Germany’s largest retail fund company, DWS, accused Porsche SE of intentionally breaking domestic securities laws by cornering the market in Volkswagen AG ordinary stock, its managing director said.
Porsche had triggered a stampede to close short positions in Volkswagen shares, sending them to over €1,000, when it surprised the market by saying on Oct. 26 it had effectively gained access to 74.1% of VW votes, reducing the free float to less than 6%. “The company violated rules against market manipulation, pitted itself against all other DAX companies and caused damage to scores of investors,” Klaus Kaldemorgen told the Frankfurter Allgemeine Zeitung in comments published on Saturday.
Asked by the paper what he meant, the head of Deutsche Bank’s retail fund subsidiary cited paragraph 20a of the German securities trading law (WpHG) as prohibiting dealings that result in false or misleading signs pertaining either to supply or demand or that create an artificial price level. “Exactly that is what Porsche has done, in my opinion,” Kaldemorgen said. A spokesman for Porsche dismissed the accusation as “lacking any foundation”, but when pressed by Reuters to respond to the detailed views of DWS he declined to comment further.
At the time Porsche revealed it had control of 74%, reducing the free float dramatically since Lower Saxony holds just over 20%, it said the announcement would give short sellers the opportunity to unwind their positions without haste or considerable risk. Within 48 hours, the stock had nearly quintupled in value and the spread between the ordinary shares and non-voting preferred stock which used to trade within a narrow band had leaped to more than €950.
Kaldemorgen’s comments represent the harshest yet amid a storm of criticism from investors over the short squeeze that temporarily made VW the world’s most valuable company. The matter has already prompted a formal investigation by German securities watchdog Bafin. Kaldemorgen said that while Porsche may have enriched itself by between €10 billion ($12.8 billion) and 40 billion depending on the number of call options on VW ordinaries Porsche may have sold or exercised, the rest of the market suffered losses as a result.
Index funds were forced to “synthetically” buy exposure to VW through the purchase of futures for the entire DAX and the subsequent sale of holdings in the other 29 German blue chips that comprise the index. “The bottom line is everyone lost: the other DAX companies, the private wealth managers and their clients, retail investors, even the (Deutsche) Boerse, whose reputation suffered just like that of capital markets overall. And all because one company did not play fairly,” he said. (Reuters)