(This version of the story has been refiled to add dropped word “boards” in paragraph one.)

By Edward Taylor and Jan Schwartz

FRANKFURT (Reuters) - Volkswagen’s (VOWG_p.DE) supervisory boards suspended crisis talks to find a stand-in boss for its Audi brand which were convened after German authorities arrested current Audi Chief Executive Rupert Stadler as part of a probe into emissions test cheating.

Stadler’s arrest on Monday threw Volkswagen (VW) into turmoil as it struggles to recover from cheating revelations, which emerged after regulators blew the whistle in September 2015 on the carmaker’s use of illegal software.

The directors of Audi and Volkswagen discussed how to run its more profitable division without Stadler, but failed to come to a conclusion, the carmaker said late on Monday.

“The supervisory boards of VW and Audi have not yet reached a decision and continue to assess the situation,” a spokesman for VW said.

The arrest has kicked off a new debate over VW’s governance which could raise tensions on its supervisory board, putting at risk a fragile truce between management, VW’s controlling Piech and Porsche families, as well as representatives from labor and the region of Lower Saxony.

VW has for years said only lower-level managers knew of the emissions cheating, but U.S. authorities filed criminal charges against former VW boss Martin Winterkorn earlier this year, and Munich prosecutors widened their probe into Audi this month.

Munich prosecutors said Stadler was being investigated for suspected fraud and false advertising and for his alleged role in helping to bring cars equipped with illegal software on to the European market.

Following his arrest, Munich prosecutors said Stadler, the most senior active VW official to be remanded in custody since the scandal broke, was being held on fears he might hinder their investigation.

“We need to find a solution for Audi’s leadership for the time when he is not here,” the source familiar with the talks said about Stadler’s position. “We will comment on this later.”

Stadler was given additional responsibilities for group sales in a revamp announced by VW’s new Chief Executive Herbert Diess in April.

On Monday, VW and Audi directors were discussing the leadership crisis in separate meetings, with one source saying Dutchman Bram Schot was the front runner to become interim Audi chief.

Germany’s Sueddeutsche Zeitung newspaper said VW’s supervisory board had already picked Schot for the job and only needed the formal approval of Audi’s directors. VW denied any such appointment had been made.

VW has set aside around $30 billion to cover fines, vehicle refits and lawsuits since its “dieselgate” scandal broke, and has announced plans to spend billions more on a shift to electric vehicles as it seeks to rebuild its reputation.

FILE PHOTO: Audi CEO Rupert Stadler speaks during the company's annual news conference in Ingolstadt, Germany March 15, 2018. REUTERS/Michael Dalder/File Photo

PHONE TAP

Whereas group CEO Martin Winterkorn resigned in the days after the cheating was disclosed, Stadler resisted requests to fall on his sword, and instead received backing from the Porsche and Piech families to remain in his post.

“His arrest is another low point in VW’s diesel saga,” said Evercore ISI analysts, who have criticized the group for a slow pace of reform. “Almost three years after the diesel scandal broke, it takes police to take action against the Audi CEO.”

The United States filed criminal charges against Winterkorn in May, but he is unlikely to face U.S. authorities because Germany does not extradite its nationals to countries outside the European Union.

The Munich prosecutors said the move against Stadler was not made at the behest of U.S. authorities. The 55-year-old was arrested at his home in Ingolstadt in the early hours on Monday, they said.

“The arrest warrant was made because of a risk that evidence might be suppressed,” Stephan Necknig, a spokesman for the Munich prosecutor’s office, told Reuters Television.

“During a search last week there were signs that the accused may tamper with evidence. To influence other suspects or witnesses, or people who could provide information to the investigating authorities,” he added.

Sueddeutsche Zeitung, citing sources close to the investigation, said prosecutors had tapped Stadler’s phone just before searching his premises last week.

Audi and VW said Stadler was presumed innocent unless proved otherwise. Stadler himself was not immediately available for comment.

VW shares closed down 3 percent at 156.06 euros, one of the biggest falls by a European blue-chip stock .FTEU3.

Asked whether U.S. authorities were also seeking to arrest Stadler, a spokesman for the Department of Justice said: “As a general matter, the department will neither confirm nor deny the existence of any ongoing investigation.”

UNDER FIRE

Stadler has been under fire since Audi admitted in November 2015 - two months after parent VW - that it also installed illegal “defeat device” software to cheat U.S. emissions tests.

Munich prosecutors are investigating whether Stadler acted swiftly enough to stop deliveries of manipulated Audi models in Europe once emissions problems had emerged, a person familiar with the matter has told Reuters.

