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American hedge fund managers are suing Porsche for more than $1 billion
Autocar
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2 mins read
27 January 2010

American hedge fund managers are suing Porsche for more than $1 billion (£620 million).

Four fund managers - Elliott Associates, Glenhill Capital Management, Glenview Capital Management and Perry Capital - are accusing Porsche, its former chief executive and its former chief financial officer of repeatedly lying about their intention to take over Volkswagen.

The fund managers claim they lost more than $1 billion because they were shorting VW stock - a process of selling borrowed shares in the hope of buying them back more cheaply at a later date and pocketing the difference - in October 2008 when Porsche surprised the stock market by revealing a 75 per cent stake in VW.

Porsche's announcement sent VW's shares rocketing, and as the short sellers scrambled to buy back stock, that drove prices even higher.

The American funds lost more than $1 billion when forced to buy VW shares at the inflated price in order to meet their obligations to return the shares they had borrowed. Porsche profited from the squeeze by selling some of its secretly acquired stock.

Phil Beck, the funds’ attorney, said: “Porsche should be held accountable in a court of law. We’ll do whatever it takes to make sure that the rule of law is upheld."

Reports also suggest that other VW investors may join the lawsuit, boosting claims to as much as $10 billion.

A Porsche spokesman said the company rejected the claim, adding that Porsche had “always abided by current capital markets law”.

Porsche has already investigated the behaviour of Wendelin Wiedeking, its former chief executive, and Holger Harter, its former vice-president of finance, and found no wrong-doing.

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crashbangwallop 27 January 2010

Re: Porsche sued for $1 billion

The very purpose of hedge funds is to manipulate and distort the market in order to reap unearned and undeserved profits. Lets hope the law is changed to outlaw greedy worthless parasite hedge funds.

Now having lost their money they go to court, the other great American way of trying to make money.

Symanski 27 January 2010

Re: Porsche sued for $1 billion

All above points well made, however, here's another view....

Which companies were lending the shares to them? Are these pension and investment companies making a tiny bit extra for themselves?

Here's my thinking. You own an investment package that's worth £ 100. The company then lends this to the hedge fund, for £ 1, for several days. Hedge fund is gambling that in several days it will be worth £ 95 and is able to make £ 4.

Your £100 investment is now worth £ 95. Your investment company, by letting stocks sell, has devalued them by £ 5, but gained £ 1 for itself. Hedge fund is £ 4 better off too.

Who lost out? YOU, the investor.

NeilBeforeZod 27 January 2010

Re: Porsche sued for $1 billion

Awww, poor things. These guys got their fingers burned, tough, that's the chance you take when you buy short. I'm sure if they'd made a billion bucks, they would be giving it all back... I doubt it! Maybe they'll be a little more careful next time.

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