On September 14, 2017 Braskem S.A., the largest petrochemical producer in Latin America, agreed to pay investors of Braskem's American Depositary Receipts a $10 million settlement for its failure to disclose at least $5 million in annual payments between 2006-2012 to Petrobras officials and others in exchange for lower prices on naphtha, a critical ingredient in Brazilian petrochemicals.
On June 26, 2015, investors filed a proposed class action lawsuit in New York federal court against Braskem SA claiming that their stock price was artificially inflated by bribes paid to Petrobras to ensure cheap raw material prices.
A Braskem shareholder, who purchased the Brazilian petrochemical company's American Depositary Shares, says the company’s stock price tanked when a Brazilian newspaper in March implicated the company in the corruption scandal that has rocked state-owned Petrobras and the Brazilian government.
Plaintiff Douglas W. Peters is seeking class action status for the lawsuit, filed in a Manhattan federal court on behalf of individuals or institutions that purchased Braskem's American depositary receipts between June 1, 2010 and March 11, 2015, according to court documents.
Braskem and its officers violated the Securities Exchange Act by filing information with the U.S. Securities and Exchange Commission that misrepresented the effectiveness of its internal controls and procedures, the Peters said.
Peters also said that the individual defendants had control over the information, knew it was inaccurate and could’ve changed it, but released it anyway. Specifically, the CEO and CFO certified that the company had disclosed all deficiencies and weaknesses in its internal controls over financial reporting. Continuing that, in reality, Braskem had paid at least $5 million annually to Petrobras in order to receive lower prices on oil products like naphtha, a main ingredient in Brazilian petrochemicals, from 2006 to 2012.
This came to light on March 11, when a Sao Paulo newspaper, Folha de S. Paulo, named Braskem as part of the corruption scandal. Testimony made by former Petrobras executive Paulo Roberto Costa and self-confessed money launderer Albert Youssef provided specifics about the bribes.
According to Peters, the news caused Braskem’s share price to fall more than 20 percent, or $1.80 each.
Braskem is the largest petrochemical producer in Latin America and the largest producer of thermoplastic resins in the Americas and buys naphtha from Petrobras under long-term agreements. The product accounts for half of Braskem’s production costs and about 70 percent of it comes from the embattled oil company, Peters says.
Its largest shareholders are Petrobras, the Brazilian Development Bank, which finances most Brazilian development, and Odebrecht SA, the country’s largest infrastructure company. Marcelo Odebrecht, CEO of his namesake company, became the highest-profile executive ensnared by the government’s corruption dragnet when he was arrested for possible involvement in the scheme two weeks ago.
Peters seeks to represent anyone who bought Braskem’s American Depository Shares between June 1, 2010, and March 11, 2015.
The individual defendants named in the suit are Bernardo Afonso de Almeida Gradin, CEO of Braskem from July 2008 to December 2010, Carlos Jose Fadigas de Souza Filho, CEO since Gradin left, Marcela Aparecida Drehmer Andrade, a member of Braskem’s board of directors since August 2013, and Mario Augusto da Silva, CFO since July 2013.
The continuing corruption probe into Petrobras, dubbed Operation Car Wash, has led to the indictment of about 40 people, including several dozen construction company executives. The country’s public prosecutor’s office has said that it’s seeking to investigate 49 politicians in connection with the scandal, including the speakers of both houses of the Legislature.
Two lawsuits are pending in New York federal court — one filed in March and one in May — that were filed by investors who say Petrobras’ “massive scheme” to classify bribes, kickbacks, inflated contracts and other corruption-related expenses as assets fraudulently increased stock prices and led to heavy losses when the truth was discovered.
The case is Peters v. Braskem SA et al, case number 1:15-cv-05132, in the U.S. District Court for the Southern District of New York. The investors in this class action are represented by Cohen Milstein Sellers & Toll PLLC.