Bloomberg News

Porsche Seeks to Reverse Hedge Fund Suit Ruling in New York

November 29, 2012

Porsche SE (PAH3) is seeking to reverse a ruling that the carmaker must face a lawsuit by hedge funds accusing it of hiding a plan to corner the market in Volkswagen AG (VOW) shares.

Porsche today asked the New York State Supreme Court’s Appellate Division in Manhattan to overturn Justice Charles Ramos’s August decision rejecting its motion to dismiss the 2011 lawsuit by 26 hedge funds including David Einhorn’s Greenlight Capital Inc.

The funds, which bet that Volkswagen stock would fall, claim Stuttgart, Germany-based 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. The plaintiffs are seeking more than $1 billion in damages.

Robert J. Giuffra Jr., an attorney for Porsche with Sullivan & Cromwell LLP in New York, told the appellate panel today that the lawsuits don’t belong in New York because “Germany has a far greater connection to the issues in this case than does the U.S. and New York.” Some of the plaintiffs have also sued the carmaker in Germany.

‘Challenge Disclosures’

The lawsuits “challenge disclosures made in Germany by Porsche, a German company, about its accumulation of shares of another German company traded in Germany,” Giuffra said in an August court filing.

None of the plaintiffs are organized under the laws of New York and 10 of the funds are domiciled outside the U.S., Giuffra said in court documents.

“There’s no allegations that anyone from Porsche ever stepped foot in New York and had any interactions with these hedge funds,” Giuffra said during today’s hearing.

James B. Heaton III, a Chicago-based attorney with Bartlit Beck Herman Palenchar & Scott LLP who represents the plaintiffs, asked the court to uphold Ramos’s ruling, arguing that his clients either have operations in New York or are managed in the state.

“Porsche set out to target short sellers,” Heaton said.

Porsche said on Oct. 26, 2008, that it controlled 74.1 percent of Volkswagen’s common stock, partly through options, and was seeking an eventual takeover. The disclosures caused the shares to surge as short-sellers raced to cover their positions.

Failed Bid

Investors in Germany and the U.S. have claimed Porsche lied about its intentions to take over the larger carmaker. The failed bid led Porsche to agree to sell its sports-car business to Wolfsburg, Germany-based Volkswagen as debt soared. That transaction was completed on Aug. 1, when VW purchased the remaining shares for 4.5 billion euros ($5.8 billion).

U.S. District Judge Harold Baer in New York in December 2010 dismissed a similar suit by two hedge funds, Black Diamond Offshore and Elliott Associates LP, representing a total of 39 U.S. and foreign-based funds.

In his opinion, Baer said he relied on a U.S. Supreme Court ruling that fraud claims such as those in the lawsuits against Porsche apply only to securities listed on domestic exchanges and domestic transactions in other securities. Baer said his ruling applies to other similar complaints against Porsche.

The funds appealed that ruling in January 2011, and subsequently filed suit in New York state court over the same allegations.

European Suits

Porsche is also being sued in Europe over the issue. A court in Braunschweig, Germany, in September dismissed two cases, seeking less than 5 million euros combined. Four more cases, asking for more than 4 billion euros combined, are still pending at that court.

Porsche is also battling at least four cases seeking about 31 million euros combined in a court in Stuttgart. A Cayman Islands-based investment fund sued Porsche for $195 million in the U.K. in September.

German prosecutors are also investigating former Chief Financial Officer Holger Haerter and former Chief Executive Officer Wendelin Wiedeking on claims of market manipulation and breach of trust. As part of the case, Haerter and another Porsche manager are currently standing trial on accusations they made false statements when refinancing a 10 billion-euro loan in 2009.

The New York cases are Viking Global Equities LP v. Porsche Automobil Holdings SE, 650435/2011, and Glenhill Capital LP v. Porsche Automobil Holding SE, 650678-2011, New York State Supreme Court, New York County (Manhattan).

To contact the reporter on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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