Stadler has held onto his post mainly thanks to the backing of members of VW’s controlling Porsche-Piech families. Before becoming Audi CEO in 2007, Stadler worked as chief of staff to VW’s former chairman and industry scion Ferdinand Piech.

Slideshow (3 Images)

Earlier this month, Munich prosecutors widened their probe at Audi to include Stadler and another member of Audi’s top management, investigating them for suspected fraud and false advertising.

Most of VW’s emissions problems have been in the United States, where a total of nine people have been charged and two former VW executives have pleaded guilty and been sentenced to prison terms.

But investigations are continuing elsewhere. Last week, German prosecutors fined VW 1 billion euros ($1.2 billion) over the scandal.</s>Audi CEO Rupert Stadler has been arrested in Germany as part of an investigation into emissions cheating, according to prosecutors in Munich.

The arrest comes one week after Germany imposed a €1 billion ($1.2 billion) penalty on Audi’s parent company, Volkswagen, for rigging diesel engine emissions worldwide.

Volkswagen has admitted using special software to cheat on emissions tests, with nearly 11 million vehicles affected.

Representatives for Volkswagen and Audi did not immediately respond to requests for comment.</s>Munich prosecutors said Stadler was being detained due to fears he might hinder an ongoing investigation into the scandal.

Audi and VW confirmed the arrest and reiterated there was still a presumption of innocence for Stadler. (Photo: AP)

Frankfurt: The head of Volkswagen’s luxury arm Audi was arrested on Monday, the most senior company official so far to be taken into custody over the German carmaker’s emissions test cheating scandal.

Munich prosecutors said Rupert Stadler was being detained due to fears he might hinder an ongoing investigation into the scandal, plunging Volkswagen (VW) into a leadership crisis.

News of the arrest comes as VW’s new group CEO Herbert Diess is trying to introduce a new leadership structure, which includes Stadler, and speed up the group’s shift towards electric vehicles in the wake of its emissions scandal.

“As part of an investigation into diesel affairs and Audi engines, the Munich prosecutor’s office executed an arrest warrant against Mr Professor Rupert Stadler on June 18, 2018,” the Munich prosecutor’s office said in a statement.

A judge in Germany has ordered that Stadler be remanded in custody, it said, to prevent him from obstructing or hindering the diesel investigation.

Audi and VW confirmed the arrest and reiterated there was still a presumption of innocence for Stadler. Stadler himself was not immediately available for comment.

A spokesman for Porsche SE, the company that controls VW and Audi, said Stadler’s arrest would be discussed at a supervisory board meeting on Monday.

VW admitted in September 2015 to using illegal software to cheat U.S. emissions tests on diesel engines, sparking the biggest crisis in the company’s history and leading to a regulatory crackdown across the auto industry.

The United States filed criminal charges against former VW CEO Martin Winterkorn in May, but he is unlikely to face U.S. authorities because Germany does not extradite its nationals to countries outside the European Union.

The Munich prosecutors said Stadler’s arrest was not made at the behest of U.S. authorities. The executive was arrested at his home in Ingolstadt, in the early hours on Monday, they said.</s>Audi CEO Rupert Stadler has been arrested in Germany as part of an investigation into emissions cheating.

Munich prosecutors said in a statement Monday that Stadler had been detained because of concerns over potential evidence tampering.

Nicolai Laude, a spokesperson for Audi's parent company Volkswagen, confirmed that Stadler had been arrested, but he declined to comment on the investigation. He said the company's supervisory board would discuss the matter on Monday.

"The principle of the presumption of innocence continues to apply to Mr. Stadler," he added in a statement.

Shares in Volkswagen dropped by 2% in Frankfurt.

Munich prosecutors said last week they had searched Stadler's home for evidence as part of an investigation that has been underway for over a year.

The arrest comes just days after Germany imposed a €1 billion ($1.2 billion) penalty on Volkswagen for rigging diesel engine emissions worldwide.

Volkswagen first admitted in 2015 it had rigged millions of diesel engines to cheat on emissions tests.

Diesel cars from Volkswagen and its Audi subsidiary cheated on clean air rules with software that made emissions look less toxic than they actually were.

The scandal sent its share price plunging, and trashed confidence among consumer and regulators in diesel technology. The episode has already cost Volkswagen over $30 billion in recalls, legal penalties and settlements.

