BRF S.A. (BR)
ISIN: BRBRFSACNOR8 (Common Stock)
Relevant Period: January 2, 2012 – April 30, 2018
The proposed Brazilian arbitration against BRF, a Brazilian food company and the largest poultry producer in the world, is based on BRF’s failure to disclose that its growth was also based on bribery and corruption. On March 17, 2017, in what is known as “Operation Weak Flesh,” BRF was one of several meatpackers that had its offices raided by Brazilian federal police It is alleged that meatpackers, including BRF, bribed inspectors and politicians to overlook unsanitary practices in their industry and to otherwise issue passing inspections. Upon news of this raid, BRF’s stock price fell 11% in the aftermath from R$40.00 on March 17, 2017 to R$35.58 on March 22, 2017. Nearly one year later, BRF announced that Operation Weak Flesh had resulted in “very serious problems” for the Company, stating that disruptions in productivity caused by the probe had made it more difficult for BRF to distribute its products in 2017 and contributed to the Company’s weak financial performance. With this news, the company’s stock declined approximately 8% on February 23, 2018. On March 5, 2018, it was further reported that former BRF CEO, Pedro de Andrade Faria, was arrested, on charges that Faria knew that the Company had used illicit means to pass food inspections. Following the former CEO’s arrest, BRF stock dropped 22% from R$30.84 on March 2, 2018 to R$24.14 on March 6, 2018—representing a market capitalization loss of R$5.4 billion. In total, between March 17, 2017 and March 6, 2018, the day after Faria was arrested, BRF’s stock decreased 40%, representing a total market capitalization loss of almost R$12.9 billion/US$3.7 billion.. DRRT has retained local counsel and is currently collecting and analyzing trade data in order to file an arbitration action in early 2019.
FOREX (U.S. & EU)
Relevant Period: January 1, 2003 – May 1, 2014
It is alleged that 12 banks have conspired to manipulate the foreign exchange rates. In so doing, the banks diminished the plaintiffs’ returns in trades, pension plans and savings accounts. It is alleged that the traders from the accused banks fixed currency rates, having shared confidential information in private chat rooms; and that the bank employees colluded to trade in ways that would result in favorable fixed rates.
JBS S.A. (BR)
ISIN: BRJBSSACNOR8 (Common Stock)
Relevant Period: March 27, 2007 – May 31, 2017
The proposed Brazilian arbitration is based on JBS’s false and/or misleading statements and failure to disclose that its growth (including its initial issuance of stock in 2007) towards becoming the world’s largest meat packaging company is based on bribery and corruption, specifically spurred by financing obtained through illegal kickbacks to Brazilian state-owned National Economic and Social Development Bank (BNDES) and its subsidiary BNDESPar since 2005. When details emerged of a plea deal that JBS executives Joesley and Wesley Batista made with Brazilian prosecutors on May 19, 2017, it caused JBS’s share price to drop 31.3% from R$8.71 on May 19 to R$5.98 on May 22. Joesley Batista admitted that he and his brother paid $220 million overall in bribes, with most of the money being funneled into Brazilian political campaigns in exchange for financing. Furthermore, JBS executives also admitted to bribing regulators and politicians to issue passing inspections of its meat processing and packing plants and otherwise ignore JBS’s unsanitary practices, such as processing rotten meat and operating plants containing traces of salmonella. A two-year investigation by Brazilian police culminated in a raid on several of JBS’s facilities on March 17, 2017, as part of “Operation Weak Flesh.” When JBS stated in a securities filing that day that three of its plants and one of its employees were targeted in the probe, JBS’s shares fell over 10% from R$11.99 to R$10.72 per share. The full extent of the fraud emerged only two months later when it was disclosed that the bribery and corruption practices did not only extend to the inspection of meat, but that the entire company was built on such practices since its IPO in 2007. DRRT has engaged local counsel and is currently collecting trade data to file an arbitration in 2019.
