DRRT's Global Loss Recovery Blog

JBS Securities Arbitration in Brazil

Posted by Andres Cuyun on Mar 18, 2020 10:31:55 AM

On Thursday, March 12th, 2020, DRRT along with Brazilian co-counsel, Finkelstein Advogados, requested mandatory arbitration under the auspices of the Market Arbitration Chamber (“MAC”) of the B3, against JBS S.A. and other defendants (“JBS”) on behalf of ninety-five institutional shareholders seeking over BRL 1.4 billion ($280 mio) in compensation for damages caused by JBS’s illegal activities over the past decade. Pursuant to Article 49 of JBS’ bylaws the “Company [and] its shareholders…undertake to resolve through arbitration any dispute or controversy which may arise between them…before the Market Arbitration Chamber, under the terms of its Arbitrations Regulations”, leaving confidential arbitration as the only way to recover damages.

The claims of current as well as former shareholders of JBS are based on the false and/or misleading statements and/or omissions made by JBS and its executive officers since its IPO in 2007, including the fact that the rise of JBS to become the world’s largest meatpacking company was built upon bribery and corruption.  It is well established and admitted that JBS, and the Batista family controlling the company, obtained illegal financing and support through kickbacks to Brazilian state-owned National Economic and Social Development Bank (BNDES) and its subsidiary BNDESPar, and that from 2013-2017 the company paid off public health inspectors to suppress or cover up unsanitary processing conditions, including salmonella incidents in its plants which lead to a near global embargo of JBS products in 2017/2018. As a result, the company agreed to pay a fine of BRL 10.3 bn in May 2017, via its controlling shareholder, as well as is facing another potential BRL 21 billion in fines or damages for the illegally sold shares to BNDESPar.

The currently commenced securities arbitration at the MAC within the three-year statute of limitations under Brazilian law duplicates the allegations concerning fraud in the United States on ADR investors, which resulted in a May 2019 class action settlement in the amount of USD 5.9 million related to only JBS’s U.S. American Depositary Receipts (representing only 1% of the company’s overall share trading volume).  In the U.S. settlement approval hearing the parties stated that the settlement would represent a recovery of 49.5% of damages sustained by affected class members. Whether this recovery ratio is an indication for the ability of investors to recover substantial amounts in the Brazilian arbitration remains to be seen. Recent financial data on JBS indicates that it is able to pay a substantial sum to regulators as well as to major shareholders to make this issue go away and turn towards the new business plan going forward.

Topics: Settlement, Arbitration, Brazil, shareholders, loss recovery, jbs