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In re Petrobras Securities Litigation

United States District Court, S.D. New York

July 30, 2015

In re: PETROBRAS SECURITIES LITIGATION

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For Universities Superannuation Scheme Limited, Lead Plaintiff: Emma Gilmore, Jeremy Alan Lieberman, Marc Ian Gross, LEAD ATTORNEYS, Pomerantz LLP, New York, NY; Patrick Vincent Dahlstrom, Pomerantz LLP, Chicago, IL.

For Peter Kaltman, individually and on behalf of all others similarly situated, Plaintiff: Chet Barry Waldman, Fei-Lu Qian, Lester L. Levy, Sr, Robert Craig Finkel, LEAD ATTORNEYS, Wolf Popper LLP, New York, NY.

For Union Asset Management Holding AG, Plaintiff: William H. Narwold, Motley Rice LLC (CT), Hartford, CT; Jeremy Alan Lieberman, Pomerantz LLP, New York, NY.

For Employees' Retirement System of the State of Hawaii, Plaintiff: Jeremy Alan Lieberman, Pomerantz LLP, New York, NY.

For Louis Kennedy, Individually and on behalf of all others similarly situated, Consolidated Plaintiff: Brian Philip Murray, LEAD ATTORNEY, Glancy Binkow & Goldberg LLP, New York, NY; Casey Edwards Sadler, LEAD ATTORNEY, Glancy Binkow & Goldberg LLP, Los Angeles, CA; Lionel Z. Glancy, LEAD ATTORNEY, PRO HAC VICE, Glancy & Binkow Goldberg LLP, Los Angeles, CA; Michael Goldberg, LEAD ATTORNEY, PRO HAC VICE, Glancy Binkow & Goldberg, LLP (CA), Los Angeles, CA; Robert Vincent Prongay, LEAD ATTORNEY, PRO HAC VICE, Glancy Binkow & Goldberg LLP, Los Angeles, CA; Gregory Bradley Linkh, Glancy Binkow & Goldberg LLP (NYC2), New York, NY.

For Ken Ngo, Individually and On Behalf of all others Similarly Situated, Consolidated Plaintiff: Erica Lauren Stone, LEAD ATTORNEY, The Rosen Law Firm, P.A., New York, NY; Laurence Matthew Rosen, LEAD ATTORNEY, The Rosen Law Firm, P.A. (NYC), New York, NY.

For Jonathan Messing, Individually and on behalf of all others similarly situated, Consolidated Plaintiff: Francis Paul McConville, Jeremy Alan Lieberman, LEAD ATTORNEYS, Pomerantz LLP, New York, NY.

For Petrobras Plaintiff Group, Movant: Jason Robert D'Agnenica, Stull Stull & Brody, New York, NY.

For Union Asset Management Holding AG, Handelsbanken Fonder AB, Movants: Rebecca M Katz, Motley Rice LLC (NY), New York, NY.

For Plinio Kawakubo, Movant: Phillip C. Kim, LEAD ATTORNEY, The Rosen Law Firm P.A., New York, NY.

For Mossey Investments Ltd., Mr. Jacob Licht, Movants: Robert Craig Finkel, Wolf Popper LLP, New York, NY.

For Costa and Silva, Movant: Adam M. Apton, Nicholas Ian Porritt, Levi & Korsinsky LLP (DC), Washington, DC.

For Ohio Public Employees Retirement, Movant: Donald R. Hall, Jr, Frederic Scott Fox, Sr, Hae Sung Nam, Robert N. Kaplan, LEAD ATTORNEYS, Kaplan Fox & Kilsheimer LLP (NYC), New York, NY.

For Public Employee Retirement System of Idaho, Employees Retirement System of the State of Hawaii, Movants: Christopher J. Keller, Eric James Belfi, Thomas A. Dubbs, LEAD ATTORNEYS, Labaton Sucharow, LLP, New York, NY; Frederic Scott Fox, Sr, LEAD ATTORNEY, Kaplan Fox & Kilsheimer LLP (NYC), New York, NY; Michael Walter Stocker, LEAD ATTORNEY, Labaton & Sucharow LLP (NYC), New York, NY.

