Germany’s RWE under scrutiny over market manipulation claim

23 September 2019

Lawyers have referred major utility RWE to Germany’s federal financial regulator over a market disclosure it made last year that wiped over €1bn off its market value.

ClientEarth claims that the company overstated the impact of a 2018 court ruling suspending its plans to clear the Hambach Forest for lignite mining.

The lawyers have asked Germany’s Federal Financial Supervisory Authority (BaFin), to investigate the misleading and potentially unlawful statement. International law firm Hausfeld are acting for ClientEarth in the complaint.

ClientEarth lawyer Peter Barnett said: “The profitability of RWE’s lignite fleet is in decline, but not because of last year’s court decision. The claim that the Hambach ruling would affect the company’s bottom line in the amount notified to the market does not withstand scrutiny.

“We have notified the regulator to ensure a proper investigation into RWE’s claims – investors must be given correct information with which to make decisions.’’

The Higher Administrative Court Münster suspended RWE’s forest clearance on 5 October 2018. On the news, RWE, a leading player in Germany’s lignite industry, told investors the ruling would affect its earnings in “the range of a low three digit million Euro amount per year”, due to the projected reduction in output from its Hambach mine. Its share price dropped dramatically following the ruling and subsequent announcement.

However, an independent report by energy consultancy Energy Brainpool, cited in ClientEarth’s referral to the regulator, suggests that this was a vast overstatement and the ruling would not have had a significant impact on RWE’s earnings. RWE’s lignite demand was going to reduce anyway: the company, as part of German coal phase-out scheme the ‘lignite reserve’, had already agreed to mothball five power plant units, collectively burning around 11 million tonnes of coal per year, by 2019.

Barnett added: “The profitability of the German lignite fleet is collapsing. RWE needs to be upfront with its investors about this – not make unfounded claims that present a false picture to the market.

“As the German government considers phase-out compensation for coal operators, it is in everybody’s interests – and legally imperative – that accurate numbers are being discussed. This is why we are calling on BaFin to investigate.’’

Hermann Ott, head of ClientEarth’s Germany office, said: “There are huge questions around the future direction of Germany’s energy market. RWE’s attempts to push back the coal phase-out and its claims for large compensation payments ignore the economic reality of coal’s decline.

“It would be a gross dereliction of duties if the government were to give a golden handshake to a dying industry.”

ClientEarth has called on the financial regulator to carry out a formal investigation, if necessary imposing an administrative fine and reporting any matters that indicate a criminal offence to the public prosecutor’s office.

ENDS

For further information contact: press@clientearth.org

Notes to editors

In it, the lawyers refer to “an apparent false and misleading ad hoc disclosure by RWE AG giving rise to potential offences under the Securities Trading Act”.

“For the reasons given in this letter and its enclosures, we believe that RWE has contravened Article 15 (market manipulation) and Article 17 (public disclosure of inside information) of the Market Abuse Regulation (MAR), giving rise, if wilful or grossly negligent, to administrative and criminal offences under the Securities Trading Act.”

“RWE’s share price closed at €20.43 on 4 October 2018. On 5 October, it closed 8.5% down at €18.69. This share price drop alone represented a loss of market capitalisation of over €1 billion. It continued to decline over the following days, closing at €17.11 on 10 October 2018.”

The drop is represented in this table, from RWE:

Graph showing the share price having rapidly reduced.

  • In the week after the market announcement was issued, the North Rhine-Westphalia arm of environmental group BUND (Friends of the Earth Germany) released analysis pointing out that the number of tonnes of coal RWE claimed the court case cost it was very similar to the number of tonnes it had sacrificed to the lignite reserve.

BUND suggested that RWE’s intentions in blaming the court case rather than the lignite reserve for the output drop were to deceive the public and influence the government and the courts.

About ClientEarth:
ClientEarth is a charity that uses the power of the law to protect people and the planet. We are international lawyers finding practical solutions for the world’s biggest environmental challenges. We are fighting climate change, protecting oceans and wildlife, making forest governance stronger, greening energy, making business more responsible and pushing for government transparency. From our offices in London, Brussels, Warsaw, Berlin, Madrid and Beijing, we work on laws throughout their lifetime, from the earliest stages to implementation. And when those laws are broken, we go to court to enforce them.

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