Massive Corruption Settlement: Petrobras to Pay $3 Billion to End U.S. Lawsuits Over Graft

Brazil’s state-run energy explorer Petrobras agreed to pay $2.95 billion to compensate U.S. investors who lost money when a massive corruption scandal eroded the oil giant’s market value.

The settlement will end a three-year legal battle with holders of Petrobras’s American depositary receipts and bonds who filed lawsuits claiming large losses after Brazilian prosecutors exposed a wide-ranging money-laundering and kickback scheme involving the company in 2014.

Petroleo Brasileiro SA, as the company is formally known, settled the dispute sooner and at a lower cost than observers anticipated, said  Bruno Montanari, a Sao Paulo-based analyst at Morgan Stanley. The agreement also removes some of the uncertainty about liabilities and will allow the company to better plan how it uses future cash flow, he said in a report on Wednesday.

“This is materially lower than our initial expectations of $10 billion,” Montanari wrote. “We were positively surprised to see the settlement take place early in the year.”

The accord, which still requires final approval from a judge, represents the largest U.S. class-action settlement in a decade, said Jeremy Lieberman, a co-managing partner at law firm Pomerantz LLP, the lead counsel for the plaintiffs. He declined to say how much Pomerantz will receive from the settlement.

Carwash Probe

Petrobras was at the heart of a Brazilian corruption probe dubbed Carwash that spread to other industries and countries, implicating construction companies, banks, shipyards and leading politicians.

“This has been one of the most important overhangs for Petrobras, especially for the extremely high uncertainty around the values of the liability,”  Rodolfo Angele, a JPMorgan Chase & Co. analyst, said in a note to clients. “The settlement puts an end to that uncertainty.”

The settlement will be reflected in the company’s fourth-quarter 2017 results and will be paid out in three installments, the Rio de Janeiro-based producer said in a statement on Wednesday.

“The agreement does not constitute any admission of wrongdoing or misconduct by Petrobras,” the company said, adding that it was a “victim of the acts uncovered by Operation Carwash, as recognized by Brazilian authorities including the Brazilian Supreme Court.”

Resolving Cases

Petrobras expects to resolve all pending and prospective class-action lawsuits in the U.S. The settlement does not include compensation for investors who bought their securities in Brazil, where class actions are rare. The company says it will keep disputing other claims in court.

The company has settled more than a dozen individual cases brought against it in the U.S. District Court for the Southern District of New York and expects the remaining to join the current settlement.

Petrobras rose 0.4 percent to 16.62 reais at 2:03 p.m. in Sao Paulo trading. The positive news about the U.S. settlement was offset by a 17 billion reais ($5.2 billion) tax assessment notice from Brazilian authorities in a dispute over the classification of vessels used in offshore work.