Batista Bros face prison time for insider trading, more
Brothers charged with using inside information to make a profit of more than $74 million
October 12, 2017
The Brazilian Public Prosecutor's Office officially charged brothers Wesley and Joesley Batista with using inside information to make a profit of more than $74 million U.S. dollars, according to Brazilian news outlets.
"We believe there was a collusion between the brothers, but no evidence [of insider trading] was found against Joesley," Federal prosecutor Thaméa Danelon told reporters. But Wesley was found liable and could be sentenced to as much as 18 years in prison.
However, Joesley was indicted for market manipulation, for buying and selling shares of JBS, following testimony on the Brazilian meat scandal. He may face a sentence of 2 to 13 years in prison, along with fines of over $74 million.
Both brothers have been in police custody since mid-September.
The prosecutors said in a statement that the market trades were initiated in March before the brothers signed a plea-bargain agreement with Brazilian authorities in May over a recorded telephone conversation Joesley reportedly had with Brazilian President Michel Temer, in which they discussed bribes. The recording was later leaked to the press, causing shares in JBS and the Brazilian real to fall.
Prosecutors claimed the brothers were aware of the effect the released recording would have on financial markets and "took advantage of privileged information'' to manipulate the stock market.
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A Brazilian federal judge has also blocked assets owned by the Batista family and some of their companies, according to a statement from J&F, the holding company which controls JBS S.A. J&F plans to appeal the decision.
The court's decision blocks assets owned by the brothers, along with their father, the current JBS CEO José Batista Sobrinho, among other family members. Batista-owned companies J&F Investimentos S/A, J&F Participações and ZMF Participações have also had their assets blocked, according to reports.
A JBS commissioned study concluded the company's transactions with dollars and stocks in the second quarter, when news of the corruption scandal involving its controllers broke, were not atypical
Brazilian accounting and financial research institute Fipecafi conducted the study for JBS. Fipecafi, which is affiliated with the College of Economics, Administration and Accounting at the University of São Paulo (USP), concluded JBS' transactions in May were "significantly lower" than those performed in the previous two years, and were in line with the market perception of a devaluation risk for the Brazilian currency.
The study also found no abnormality in share repurchase operations by JBS in 2017, noting the amount of shares bought in 2016, 79,555,300, was "significantly higher" than what was purchased in 2017, when 25,307,000 shares were purchased. The stock was cheap at the time of the repurchase, and two-thirds of the analysts covering JBS stocks had a recommendation to buy it, according to the study.
Brazil's Federal Police determined in September that JBS' transactions with dollars from April 28 to May 17 were unusual, and generated earnings for the company's controllers due to the rise of the U.S. dollar after news about the corruption scheme involving the executives and Brazilian politicians broke on May 17. According to the police, dollar transactions totaled $3 billion, resulting in $100 million in profit for the Batista brothers. The police also found that JBS controllers sold 200 million shares of the company a few days before news of the corruption scandal broke.