FBI reportedly arrests Volkswagen exec on fraud charges

FBI arrests Volkswagen executive on fraud charges

The Federal Bureau of Investigation has arrested a Volkswagen AG (VOWG_p.DE) executive on charges of conspiracy to defraud the United States, the New York Times reported on Monday.

Oliver Schmidt, who headed the company's regulatory compliance office in the U.S. from 2014 to March 2015, was arrested on Saturday by federal investigators in Florida, the newspaper said, citing people familiar with the matter.

VW admitted in September 2015 to installing secret software known as "defeat devices" in 475,000 U.S. 2.0-liter diesel cars to cheat exhaust emissions tests and make them appear cleaner in testing. In reality, the vehicles emitted up to 40 times the legally allowable pollution levels.

Volkswagen declined to comment on the reported arrest.

"Volkswagen continues to cooperate with the Department of Justice as we work to resolve remaining matters in the United States. It would not be appropriate to comment on any ongoing investigations or to discuss personnel matters," it said.

The FBI was not immediately available for comment.

Schmidt is expected to be brought before court in Detroit on Monday, the NYT said.

Senior VW officials are not attending this year's Detroit auto show, which is taking place this week.

The news comes as Volkswagen was nearing a deal to resolve criminal and civil allegations over its diesel cheating, crucial steps toward moving past the scandal, which has cost it billions of dollars and its reputation.

Volkswagen shares were up 2 percent at 141.75 euros by 0816 GMT (3.16 a.m. ET), at the top of a 0.2 percent-weaker German blue-chip DAX (.GDAXI), on the expected deal.

A Volkswagen display at the North American International Auto Show in Detroit on Sunday. The company has acknowledged that it fitted 11 million diesel cars worldwide with illegal software that made the vehicles capable of defeating emissions tests. Credit Paul Sancya/Associated Press

F.B.I. Arrests Volkswagen Executive on Conspiracy Charge in Emissions Scandal

The F.B.I. has arrested a Volkswagen executive in Florida, accusing him of playing a central role in a broad conspiracy to keep United States regulators from discovering that diesel vehicles made by the company were programmed to cheat on emissions tests.

The executive, Oliver Schmidt, a German who is the former top emissions compliance manager for Volkswagen in the United States, was arrested on Saturday by investigators in Florida on a charge of conspiracy to defraud the United States. He is expected to be arraigned on Monday.

The arrest of Mr. Schmidt is an escalation of the criminal investigation into emissions cheating by Volkswagen and comes amid talks between the company and the United States Justice Department about what penalties the carmaker should accept as part of a settlement.

After a study by West Virginia University first raised questions over Volkswagen’s diesel motors in early 2014, Mr. Schmidt played a central role in trying to convince regulators that excess emissions were caused by technical problems rather than by deliberate cheating, Ian Dinsmore, an F.B.I. agent, said in a sworn affidavit used as the basis for Mr. Schmidt’s arrest.

Mr. Schmidt deceived American regulators “by offering reasons for the discrepancy other than the fact that VW was intentionally cheating on U.S. emissions tests, in order to allow VW to continue to sell diesel vehicles in the United States,” the affidavit said.

Mr. Schmidt continued to represent Volkswagen after the company admitted in September that cars were programmed to dupe regulators. He appeared before a committee of the British Parliament in January, telling legislators that Volkswagen’s behavior was not illegal in Europe.

Lawyers representing Mr. Schmidt did not respond to requests for comment late Sunday. Officials at the Justice Department also declined to comment, as did an F.B.I. spokesman in Detroit.

In a statement, Jeannine Ginivan, a spokeswoman for Volkswagen, said that the automaker “continues to cooperate with the Department of Justice” but that “it would not be appropriate to comment on any ongoing investigations or to discuss personnel matters.” A Volkswagen spokesman in Germany also declined to comment.

Lawsuits filed against Volkswagen by the New York and Massachusetts state attorneys general accused Mr. Schmidt of playing an important role in the carmaker’s efforts to conceal its emissions cheating from United States regulators.

