Petrobras Scores Partial Win in Investor Suit Over Kickback Scam

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By Phyllis Diamond

Brazil-owned oil and gas company Petrobras Brasileiro SA scored a partial victory July 7 in its bid to halt an investor lawsuit over its alleged concealment of a multi-year, multi-billion dollar money-laundering and kickback scheme ( Univs. Superannuation Scheme Ltd. v. Petrobras , 2017 BL 234491, 2d Cir., No. 16-1914-CV, 7/7/17 ).

The lower court erred when it certified a class of investors without considering the need for individual inquiries into whether the investors engaged in “domestic” transactions, required to state a federal securities fraud claim, the U.S. Court of Appeals for the Second Circuit said, vacating in part and remanding.

However, the district court didn’t abuse its discretion in deciding that another class of investors was entitled to a presumption they relied on Petrobras’ alleged misstatements under the “fraud on the market” theory, Judge Nicholas G. Garaufis said.

According to the investors, Petrobras was once the world’s fifth-largest company, with a market capitalization of $310 billion. By early 2015, its value had fallen to $39 billion, the investors said.

Important Precedent

The appeals court decision marked a setback for the investors in the hard-fought appeal of the district court’s certification order—the docket included 220 entries, including several amicus briefs.

Nevertheless, plaintiffs’ counsel Jeremy Lieberman called the decision “important and favorable precedent in several respects.” In a statement emailed to Bloomberg BNA, he said the Second Circuit didn’t require his clients to show that determining membership in a class is "`administratively feasible.’”

Lieberman, a member of Pomerantz LLP, New York, also said that while the court vacated the lower court’s grant of class certification with respect to Petrobras bondholders, it did so “only to the extent” that the district court didn’t analyze the impact of a U.S. Supreme Court decision on whether legal and factual questions common to the class “predominated” over issues affecting only individual class members.

Counsel to the Petrobras defendants didn’t respond to an emailed request for comment.

The corruption scandal at Petrobras spawned numerous lawsuits, civil and criminal. The wide-ranging probe, known as Operation Carwash, has implicated sectors beyond the oil and gas industry, including aviation and construction. Late last year, Odebrecht SA, Latin America’s biggest construction company, and an affiliate agreed to pay more than $3.5 billion to resolve allegations they bribed Petrobras officials to win business, the largest corruption penalty ever levied by global authorities.

To contact the reporter on this story: Phyllis Diamond in Washington at pdiamond@bna.com

To contact the editor responsible for this story: Seth Stern at sstern@bna.com

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