Volkswagen, based in Germany, is the largest car maker in the world. To achieve that status, the company focused on marketing cars with advanced diesel technologies that were supposed to be “clean” and “green,” fun to drive, and had high fuel economy. Indeed, Volkswagen was a pioneer in advancing “Clean Diesel” technology, and emphasized its message relentlessly: its diesel cars are fun, quiet, efficient, and most critically, they are clean and comply with the strictest emissions standards in the world.

In contrast with these representations, on September 18, 2015, U.S. regulators announced that Volkswagen admitted to systematically defrauding and misleading the public for years by deliberately cheating U.S. emissions tests and making its diesel vehicles appear cleaner and more powerful than they actually are. Specifically, Volkswagen secretly installed illegal “defeat devices” on several of its most popular car brands—software that would activate only during testing—that made it appear as though its diesel cars’ emissions met regulatory requirements and were compliant with the U.S. Clean Air Act and other environmental laws and standards. But when Volkswagen’s cars were not being tested (i.e., in all normal driving situations) the cars’ pollution controls would automatically shut down, resulting in the cars emitting nitrogen oxides and other toxins at up to 40 times the legal limits. Millions of Volkswagen cars globally have been impacted by this scandal, leading to the firing of its CEO and the suspensions of several high-level executives and engineers. Volkswagen now faces potential fines of up to $18 billion, is subject to several civil and criminal investigations, must recall the affected cars to fix the violations, and has since been barred from selling diesel cars in several important markets. Critically, former-CEO Martin Winterkorn admitted that Volkswagen broke the public’s trust by defrauding federal and state regulators, adding that he was “personally…deeply sorry for the breach of trust.” According to Winterkorn, the company’s “manipulations…violate American environmental standards . . . [and] [w]e do not and will not tolerate violations of any kind of our internal rules or of the law.” As a result of the disclosures of the Company’s misconduct, the price of Volkswagen securities declined precipitously, causing investors in Volkswagen securities to incur significant losses.