Embraer Declines Most in a Week on Corruption Probe Concern

Embraer SA, the world’s fourth- largest plane builder, fell the most a week as concern mounted that a U.S. corruption investigation will lead to fines and endanger business with the American government.

The stock dropped 1.7 percent to 11.09 reais at the close in Sao Paulo, paring an earlier loss of as much as 4 percent.

The U.S. Securities and Exchange Commission is investigating Embraer for possible violation of Foreign Corrupt Practices Act, the Sao Jose dos Campos, Brazil-based company said Nov. 2. The probe started more than a year ago in Argentina with government-controlled Aerolineas Argentinas SA’s $700 million purchase of 20 E-190 jets in 2009, Valor Economico newspaper reported today, without saying how it got the information.

“It’s a pretty serious matter,” said Rosangela Ribeiro, an analyst at SLW Corretora brokerage in Sao Paulo. “This increases the noise. The market needs better clarifications from the company.”

A press official at Embraer, who asked not to be identified due to internal policy, declined to comment on the Valor report and referred questions to the company’s Nov. 2 statement.

Embraer Cooperating

In that statement, Embraer said it hired external lawyers who are conducting an investigation into transactions in three countries that it didn’t identify. The company said it’s cooperating with the SEC and the Justice Department and has delivered documents to both agencies.

“The company is unable to foresee the duration, the scope or the results of the investigation,” Embraer said in the statement.

Aerolineas Argentinas’ press office didn’t answer phones or reply to an e-mail seeking comment on the Valor report. Valor said the company didn’t respond to an interview request.

The Foreign Corrupt Practices Act prohibits companies listed in the U.S. from bribing foreign government officials or making other illegal payments to obtain or retain business, according to the Justice Department’s website. If criminally sanctioned, companies may be barred from doing business with the U.S. government and fined as much as twice the value of the benefit they sought through the improper payments. Convicted executives may be sentenced to five years in prison.

Embraer Chief Executive Officer Frederico Curado said the investigation won’t hinder the company’s bid for a $950 million contract with the U.S. Department of Defense, Folha de S.Paulo newspaper reported Nov. 5, citing an interview.

To contact the reporter on this story: Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos in New York at papadopoulos@bloomberg.net

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