Justice Dept. Subpoenas VW Under Bank Fraud Law

The U.S. Dept. of Justice has issued a subpoena to Volkswagen AG under a U.S. law enacted 27 years ago to punish banking fraud, sources tell The Wall Street Journal.

The Justice Dept. is looking for illegalities linked to VW’s admission that it used rogue software in 580,000 diesel vehicles in the U.S. to evade emission standards. VW touted the environmental benefits of the engines as “clean” diesels, selling them at premium prices.

The Journal says the government is using the Financial Institutions Reform, Recovery and Enforcement Act, also known as FIRREA, in a novel way to pursue possible mail or wire fraud charges against VW.

Arguments under FIRREA would likely say VW used false statements to increase the market value of its diesels, and that doing so harmed lenders that issued car loans based on the inflated price. The resale value of the affected cars has plummeted since the emission cheating scandal broke in September.

FIRREA is a potent weapon for prosecutors because it has a longer statute of limitations (10 years) than many fraud laws. The statute also allows criminal prosecutors and civil attorneys the ability to share information.

The Journal's sources say federal prosecutors also are considering separate tax fraud charges against VW. The claim is that the carmaker could face legal risk and financial responsibility for VW customers who received federal tax credits for buying the carmaker's supposedly ultra-low-emission diesel vehicles.