Martin Winterkorn, the former chief executive officer of Volkswagen, was indicted last month by US prosecutors. He was charged with wire fraud, and conspiracy to defraud American customers and violate the Clean Air Act.</s>German officials investigating Dieselgate have circled Audi CEO Rupert Stadler like wary wolves for some time now, closing in. In spite of continuous denials and public backing from the Volkswagen Group, Stadler has seemed like a man waving a crude torch in the dark, trying to fend off the hunters. The wolves finally bit: German authorities went to Stadler's home in Ingolstadt, Germany, on Monday early morning and took him into custody, serving an arrest warrant issued by the Munich public prosecutor's office. A judge ordered that he be remanded into custody over fears he would attempt to suppress evidence.In November 2015 Audi admitted installing emissions defeat devices in its cars, and Audi's been pegged in several reports as the source of the initial defeat software responsible for Dieselgate. At the end of May, authorities named Stadler and Audi board member Bernd Martens as two key suspects among 18 being investigated in the emissions investigation. In early June, Munich prosecutors summoned Stadler to answer questions alongside ex-VW Group CEO Martin Winterkorn, former Audi technical director Ulrich Hackenberg, and other Group execs concerning the emissions investigation.Not long after that, investigators searched Stadler's and Martens' homes . Martens, who is also Audi's head of procurement, is said to have run a task force coordinating Audi's Dieselgate response with the Volkswagen Group. Apparently, based on the questioning and evidence found during the raids, one week ago investigators accused Stadler of fraud and falsification of documents that allowed the company to sell illegal diesels . Prosecutors have accused Stadler of being involved in controverting emissions regulations since 2012.Audi's problems on the ground aren't over yet, either. In May, the carmaker admitted to German regulators that roughly 60,000 A6 and A7 sedans had emissions software irregularities , using a different software than the one responsible for Dieselgate.Munich prosecutors are questioning Stadler during what is called "investigative detention," and the VW board will meet today to discuss the development. With Audi having made the largest contributions to VW's profits, and with the CEO having stayed out of the criminal fray, Stadler had such strong support from the Porsche and Piech families that he got a new five-year contract in May 2017. An Audi statement on the arrest said, "For Mr. Stadler, the presumption of innocence continues to apply." It's not clear if his status as CEO will do the same, since Stadler figured in VW Group CEO Herbert Diess' plans to reorganize company leadership The last high-ranking Audi exec taken into custody was Wolfgang Hatz , the brand's former head of engine development. He's been in jail since September 2017.</s>The CEO of Audi was arrested in Germany on suspicion of his involvement in the Volkswagen emissions scandal.

The German investigation ensnared Audi boss Rupert Stadler, who was widely considered a subject of the probe but had so far survived the fallout from the scandal despite questions over the VW luxury brand's role.

Stadler, who was accused by Munich prosecutors of collusion, becomes the first person in the VW executive suite to spend time behind bars in connection with the scandal.

But he's not the first high-level executive to face accusations of involvement. Former VW CEO Martin Winterkorn was previously indicted in the U.S. on felony charges of conspiracy and wire fraud, but he has eluded arrest because he has not traveled to the U.S. since the Justice Department filed charges.

Spokespeople for Volkswagen and Audi were not immediately available to comment Monday morning.

Stadler's arrest marks yet another harsh reminder for VW and Audi that they have not escaped the damaging cloud of the emissions scandal. The automaker has admitted to rigging nearly 11 million cars worldwide with software to cheat emissions tests.

The scandal has cost the company some $30 billion and has led to criminal charges for several employees.

More: Ex-Volkswagen CEO indicted in alleged plot to rig diesel cars to pass U.S. emissions tests

More: Volkswagen hit with $1.2 billion fine by German prosecutors

Stadler — who has guided Audi to global growth, making the brand competitive with Mercedes-Benz and BMW — has served as the brand's leader since 2007. He joined Porsche-family-controlled VW in 1990.

He was often seen at auto shows and events promoting Audi's latest products, and he was once viewed as a potential successor to Winterkorn, who was ousted days after the scandal blew up in September 2015.

Asked by USA TODAY in January 2016 whether the VW emissions scandal would ensnare Audi, Stadler visibly bristled at the question and swiftly dismissed the topic.

Audi's development of 3-liter diesel engines involved in the scandal later became clear.

"His arrest is another low point in VW’s diesel saga," Evercore ISI auto analyst Arndt Ellinghorst wrote Monday. "Consequently, investors constantly ask us why Audi’s and VW’s Supervisory Boards and indeed the Porsche families haven’t taken action against the Audi CEO."

Ellinghorst noted that "the vast majority" of Audi's top executives have been replaced since the scandal erupted in 2015, but Stadler has managed to survive.

"Almost three years after the diesel scandal broke, it takes the police to take action against the Audi CEO," he said.