Kobe Steel Limited (JP)
Relevant Period: May 31, 2013 – March 9, 2018
Kobe Steel, Ltd (“Kobe”) is Japan’s third largest steelmaker, as well as a major supplier of aluminum, copper and other products around the world. Founded in 1905, and with over 36,000 employees, Kobe and its group of companies have a presence in Japan, North America, South America, Asia and Europe. On October 8, 2017, Kobe admitted that, in order to meet quality standards, it had been falsifying test data for its aluminum and copper parts, which data was incorporated into reports on Kobe product strength and durability. Several days after the October 8, 2017 disclosure, it was reported that the falsified data extended to additional Kobe Steel products. According to Kobe, the falsified reports were discovered in inspections it conducted on products shipped to customers between September 2016 and August 2017. On March 6, 2018, Kobe released findings from an external investigation that confirmed management knowledge of the fraudulent reporting going back five decades. As a result, Kobe CEO, Hiroya Kawaska. Finally, on June 5, 2018, prosecutors and police raided Kobe offices. View related article here.
Prior to the disclosures, Kobe had forecast net profits of ¥35 billion ($308 million) for the financial year ending in March 2018. Kobe now admits, “it is difficult at this time to estimate the impact of the improper conduct concerning products of Kobe Steel and its group companies on business performance.” Kobe’s stock price originally dropped almost 40% from October 8 to October 13, and recovered then by November 2 to stay almost 20% down until the end of 2017 (a market cap loss of almost ¥100 billion). Amidst all of the uncertainties, Kobe also canceled a previously planned interim stock dividend.
While initially the financial condition of Kobe was at issue, the recovery of the stock price and other indicators seem to indicate that the financial viability of the company is not at risk. However, this may change in the future, so that we are going to monitor the situation within the 2-year statute of limitations afforded by the FIEA (the JCC has a 3-year statute).
Relevant Period: January 1, 2007 – December 31, 2012
It is alleged that various panel banks manipulated (“rigged”) LIBOR and EURIBOR rates for several years, by submitting, at times mostly from 2007 on, artificially low rates to falsely convey the impression that the banks were in a better financial condition than they actually were and to pay lower interest rates on LIBOR/EURIBOR-based financial instruments and products that they sold to investors, thereby causing damages for these investors. Moreover, it is alleged that the banks, at times mostly before 2007, also manipulated LIBOR and EURIBOR to benefit their own books and trading positions, by artificially inflating or depressing the interest rates, which – given the large amounts of trades at stake – resulted in substantial financial gains for the manipulating banks. DRRT has been monitoring the US case. In preparation of a potential recovery action outside of the US, DRRT has sent a demand letter to its chosen defendant, tolling the statute on behalf of all investors that have jointed or will join DRRT’s investor protection foundation, organized under § 3:305a of the Dutch Civil Code.
Mitsubishi Motors Corporation (JP)
ISINs: JP3899800001; SEDOLS: B175XZ0, 5507409, 6598446, B3DTT96, BHZL4T3, B02JD27; CINS: J44131167
Relevant Period: Jan 01, 2011 – April 30, 2017
On Wednesday, April 20, 2016, former Mitsubishi Motors Corporation (“Mitsubishi” or the “Company”) President Tetsuro Aikawa admitted to the public that the Company has been cheating Japanese emissions tests since at least June 2013. On news of this scandal, Mitsubishi’s common stock (ISIN: JP3899800001) dropped 15%, closing trading that day at ¥733 ($6.74) per share, representing a market cap loss of $1.2 billion. Further news emerged on April 21 and 22, 2016, pushing Mitsubishi’s stock price down to ¥504 ($4.53) per share by close of business on Friday, April 22, 2016, representing a total market cap loss of approximately ¥345,038,364,000.00 ($3,161,056,821.43) since the initial disclosure of April 20, 2016. Thereafter, on April 26, 2016, Mitsubishi made the shocking disclosure that its emission testing fraud extended back 25 years, to 1991. By the end of the day on April 27, Mitsubishi was trading at only ¥422 (down from ¥864 on April 19th, the day before the scandal erupted). On May 9, it was revealed that Mitsubishi had been using the improper testing methods on all models of its cars. In the aftermath of the news of the scandal, the Company’s investors lost more than 50 percent of the value of their investment with its market capitalization declining by ¥435 billion ($4.1 billion). The loss in market capitalization after the initial disclosure on April 20, 2016 is directly related to the disclosure of the cheating scheme, as such drastic fluctuations were not normal in the lead-up to the revelation. The per share price drop of ¥442 (¥864 to ¥422) from the time of disclosure on April 20 until close of trading April 27 in Tokyo represents a 51% decline and was sparked by extreme market volatility in Mitsubishi stock. Daily trading volumes on April 20 and 22 saw extreme excess trading above average daily volumes for the prior 120 days. An internal investigation revealed that the Company had been notified of the problems by numerous employees, dating back to at least February of 2005. As such, the Company’s financial statements, annual and quarterly reports, and other public disclosures contained false and misleading information and omitted material information about the company. DRRT has retained local counsel Koga & Partners, our partners in the historic ¥11 billion Olympus settlement as well as the ongoing Toshiba case. An initial complaint against Mitsubishi was filed on June 26, 2017, alleging over ¥18 billion ($160 million) on behalf of 120 institutional investors. An additional complaint was filed on April 20, 2018 prior to the expiration of the FIEA statute of limitations. JCC statute of limitations does not expire until April 20, 2019.
