U.S. District Judge Harold Baer in Manhattan dismissed two lawsuits that claimed that Porsche Automobil Holding SE cost hedge funds over $2 billion by deceiving short-sellers in acquiring Volkswagen AG shares in 2008.
The ruling had scrapped the complaints filed by hedge funds Elliott Associates LP and Black Diamond Offshore who represented 39 U.S. and foreign-based funds.
The suits had claimed that Porsche secretly cornered the market in Volkswagen shares. The short-sellers asserted that Porsche misled investors by denying through much of 2008 that it aimed to acquire Volkswagen and by using manipulative trades to hide its stock positions.
On Oct. 26, 2008, Porsche stated that it controlled most of Volkswagen's common stock, resulting to the surging of shares as short-sellers were competing to cover their positions.
Judge Baer said that he depended on a recent U.S. Supreme Court ruling that fraud claims, including the suits against Porsche, apply only to securities listed on domestic exchanges and domestic transactions in other securities.
Baer said that this ruling also applies to other similar complaints against Porsche. Judge Baer wrote that the swaps at issue in the case “were the functional equivalent of trading the underlying VW shares on a German exchange.”
He also stated that the “economic reality” is that plaintiffs' swap agreements are basically transactions that are used on foreign exchanges and markets and not on domestic transactions. [via autonews - sub. required]