Rupert Stadler, CEO of Volkswagen's Audi AG subsidiary, with a prototype of the electric SUV that Audi will launch later this year.</s>Rupert Stadler, the CEO of Audi, has been arrested. Volkswagen Pleads Guilty in U.S. Emissions Scam

Rupert Stadler, the CEO of Audi, has been arrested. Volkswagen Pleads Guilty in U.S. Emissions Scam

AUDI CEO Rupert Stadler has been arrested in relation to the emissions cheating scandal.

"We confirm that Mr Stadler was arrested this morning. The hearing to determine whether he will be remanded is ongoing," a spokesman for parent company Volkswagen said.

The Munich prosecutors said Mr Stadler's arrest was not made at the behest of US authorities. The executive was arrested at his home in Ingolstadt in the early hours of Monday, they said.

"As part of an investigation into diesel affairs and Audi engines, the Munich prosecutor's office executed an arrest warrant against Mr Professor Rupert Stadler on June 18, 2018," the prosecutor's office said in a statement.

A judge in Germany has ordered Mr Stadler be remanded in custody, it said, to prevent him from obstructing or hindering the diesel investigation. Munich prosecutors searched Mr Stadler's private residence last week in their investigation of suspected fraud and indirect improprieties with documents. A total of 20 people are under suspicion in the probe.

The probe of Stadler focuses on cars sold in Europe that were believed to be equipped with software which turned emissions controls off during regular driving.

Mr Stadler has been under fire since Audi admitted in November 2015 - two months after parent VW - that it also installed illegal "defeat device" software to cheat US emissions tests.

VW has pleaded guilty to criminal charges in the United States. Two managers are serving prison terms in the US.

German news agency dpa reported that prosecutors decided to seek Stadler's arrest due to fears he might try to evade justice. A former head of Audi's engine development unit is already in investigative detention.

Volkswagen has pleaded guilty to criminal charges in the United States and nine managers, including former CEO Martin Winterkorn, were charged there. Two are serving prison terms; Winterkorn and the others remained in Germany and are unlikely to be extradited.

Audi said in a statement last week that it was "co-operating with the authorities" in the probe.

Volkswagen shares were down 2.6 per cent at 157.60 euros in Frankfurt trading.</s>FRANKFURT (Reuters) - Volkswagen <VOWG_p.DE> was holding crisis talks on Monday to find a stand-in boss for its Audi brand, a source familiar with the discussions said, after German authorities arrested Audi CEO Rupert Stadler as part of a probe into emissions test cheating.

Stadler is the most senior company official to be detained so far since Volkswagen (VW) admitted in September 2015 to using illegal software to rig U.S. emissions tests on diesel engines.

Munich prosecutors, who widened their probe into Audi earlier this month, said Stadler was being held due to fears he might hinder their investigation into the scandal, plunging VW into a leadership crisis.

"We need to find a solution for Audi's leadership for the time when he is not here," the source familiar with the talks said about Stadler's position. "We will comment on this later."

VW and Audi directors were discussing the leadership crisis in separate meetings on Monday.

VW has set aside around $30 billion to cover fines, vehicle refits and lawsuits since its "dieselgate" scandal broke, and has announced plans to spend billions more on a shift to electric vehicles as it seeks to rebuild its reputation.

Whereas group CEO Martin Winterkorn resigned in the days after the cheating was disclosed, Stadler has remained in post and was this year promoted by new VW boss Herbert Diess in an overhaul aimed at speeding up the group's reforms.

"His arrest is another low point in VW's diesel saga," said Evercore ISI analysts, who have criticized the group for a slow pace of reform. "Almost three years after the diesel scandal broke, it takes police to take action against the Audi CEO."

The United States filed criminal charges against Winterkorn in May, but he is unlikely to face U.S. authorities because Germany does not extradite its nationals to countries outside the European Union.

The Munich prosecutors said the move against Stadler was not made at the behest of U.S. authorities. The 55-year-old was arrested at his home in Ingolstadt in the early hours on Monday, they said.

"There were clear signs that there was to be an effort to influence people and other suspects. Therefore we issued an immediate arrest warrant," Stephan Necknig, a spokesman for the Munich prosecutor's office, told German tabloid Bild, explaining the reasons for Stadler's arrest.

Audi and VW said Stadler was presumed innocent unless proved otherwise. Stadler himself was not immediately available for comment.

At 1325 GMT, VW shares were down 3.6 percent at 155.30 euros, one of the biggest falls by a European blue-chip stock <.FTEU3>.