For SKAGEN AS, Danske Invest Management A/S, Danske Invest Management Company, Movants: Darren J. Check, Gregory M. Castaldo, Naumon A. Amjed, LEAD ATTORNEYS, Kessler Topaz Meltzer & Check, LLP (PA), Radnor, PA; Katherine Mccracken Sinderson, Max Wallace Berger, Michael Dains Blatchley, Salvatore Jo Graziano, LEAD ATTORNEYS, Bernstein Litowitz Berger & Grossmann LLP, New York, NY.

For Petroleo Brasileiro S.A.- Petrobras, Defendant: Mitchell A. Lowenthal, Roger Allen Cooper, LEAD ATTORNEYS, Cleary Gottlieb, New York, NY.

For BB Securities Ltd., Defendant: Mitchell A. Lowenthal, Cleary Gottlieb, New York, NY.

For Theodore Marshall Helms, Petrobras Global Finance, B.V., Petroleo Brasileiro S.A.- Petrobras, Defendants: Mitchell A. Lowenthal, LEAD ATTORNEY, Cleary Gottlieb, New York, NY.

For Petrobras Global Finance B.V., Theodore Marshall Helms, Consolidated Defendants: Mitchell A. Lowenthal, LEAD ATTORNEY, Roger Allen Cooper, Cleary Gottlieb, New York, NY.

For BB Securities Ltd., Consolidated Defendant: Jay B. Kasner, Scott D. Musoff, LEAD ATTORNEYS, Skadden, Arps, Slate, Meagher & Flom LLP (NYC), New York, NY.

For Citigroup Global Markets Inc., ITAU BBA USA Securities, Inc., JP Morgan Securities LLC, Morgan Stanley & Co. LLC, Santander Investment Securities Inc., Mitsubishi UFJ Securities (USA), Inc., HSBC Securities (USA) Inc., Merril Lynch, Pierce, Fenner & Smith Incorporated, Standard Chartered Bank, Banco Bradesco BBI S.A., Banca IMI S.P.A., Scotia Capital (USA) Inc., Consolidated Defendants: Jay B. Kasner, Scott D. Musoff, LEAD ATTORNEYS, Skadden, Arps, Slate, Meagher & Flom LLP (NYC), New York, NY; Mitchell A. Lowenthal, Cleary Gottlieb, New York, NY.

OPINION

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JED S. RAKOFF, United States District Judge.

Lead Plaintiff Universities Superannuation Scheme Ltd. (" USS" ) brings this putative class action against the Brazilian state-owned oil company Petróleo Brasileiro S.A. -- Petrobras (" Petrobras" or the " Company" ); two of Petrobras' wholly-owned subsidiaries, Petrobras Global Finance, B.V. (" PGF" ) and Petrobras International Finance Company S.A. (" PifCo" )[1]; various former officers and directors of Petrobras and its subsidiaries (the " Individual Defendants" )[2]; Petrobras' independent auditor, PricewaterhouseCoopers Auditores Independentes (" PwC" ); and the underwriters of Petrobras's note offerings (the " Underwriter Defendants" ).[3] Plaintiffs allege that Petrobras was at the center of a multi-year, multi-billion dollar bribery and kickback scheme, in connection with which defendants made false and misleading statements in violation of the

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Securities Exchange Act of 1934 (" Exchange Act" ), the Securities Act of 1933 (" Securities Act" ), and Brazilian law.

Between December 8, 2014 and January 7, 2015, five separate class action complaints were filed in this Court asserting substantially similar claims against defendant Petrobras for violation of the federal securities laws. See Kaltman v. Petrobras, No. 14-cv-9662 (S.D.N.Y. filed Dec. 8, 2014), Ngo v. Petrobras, No. 14-cv-9760 (S.D.N.Y. filed Dec. 10, 2014); Messing v. Petrobras, No. 14-cv-9847 (S.D.N.Y. filed Dec. 12, 2014); City of Providence v. Petrobras et al., No. 14-cv-10117 (S.D.N.Y. filed Dec. 24, 2014); Kennedy v. Petrobras, No. 15-cv-93 (S.D.N.Y. filed Jan. 7, 2015). By Order dated February 17, 2015, the Court consolidated the five related cases under the above caption.

