Volkswagen “repeatedly lied to and misled United States investors, consumers, and regulators as part of an illegal scheme to sell its purportedly ‘clean diesel’ cars and billions of dollars of corporate bonds and other securities.”

(Reuters) – The U.S. Securities and Exchange Commission (SEC) is suing Volkswagen (VW) and its former chief executive Martin Winterkorn over the German automaker’s diesel emissions scandal, alleging a “massive fraud” on U.S. investors.

VW was caught using illegal software to cheat U.S. pollution tests in 2015, triggering a global backlash against diesel that and has so far cost it 29 billion euros ($32.8 billion).

Regulators and investors argue VW should have informed them sooner about the scope of the scandal, while VW says it was not clear it would face billions of dollars in fines and penalties as others had paid out much lower sums for similar offenses.

The SEC said in its civil complaint on Thursday that from April 2014 to May 2015, VW issued more than $13 billion in bonds and asset-backed securities in U.S. markets at a time when senior executives knew that more than 500,000 U.S. diesel vehicles grossly exceeded legal vehicle emissions limits.

VW “reaped hundreds of millions of dollars in benefit by issuing the securities at more attractive rates for the company,” the SEC said, adding it “repeatedly lied to and misled United States investors, consumers, and regulators as part of an illegal scheme to sell its purportedly ‘clean diesel’ cars and billions of dollars of corporate bonds and other securities in the United States.”

The suit filed in San Francisco seeks to bar Winterkorn from serving as an officer or director of a public U.S. company and recover “ill-gotten gains” along with civil penalties and interest.

Winterkorn, who resigned days after the scandal became public in September 2015, was charged by U.S. prosecutors in 2018 and accused of conspiring to cover up the German automaker’s diesel emissions cheating.

A lawyer for Winterkorn, who remains in Germany, declined to comment on the SEC action.

VW said in a statement the SEC complaint “is legally and factually flawed, and Volkswagen will contest it vigorously. The SEC has brought an unprecedented complaint over securities sold only to sophisticated investors who were not harmed and received all payments of interest and principal in full and on time.”

The automaker added that the SEC “does not charge that any person involved in the bond issuance knew that Volkswagen diesel vehicles did not comply with U.S. emissions rules when these securities were sold” but repeats claims about Winterkorn “who played no part in the sales”.

German markets regulator Bafin could not be reached for comment about whether it was working with the SEC.

“Fraudulently Obtained”

VW has spent billions to pay claims from United States-based VW owners, environmental regulators, states and dealers, and has offered to buy back about 500,000 polluting U.S. vehicles. That figure included $4.3 billion in U.S. criminal and civil fines.

But the SEC said VW “has never repaid the hundreds of millions of dollars in benefit it fraudulently obtained.”

VW admitted to secretly installing software in 500,000 U.S. vehicles to cheat government exhaust emissions tests and pleaded guilty in 2017 to felony charges. 13 people have been charged in the United States, including Winterkorn and four Audi managers.

The SEC suit also names VW’s VW Credit and Volkswagen Group of America Finance LLC, the entity used to sell the securities.

VW also faces investor lawsuits in Braunschweig, Germany.

Critics argue that VW should have informed investors on September 3, 2015 about having used a “defeat device” to cheat emissions tests, the same day that VW managers admitted to using illegal software to U.S. regulators.

Investors were informed about VW’s diesel cheating after U.S. regulators blew the whistle on September 18, 2015.

VW argues it did not have to inform investors earlier because it did not believe it was facing significant fines.

VW’s management had sought to strike a deal with U.S. regulators behind closed doors, a process that would lead costs to be “controllable overall with a view to the business activities of Volkswagen Group,” a VW document showed.

A defense filing made with the Braunschweig court says VW’s chief financial officer was informed that there was a potential problem with United States authorities on September 14, 2015.

At the time, VW believed it could fix polluting vehicles with a software update and gauged the potential financial risk to be around 150 million euros, the Braunschweig document shows.