After the most infamous short squeeze in recent memory, several hedge fund managers have sued Porsche (PAH3.DE, Financial) for $1.39 billion of losses.
39 investment funds including David Einhorn's Greenlight Capital filed a suit against Porsche last year. The basis of the suit is that Porsche allegedly misrepresented it's plans to take over Volkswagen (VOW.DE, Financial). The hedge funds allege that Porsche was manipulating the stock market in a brazen attempt to cause a short squeeze.
The reason the takeover is disputed is that Porsche ($94 billion market cap) is about one third of the size of Volkswagen ($240 billion market cap) making the takeover a ridiculous proposition.
In October 2008, Porsche disclosed that it owned owned 42.6 percent of Volkswagen stock. Porsche also disclosed that it had acquired options for another 31.5 percent.
Many prominent hedge funds including Greenlight Capital, SAC Capital and Tiger Management sold short shares of Volkswagen.
Porsche controlled a large percentage of the share float and the German state of Lower Saxony owned another 20 percent stake in VW. Lower Saxony was not interested in selling it's shares. Porsche requested that hedge funds buy back borrowed stock even though Porsche only owned call options on the shares.
There were almost no shares left to buy in order to cover the short positions. The price of Volkswagen shares skyrocketed from €200 to above €1,000 in two trading sessions. For a small window of time, VW was the world's most valuable company.
The horrific short squeeze also caused he death of German billionaire Adolf Merckle who threw himself in front of a train on Tuesday January 6 2009 after losing hundreds of millions of euros short selling Porsche stock.
39 investment funds including David Einhorn's Greenlight Capital filed a suit against Porsche last year. The basis of the suit is that Porsche allegedly misrepresented it's plans to take over Volkswagen (VOW.DE, Financial). The hedge funds allege that Porsche was manipulating the stock market in a brazen attempt to cause a short squeeze.
The reason the takeover is disputed is that Porsche ($94 billion market cap) is about one third of the size of Volkswagen ($240 billion market cap) making the takeover a ridiculous proposition.
In October 2008, Porsche disclosed that it owned owned 42.6 percent of Volkswagen stock. Porsche also disclosed that it had acquired options for another 31.5 percent.
Many prominent hedge funds including Greenlight Capital, SAC Capital and Tiger Management sold short shares of Volkswagen.
Porsche controlled a large percentage of the share float and the German state of Lower Saxony owned another 20 percent stake in VW. Lower Saxony was not interested in selling it's shares. Porsche requested that hedge funds buy back borrowed stock even though Porsche only owned call options on the shares.
There were almost no shares left to buy in order to cover the short positions. The price of Volkswagen shares skyrocketed from €200 to above €1,000 in two trading sessions. For a small window of time, VW was the world's most valuable company.
The horrific short squeeze also caused he death of German billionaire Adolf Merckle who threw himself in front of a train on Tuesday January 6 2009 after losing hundreds of millions of euros short selling Porsche stock.
