6

There are news about shareholders suing VW due to the losses that happened by the emissions fraud (lots of examples in the news, this is just one of them).

Now, I understand customers suing VW, and I would understand shareholders suing the CEO, the CTO, the entire board or any combination of them, and other managers implicated in the issue. That part is clear.

But, since the company is owned by the shareholders, suing the company does not make a lot of sense to me, because:

  • Conceptually it is a lot like someone suing himself (yes I know the companies are different legal persons, but still); one could argue that the shareholders did benefit from the fraud while it was ongoing yet no customer can sue them.

  • Any damages they take away from the company will decrease the value of the company, thus decreasing the value of their stock. Add to that the legal costs from both parts and the most probable result will be a considerable net loss.

Add to that the additional negative info for VW due to the lawsuit and it sounds a lot like using a gun to kill that fly that is on your hand...

The only possible explanaitions that I may think of do not sound very smart:

  • They hope that only a handful of stockholders will sue, so the damages paid to 10% of the stockholders will be diluted between the 100% of the stockholders... but once there is a sentence against VW, I would think almost all of the small stockholders would join any action class lawsuit.

  • They hope to get to a situation were they get the money and VW gets in enough of a bad shape that forces the German government to bail-out.

I don't know, the situation seems strange to me. Are there legal precedents of shareholder suing the company (not its management) before?

Update: To (hopefully) explain my doubts... If I buy a VW car and find it is not what I was promised, I can sue VW (the company) because I have a contractual relationship with it and the contract has not been honored. But a shareholder will have an ownership relationship with the corporation, which is what makes me doubt the possibilities of such a lawsuit1. And of course, there is always the -very, very, very tiny, almost non-existent - possibility that journalists are not reporting the issue correctly.

1Of course the individual members of the board and employees that failed in their fiduciary duty may be sued, but they are not the corporation.

Improve this question
3
  • 1
    Keep in mind that the assets and capital owned by a company is just one of countless factors which influence a stock price. When a company is sued for a billion euro, the collective value of all their stocks will not automatically go down by a billion. Stock markets are far more complicated than that.
    – Philipp
    Commented Sep 26, 2016 at 8:53
  • @Philipp yes, it is the end of present value and perspectives of evolution and not only the capital, but the same principle still applies. If people suing demand one billion dollars and the market thinks there is a 50% probability to win, it means that nowadays the value of the company (and its stock) is already half a billion less than it would have been without lawsuits (and, if finally the lawsuit wins, the value of the company would then "only" drop by another half a billion). But in the end, whatever is lost in lawsuits reflects directly (or worse due to costs/publicity) on the company.
    – SJuan76
    Commented Sep 26, 2016 at 9:06
  • "They hope that only a handful of stockholders will sue, so the damages paid to 10% of the stockholders will be diluted between the 100% of the stockholders... but once there is a sentence against VW, I would think almost all of the small stockholders would join any action class lawsuit." Even if other stock holders join, they still get the advantage of "cashing out now" instead of waiting for dividends.
    – Christopher King
    Commented Sep 2, 2021 at 19:34

2 Answers 2

Reset to default
5

There is certainly precedent. This list of the 10 biggest class action lawsuits in the world indicates that 8 of the 10 were by investors against their own company.

In any event your analysis is flawed. The people who initiate the class action may (probably are) no longer be investors because they sold their shares and realised their losses. Further a legacy investor who didn't buy on the basis of the company's wrongdoing would not be entitled to damages. Finally, an investor who bought at say $100 on the basis of false information (like the cars were legal when the company knew they weren't) and now hold shares worth $40 will wait many years (if ever) to make good their losses: a lawsuit will be quicker and more certain.

Improve this answer
4
  • Thank you for your answer, but I have some trouble with your list. For example, I searched for Enron and I found that lawsuits against board members, Arthur Andersen and three people from NatWest. Lawsuits from investors were started way after Enron had filed for bankruptcy; of the three investor lawsuits it seems they targetted (and the settlements were paid by) banks that helped Enron fraud (BoA, JPMorgan, Citigroup & others), only in the case of the ex-employees fund it mentions insurance policies (which are not clear if were covering Enron or for the fund itself).
    – SJuan76
    Commented Sep 26, 2016 at 14:18
  • Similarly, in the case of WorldCom it cites as defendants the entities through which WorldCom shares were sold to the public. Do you have a more specific example were the company was explicitly sued?
    – SJuan76
    Commented Sep 26, 2016 at 14:19
  • 3
    Once Enron was bankrupt, there would (in general) be no point in suing Enron. VW is still solvent.
    – Martin Bonner supports Monica
    Commented Sep 26, 2016 at 15:19
  • 3
    @MartinBonner is spot on, however, you might sue an insolvent entity to trigger an insurance policy
    – Dale M ♦
    Commented Sep 26, 2016 at 20:11
-2

The way I see it you have different classes of stock holders those who suffered damage due to fraudalant management and those who didn’t suffer damages. If you bought and sold VW stock before the fraud was exposed and the stock dropped than there should be no losses to recover in lawsuit for your class. Likewise, if you buy VW stock after the fraud is fully exposed with a lawsuit by consumers, government, and shareholders pending you by the stock at price knowing future payouts wil be made which is reflected in the price you paid for VW stock therefore this class di not suffer danages due to fraud. This leave former and present stockholders who suffered damage when stock fell after fraud was exposed. Stockholders who own company at time of payout knew this was likely outcome at time of purchase of stock or held on stock even after fraud with exposed knowing they would be awarded some damages in future but in reality the only real winners are the trial lawyers but who

Improve this answer

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .