(Reuters) — Volkswagen A.G. executives decided to cover up cheating of U.S. emissions tests when they were told about it almost two months before the matter became a public scandal in 2015, according to a court filing by U.S. law enforcers seen by Reuters.

Senior VW manager Oliver Schmidt, who is due to appear in court charged with defrauding the United States later on Monday, was one of those who informed executive management about the "existence, purpose and characteristics" of so-called defeat devices on or around July 27, 2015, according to the filing by the FBI to a Michigan court.

"Rather than advocate for disclosure of the defeat device to U.S. regulators, VW executive management authorized its continued concealment," the filing said.

A spokesman at VW headquarters in Germany said the company could not comment on an ongoing legal process.
"Volkswagen continues to cooperate with the Department of Justice as we work to resolve remaining matters in the United States," the carmaker said in a statement. "It would not be appropriate to comment on any ongoing investigations or to discuss personnel matters."

Mr. Schmidt's arrest and court appearance come as VW nears a $3 billion-plus settlement with the U.S. Justice Department and Environmental Protection Agency, which could be announced as soon as Wednesday.

But the allegations in the FBI filing show how difficult it is proving for VW to draw a line under the biggest business scandal in its 80-year history almost 16 months after it broke.

Europe's biggest carmaker initially blamed a small group of "rogue engineers" for the test-cheating, and has repeatedly said no current or former board members were involved.

VW admitted in September 2015 to installing secret "defeat device" software in hundreds of thousands of U.S. diesel cars to cheat exhaust emissions tests and make them appear cleaner than they were on the road, and that up to around 11 million vehicles could have similar software installed worldwide.

The ensuing scandal has cost the company more than €18 billion ($18.9 billion) in provisions, led to the ousting of its longtime CEO Martin Winterkorn and forced it to drop its diesel offensive in the United States.

VW commissioned law firm Jones Day to conduct an independent internal investigation into the matter but has yet to publish any findings.

Surprise

Mr. Schmidt, a former VW U.S. executive and champion of "clean diesel," was arrested on Saturday in Florida, a source briefed on the matter told Reuters. He headed VW's U.S. Energy and Environmental Office in 2014 and 2015 before returning to live in Germany.

Mr. Schmidt will appear in court on Monday afternoon, a spokeswoman for the U.S. Attorney's Office in Detroit said.
VW sales chief Juergen Stackmann said management was surprised by the news of Mr. Schmidt's arrest and did not know whether it was related to the diesel scandal.

"We even don't know if there is a connection," he told Reuters on the sidelines of the Detroit auto show.
VW Chief Executive Matthias Mueller stayed away from the show, at which VW brand chief Herbert Diess was the company's most senior representative.

Several U.S. states named Mr. Schmidt in lawsuits filed last year as playing an important role in VW's efforts to conceal from U.S. regulators the true reason for its vehicles' unlawfully high real-world nitrogen-oxide emissions.

In testimony to a U.K. parliamentary committee a year ago, Mr. Schmidt said he had been tasked with supporting diesel development at VW headquarters in Wolfsburg after the software scandal erupted.

The carmaker is involved in lawsuits in several countries. On Monday, a law firm in the U.K. — where more than 1.2 million VW cars are affected — launched legal action seeking thousands of U.K. pounds of compensation for each driver.

Some of the lawsuits have been brought by investors who claim Volkswagen failed to inform them in time of the risks after it admitted cheating the tests. VW shares fell by more than a third in the days after the scandal broke out, wiping more than €27 billion ($28.35 billion) off the company's market value.

On Monday, however, the shares rose 4.2% to their highest since September 2015 on optimism about the expected U.S. criminal settlement, topping the German blue-chip DAX index although still 10% below pre-scandal levels.
A Frankfurt-based trader said: "$3 billion or $4 billion shouldn't really matter anymore; crucial should be that final settlement will be reached."