Porsche prevails at U.S. appeals court over VW squeeze

Fri Aug 15, 2014 3:12pm EDT
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By Jonathan Stempel

NEW YORK (Reuters) - Porsche Automobil Holding SE (PSHG_p.DE: Quote) persuaded a U.S. federal appeals court to uphold the dismissal of a lawsuit by more than 30 hedge funds that claimed to suffer big losses because the German automaker fraudulently cornered the market in Volkswagen AG (VOWG_p.DE: Quote) shares.

The 2nd U.S. Circuit Court of Appeals on Friday said Porsche's alleged wrongdoing was "so predominantly foreign" that it could not be held liable in U.S. federal courts under domestic securities fraud laws.

It also said that the hedge funds might still "conceivably" show that U.S. laws should apply, and try to amend their lawsuit in Manhattan federal court.

The unsigned 48-page decision was issued 2-1/2 years after oral arguments.

It is the latest of several 2nd Circuit decisions to make it harder to pursue U.S. lawsuits over foreign conduct, since a 2010 U.S. Supreme Court ruling in Morrison v. National Australia Bank Ltd limited the reach of U.S. securities laws.

In various litigation, including some pending in Europe, hedge funds including Paul Singer's Elliott International LP and David Einhorn's Greenlight Capital LP sought to recoup about $2 billion of losses they blamed on Porsche's "massive short squeeze" in VW.

They claimed that during 2008, Porsche quietly bought most freely traded VW shares, despite publicly stating it had no plans to take a 75 percent controlling stake.

When Porsche revealed such a stake in October 2008, shares of VW skyrocketed. This briefly made VW the world's largest company by market value, but caused losses for the hedge funds on swap agreements where they bet the share price would drop.   Continued...

A man does the final touches on the Porsche logo of a Macan at the new plant in the eastern German city of Leipzig February 5, 2014. REUTERS/Tobias Schwarz