche.
'The plaintiffs attempted to reach an out-of-court resolution,' a spokeswoman for the funds said. 'Having been rebuffed, however, this suit became the only remaining avenue for the funds to protect their rights.'
The funds include Elliott Associates LP, Elliott International LP, The Liverpool Limited Partnership, Glenhill Capital LP, Glenhill Capital Overseas Master Fund LP, Glenhill Concentrated Fund LP, Glenview Capital Partners LP, Glenview Institutional Partners LP, Glenview Capital Master Fund Ltd, GCM Little Arbor Partners LP, GCM Little Arbor Institutional Partners LP, GCM Little Arbor Master Fund Ltd, GCM Opportunity Fund LP, Glenview Capital Opportunity Fund LP, Glenview Offshore Opportunity Master Fund Ltd, Perry Partners LP and Perry Partners International Inc.
The case is Elliott Associates LP et al v Porsche Automobil Holding SE, U.S. District Court for the Southern District of New York, No. 10-0532.
(Reporting by Grant McCool, additional reporting by Christiaan Hetzner and Michael Shields in Frankfurt; Editing by Tim Dobbyn and Matthew Lewis) Keywords: PORSCHE FUNDS/LAWSUIT (grant.mccool@thomsonreuters.com; + 1-212-393-9461; Reuters Messaging: grant.mccool.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
