VW Emissions case decided – 5 years after the scandal
At the outset I’ll make it clear that this article has an agenda – calling for investors to protect their shares, especially where a single share is more than 10% of their portfolio. It’s also an interesting read.
Today, a high court in Germany decided in a civil case of a car owner that Volkswagen management mislead about the emissions of the car and that the owner was entitled to compensation. This will serve as a precedent for thousands of car owners in Germany alone. There still has not been a criminal proceeding against management. Investors will in all likelihood have no means of recovery against the company or management.
During September of 2015 the emissions scandal started, when the Environmental Protection Agency (EPA) issued a notice of violation of the Clean Air Act. At the time VW were executing a major marketing campaign in the USA specifically around how low their vehicles carbon emissions were. The share price immediately dropped by 20% the day after the notice was made public.
Within the week the share price had dropped 35% at its lowest. Volumes of shares traded moved from an average of around 80,000 shares per day to up to 3,000,000 shares per day, as thousands of investors sold out of what they deemed a shut and dry case. The CEO resigned. News publications went wild. Every other CEO weighed in on the matter.
Within the year over 500 class action law suits had been filed against VW. However, some of these investigations still drag on in 2020, others were settled and today the German high court decided VW management had in fact mislead on this matter. Little good that does investors in 2015.
For this article I had a quick peak at the Wikipedia site – it’s one of the longest Wikipedia pages I’ve ever seen. I did find out information that I wasn’t aware of – for example it took almost 4 years for the SEC to “file a complaint against Volkswagen and its former CEO Martin Winterkorn alleging that they defrauded investors by selling corporate bonds and asset-backed securities while knowingly making false and misleading statements to government regulators, underwriters, and consumers as to the quality of their automobiles.” Insane considering the market made this judgement within a week.
VW ended up paying untold billions of dollars to clean up their mess, from mass recalls to the largest fine ever imposed on a US listed company, fines in Europe and management focus and time for years, which is still ongoing.
If an investor had bought and held VW from exactly 5 years before the ‘incident’ they would have returned almost exactly a 100% return in that period, pre ‘Dieselgate’. Post Dieselgate it took many, many years to get back to pre Dieselgate levels, essentially erasing all the good work in the 5 years before.
In fact it was this case that lead us to develop the idea of an insurance cover for investors in listed companies. From January 2017 my co-founder and I conducted extensive research into cases like Volkwagen and concluded that there were enough such cases harming investors to build the business that is now InvestSure.
From out studies we concluded that paying a small premium to protect against losses pays off on semi diversified portfolio, or on a portfolio with significant weightings in one or two shares, over the long term. In the VW case, an investor would have given up roughly 2% of performance in total, for that peace of mind. When Dieselgate happened, an investor who would have bought the InvestSure cover could have relaxed, knowing that he was guaranteed an exit price of 145 per share (dropped as low as 95 per share), which is still a respectable 80% return. This essentially locked in their performance that they believed was honestly gained, and allowed them to keep compounding their wealth post Dieselgate.
This is the most important thing we believe our product allows – the continued compounding of wealth off a higher base when such events happen. Downside protection is one of the most important elements in portfolio construction, while the risk of fraud is one of the most significant and unpredictable risks any investor faces.
You can protect your portfolio (joining a list of over 3,000 investors including professional fund managers) from the risk of management fraud and dishonesty, which is paid out within days (or instantly when investing via EasyEquities), and zero paperwork to sign up. To get a quote on protecting shares in your portfolio, visit www.investsure.insure .
The InvestSure Team