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Greed-to-Grief, No. 3

Greed-to-Grief, No. 3

If you commit fraud, don't get caught

George Pillari
May 08, 2025

This is part of our series, Greed-to-Grief, which tells stories of greed gone wrong. Greed-to-Grief stories will show up in our newsletter from time to time.

Martin Winterkorn was a smart man. With an undergraduate degree in physics and a PhD from the prestigious Max Planck Institute in Germany, he embarked on a career in engineering. After 15 years at other companies, he landed at Volkswagen Group in 1993 and rose to the CEO role in 2007.

Martin Winterkorn

Volkswagen Group (VW) includes some of the world’s iconic global brands: Volkswagen, Audi, Porsche. Lamborghini, Bentley, and Ducati. The company is a growth and profit-making machine. It was lust for that continued prosperity that was Winterkorn’s undoing.

The Volkswagen emissions scandal, often called "Dieselgate," originated in the mid-2000s when the company had ambitious plans to expand in the U.S. market with "clean-diesel" technology, positioned as an environmentally friendly alternative to hybrid vehicles.

However, VW engineers encountered a fundamental problem: their diesel engines couldn't meet strict U.S. emissions standards while maintaining the performance, fuel economy, and cost targets set by management.

Instead of redesigning their engines or abandoning their market strategy, Winterkorn and VW developed and implemented a sophisticated "defeat device," or software that could detect when a vehicle was undergoing emissions testing and temporarily adjust the engine's performance to reduce emissions.

During normal driving conditions, the software would switch to a different mode that prioritized performance and fuel economy but produced emissions up to 40 times the legal limit.

So, we were not talking about a little fudging of the numbers, we were talking about one of the largest and most successful industrial companies in the world launching a full-scale fraud to deceive regulators.

This deception began around 2005 and continued for nearly a decade, with VW aggressively marketing these vehicles as "clean-diesel" and environmentally responsible choices. The company sold approximately 11 million affected vehicles worldwide, including about 500,000 in the United States.

I guess at VW headquarters, Winterkorn and others were laughing amongst themselves, saying, “I knew we were smarter than everybody else!”

The elaborate and far-reaching fraud began unraveling in 2014 when researchers at West Virginia University conducted real-world emissions tests on VW clean-diesel vehicles.

The researchers used a mobile emissions measuring system, rather than a placing the car on a platform in a lab. They discovered massive discrepancies between the vehicles' test performance and their emissions during normal driving conditions.

When presented with this evidence, VW initially claimed the inconsistencies were due to technical issues and unexpected testing conditions. The company even issued a voluntary recall in December 2014, claiming software updates would resolve the emissions issues.

Deny, delay, deflect is the common set of behaviors when individuals and companies are hit with serious allegations and do not take responsibility for their actions.

Courtesy: Mark McBride

However, continued pressure from U.S. regulators eventually forced VW to admit the truth. In September 2015, the Environmental Protection Agency issued a formal notice of violation to VW, publicly exposing the scandal.

Days later, VW admitted it had installed defeat devices in millions of clean diesel vehicles worldwide

The path from Greed-to-Grief

Wow, this one still confounds me. Top executives at a top company devise a way to program software in their vehicles to pass emissions tests when the vehicles would have failed by a huge margin.

We have talked in these pages about fraud and about how lawyers do not like prosecuting fraud cases because fraud is hard to prove. Let’s go to the Merriam-Webster dictionary’s definition of fraud:

Intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right.

The key concept behind fraud is that the fraudster knows he or she is doing something wrong and is intentionally trying to deceive another party.

By creating the defeat device software to produce fake results when the car was being tested, Winterkorn and VW perpetrated a fraud on millions of people who bought VW clean-diesel vehicles. Seems like an easy one to prove.

Alas, there is no open and shut legal case. Criminal charges (you know, the kind of charges that carry prison time) were filed against Winterkorn and others in 2015. Through a series of delays and Winterkorn health problems, the trial in Germany has yet to get underway.

Winterkorn has already paid VW more than $12 million to settle charges between him and the company. No, you can’t keep those bonuses we paid you due to the fake results you generated.

If convicted, Winterkorn faces up to 10 years in prison.

Key Takeaways

VW got away with its fraud for almost 10 years. Amazing that it took so long for it to be detected. In some ways, it would have been better for Winterkorn if the fraud were detected early in the game, then the damages and losses would have been less and maybe would have resulted in less-serious charges against him.
Lying is one thing. Directing people under your command to lie, well, that’s a whole new level of bad. If you are going to commit a crime, don’t drag others into it who will follow you only because they need to hold onto their jobs.
Skirting by regulators is always a tricky one. Competitors will raise concerns about how you were able to get things done so fast. It’s not unlike an Olympic sprinter wining a gold medal, when he or she never made the podium in an international event. Competitors will point to performance-enhancing drug use as the cause for the sudden improvement in ability.

Things I think about

Mount Rushmore in South Dakota took 14 years to complete and is named after New York attorney Charles Rushmore who once asked a guide the name of the mountain in the distance. (This was before it was carved with the faces of Presidents Washington, Lincoln, Jefferson and Teddy Roosevelt.) The guide replied it didn’t yet have a name, so we’ll call it “Mount Rushmore.”