The company made false statements to investors and the banks underwriting the securities, gaining hundreds of millions of dollars in benefit, the SEC said.
In a statement, VW said it will contest the action, which it described as unprecedented and legally and factually flawed.
The SEC said: "Volkswagen issued more than $13bn in bonds and asset-backed securities in the U.S. markets at a time when senior executives knew that more than 500,000 vehicles in the United States grossly exceeded legal vehicle emissions limits, exposing the company to massive financial and reputational harm". The crisis involved as many as 11 million diesel cars worldwide and has cost the Wolfsburg-based company about 28 billion euros (US$32 billion) so far.
It adding that VW "repeatedly lied to and misled USA investors, consumers, and regulators as part of an illegal scheme to sell its purportedly "clean diesel" cars and billions of dollars of corporate bonds and other securities in the United States".More news: Red Bull's Horner impressed with early Mercedes pace
The lawsuit alleges that VW misled investors who bought $13 billion worth of those bonds about the quality of its cars.
Volkswagen AG, along with two of the firm's subsidiaries and former CEO Martin Winterkorn, have been charged with defrauding United States investors, the SEC said on Friday.
The automaker agreed to pay more than $25 billion in claims from owners, environmental regulators, states and dealers, and it offered to buy back the polluting vehicles.
By using a piece of software that activated during tests, Volkswagen was able to make it appear as though its diesel vehicles were producing significantly fewer emissions than they actually were.More news: Ethiopian crash pilot had control-related problem
In total, 13 people have been charged in the USA, including Winterkorn and four Audi managers.
"The investors did not know that VW was lying to consumers to fool them into buying its "clean diesel" cars and lying to government authorities in order to sell cars in the US that did not comply with USA emission standards", the SEC alleged. While Volkswagen raised money, the company was participating in a scheme to cheat on emissions tests.
The complaint centers around VW continuing to sell bonds and securities without informing investors about problems with diesel cars.
FILE PHOTO: Former Volkswagen chief executive Martin Winterkorn leaves after testifying to a German parliamentary committee on the carmaker's emissions scandal in Berlin, Germany, January 19, 2017. Two VW executives have been convicted in the scandal and are now serving sentences in US federal prisons.More news: Apple to host WWDC 2019 between June 3 to 7