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Petrobras willing to settle to resolve corruption cases

Petrobras settlements show company eager to resolve corruption cases

Petroleumworld.com 10 27 2016

Petrobras' decision to settle four lawsuits over corruption allegations signals its willingness to negotiate deals in other civil cases but does not remove the threat of massive government penalties from U.S. and Brazilian investigations, legal experts said.

The four settlements with large Petrobras shareholders, approved by the oil company's board on Friday, represent only a fraction of the 27 individual lawsuits and one class action case filed against the company in U.S. courts.

But they could be a sign the firm is ready to press ahead with other settlements, legal experts said. Petrobras admitted to no wrongdoing in the agreements.

"It's a signal that leadership wants to turn the page," said Michael Fine, an expert on anti-corruption law and the principal of NXG Global Law & Compliance.

"If the company is at the table it should create some momentum for the resolution of the rest of the suits, but it depends on who the parties are and what the merits are of each of their claims," said Fine.

Investors are suing Petrobras in New York accusing it of covering up a sweeping graft scheme and publishing misleading accounts. They believe the corruption and mismanagement helped destroy nearly $200 billion of shareholder value since 2008.

Any resolution in the civil cases is not likely to affect corruption investigations by U.S. and Brazilian authorities that could potentially carry hefty fines, legal experts said.

In August 2015, Reuters reported that Petrobras' legal advisers estimated the company may face penalties of $1.6 billion or more to settle claims with the U.S. Department of Justice and the Securities and Exchange Commission, an amount that would make it one of the largest-ever settlements over corporate wrongdoing.

"As much as the investors and bondholders think that they are getting some of this civil litigation behind them, they still have the U.S. government investigation hanging over them," said Charles Connolly, an attorney focused on government and corporate investigations at Akin Gump in Washington D.C.


Despite clean-up efforts by Petrobras Chief Executive Pedro Parente, the lawsuits and government probes have made investors reluctant to lend new cash to develop the company's giant offshore oil and gas resources.

“We recognize that to remove uncertainty about the company is extremely important so that our investors can have a better notion of the company's future prospects,” Parente, who assumed control of Petrobras in May, told reporters on Monday.

Petrobras said on Friday it plans to set aside $353 million to settle the cases with the PIMCO Total Return Fund, Dodge & Cox International Stock Fund, Janus Overseas Fund and Al Shams Investments. The funds represent some of the largest holders of Petrobras bonds and stocks.

One investor with direct involvement in the settlements told Reuters that the agreements were "a sign that corporate governance has materially improved" at Petrobras. He added that the improvement in governance had encouraged investors to strike a deal with Petrobras' new management.

Other investors consulted by Reuters said a global settlement with the class action plaintiffs will still be needed to ease concerns about the size of remaining liabilities.

Lawyers for the class action plaintiffs have refused to say how much they are seeking.

Parente has maintained that the corruption was caused by a small group of executives and managers acting on their own, and that the state oil company itself was a victim of their actions.

In an interview with Reuters on Sept. 22, he vowed that the lawsuits would not derail a recently announced five-year recovery plan.

While the settlements are a positive step for Petrobras, said Salim Saud Neto, a lawyer in Rio de Janeiro, "it is too early to see a more meaningful change in the perception of the company." 

Story by Jeb Blount and Mica Rosenberg from Reuters;Reporting by Jeb Blount in Rio de Janeiro and Mica Rosenberg in New York, additional reporting by Paul J. Kilby in New York; Editing by Christian Plumb and Cynthia Osterman.

reuters.com | 10 26 2016

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