Prosecutors in Germany are investigating claims that Martin Winterkorn, the former CEO of Volkswagen AG, manipulated the market by failing to disclose the financial setbacks caused by the auto company's 2015 emissions scandal.
The probe is based on a formal complaint lodged by financial regulators in the country.
In September 2015, the Environmental Protection Agency (EPA) found a "defeat device" that was embedded into the software of some 11 million VW diesel vehicles in the U.S. The lines of code were designed to cheat by reporting lower levels of nitrogen oxide emitted during testing.
Germany, for its part, found 2.8 million VW units in the country that had the same cheat code and rigged emissions tests as well.
In a real-world scenario, however, these diesel vehicles would emit 40 times the levels of nitrogen oxide permitted.
"VW needs to be very open about what has happened," a well-known VW shareholder spoke to Reuters at the time the scandal broke out.
The question now on the minds of German investigators is whether Winterkorn should have disclosed the financial costs earlier.
'Sufficient Factual Indicators'
This week, the office of the city prosecutor in Braunschweig said there were "sufficient factual indicators" that should have compelled Winterkorn to come clean sooner. The prosecutors will continue to examine whether the notification to investors was "deliberately late."
Back in 2015, VW issued a statement under the securities trading act.
However, "there is reason to believe that the requirement to publish a statement about the anticipated significant financial loss to the group may have arisen at an earlier date," the prosecutors say.
The carmaker's legal advisers believe there have been no "serious and manifest breaches of duty" on the part of former and current executives.
VW also maintains there is no evidence that indicates the management had prior knowledge of the cheat code. The rigging, the company believes, may have been undertaken by just a small group of employees.
The Financial Times reports Winterkorn had already received a memo in May 2014 about certain discrepancies in the emissions test results, but VW has not clearly established whether Winterkorn had read, or understood the significance of, the note at the time.
The issue was brought up in a July 2014 company meeting attended by Winterkorn and VW's head of passenger car brand Herbert Diess.
Financial Costs Of VW's Emissions Scandal
At the onset of the scandal, VW stocks nosedived to as much as 40 percent, and the controversy has prompted investors, including Norway's state pension fund, to sue the carmaker. The fund also cut its stake in the company from $1.2 billion to only $720 million.
VW is reportedly allocating $18 billion to cleaning up the mess with car repurchases and recalls, and by facing lawsuits from regulators and investors.
