From The Wall Street Journal
RIO DE JANEIRO—The trust that manages the $41 billion endowment of the Bill and Melinda Gates Foundation is suing Brazil’s Petróleo Brasileiro SA and its auditor in a New York court, claiming a vast corruption scheme centered on the state-run oil company caused the charitable organization to lose tens of millions of dollars.
The Bill and Melinda Gates Foundation Trust joins a long list of plaintiffs seeking to recoup money they lost as the scandal hammered the value of their investments in Petrobras shares. It is just the latest bad news for the troubled oil company, which is scrambling to restore its reputation, rebuild investor confidence and pay down ballooning debt amid a global slump in oil prices.
Petrobras has long maintained it was a victim of a yearslong bid-rigging and bribery ring that Brazilian prosecutors say was cooked up by suppliers and a few crooked insiders who fleeced the oil company for at least $2 billion.
The Gates trust lawsuit, filed against Petrobras and the Brazilian unit of PricewaterhouseCoopers LLP or PwC, alleges that corruption at the oil company was so widespread as to be “institutional” and that wrongdoing was “willfully ignored” by its auditor.
“The depth and breadth of the fraud within Petrobras is astounding. By Petrobras’s own admission, the kickback scheme infected over $80 billion of its contracts, representing approximately one-third of its total assets,” the lawsuit said. “Equally breathtaking is that the fraud went on for years under PwC’s watch, who repeatedly endorsed the integrity of Petrobras’ internal controls and financial reports. This is not a case of rogue actors. This is a case of institutional corruption, criminal conspiracy, and a massive fraud on the investing public.”
The Gates trust filed the lawsuit late Thursday in the Southern District Court of New York. A co-plaintiff in the lawsuit is WGI Emerging Markets Fund, LLC, which managed investments for the trust.
The trust held more than $27 million in Petrobras shares as of 2013, according to a tax filing.
Petrobras declined to comment. A spokesman for the Gates Foundation referred a request for comment to the foundation trust, which didn’t respond to the request. Boston-based Westwood Global Investments, which manages and advises the co-plaintiff, didn’t respond to requests for comment. PwC declined to comment.
More than a dozen lawsuits have been filed by U.S. investors who bought American depositary receipts sold by Petrobras in New York, including the attorney general of Ohio, public pension funds in Idaho and Hawaii, and the city of Providence, R.I.
In June, Petrobras wrote off some $17 billion to reflect losses because of corruption and inflated contracts. It is now scrambling to sell some $58 billion in assets through 2018 to raise cash and deal with a mounting debt pile.
So far this year, Petrobras’ credit ratings were downgraded to junk status by bothMoody’s Investors Service and Standard & Poor’s Ratings Services. Petrobras shares have were down 1% Friday afternoon in New York. The stock has fallen more than 44% this year, wiping out billions of dollars in shareholder value. In 2010, the company ranked among the top five biggest companies in the world, with market capitalization in excess of $220 billion. Now, the company’s market cap is around $23 billion.
Prosecutors say that for at least a decade, some of Brazil’s biggest construction firms formed a cartel to skim billions of dollars from Petrobras through inflated contracts, kicking back bribes to company insiders and politicians who helped them keep the scam going.
The investigation has resulted in more than 100 arrests and more than 30 convictions. Some of the accused have cooperated with authorities and turned state’s evidence in exchange for lighter sentences. Others have drawn long prison terms, while still others maintain their innocence.
The Gates Foundation is a charity that distributes money to grantees working on everything from the eradication of polio to helping small coffee farmers.
Corrections & Amplifications:
The Bill and Melinda Gates Foundation Trust is suing Petróleo Brasileiro SA and its auditor in a New York court. An earlier version of this article incorrectly stated the Bill and Melinda Gates Foundation had filed the lawsuit. (Sept. 27, 2015)