Petrobras International Litigation Overview
In January 2017, Stichting Petrobras Compensation Foundation (SPCF), backed by a coalition of international investors and law firms, started legal action against Petrobras and filed a Writ of Summons in District Court in Rotterdam, seeking declaratory relief for global investors who purchased Petrobras securities in non-US markets or on non-US exchanges. The litigation in the Netherlands covers the principal Petrobras equity securities that traded on the Bolsa São Paulo and via linked markets such as Latibex on Bolsa Madrid and the exchange in Luxembourg. The litigation in the Netherlands also covers the claims of bondholders whose losses are not included in the US litigation.
On September 19th, 2018, a panel of three judges in the District Court in Rotterdam ruled that SPCF, on behalf of Petrobras shareholders, has jurisdiction in the Netherlands to pursue declaratory relief and ultimately damages related to eligible Petrobras investment losses. The ruling was a big blow to Petrobras and to its defense strategy to force damaged investors into arbitration in Brazil.
Petrobras Regulatory and US Securities Fraud Class Action Settlements and Why They Matter to the Rest of the World
On January 3, 2018, Petrobras announced that in connection with the losses investors suffered from the “Lava Jato” bribery scandal, it had agreed to a USD $3 billion settlement with investors who purchased American Depository Shares (ADS) and bonds in the US.
On September 27, 2018, the US Department of Justice, the US SEC, and Ministerio Publico Federal in Brazil jointly announced that Petrobras will pay $853.2 million to settle claims by authorities in its home country and the U.S. stemming from allegations that its executives facilitated bribes to politicians and then concealed those payments from investors in one of South America’s biggest corruption scandals. Petrobras in this instance admitted that it violated the U.S. Foreign Corrupt Practices Act by failing to keep accurate books and records. “Executives at the highest levels of Petrobras - including members of its executive board and board of directors -- facilitated the payment of hundreds of millions of dollars in bribes to Brazilian politicians and political parties and then cooked the books to conceal the bribe payments from investors and regulators,” Assistant Attorney General Brian Benczkowski said in the Justice Department’s statement.
The primary exchange and linked markets investors are literally damaged in two different ways:
Investors who have not already registered claims in the Netherlands are encouraged to contact ISAF now that the critical ruling on jurisdiction has been achieved. The ruling is considered to be an important step towards recovering losses from Petrobras investments.
Compensation Regardless of Exchange or Country
For global Petrobras investors, the US and Brazilian settlements are commendable and positive developments, but the securities fraud class action settlement in the US only provides recoveries for claims by purchasers in the United States and by purchasers of Petrobras securities that are listed for trading in the United States. The US issued and traded securities represent a limited portion of Petrobras global securities and related investor losses. The majority of investor losses occurred from trading in the Petrobras securities including Preferred and Common shares traded on the Brazilian exchange in São Paulo, European-regulated exchanges and bonds issued by Petrobras Global Finance, which is headquartered in the Netherlands, not in Brazil. The underlying fraud and events are the exact same and Petrobras should treat its investors equally. Petrobras should therefore compensate its investors regardless of which exchange, or in which country, they purchased Petrobras shares or bonds.
The USD $3 billion class settlement with US ADR and bond investors, together with hundreds of millions of USD in individual institutional “opt-out” settlements negotiated and approved by the Petrobras Board, are expressly detrimental to the equal treatment of shareholders and bond owners who purchased securities on the primary exchange in Brazil and on exchanges in regulated linked markets in jurisdictions outside of the US, including markets in Europe and South America.
ISAF Management's Role
SPCF has appointed ISAF to coordinate with investors. ISAF has organized the funding of all litigation costs so that investors can participate with no upfront cost.
Institutional investors currently supporting SPCF in the Dutch litigation already include participants in the US, UK, Brazil, Netherlands, France, Germany, Spain, Italy, Nordic countries, Korea, Japan and others with individual losses ranging in the millions, tens of millions and in some instances in excess of USD 100 million.