Petróleo Brasileiro, aka Petrobras, has agreed to a $3 Billion securities class action settlement. This is the biggest securities settlement in over a decade, the fifth biggest in history, and the largest US settlement ever against a foreign entity.
Petrobras, a multinational energy company mostly owned by the Brazilian government, is at the center of a massive corruption scandal in Brazil. Prosecutors have charged dozens of extraordinarily powerful people with bribery, money laundering, and running a criminal organization. Major executives at some of Brazil’s biggest state-run firms, leading politicians—including Brazil’s president, Michel Temer—and military leaders have been swept up in the investigation known as “Operation Car Wash.” The scandal has shaken the foundation of not just Petrobras, but the entire ruling class of Brazil.
Here in the United States, the scandal has taken a financial toll on Petrobras and its shareholders. American Depository Receipts (ADRs) traded for over $50 in late 2009, but fell to just over $10 by December, 2014, when a class action lawsuit was first filed in the Southern District of New York. The overall decline represented a loss in market capitalization of over $250 billion.
Litigation was hard fought, with plaintiffs averting several dismissal attempts by the defendants. One of the key victories for the plaintiffs was simply keeping this case against a foreign company alive. In 2010, the Supreme Court issued a landmark securities law decision in the case Morrison v. National Australia Bank. Here, the court ruled that securities law, like any legislation of Congress, can "apply only within the territorial jurisdiction of the United States.” Many securities suits against foreign entities were either severely restricted or dismissed all together after Morrison. Both the Southern District court in New York and the Second Circuit Court of Appeals, however, let many of the plaintiffs’ claims stand despite Morrison. (The court did, however, limit the eligible securities to ones sold in the United States and ruled that investors in securities sold only in Brazil are subject to mandatory arbitration, per the company's by laws. There is also a Dutch Foundation established for other Petrobras securities not sold in the United States. Please contact CCC for more information on international claims against Petrobras.)
Defendants also tried to get the case dismissed on reliance claims. With this argument, which they were preparing to bring before the Supreme Court this month, they hoped to prove that, in Reuter’s Alison Frankel’s words, “investors’ economic analyses did not establish a direct connection between bad news and a drop in Petrobras’s share price.” This claim would have required the court to rehash arguments about the way prices reflect market information. The court has, in fact, considered the topic several times in recent years, including Halliburton II in 2015. Frankel observed that defendants “have an uphill fight.”
It’s possible the defendants knew it because, of course, this case never made it that far. Settlement notices, claim forms, and the stipulation of settlement are not yet available. Chicago Clearing is tracking this settlement closely and will post all relevant settlement documents to our client portal as soon as it is available.
Petróleo Brasileiro S.A. (Petrobras) Securities Class Action Settlement Summary
Fund: $2.95 Billion
Class Period: January 22, 2010 to July 28, 2015
Qualifiying securities: American Depository Receipts, certain debt securities traded in the United States
Proof of claim deadline: To be determined