Stadler has been under fire since Audi admitted in November 2015 - two months after parent VW - that it also installed illegal "defeat device" software to cheat U.S. emissions tests.

Munich prosecutors are investigating whether Stadler acted swiftly enough to stop deliveries of manipulated Audi models in Europe once emissions problems had emerged, a person familiar with the matter has told Reuters.

Stadler has held onto his post mainly thanks to the backing of members of VW's controlling Porsche-Piech families. Before becoming Audi CEO in 2007, Stadler worked as chief of staff to VW's former chairman Ferdinand Piech.

Earlier this month, Munich prosecutors widened their probe at Audi to include Stadler and another member of Audi's top management, investigating them for suspected fraud and false advertising.

Stadler's arrest will raise tensions on VW's supervisory board, putting at risk a fragile truce between management, labor representatives and board members from the carmaker's home region of Lower Saxony.

Most of VW's emissions problems have been in the United States, where a total of nine people have been charged and two former VW executives have pleaded guilty and been sentenced to prison terms.

But investigations are continuing elsewhere. Last week, German prosecutors fined VW 1 billion euros ($1.2 billion) over the scandal.</s>AUDI CEO RUPERT STADLER ARRESTED ON SUSPICION OF FRAUD OVER DIESEL EMISSION SCANDAL</s>FILE - In this Thursday, March 15, 2018 file photo, Rupert Stadler, CEO of German car producer Audi, briefs the media during the annual press conference in Ingolstadt, Germany. German authorities have detained the chief executive of Volkswagen's Audi division, Rupert Stadler, as part of a probe into manipulation of emissions controls. less

FILE - In this Thursday, March 15, 2018 file photo, Rupert Stadler, CEO of German car producer Audi, briefs the media during the annual press conference in Ingolstadt, Germany. German authorities have detained ... more

FILE - In this Thursday, March 15, 2018 file photo, Rupert Stadler, CEO of German car producer Audi, briefs the media during the annual press conference in Ingolstadt, Germany. German authorities have detained the chief executive of Volkswagen's Audi division, Rupert Stadler, as part of a probe into manipulation of emissions controls. less

FILE - In this Thursday, March 15, 2018 file photo, Rupert Stadler, CEO of German car producer Audi, briefs the media during the annual press conference in Ingolstadt, Germany. German authorities have detained ... more

BERLIN (AP) — German authorities on Monday detained the chief executive of Volkswagen's Audi division, Rupert Stadler, as part of a probe into the manipulation of emissions controls.

The move is an extension of the emissions scandal that has rocked Volkswagen since 2015 and led to billions in fines, the arrest of executives and the indictment in the U.S. of its former CEO.

Stadler's detention follows a search last week of his private residence, ordered by Munich prosecutors investigating the manager on suspicion of fraud and indirect improprieties with documents.

"Audi CEO Rupert Stadler was provisionally arrested this morning," the company said in a statement. It said shortly afterward that a judge had ordered him kept in custody pending possible charges at prosecutors' request.

The company said that it couldn't comment further due to the ongoing investigation, but stressed that "the presumption of innocence remains in place for Mr. Stadler."

German news agency dpa reported that prosecutors decided to seek Stadler's arrest due to fears he might try to evade justice. A former head of Audi's engine development unit is already in investigative detention.

A total of 20 people are under suspicion in the Audi probe, which focuses on cars sold in Europe that were believed to be equipped with software that turned emissions controls on during lab testing and off again during regular driving to enhance road performance.

Audi said in a statement last week that it was "cooperating with the authorities" in the probe.

Volkswagen first admitted in 2015 of using software to cheat on U.S. emissions tests. That has cost it $20 billion in fines and civil settlements.

Volkswagen has pleaded guilty to criminal charges in the United States and nine managers, including former CEO Martin Winterkorn, were charged there. Two are serving prison terms; Winterkorn and the others remained in Germany and are unlikely to be extradited.

German authorities this month fined Volkswagen $1.2 billion as part of their own investigation. They are also investigating Winterkorn and 48 others.

The arrest of the Audi CEO comes just weeks after Volkswagen tapped a new CEO to move the company past the scandal. Herbert Diess was given the top job in April and he said that besides focusing on new technologies, like electric cars, he wanted to build a more open, values-based culture to avoid the cheating that led to the emissions scandal.

Volkswagen shares were down 2.1 percent at 157.66 euros in Frankfurt trading.
Audi CEO Rupert Stadler is arrested in Ingolstadt, Germany, over "clear signs that there was to be an effort to influence people and other suspects". Stadler is being investigated for suspected fraud and false advertising.