US court strikes down lawsuit against Porsche over Volkswagen shares

Porsche Automobil Holding SE yesterday won the dismissal of a New York lawsuit by 26 hedge funds that accused the German automaker of causing over $1 billion of losses by cornering the market in Volkswagen AG shares.

A five-justice panel of the New York state appeals court in Manhattan unanimously found that the German automaker had met its "heavy burden" to establish that the state was not the right place in which to bring the lawsuit.

The panel reversed a 6 August ruling by New York State Supreme Court justice Charles Ramos that allowed the case by hedge funds, including Glenhill Capital LP, David Einhorn's Greenlight Capital LP and ChaseColeman's Tiger Global LP, to proceed.

Porsche was also accused by the funds of engineering a "massive short squeeze" in October 2008 with a quiet buying up of nearly all freely traded ordinary VW shares in a bid to take over the company, even as the company publicly stated it had no plans to take a 75 per cent stake.

When Porsche revealed it had gained control of around three-quarter of VW, shares of VW soared, briefly making the Wolfsburg-based carmaker the world's biggest company by market value. The surge led to losses for hedge funds that had bet on a decline in the stock price.

Thursday's decision comes as a defeat for savvy and ordinary investors, who were looking to use US state courts to bring fraud claims against foreign companies over alleged misconduct taking place outside the US.