In 2014, when California air quality officials began an investigation of Volkswagen emissions, Mr. Schmidt was general manager of Volkswagen’s Engineering and Environmental Office based in Auburn Hills, Mich. For more than a year, he and other Volkswagen officials repeatedly cited false technical explanations for the high emissions levels, the authorities said.

In September 2015, Mr. Schmidt and other Volkswagen officials formally acknowledged the existence of a so-called defeat device that allowed Volkswagen cars to cheat emissions tests.

Volkswagen’s cover-up and belated confession angered officials from the California Air Resources Board and the Environmental Protection Agency, and it is likely to have vastly increased the cost to the company from the scandal. It has already agreed to pay $16 billion to owners of diesel vehicles and will probably have to pay several billion dollars more in fines.

Volkswagen eventually said that it had fitted 11 million diesel cars worldwide with illegal software that made the vehicles capable of defeating pollution tests.

The software enabled the cars to sense when they were being tested for emissions and turn on pollution-control systems to curb emissions at the cost of engine performance. But those controls were not fully deployed on the road, where cars spewed nitrogen oxide at up to 40 times the levels allowed under the Clean Air Act.

James Liang, a former Volkswagen engineer who worked for the company in California, pleaded guilty in September to charges that included conspiracy to defraud the federal government and violating the Clean Air Act. But Mr. Schmidt’s arrest brings the investigation into the executive ranks.

The arrest came as Volkswagen and the Justice Department neared a deal to pay more than $2 billion to resolve the criminal investigation into the emissions cheating. The company or one of its corporate entities is expected to plead guilty as part of the deal.

The settlement could come as early as next week, barring any last-minute hiccups, according to people with knowledge of the negotiations.

The German automaker has been eager to put the Justice Department investigation behind it before President-elect Donald J. Trump is sworn in on Jan. 20.

American prosecutors had traveled to Germany in recent months to interview Volkswagen executives, according to German prosecutors.

The criminal case against Volkswagen, and the potential guilty plea, set it apart from other recent auto industry investigations. In settlements with General Motors and Toyota over their handling of safety defects, for example, the companies agreed to pay large fines but did not plead guilty.

Prosecutors are also mulling criminal charges against Takata, the Japanese manufacturer under criminal investigation for its defective airbags.

Volkswagen has already agreed to pay up to nearly $16 billion to resolve civil claims in what has become one of the largest consumer class-action settlements ever in the United States, involving half a million cars.

Under the settlement, most car owners have the option of either selling their vehicles back to Volkswagen or getting them fixed, provided the automaker could propose a fix that satisfied regulators.

The scandal has affected many Volkswagen and Audi models, including the Audi A3 and Volkswagen Beetle, Golf, Jetta and Passat diesel cars.

FBI Arrests Volkswagen Executive in Emissions Scandal

A Volkswagen AG executive was arrested and charged in connection with the German auto giant’s emissions-cheating scandal, the second person publicly accused by Washington of participating in a broad conspiracy to defraud the U.S. government and Volkswagen customers, according to a complaint unsealed Monday.

The U.S. Federal Bureau of Investigation arrested the executive, Oliver Schmidt, on Saturday, and on Monday he appeared in federal court in Miami where his attorneys argued with a prosecutor about whether Mr. Schmidt posed a flight risk and should be detained.

U.S. Magistrate Judge William Turnoff decided Mr. Schmidt would remain temporarily detained without bond and scheduled another hearing for Thursday afternoon. Mr. Schmidt, who appeared in handcuffs and shackles and wearing a tan jail jumpsuit and glasses, was then led out of the courtroom.

The charges come as Volkswagen seeks to settle criminal allegations stemming from its admission in 2015 that it rigged nearly 600,000 diesel-powered cars sold in the U.S. to cheat on emissions tests. Volkswagen has agreed to pay up to $17.5 billion in the U.S. to settle claims with regulators, consumers, dealers and state attorneys general and could face another multibillion-dollar penalty in the expected criminal case.

