U.S. District Judge Charles Breyer, Northern District of California

Forget the old saying. Sometimes late is not better than never.

Or so suggested U.S. District Judge Charles Breyer in San Francisco, who compared the Securities and Exchange Commission to a “carrion hawk” at a status conference on Friday.

Breyer had issues—big issues—with a suit that the agency filed two months ago against Volkswagen in connection with the diesel emissions cheating scandal. Yes, that scandal. The one VW in 2016 wrapped up with the rest of the federal government, the AGs from 44 states and just about every plaintiff's lawyer with a pulse in a giant, $14.7 billion bow.

“My basic question is what took you so long,” Breyer said to SEC lawyer Daniel Hayes, according to a transcript of the proceedings.

“I want to remind you that the symbol of the SEC is the symbol right up there, of the eagle,” Breyer said—not a vulture “that simply descends when everything is all over and sees what it can get from the defendant.”

Ouch.

It's not what you'd call an auspicious start for the SEC, which through a spokeswoman declined to comment on the proceedings.

I wrote a skeptical column about the case shortly after it was filed, and Breyer seems to share some of my misgivings.

The agency alleges that VW (which is primarily listed on the Frankfurt Stock Exchange) sold “billions of dollars of corporate bonds and other securities in the United States … without disclosing that its 'clean diesel' cars used defeat devices to conceal substantial emissions problems.”

Widows and orphans this case is not. The bonds were private placements that were open only to investors with a minimum of $100 million. According to the SEC, Volkswagen defrauded these institutional investors out of hundreds of millions of dollars of additional profits because they should have been paid a higher interest rate on their money.

VW, which is represented by Sullivan & Cromwell's Robert Giuffra Jr., denounced the suit as “piling on” and stressed that no investors lost any money, receiving all payments of interest and principal in full and on time.

But Breyer on Friday wasn't interested in the substance of the dispute.

Since late 2015, he's presided over the diesel emissions MDL. In court on Friday, he reminded the SEC's Hayes of how the litigation unfolded.

“In 2016, in January,” he said, “in response to the creation of the multidistrict litigation, the Department of Justice, you are familiar with them, filed a complaint.”

Oh burn. “You are familiar with them?”

Breyer continued, “February 22, the plaintiff steering committee as it was constituted by this court, filed either a first amended complaint or a consolidated complaint …. [O]n March 29th of 2016, the Federal Trade Commission filed its complaint.”

“In May 2016, the ADR shareholders filed a complaint. In June, California filed its complaint,” the judge continued. “And in December the bondholders filed their complaint. All of which is three years ago.”

Breyer then continued to tick off milestone after milestone in the litigation.

“That takes us through 2018, not a word did we hear from the Securities and Exchange Commission of the United States. Until March 14, 2019 when the SEC filed its complaint,” he said.

“So, I want to find out from you, why you would wait three years after all of this litigation, all of these settlements, all of these efforts, enormous devotion of judicial and party resources, including the government of the United States, through the Department of Justice and through the Federal Trade Commission and the state agencies, and EPA, and the state agencies, through CARB, and the attorneys general of the states of the United States. All of those efforts, and nary a word from the SEC,” Breyer said.

“So I am totally mystified as to why you waited three years,” he said to Hayes (whom I'm starting to feel sorry for).

Hayes responded, “We moved as quickly as we could.  … We conducted an investigation that specifically focused on whether there were violations of the securities laws. That takes time.”

Breyer was unimpressed.

“So I have before me your complaint which is 69 pages, in which there are roughly 282 paragraphs,” he said. “And so, I am ordering the SEC to go through their complaint, paragraph by paragraph, and set forth, by way of declaration, when they discovered each of the factual allegations that are set forth in the paragraph. You are telling me that you moved as quickly as you could, so we will see.”

Show of hands, who is glad they don't work at the SEC and now have to dig up a date behind every fact in a 69-page complaint?

A source familiar with the matter said the SEC issued its first Wells Notice to VW on June 28, 2018.

Breyer wasn't done. “Secondly, I'm directing that you set forth in a declaration your reasons for waiting until March of this year to file this complaint,” he said. “I want to be satisfied that you moved, as you say to me, as quickly as you could. And I must say, I'm somewhat skeptical because everybody else was able to move years before you moved.”

Breyer gave the SEC 60 days to submit both filings, stipulating that “the declaration of when you knew what you knew, that should be filed publicly.”

Until he's satisfied with the answers—“There may be things I'm unaware of why your agency was so encumbered that it could not move on a parallel track with all the other entities,” he said—he refused to allow the suit to go forward.

He added, “The ball is in the SEC's court to act.”