Petrofac Limited (UK)
ISIN: GB00B0H2K534 (common stock)
Relevant Period: January 1, 2013 – May 31, 2017
Petrofac Limited is a provider of oilfield services to the international oil and gas exploration industry, headquartered in London. On May 12, 2017, the UK’s Serious Fraud Office (“SFO”) announced launching a criminal investigation into Petrofac over suspicions of bribery, corruption and money laundering and related to an ongoing SFO investigation into Unaoil, a Monaco-based consultancy that worked with Petrofac, primarily in Kazakhstan between 2002 and 2009.
Petrofac’s COO Marwan Chedid resigned after being suspended until further notice on May 25. Both he and CEO Ayman Asfari had been arrested and questioned under caution by the SFO before being released without charge. Petrofac shares fell after the SFO investigation was announced and further when Petrofac announced suspending Chedid. The shares have fallen over 50% since May 12, and 30% alone to 389 pence on May 26, 2017, causing significant losses to the shareholders.
A consortium of law firms and funders, including DRRT, are investigating potential legal remedies against Petrofac in the UK for losses incurred by investors as a result of the conduct under investigation.
Steinhoff International Holdings N.V. (ZA/NL/DE)
ISINs: NL0011375019, ZAE000016176, ZAE000068367, ZAE000247995 and various bonds
Relevant Period: June 26, 2013 to February 28, 2018
Steinhoff International Holdings N.V. (“Steinhoff”) is a Dutch holding company with a South Africa headquarters and more than 40 local retail brands in over 30 countries. On December 6, 2017, Steinhoff disclosed that “… new information has come to light which relates to accounting irregularities requiring further investigation.” Since its high of €6 per share in August 2016, the Steinhoff stock has dropped to €0.30 on December 22, 2017, erasing about 95% of its entire market cap.
Steinhoff delayed the publication of its audited 2017 consolidated financial statements, and confirmed that it needs to restate its 2015 and 2016 financial statements. Criminal and tax investigations by local authorities are ongoing in Germany, South Africa, and the Netherlands, with suspicions that the company may have inflated its revenues and falsely valued its assets.
DRRT in cooperation with experienced local partners is vigorously pursuing investor recovery efforts in South Africa, Germany and the Netherlands. Per § 3:305a of the Dutch Civil Code, DRRT has organized a non-profit foundation which will advance and coordinate global investor recovery efforts. The foundation that DRRT has organized, Stichting Steinhoff International Compensation Claims, has already accumulated a critical mass of investors with relevant exposure and will therefore position itself to seek a premium for its participants in any settlement negotiations.
Tesco PLC (UK)
Relevant Period: January 1, 2012 – November 30, 2014
Tesco PLC (“Tesco”) is a UK-based and LSE-listed grocery retailer with stores in 12 countries worldwide having annual sales of an average of £68.5 billion over the last 5 years and average group profits of about £3.587 billion over the same time span. On August 29, 2014 Tesco published a partial disclosure (profit warning) leading to a heavy trading volume of £130.29 million amidst the big sell-off by a major investor. On September 22, 2014, Tesco disclosed that it had overstated its expected profits for the first half of 2014 by £250 million, because it improperly accelerated the recognition of income while at the same time delaying the accrual of certain costs. On October 23, 2014, Tesco published its earnings statement, disclosing and confirming the overstatement of profit figures, an overstatement eventually increased by an independent investigator. Following the disclosures, Moody’s Credit Agency downgraded Tesco’s short and long-term credit rating as well. Overall, Tesco’s stock price fell from £246 in August 2014 to £169 in October 2014, representing over £10 billion in market capitalization losses.