Brazilian oil giant Petrobras went for the record books when it said it would pay nearly $3 billion to settle a shareholder class action over its corruption scandal, and that stunning sum combined with a key legal ruling in the case will add gas to the booming market for securities class actions, lawyers say.
The $2.95 billion sum that Petrobras announced Jan. 3, to end investor claims against it and its underwriters, will amount to the fifth-largest securities class action settlement in the U.S. and the largest in about a decade, according to data kept by Stanford Law School.
At a period when new securities suit filings are nearing all-time highs, such a blockbuster payday will likely encourage other would-be filers.
And a Second Circuit ruling that Petrobras had asked the U.S. Supreme Court to review and overturn will remain the law of the land in New York, a worry to defense lawyers who say the ruling has made it incrementally easier for plaintiffs to secure class certification in shareholder suits.
The class action against Petrobras dates to 2014 and 2015, when investors accused the Brazilian energy company of concealing kickbacks that top officials and their political patrons received in exchange for directing Petrobras to buy and build production facilities at inflated prices. After the scandal emerged as part of a sweeping corruption investigation in Brazil, the price of Petrobras’ American depositary receipts plunged.
Plaintiffs lawyers said they found other things to like about the Petrobras settlement beyond the anticipated $3 billion price tag.
Daniel Sommers, a partner at Cohen Milstein Sellers & Toll PLLC, said the outcome “certainly shows in a very big way that investors can surmount the limitations of the Morrison decision.” This 2010 Supreme Court decision, Morrison v. National Australia Bank, held that U.S. securities laws don't allow foreign investors to sue foreign and domestic defendants over shares they bought on foreign exchanges, but the Petrobras case managed to survive even though its lead plaintiff was an overseas investor and the defendant was a foreign issuer.
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