March 31, 2017

A Manhattan federal judge allowed shareholder suits against petrochemical firm Braskem SA to move forward Thursday, clearing parent company Odebrecht SA but exposing the unit to claims that it hid the crucial role of bribery in dealings with Brazilian oil giant Petrobras from other investors.

Braskem, which agreed last year to pay $957 million in fines and admit to violating the Foreign Corrupt Practices Act, has said that its statements to U.S. investors did not amount to fraud. To a limited extent, U.S. District Judge Paul A. Engelmayer agreed Thursday, saying Braskem's statements about values and principles were “inherently immaterial puffery.”

But the unit went too far when laying out in U.S. Securities and Exchange Commission filings how it obtained a petroleum byproduct known as naphtha from Petrobras, or Petróleo Brasileiro SA, at such good prices, he wrote. If the investors’ allegations are true, the judge said, Braskem’s list of factors like exchange rates and price indexes omitted a crucial element: corruption.

“There were indeed terms unique to Braskem’s relationship with Petrobras that influenced the price Braskem paid for naphtha, but they involved not just ‘the quality of paraffinicity and contaminants in the naphtha delivered,’ or the companies’ ‘intercompany transactions,’” he wrote. “They also involved a rigged pricing scheme.”

Steve Toll, a lawyer for the investors, said he was happy with the decision in light of the judge’s questions at an October hearing that seemed to indicate his doubt on whether the plaintiffs had shown that the securities filings were deceptive. He said he would need to study the opinion further before commenting on his next steps, although he noted that the court ordered the parties to file a case management plan within the next two weeks.

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