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German prosecutors open fraud inquiry into former Volkswagen CEO

By Andreas Cremer

BERLIN (Reuters) - German prosecutors are investigating former Volkswagen <VOWG_p.DE> chief executive Martin Winterkorn on suspicion of fraud, looking into when he first knew that the carmaker was rigging diesel emissions tests.

It is the second investigation into Winterkorn's role in the scandal by prosecutors in the German town of Braunschweig near Volkswagen's (VW) Wolfsburg headquarters. The former CEO is already being investigated over possible market manipulation.

VW's acknowledgement in September 2015 that it had used software to reduce emissions levels when cars were being tested in the United States wiped billions of euros from its market value, forced Winterkorn's resignation and led to investigations and lawsuits around the world.

VW has said its executive board did not learn of the software violations until late August 2015 and formally reported the cheating to U.S. authorities in early September that year.

Appearing before German lawmakers last week Winterkorn refused to say when he first learned about systematic exhaust emissions cheating but said it was no earlier than VW has officially admitted.

"For now, Dr. Winterkorn is sticking with the statement he made before a German parliamentary committee of inquiry (into the scandal) on Jan. 19," Felix Doerr, a Frankfurt-based lawyer for Winterkorn, said in an emailed statement.

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Braunschweig prosecutors said on Friday they had searched 28 homes and offices in connection with their investigation this week. The number of people accused in connection with the emissions scandal had risen to 37 from 21, including Winterkorn.

"Sufficient indications have resulted from the investigation, particularly the questioning of witnesses and suspects as well as the analysis of seized data, that the accused (Winterkorn) may have known about the manipulating software and its effects sooner than he has said publicly," they said in a statement.

It will take weeks to sift through everything found in this week's raids, prosecutors said.

VW pledged full cooperation with prosecutors but declined further comment. Its shares were trading down 1.7 percent at 149.90 euros at 1420 GMT.

The latest investigation will add to the carmaker's legal headaches and encourage investors seeking 8.8 billion euros ($9.4 billion) in damage claims in Germany for the collapse of VW's share price after the scandal broke.

"Lawyers looking to sue VW for market manipulation would certainly have more ammunition, in our view, if the former CEO was found guilty of fraud," said London-based Evercore ISI analyst Arndt Ellinghorst who has a "Buy" recommendation on the stock.

Winterkorn, 69, and the 36 other people are under investigation on suspicion of fraud and violating competition law, prosecutors said.

The separate market manipulation probe announced last June centered on whether VW should have disclosed the possible financial damage caused by the manipulation prior to Sept. 22, 2015 when it admitted to its actions.

Winterkorn denied any wrongdoing when he quit on Sept. 23, 2015 but said he was clearing the way for a fresh start at VW with his resignation.

Winterkorn ran VW for more than eight years and oversaw a doubling in sales and an almost tripling in profit.

Europe's largest automaker took a major step this month toward ending its biggest-ever corporate crisis when it agreed to plead guilty in a $4.3 billion deal with the U.S. Justice Department.

In total, VW has now agreed to spend up to $22 billion in the United States to address claims from owners, environmental regulators, U.S. states and dealers.

(Additional reporting by Jan Schwartz; Editing by Keith Weir and Alexander Smith)

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