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Petrobras Case Background

Overview of the Petrobras Corruption Scandal

Petrobras is a Brazilian oil company that is majority-owned by the Brazilian government. At its height in 2009, Petrobras was the world’s fifth-largest company, with a market capitalization of $310 billion. Now, amid a rampant money-laundering and kickback scheme, Petrobras is worth approximately $18.7 billion.

For nearly a decade, Petrobras allegedly engaged in a massive corruption scheme that went unchallenged until 2014, when, on October 27, 2014, it issued a press release stating that certain of its key executives were being investigated in connection with bribery and money laundering. Since then, prosecutors and federal police in Brazil have unearthed the country’s largest-ever corruption scandal by linking a ring of black-market money changers to a price-fixing and political kickback scheme at the state-run oil company.

Sworn testimony has revealed that Petrobras executives and Brazilian government officials accepted bribes from members of a cartel of construction companies in exchange for awarding inflated contracts to members of the cartel in connection with oil refinery construction, drilling rig construction, and other energy-related construction projects.

Brazilian federal police arrested the former head of Petrobras’ refining and supply department in March 2014. Since then, over 100 indictments have been issued by Brazilian authorities, and over a dozen executives linked to Petrobras have been convicted for offenses such as money laundering and racketeering. In November 2014, the SEC sent a subpoena to Petrobras requesting information about the widening corruption investigations, and the Financial Times reported that the United States Department of Justice (“DOJ”), which can bring criminal charges, opened an investigation into the company. Petrobras is expected to face the largest penalty ever levied by United States authorities, pursuant to the corruption investigation by the DOJ.

Dramatic Drop in Stock Price

Petrobras has listed various equity and debt securities that trade on BOVESPA (Brasil), LATIBEX (Bolsa Madrid Spain) and NYSE (US – ADSs). During the public’s discovery of the fraud, the stock experienced substantial price declines. During the months following the company’s October 27, 2014 press release, Petrobras’ stock price dropped by roughly half, resulting in a massive depletion of the company’s market capitalization and substantial losses to Petrobras’ investors who purchased equity and debt securities around the globe.

PETROBRAS STOCK PRFORMANCE JANUARY 2004 – February 2016

PETR3 2004-2016