Mr. Schmidt couldn’t be reached via email or his mobile phone for comment.

Volkswagen’s North American chief, Hinrich Woebcken, said he and other executives were “surprised” by news of Mr. Schmidt’s arrest. “We all heard about it from the media,” he said in an interview at the North American International Auto Show in Detroit Monday.

Volkswagen continues to work with U.S. officials more broadly on emissions-related inquiries, he said.

Mr. Schmidt served as head of Volkswagen Group of America’s Engineering and Environmental Office in Ann Arbor, Mich., from 2014 to early 2015. He is still an employee of Volkswagen, based in Wolfsburg, Germany.

According to the complaint, Mr. Schmidt played a central role in the decision to keep U.S. authorities in the dark about VW’s use of cheating software, a so-called defeat device, to gain certification of model-year 2016 vehicles.

Much of the case against Mr. Schmidt centers on a summer 2015 meeting with regulators at which he and a colleague allegedly misled regulators about the reason for discrepancies between how Volkswagen diesel cars performed in controlled emissions tests and on the road. That meeting came just before the scandal broke open to the public in September 2015.

Mr. Schmidt allegedly offered “technical reasons and excuses such as ‘irregularities’ or ‘abnormalities’ for the discrepancy” without revealing the software he knew was specifically designed to evade emissions tests, the complaint said.

Senior Volkswagen officials were involved in preparations for that meeting and authorized employees to hide information from regulators, the complaint said. Michael Horn, former CEO of Volkswagen Group of America, testified in a Congressional subcommittee on Oct 8, 2015, that he was told by U.S. employees in July of that year that federal and California environmental regulators wouldn’t certify the company’s 2016 vehicles because of the “emissions issue.”

According to the complaint, Mr. Schmidt then played a key role in preparing a meeting in Wolfsburg—internally known as the “damage conference”—at which VW executives discussed the defeat devices, the consequences for the company and the decision to continue misleading U.S. authorities.

Mr. Schmidt and other VW employees informed attendees that “U.S. regulators were not aware of the defeat device,” the complaint said. “Rather than advocate for disclosure of the defeat device to U.S. regulators, VW executive management authorized its continued concealment.”

The complaint also alleged that Mr. Schmidt knew of problems in 2014.

Upon learning of a study at West Virginia University that unearthed the discrepancies in March 2014, Mr. Schmidt allegedly wrote a colleague: “It should first be decided whether we are honest. If we are not honest, everything stays as it is,” according to the complaint.

In the aftermath of that study, regulators in California and at the Environmental Protection Agency “repeatedly” asked Volkswagen questions that became “increasingly more specific and detailed,” and conducted their own testing, the complaint said.

Volkswagen employees pursued a strategy of concealing the defeat device while “appearing to cooperate” and offered software and hardware “fixes,” the complaint said.

Mr. Schmidt doesn’t currently have a plea agreement with the U.S. Justice Department, one person familiar with the case said.

Mr. Schmidt’s arrest follows the indictment last year of James Liang, a veteran Volkswagen engineer who pleaded guilty to conspiring with other Volkswagen employees to defraud the U.S. through the diesel cheating. Mr. Liang hasn’t been sentenced, pending his assistance in the federal investigation. The complaint Monday describes two additional unidentified cooperating witnesses who worked in Volkswagen’s engine development department and won’t be prosecuted in the U.S.

One of the witnesses “fully briefed” Mr. Schmidt on the defeat device in preparation for a July 2015 meeting, according to the complaint. A slide prepared by Mr. Schmidt and others described possible scenarios, according to the complaint: “if the outcome was ‘negative for VW’ and there was ‘no explanation for’” the issues, “there could be an ‘Indictment?’ ” the slide read.

The cheating dates back to 2006, prosecutors said, when Volkswagen employees determined they couldn’t design a diesel engine that would meet emissions standards and attract enough U.S. customer interest. Instead, the employees designed software to cheat on the emissions tests, prosecutors said.

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