Risk & Compliance

Petrobras Fined $1.8B for Duping U.S. Investors

U.S. authorities say the Brazilian energy giant padded its financial statements to conceal the payment of kickbacks to company executives by contra...
Matthew HellerSeptember 27, 2018
Petrobras Fined $1.8B for Duping U.S. Investors

Brazilian energy giant Petrobras has agreed to pay nearly $1.8 billion to settle U.S. allegations that it manipulated its financial statements to conceal a massive corruption scheme from investors.

The settlement resolves U.S. investigations arising out of the corruption scandal at Petrobras that involved the payment of billions of dollars in kickbacks by contractors to company executives, who then shared the payments with Brazilian politicians.

According to the U.S. Securities and Exchange Commission, Petrobras misled U.S. investors by recording the kickbacks as money spent to acquire and improve assets, resulting in an estimated $2.5 billion overstatement of property, plant and equipment in the company’s financial statements.

The assets were also inflated in materials for a $69.9 billion global public offering of Petrobras equity securities in 2010, which included approximately $10 billion in shares offered in the U.S., the SEC said.

Petrobras will pay $933 million in disgorgement and prejudgment interest to settle SEC allegations and and an $853 million criminal penalty to the Department of Justice as part of a non-prosecution agreement.

“Petrobras fraudulently raised billions of dollars from U.S. investors while its senior executives operated a massive, undisclosed bribery and corruption scheme,” Steven Peikin, co-director of the SEC’s Enforcement Division, said in a news release. “If an international company sells securities in the United States, it must provide truthful information about its business operations.”

The SEC noted in an administrative order that from at least 2003 to April 2012, Petrobras “engaged in a large-scale expansion of its infrastructure for producing oil and gas, a matter of significant interest to investors.”

During that time, the SEC said, contractors executing the infrastructure projects paid kickbacks that typically amounted to between 1% to 3% of the contract cost to Petrobras executives, politicians and political parties.

The payments were concealed from investors by padding the PP&E in financial statements and senior executives also misrepresented that they “were disinterested in Petrobras transactions, even though [they] received bribes and kickbacks in connection with most major contracts, and some received a percentage of those contracts in return for corrupting the procurement process.”

Photo: Getty Images