Investors to Probe Alleged Insider Trading, Fraud at Brazilian Retailer Americanas

Investors will ask the Federal Public Prosecutor’s Office to investigate alleged insider trading, accounting fraud and the sale of the retailer’s shares

Investors will ask the Federal Public Prosecutor’s Office to investigate alleged insider trading, accounting fraud and the sale of the retailer’s shares
January 17, 2023 | 05:11 PM

Read this story in

Portuguese

Bloomberg Línea — The 20-billion-reais accounting ‘gap’ disclosed by Brazilian retail giant Americanas (AMER3) may also result in complications for the company’s directors and controlling partners, including Jorge Paulo Lemann, Marcel Telles and Carlos Alberto Sicupira, as minority shareholders in the company are already preparing measures to try to ensure that they will be compensated for the losses suffered from the fall in price of the company’s assets.

To avoid that the debts are executed to the detriment of the shareholders, lawyer Daniel Gerber will ask, on behalf of minority shareholders, that the Federal Public Ministry (MPF) investigates whether crimes were committed against the capital market and the financial markets, in addition to requesting the freezing of the assets of those held responsible for the loss, to guarantee that the minority shareholders are compensated.

The request will involve both Americanas and PricewaterhouseCoopers (PwC), the company’s auditors.

PUBLICIDAD

On January 13, a court in Rio de Janeiro granted a request by Americanas and suspended the payment of the company’s debts, prohibiting the freezing, attachment or suspension of the company’s assets for 30 days. Americanas informed that it has “around 40 billion reais” ($7.83 billion) in debts, and which would include, in theory, the “accounting inconsistencies” totaling around 20 billion reais revealed two days earlier in a material fact communication to the market.

BTG Pactual (BPAC11), a 1.9-billion-reais creditor, has already requested the reversal of the decision, alleging that Americanas’ request to the judicial authorities was made “to prevent creditors from legitimately protecting their assets in light of the largest corporate fraud in the country’s history”.

The announcement of the ‘gap’, which was referred to as “accounting inconsistencies” by the company, pushed the company’s share price down by around 75% during trading on January 12, the day after the announcement to the market. In the United States, where the company trades ADRs, the drop was 22% at the opening of trading that day.

According to criminal lawyer Daniel Gerber, investors will want to investigate whether the crimes of insider trading (use of privileged information to obtain advantages in the capital market), fraudulent management, sale of shares without ballast and criminal organization have been committed.

PUBLICIDAD

“People spent years organizing themselves in a hierarchical way to commit these crimes,” the lawyer said in an interview with Bloomberg Línea.

The MPF in São Paulo has been investigating whether there is evidence of insider trading by the company’s directors and controllers since Friday. The investigation is still preliminary, and no inquiry has been opened.

The suspicion of insider trading is due to the fact that, since Americanas informed the market about the loss, information has circulated on social networks that directors sold the equivalent of 210 million reais in company shares in the second half of 2022 - before the “accounting inconsistencies” were announced to the market.

The accounting fraud, if confirmed, could be related to the fact that Americanas recorded financial debts as other items on the balance sheet.

In a video posted on YouTube , former Americanas CEO Sergio Rial said that the 20-billion-reais ‘hole’ “is an estimate of several accounting entries”.

In a video, Americanas'  former CEO Sergio Rial said that the company's missing 20-billion-reais was 'within the balance sheet structure' but not recorded 'properly'. dfd

“Actually,” the executive says in the video, “that number is within the current balance sheet structure, it’s just not recorded, appropriated”. “Those entries are somehow placed within the balance sheet structure or the profit and loss account of the company”.

PUBLICIDAD

In the US

As Americanas trades American Depositary Receipts in the United States, the company is also subject to legal action in that market.

Law firm Almeida Law announced on Friday that it is already working on filing a class action lawsuit in the US “in defense of the investors harmed by the inconsistencies reported by Americanas”.

This does not mean, however, that this action will proceed.

The class action in the US is different from the one in Brazil. There, law firms present theses to the court on behalf of a class of people - in this case, investors - and the judge decides which law firm will be responsible for handling the case. It is a kind of auction of legal theses.

PUBLICIDAD

Almeida Law works in partnership with US law firms. In the announcement made on Friday, the law firm said that the objective of the lawsuit against Americanas is to obtain “punitive damages”, or an agreement with the company.

PUBLICIDAD

The strategy is similar to the one adopted by the law firm with Brazil’s Petrobras at the time of Operation Lava Jato, the anti-money laundering operation. In December 2014, the firm took a lawsuit against the company to the US courts on behalf of minority shareholders. At the time, the firm chosen to handle the case was Pomerantz, but Almeida Law was in charge of a group of shareholders.

The 2014 case resulted in a settlement, signed in 2018, through which the Brazilian state-owned oil company committed to pay 3 billion reais ($587.3 million) to the minority shareholders. It was the largest settlement involving a foreign company in the US. PwC, the audit company responsible for Petrobras’ information, had to pay $50 million.