Gates Foundation Sues Petrobras, Auditor for Fraud
September 25 2015 - 4:30PM
Dow Jones News
RIO DE JANEIRO—The Bill and Melinda Gates Foundation is suing
Brazil's Petró leo Brasileiro S.A and its auditor in a New York
court, claiming a vast corruption scheme centered on the state-run
oil company caused the charitable organization to lose tens of
millions of dollars.
The foundation, started by the billionaire co-founder of
Microsoft Corp. and his wife, joins a long list of plaintiffs
seeking to recoup money as a result of the scandal that has
hammered Petrobras shares. And it is just the latest bad news for
the troubled oil company, which is scrambling to restore its
reputation, rebuild investor confidence and pay down ballooning
debt amid a global slump in oil prices.
Petrobras has long maintained that it was a victim of a
yearslong bid-rigging and bribery ring that Brazilian prosecutors
say was cooked up by suppliers and a few crooked insiders who
fleeced the oil company for at least $2 billion.
But the Gates lawsuit, filed against Petrobras and the Brazilian
unit of PricewaterhouseCoopers LLP or PwC, alleges that corruption
at the oil company was so widespread as to be "institutional" and
that the wrongdoing was "willfully ignored" by its auditor.
"The depth and breadth of the fraud within Petrobras is
astounding. By Petrobras's own admission, the kickback scheme
infected over $80 billion of its contracts, representing
approximately one-third of its total assets," the lawsuit said.
"Equally breathtaking is that the fraud went on for years under
PwC's watch, who repeatedly endorsed the integrity of Petrobras'
internal controls and financial reports. This is not a case of
rogue actors. This is a case of institutional corruption, criminal
conspiracy, and a massive fraud on the investing public."
The Gates Foundation filed the lawsuit late Thursday in the
Southern District Court of New York. A co-plaintiff in the lawsuit
is WGI Emerging Markets Fund, LLC, which managed investments for
the Gates Foundation.
The plaintiffs didn't disclose how much they invested in
Petrobras shares.
A spokesperson for Petrobras didn't respond to a request for
comment. A spokesman for the Gates Foundation referred a request
for comment to the Foundation's Trust, which didn't respond to the
request. The other plaintiff, Boston-based Westwood Global
Investments, didn't respond to requests for comment. PwC declined
to comment.
More than a dozen lawsuits have been filed by U.S. investors who
bought American depositary receipts sold by Petrobras in New York,
including the attorney general of Ohio, public pension funds in
Idaho and Hawaii, and the city of Providence, R.I.
In June, Petrobras wrote off some $17 billion to reflect losses
because of corruption and inflated contracts. It is now scrambling
to sell some $58 billion in assets through 2018 to raise cash and
deal with a ballooning debt pile.
So far this year, Petrobras' credit ratings were downgraded to
junk status by both Moody's Investors Service and Standard &
Poor's Ratings Services.
Petrobras shares were down 1% Friday afternoon in New York.
The stock has fallen more than 44% this year, wiping out
billions of dollars in shareholder value. In 2010, the company
ranked among the top five biggest companies in the world, with
market capitalization in excess of $220 billion. Now, the company's
market cap is around $23 billion.
Prosecutors say that for at least a decade, some of Brazil's
biggest construction firms formed a cartel to skim billions of
dollars from Petrobras through inflated contracts, kicking back
bribes to company insiders and politicians who helped them keep the
scam going.
The investigation has resulted in more than 100 arrests and more
than 30 convictions. Some of the accused have cooperated with
authorities and turned state's evidence in exchange for lighter
sentences. Others have drawn long prison terms, while still others
maintain their innocence.
The Gates Foundation is a charity that distributes money to
grantees working on everything from the eradication of polio to
helping small coffee farmers.
The Foundation's Trust manages the group's $41 billion
endowment.
Write to Will Connors at william.connors@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
September 25, 2015 16:15 ET (20:15 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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