Fear That VW Was Defrauded Sinks Stock : Foreign Exchange Deals May Have Cost Millions

The stock of Volkswagen AG, the giant West German auto maker, plunged Wednesday after the company said it lost as much as $258 million in possibly fraudulent foreign exchange deals.

Separately, the prosecutor’s office in the northern town of Braunschweig reported that Volkswagen had filed a criminal complaint against unidentified people for fraud, breach of trust and forgery.

Hans-Juergen Grasemann, a spokesman for the prosecutor, said the investigation is likely to take several months.

News of the losses and investigation caused Volkswagen shares to tumble in heavy trading on the Frankfurt Stock Exchange. Brokers said the company’s stock was trading at a volume roughly four times normal and has lost 9.1% of its market value in the last two sessions.

Possible Involvement

Volkswagen stock fell by the equivalent of $13.30 a share to $173.80 Wednesday, pulling most other German share prices lower.

On Tuesday, Volkswagen spokesman Ortwin Witzel said that the possibly fraudulent deals may have involved members of the company’s management or people outside the company.

He said the losses came to light when company auditors discovered that documents supposedly hedging part of Volkswagen’s huge foreign income against a drop in the value of the dollar may have been forged.

Karl Gustaf Ratjen, Volkswagen’s supervisory board chairman, said that company officials were not certain who carried out the deals or how they could have been kept secret.

“We’re looking both inside and outside” the company, he said Wednesday. “And it’s not just a question of the people who did it, but how it happened.”

Scenario for Fraud

Meanwhile, currency dealers in West Germany noted that the suspected fraud is a stark reminder of how big companies are required to use complex financial instruments to hedge foreign exchange exposure.

They said that in 1985, someone out to defraud an exporting company could have bet on the dollar’s continuing to rise. He might then have faked documents to satisfy management that a hedge had been undertaken and waited for the dollar to rise above the price stated in the falsified contract.

He would seek to pocket the difference when the receipts were booked at the contract rate. But a fraud would be discovered if the dollar fell and management found its dollar receipts worth much less in deutsche marks than planned.