• Jan 28th 2010 at 10:58AM
  • 15
The Porsche-as-hedge-fund escapade isn't fully resolved yet. Of course, the biggest denouement will be when Volkswagen finishes integrating the company early next year, but in the meantime, Porsche is still dealing with investor wrath after its stock market foray. A group of U.S.-based hedge funds is suing the Stuttgart carmaker for losses in excess of a billion dollars, claiming those losses came because Porsche misled them about its intent.

Porsche was coy about its stake in VW, and only disclosed its stock holdings in the company as required by German law. German law doesn't require a company to publicly declare cash-settled stock options as a share in the company. That means Porsche was sitting on shares it controlled that investors didn't know about, and investors read Porsche's statements on its intent as not having any interest in taking over VW. This, even though the company was knocking down doors all over Europe trying to get the VW law repealed...

When the extent of Porsche's holdings were found out, investors expecting VW's stock to drop had to cover their short positions buy buying a much smaller supply of stocks than expected, which drove VW's share price to intergalactic levels. And that's where the massive financial bloodletting happened. Porsche was already investigated and cleared by German authorities, who found that the company didn't break any disclosure laws. Redress in an American court, where the lawsuit was filed, could be just as difficult to come by.

[Source: Automotive News – sub. req'd | Image: Basheertome - C.C. License 2.0]

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    • 1 Second Ago
      • 5 Years Ago
      The poor babies sue when they lose billions on a trade that went the wrong way. THAT IS WHY THEY CALL TRADES BETS!!!

      Of course they don't sue when they manipulate the market and make billions.
        • 5 Years Ago
        And what is wrong with the investors suing a company who used the insider information to manipulate the market in the desirable direction?
        • 5 Years Ago
        When has insider trading ever been morally off-limits to hedge fund types? But fine, lets ASSUME just for a moment that such a thing is naughty, but...

        ...It's not as if Germany doesn't have rules against insider trading. Porsche just put 1 and 1 together, from information that wasn't exactly private. We all knew that a bunch of douchebags here and there were shorting VW (amongst lots of other things). That's all it took.

        See, the difference between me and Porsche is that they were able to actually execute on this information and scare the bejesus out of the hedge funds. I didn't exactly own massive numbers of shares of VW to be able to pull that kind of **** off.
      • 5 Years Ago
      Don't you feel sorry for those poor bankers who had a car company get one over on them? How about the 99% of us who have been screwed over by those same bankers file a class action for the billions they have caused all of us to loose, plus our jobs, and houses too. Boohoo...beaten at their own game.
        • 5 Years Ago
        The hedge funds are pissed that Porsche played the hedge fund game better than they did. Cry me a river.
      • 5 Years Ago
      Porsche as a hedge-fund. It is a hedge-fund that gets a small portion of its revenues from making cars. €1 billion profit from car sales and €6.8 from market manipulations, why they just drop that car making business altogether?
        • 5 Years Ago
        Except that what Porsche used was not "insider information" - unless you're suggesting that it is unlawful for Porsche to know about what they're doing with their own money. Porsche, a German company, doing business in Germany, and unlisted on any American stock exhange, had no obligation to publicly report what they were doing. They chose to reveal their position at the most opportune time for them, which is just good business. Sorry it didn't work out for the hedge funds but they should have known what they were getting into before they shorted the company.

        The hedge funds flat out guessed wrong. I think it shows chutzpah of the highest order to try and sue a company you shorted to cover your own ass.

        One last thing. If the hedge funds had successfully shorted VW, they would have unloaded all of their stock, caused a dramatic drop in stock price, and Porsche would have been left holding the bag. Do you think Porsche would have any legitimate claim on their spread? Didn't think so. Next!
        • 5 Years Ago
        Mr. Scorch,

        I suggest you expand your knowledge of the Porsche drama. Then the filed claims will make a bit more sense, and perhaps then you will begin making bets on how much money will those hedge funds be able to squeeze out of Porsche.

        Porsche didn't run a legit business of making cars and legally accumulating VW stocks. It built a full-blown speculation scheme on the option markets, and depending on the shades of grey, it is generally illegal in most developed countries.

        There is a great chance that Porsche could be on the hook for a full refund of the option proceeds. And it is exposed to further civil disgorgement and criminal liabilities. I think, they are have a €10 billion term loan maturity coming in March, and I will be interested to see who will refinance a company potentially liable for €6.8 cash outflow.
      • 5 Years Ago
      A correction from a former Finance professor-"German law doesn't require a company to publicly declare cash-settled stock options as a share in the company. That means Porsche was sitting on shares it controlled..."

      If they were cash-settled stock options, Porsche would merely profit from a rise in VW's price, for cash-settled options merely pay the difference between the stock price and the exercise price. For instance, if Porsche had an option to buy VW at 50 Euros a share and the stock price was at 65 at the exercise date, they'd make 15 Euros on a cash-settled option.

      Normal stock options, where you get to buy shares of the stock upon exercise, would mean effective control of the stock if the option was "in the money." However, cash-settled options don't give you that option.

      Keep up the good work and sorry for a nit-pick being my first comment.
      • 5 Years Ago
      Bunch of idiots outplayed in their own game, and now running around crying...This is one of if not the most ridiculous corporate lawsuit ever. I hope the hedge funds loose big time and then have to pay for Porsche's legal expenses too.
      • 5 Years Ago
      It is always difficult to know what the best thing to do is when you feel you have been misled about an investment. Legal wranglings often follow and it will be interesting to see how this one is resolved. Such a complex case will always take time, as these things do, but nevertheless we will all find out sooner or later.

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      • 5 Years Ago
      I can't help welling up here... If you are selling stock short you have the risk that you get played by a player. As far as I know that is business as usual in high risk high return investments, isn't it?
      • 5 Years Ago
      What is the difference between a Porsche and a porcupine?
      • 5 Years Ago
      Lol Porsche pulled the most badass financial move ever and people are crying over it why, because they didn't know Porsche was trying to get VW stock?

      Everyone and their mother knew this.
      • 5 Years Ago
      The funds made a bet and they lost. Porsche was under no legal obligation to divulge more than they already did. The investors should have picked up the clues on Porsche's intentions towards VW. I say let Porsche sue the funds for market manipulation because it was the funds covering the shorts that drove VW prices higher than it dropped afterwards.
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