[NEW YORK] Petroleo Brasileiro SA faces a mounting number of US investor lawsuits that seek compensation for market losses tied to a multibillion-dollar bribery scheme.
Cases against the energy giant multiplied in recent weeks to more than a dozen, as investors from Ohio to Denmark seek damages for a kickback scandal that helped knock US$60 billion off its stock value. As it nears an American court hearing on the fate of those claims, the Brazilian company has posited a novel defense: It's a victim, too.
Petrobras says it was hoodwinked by a few employees who helped construction firms bribe local politicians in a bid to obtain Petrobras contracts, which included the cost of the graft. Petrobras asked a US judge to throw out the suits, in part because it didn't pay bribes, didn't know contractors were overcharging it and lost much less than investors claim.
"'Nothing went through Petrobras,'" lawyers for the company said, quoting a former refining chief convicted of helping facilitate the bribes. Petrobras blamed a "criminal cartel" of Brazil's largest construction and engineering firms.
The securities litigation has led to a hemispheric clash of lawyers. Rushing to the state-owned company's side have been the very Brazilian prosecutors who revealed the scheme. They say it's arguable that Petrobras shouldn't be punished for the sins of a few employees acting for their own benefit.
But neither that support, nor the company's legal arguments, are seen as likely to persuade US District Judge Jed Rakoff, who on June 25 will hear arguments in a Manhattan courtroom on whether to throw out the cases.
"Saying the company was a victim of corruption does not necessarily absolve it," said Peter Henning, a professor at Wayne State University Law School in Detroit. "Who prosecutors view as a victim does not mean the company is off the hook."
If Mr Rakoff lets the cases go forward, investors will be able to interview company officials and root through its documents in a bid for more evidence to support their claims. Petrobras declined to comment on the hearing.
The aggrieved investors, represented by some of the most successful US class action firms, contend in court filings that Petrobras was "rotten to the core."
They argue that a top executive ordered overpayments to contractors for years to aid the bribery, while keeping President Dilma Rousseff's ruling Workers Party in office. Revelations of the scheme triggered calls for her impeachment, which were later dropped.
Petrobras stood "at the centre of the bid-rigging scheme," diverting an estimated US$28 billion from company coffers and keeping investors in the dark, the lawyers claimed.
The law firms include Pomerantz LLP, which is aiding investors suing BP Plc over the 2010 Gulf of Mexico disaster, and Robbins Geller Rudman & Dowd LLP, which won US$7.3 billion for Enron Corp. investors in one of the biggest investor fraud cases ever.
Petrobras has written down only US$2 billion (6.2 billion reais), but said that figure may rise.
The US class action merges about eight separate suits. It's led by a U.K. pension fund and seeks to represent everyone who bought Petrobras shares or debt sold in the US from 2010 to March 2015. They measure the total loss of market value at around US$270 billion.
In 2010, when it was valued at US$310 billion, Petrobras was the world's fifth most valuable company.
The investors accused Petrobras of publishing misleading financial statements that lowballed the cost of projects. They claim it omitted a 20 per cent premium representing the cost of bribes contractors had passed on to it.
Petrobras employees embroiled in the scheme sat on the board with executives who routinely boasted about the company's prospects and financial controls, the investors claimed. When the truth came out, they told Mr Rakoff, billions of dollars in stock and debt value were wiped away.
In asking the judge to toss the class action lawsuit, Petrobras said investors got their numbers wrong.
There were no material misstatements - a requirement for such class actions - because fraud costs amounted to only 3 per cent, the company said, citing prosecutors. This was a tiny amount of its US$335 billion value before the scandal, Petrobras said, adding that larger writedowns came from project delays and overruns.
As for the executive boasts, those were no more than management "puffery" and investors were unable to prove that anyone except the rogue employees knew about the scheme, Petrobras said.
Petrobras may nevertheless be liable "if it failed to adequately protect itself or did not take steps to investigate wrongdoing if it came to management or the board's attention," Mr Henning, the law professor, said. The company may not be off the hook either just because it says only a few rogue employees were involved, he added.
Erik Gordon, a law professor at the University of Michigan, said US securities laws may also allow a finding of liability if the company's offering documents are misleading.
Petrobras officers and directors might get off the hook by showing they diligently reviewed the documents and believed they were true, said Mr Gordon, but that defense isn't open to the company itself.
And whether the fraud cost Petrobras US$2 billion or US$30 billion isn't likely to end the case either, he said.
"Given the beating the stock took and the losses incurred by stockholders, the numbers difference is unlikely to sink the suit," he said
In Brazil, however, Petrobras is seen by some as a victim.
Federal judge Sergio Moro, who's leading the criminal probe of Petrobras in Parana state, has been joined by the Justice Ministry, the comptroller general, the attorney general's office and audit court in his opinion that the company isn't at fault.
Far from deceiving investors, Petrobras officials said they told investors everything they knew as soon as they knew it. The company said it shared with investors its early efforts to quantify contractor overcharges, and took the appropriate writedowns when it had a good count.
However, not everyone in Brazil is coming to the energy firm's defense. The investors have some support among Brazilian lawyers, police chiefs and opposition politicians.
Jose Carlos Aleluia, national vice-president of the Democratic Party, blames Petrobras as a whole.
"The company was led in a fraudulent way in order to get money from taxpayers, shareholders and investors," Mr Aleluia said.