In accordance with the Private Securities Litigation Reform Act (" PSLRA" ), 15 U.S.C. § 78u-4(a)(3), the Court received motions by members of the putative class for appointment as lead plaintiff. Following full briefing and oral argument, the Court, by Order dated March 4, 2015, appointed USS as lead plaintiff and approved its choice of lead counsel, the reasons for which it explained by Memorandum dated May 17, 2015. See ECF No. 99; In re Petrobras Secs. Litig., No. 14-cv-9662, 104 F.Supp.3d 618, 2015 WL 2341359 (S.D.N.Y. May 17, 2015).

On March 27, 2015, USS filed its Consolidated Amended Complaint (" CAC" ), which named additional plaintiffs Union Asset Management Holding AG (" Union" ) and the Employees' Retirement System of the State of Hawaii (" Hawaii ERS" ) with respect to the claims brought under the Securities Act. ECF No. 109. Plaintiffs then moved to lift the mandatory stay of discovery imposed by the PSLRA with respect to documents that defendants had already produced to regulatory, governmental, or investigative agencies, and requested permission to initiate discovery requests on foreign non-parties pursuant to the Inter-American Convention on Letters Rogatory and the Hague Convention on the Taking of Evidence Abroad in Civil and Commercial Matters. The Court denied plaintiffs' motion by Memorandum Order dated April 13, 2015. ECF No. 137.

The Petrobras Defendants and the Underwriter Defendants then moved to dismiss the CAC pursuant to Rules 8, 9(b), 12(b)(1), and 12(b)(6) of the Federal Rules of Civil Procedure. By " bottom line" Order dated July 9, 2015, the Court granted in part and denied in part defendants' motion. ECF No. 189. This Opinion explains the reasons for these rulings on the motion to dismiss.

The CAC alleges facts relevant to plaintiffs' claims under the Exchange Act and Brazilian law (which are asserted only by USS) separately from those relevant to their claims under the Securities Act (which are asserted by USS, Union, and Hawaii ERS). The Court first summarizes the factual allegations relevant to USS's Exchange Act and Brazilian law claims.[4]

Defendant Petrobras is a corporation organized under the laws of Brazil, whose common and preferred shares are listed on the Brazilian stock exchange (" Bovespa" ). CAC ¶ 26. In addition, Petrobras sponsors American Depository Shares (" ADS" ), representing its common and preferred equity, that are listed on the New York Stock Exchange (" NYSE" ). Id. At its height in 2009, Petrobras's market capitalization was approximately $310 billion, making it the world's fifth-largest company. Id. ¶ 2.

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USS alleges that, following the disclosure of rampant fraud and corruption at the Company, which led to the arrest of high-level Petrobras executives and prompted investigations by Brazilian and U.S. authorities, the Company's worth declined to $39 billion. Id. ¶ ¶ 2-14.

The alleged corruption scheme was as follows. Before and during the period from January 22, 2010 through March 19, 2015 (the " Class Period" ), Petrobras, particularly its Services and Supply and International Divisions, pursued plans to expand its petroleum production capacity, which involved acquiring and contracting for the construction of new facilities and petroleum production assets. Id. ¶ 20. However, there were only a limited number of companies in Brazil with the technical capability to complete such large-scale projects. Id. ¶ 49. Those companies formed a cartel for the purpose of circumventing Petrobras' competitive bidding process. Id. They did this with the help of certain corrupt Petrobras officials, in particular, former Chief Downstream Officer and Director of Supply Paulo Roberto Costa, former Chief Services Officer Renato de Souza Duque, former Director of the International Division Nestor Cervero, and former executive in the Engineering and Services Division Pedro Barusco (collectively, the " Corrupt Executives" ). Id. ¶ ¶ 8-10, 50.

According to the CAC, the Corrupt Executives would apprise the cartel members of the estimated cost that Petrobras assigned to a project. Id. 66. The cartel members would then agree amongst themselves which company would win the contract and adjust their bids to conform to Petrobras' parameter allowing for a 15-20% profit above that figure. Id. ¶ ¶ 50-51. On top of that profit, they would build into the winning bid a " three percent political adjustment," which would be used to pay kickbacks to the Corrupt Executives and their ...


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