Petrobras Shares Drop as Probe Widens and Investor Sues

Petroleo Brasileiro SA fell to the lowest in a decade after Brazil’s prosecutor general said directors should resign and an investor filed what may be the first U.S. lawsuit against the state-controlled producer for failing to disclose an alleged kickback plan.

Petrobras slid 1.2 percent to close at 11.36 reais in Sao Paulo, the lowest since December 2004. Shares have tumbled 16 percent since the company delayed releasing its third-quarter earnings report on Nov. 13 to adjust the value of assets to account for graft-related cost inflation.

Petrobras is at the center of the country’s biggest corruption and money laundering scandal that has spread to the nation’s largest construction and engineering companies. Suppliers to the Rio de Janeiro-based energy company allegedly bribed executives to win contracts at projects ranging from refineries to offshore drilling rigs, according to court documents filed in Brazil.

Petrobras “is going through a corporate governance hurricane,” Mariana Bertone, an equity analyst at GBM Grupo Bursatil Mexicano SA, said in a note to clients today. “If the allegations of fraud and corruption are proven, an adjustment to the fair value of its assets will be made, causing an impairment loss.”

SEC Investigation

Petrobras didn’t respond to phone calls and e-mails requesting comment if top management will resign. The company has said it is a “victim” in the case dubbed Car Wash by investigators.

“We expect the appropriate steps, including, without atoning or allocating blame, the eventual replacement of its management,” Prosecutor General Rodrigo Janot said in a speech in Brasilia today. “The response to those who raided Petrobras will be firm, from Brazil’s justice and abroad.”

Janot’s Federal Prosecution Service, known as MPF, will send a team in January to coordinate investigations with the U.S. Securities and Exchange Commission and the U.S. Justice Department, he said. The agency pursues civil and criminal cases in Brazil’s states and is independent of the executive branch. MPF has sent officials to the Netherlands and Switzerland to pursue probes related to Petrobras and its suppliers, he said.

The Finance Ministry’s financial intelligence unit, known as Coaf, has identified 23.7 billion reais in transactions since 2011 from people and companies cited in the Car Wash investigation and has delivered the information to investigators, president Antonio Gustavo Rodrigues said. Coaf is still reviewing the transactions and the amount could change because its not clear all of them are related to criminal activity, he said.

CEO Measures

Brazil’s government sees no need to remove Chief Executive Officer Maria das Gracas Foster or the executive directors, Justice Minister Jose Eduardo Cardozo told reporters in Brasilia. Foster has taken the right steps by setting up a compliance division at the company, he said.

The investigation put President Dilma Rousseff on the defensive during her campaign for re-election, which she won narrowly Oct. 26. Petrobras also has struggled to meet output targets, and the industry is adjusting to a bear market for crude.

On Nov. 21, Petrobras received a subpoena from the U.S. SEC requesting documents related to the regulator’s probe of the company, the oil producer said in a Nov. 24 statement.

Carlos Lima, a Brazilian prosecutor in Curitiba, said his office has been contacted by the SEC as part of the probe. The SEC has declined to comment on its investigation.

“Petrobras reiterates its commitment to cooperate with the U.S. public authorities with the same dedication that it has been cooperating with the Brazilian public authorities,” the company said in a Nov. 24 statement.

The next day, Petrobras’ board of directors said it approved creating a governance, risk management and compliance division.

U.S Lawsuit

The U.S. lawsuit was filed yesterday in Manhattan federal court by a sole investor, Peter Kaltman. He said that he bought Petrobras’s American Depositary Receipts, and that the company made false statements that misled investors who lost money when the scandal became public. Kaltman’s law firm, New York-based law firm Wolf Popper LLP, seeks to represent other purchasers of ADRs from May 20, 2010, to Nov. 21, 2014.

Petrobras said in an e-mailed statement that it hasn’t been notified of the lawsuit.

Lawyers in the U.S. often file securities-fraud suits with a single investor as plaintiff after a company’s alleged misconduct is made public and shares drop. Law firms that gather the most, or largest, plaintiff investors seek to become lead counsel. Lead counsel in securities-fraud class actions direct the litigation and usually reap the largest reward in a settlement or verdict.

The case is Kaltman v. Petroleo Brasileiro SA, 14-09662, U.S. District Court, Southern District of New York (Manhattan).

Before it's here, it's on the Bloomberg Terminal.