Petrobras to Pay $3 Billion -- WSJ
January 04 2018 - 3:02AM
Dow Jones News
Brazilian oil company reaches one of biggest settlements ever in
U.S. corruption lawsuit
By Paul Kiernan
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 4, 2018).
RIO DE JANEIRO -- Brazilian state-run oil company PetrĂ³leo
Brasileiro SA said Wednesday that it would pay one of the
highest-value settlements in history to end a class-action lawsuit
by U.S. investors who had sought to recoup corruption-related
losses.
Petrobras, as the company is known, said it agreed to pay $2.95
billion to resolve claims by investors who bought its U.S.-listed
shares or bonds between January 2010 and July 2015. During most of
that period, Brazilian courts have since found, Petrobras was
spending tens of billions of dollars a year on contracts that were
inflated by one of the biggest corruption schemes ever
uncovered.
If approved, the settlement would likely rank as the
fifth-largest on record for securities class-action suits,
according to Stanford Law School and Cornerstone Research, which
jointly track such cases. As the largest payout ever by a foreign
corporation, it also could have far-reaching implications for
overseas companies that tap U.S. equity or debt markets for
funding, experts say.
"We are very pleased with this historic settlement," plaintiffs'
attorney Jeremy Lieberman said in a statement, noting that
precedent-setting decisions over the three-year trial could help
investors build class-action cases for decades to come. "Simply
put, this litigation and its ultimate resolution have yielded an
excellent result for the class."
By plaintiffs' estimates, the scheme now known as Car Wash
contributed to wiping out some $271 billion, or almost 90%, of
Petrobras's market value between 2009 and 2015.
According to thousands of Brazilian court documents, Petrobras's
contractors colluded for at least a decade to drive up the price of
services they billed to the oil company while paying billions of
dollars in kickbacks to corrupt Petrobras executives and government
officials.
"The agreement is in the company's best interest and that of its
shareholders, given the risks of a verdict advised by a jury,"
Petrobras said in a statement. "It eliminates the risk of an
adverse judgment which...could have a material adverse effect on
the company and its financial situation, and puts an end to the
uncertainties, burdens and costs of protracted litigation."
Petrobras has long maintained that it was a victim of the
scheme, and local authorities agree. In Brazil, Petrobras has been
spared from prosecution and allowed to collect some $453 million in
restitution from former executives and suppliers.
But legal experts say it was always far from certain whether
U.S. courts would follow suit.
The plaintiffs in the U.S. class-action suit, including the
Hawaii state employees' retirement system and the North Carolina
state treasurer, argued that Petrobras knew about the graft and was
complicit in concealing it from investors and the public. Even at
the height of the scheme, Petrobras made frequent public statements
assuring investors of its business ethics and anticorruption
safeguards, plaintiffs note. In addition, they argue the company
significantly overstated the value of assets inflated by
corruption, including in the financial disclosures it made after
Car Wash became public.
Kevin LaCroix, an attorney who advises companies on directors'
and officers' liability insurance, said he expects the settlement
to draw more plaintiffs' lawyers toward securities class actions,
particularly those involving non-U.S. companies or bribery
allegations.
"This is much larger than any prior settlement of these kinds of
lawsuits," Mr. LaCroix said. It shows, he said, that "bribery and
corruption exposure represents not only a regulatory and possibly a
prosecutorial threat but also a civil-litigation threat."
For Petrobras, which is slowly digging itself out from beneath
the global oil industry's largest debt burden, the settlement
removes a major source of uncertainty.
Court documents from the class-action suit suggested plaintiffs
could seek tens of billions of dollars in damages from Petrobras.
And while the company publicly sought to minimize the plaintiffs'
case, lawyers following the suit often have expressed amazement at
the overwhelming amount of evidence coming out of Brazil.
Since Car Wash became public in late 2014, more than 100 people
have been convicted of corruption and other offenses. As the
investigation progressed, Brazilian prosecutors secured an
unprecedented number of plea bargains from witnesses including
high-level Petrobras officials who provided documentation of the
bribes they received.
"The plaintiffs must have been able to prove their damages case
pretty convincingly in order to move the defendants to the
negotiating table and to get them to settle around such a large
number," said Sean Griffith, an expert in corporate and securities
law at Fordham University's law school.
Write to Paul Kiernan at paul.kiernan@wsj.com
(END) Dow Jones Newswires
January 04, 2018 02:47 ET (07:47 GMT)
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