German Police Arrest Volkswagen's Former Engine Chief in Emissions Scandal

The investigation into Volkswagen AG's emissions-cheating scandal took a dramatic turn Thursday, when the former engine chief of the auto maker was arrested in connection with its rigging of diesel-powered cars to dupe regulators, a person familiar with the situation said.

Wolfgang Hatz was arrested on Wednesday and arraigned before a judge in Munich on Thursday, after which he was held in pretrial detention, the person said. It wasn't immediately clear whether Mr. Hatz would be released on bail.

The arrest is significant because Mr. Hatz oversaw engine development at the time Volkswagen engineers devised a plan to install illegal software on some diesel engines to make them appear as though they could meet strict restrictions on tailpipe emissions in the U.S.

Mr. Hatz, the most senior executive to be arrested in the investigation, was also a confidant of Martin Winterkorn, the former chief executive of Volkwagen who resigned days after the scandal was made public. Mr. Winterkorn has denied any knowledge of the use of illegal engine software to game emissions tests.

A motor-racing enthusiast, Mr. Hatz joined Volkswagen in 2001 and spent much of his career in engine development, with earlier stints at BMW, Opel and Fiat. He ran Audi's engine-development program from 2001 to 2007, when he also served as Volkswagen's engine chief.

In 2011, he was made a board member at Porsche AG, Volkswagen's sports-car maker, in charge of research and development. At Porsche, he was instrumental in developing the engine with which Porsche won the 24-hour Le Mans race in 2015. He also played a key role in developing Porsche's first electric sports car, the "Mission E," meant to rival Tesla cars when it is launched in 2019.

German authorities wouldn't identify Mr. Hatz by name, citing the country's privacy laws. They would only confirm that a person had been arrested on Wednesday in connection with an investigation into the role of Audi, Volkswagen's luxury-car unit, in the emissions-cheating scandal.

That person, they said, appeared in court on Thursday where a judge read out the charges of fraud and illegal advertising.

U.S. environmental regulators disclosed in September 2015 that Volkswagen had installed illegal software on some diesel engines used in cars that were sold to American consumers. Volkswagen then admitted to installing the software on millions of vehicles world-wide.

The Justice Department has indicted several Volkswagen employees and former employees in connection with the scandal. Two Volkswagen employees pleaded guilty in the U.S. One has been sentenced to serve 40 months in prison. Another is in prison awaiting sentencing.

Engineers at Volkswagen rigged 2-liter diesel engines for compact cars that were used by Volkswagen and some of its other brands to turn on emissions controls when the car was being tested and to turn controls off when the car was back on the road.

At Audi, engineers installed the software on larger 3-liter diesel engines that were used by Audi, Porsche, and Volkswagen in larger sedans and sport-utility vehicles.

Although German investigations have been under way for two years, authorities have charged only two people. Prosecutors in Braunschweig are investigating nearly 50 people in connection with the scandal, including Mr. Winterkorn.

Law-enforcement officials raided Audi's offices in March, arriving shortly before the company was preparing to hold an unrelated news conference, as dozens of journalists and stock-market analysts looked on.

In July, police arrested Zaccheo Giovanni Pamio, a former Audi employee who was head of thermodynamics in the car maker's engine-development department.

Mr. Pamio was the first person arrested in Germany in connection with the Volkswagen scandal. The U.S. government has indicted eight people, including Mr. Pamio.

Most of the former managers who have been charged are in Germany and out of the reach of U.S. authorities because Germany doesn't extradite its citizens. Mr. Pamio is an Italian citizen and could be extradited to the U.S.

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

September 28, 2017 20:57 ET (00:57 GMT)