Gates Foundation Trust, a charity led by Microsoft founder Bill Gates and his wife Melinda Gates that focuses on improving health, education and reducing poverty, has sued Brazilian oil giant Petrobras and its auditors PwC's Brazil arm over investment losses due to alleged corruption at Petrobras. The lawsuit filed in a federal court in Manhattan claims that the loss caused to the foundation and another plaintiff WGI Emerging Markets Fund by investing in Petrobras runs into tens of millions of dollars.
Gates foundation and WGI Fund alleged that Petrobras misrepresented its operations and financial situation time and again in order to raise capital from investors. Westwood Global Investments, a Boston-based firm, manages investments for the foundation and the WGI fund.
They also alleged that PwC's Brazil affiliate, PricewaterhouseCoopers Auditores Independentes, attested to Petrobras's financials and ignored red flags. "The depth and breadth of the fraud within Petrobras is astounding. By Petrobras's own admission, the kickback scheme infected over $80bn of its contracts, representing one-third of its total assets," the suit alleged. The damages claimed in the suit were unspecified.
"Equally breath-taking is that the fraud went on for years under PwC's watch, who repeatedly endorsed the integrity of Petrobras's internal controls and financial reports. This is a case of institutional corruption, criminal conspiracy and a massive fraud on the investing public."
When portfolio managers for Gates and WGI probed Petrobras executives on financial data, they "misled" them in a "series of materially false and misleading written and oral statements and/or omissions by Petrobras and/or PwC", according to the lawsuit.
Petrobras's market value has fallen by more than 90% from nearly $300bn seven years ago. Due to overvalued assets, it took a $17bn writedown in April. Bribes paid to Petrobras executives from construction and engineering companies over a decade is estimated at $2bn, according to prosecutors.
Prosecutors had said that the extra money made from overbilling Petrobras by the construction companies also went into the pockets of many politicians. The former treasurer of Brazil's ruling party was recently sentenced to 15 years after being found guilty of accepting bribes from Petrobras contractors and distributing them to members of the ruling party.
The Gates litigation follows a class-action suit in New York by a group of investors against Petrobras. Petrobras, however, has argued that the scandal was the result of contractors, corrupt politicians and a few employees and should not engulf the company as a whole.