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RIO DE JANEIRO—The Bill and Melinda Gates Foundation is suing Brazil's Petró leo Brasileiro S.A and its auditor in a New York court, claiming a vast corruption scheme centered on the state-run oil company caused the charitable organization to lose tens of millions of dollars.

The foundation, started by the billionaire co-founder of Microsoft Corp. and his wife, joins a long list of plaintiffs seeking to recoup money as a result of the scandal that has hammered Petrobras shares. And it is just the latest bad news for the troubled oil company, which is scrambling to restore its reputation, rebuild investor confidence and pay down ballooning debt amid a global slump in oil prices.

Petrobras has long maintained that it was a victim of a yearslong bid-rigging and bribery ring that Brazilian prosecutors say was cooked up by suppliers and a few crooked insiders who fleeced the oil company for at least $2 billion.

But the Gates lawsuit, filed against Petrobras and the Brazilian unit of PricewaterhouseCoopers LLP or PwC, alleges that corruption at the oil company was so widespread as to be "institutional" and that the wrongdoing was "willfully ignored" by its auditor.

"The depth and breadth of the fraud within Petrobras is astounding. By Petrobras's own admission, the kickback scheme infected over $80 billion of its contracts, representing approximately one-third of its total assets," the lawsuit said. "Equally breathtaking is that the fraud went on for years under PwC's watch, who repeatedly endorsed the integrity of Petrobras' internal controls and financial reports. This is not a case of rogue actors. This is a case of institutional corruption, criminal conspiracy, and a massive fraud on the investing public."

The Gates Foundation filed the lawsuit late Thursday in the Southern District Court of New York. A co-plaintiff in the lawsuit is WGI Emerging Markets Fund, LLC, which managed investments for the Gates Foundation.

The plaintiffs didn't disclose how much they invested in Petrobras shares.

A spokesperson for Petrobras didn't respond to a request for comment. A spokesman for the Gates Foundation referred a request for comment to the Foundation's Trust, which didn't respond to the request. The other plaintiff, Boston-based Westwood Global Investments, didn't respond to requests for comment. PwC declined to comment.

More than a dozen lawsuits have been filed by U.S. investors who bought American depositary receipts sold by Petrobras in New York, including the attorney general of Ohio, public pension funds in Idaho and Hawaii, and the city of Providence, R.I.

In June, Petrobras wrote off some $17 billion to reflect losses because of corruption and inflated contracts. It is now scrambling to sell some $58 billion in assets through 2018 to raise cash and deal with a ballooning debt pile.

So far this year, Petrobras' credit ratings were downgraded to junk status by both Moody's Investors Service and Standard & Poor's Ratings Services.

Petrobras shares were down 1% Friday afternoon in New York.

The stock has fallen more than 44% this year, wiping out billions of dollars in shareholder value. In 2010, the company ranked among the top five biggest companies in the world, with market capitalization in excess of $220 billion. Now, the company's market cap is around $23 billion.

Prosecutors say that for at least a decade, some of Brazil's biggest construction firms formed a cartel to skim billions of dollars from Petrobras through inflated contracts, kicking back bribes to company insiders and politicians who helped them keep the scam going.

The investigation has resulted in more than 100 arrests and more than 30 convictions. Some of the accused have cooperated with authorities and turned state's evidence in exchange for lighter sentences. Others have drawn long prison terms, while still others maintain their innocence.

The Gates Foundation is a charity that distributes money to grantees working on everything from the eradication of polio to helping small coffee farmers.

The Foundation's Trust manages the group's $41 billion endowment.

Write to Will Connors at william.connors@wsj.com

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(END) Dow Jones Newswires

September 25, 2015 16:15 ET (20:15 GMT)

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