This securities class action is the second recent case alleging that a Brazilian meatpacking company bribed officials to cover up unsanitary conditions at its facilities. Because it’s a securities class action, the complaint’s central assertion is that the company concealed these activities from investors, in violation of the Securities Exchange Act of 1934.
The class for this action is all persons who acquired BRF’s securities between April 4, 2013 and March 2, 2018.
BRF is a Brazilian food processor and the world’s largest poultry exporter. It produces poultry and pork, foods processed from meats, pizzas, pastas, and frozen vegetables. Its American Depository Receipts (ADRs) are sold on the New York Stock Exchange.
During the class period, the company made positive statements about the quality and safety of its products. For example, on April 4, 2013, the company’s Form F-20 for 2012 said, “We focus on quality and food safety in all our operations in order to meet customers’ specifications [and] prevent contamination...” It also spoke of its Code of Ethics and Conduct, which contained sections on anti-bribery and corruption and government relations. Similar statements were made in the company’s other filings during the class period.
The complaint claims that these statements were false or misleading because BRF employees were then bribing regulators and politicians to subvert inspections. Also, this illegal activity would inevitably subject the company to regulatory scrutiny or enforcement actions.
In fact, over a period of two years, Brazilian federal police conducted an investigation into this bribery. According to the complaint, about forty meatpackers had bribed inspectors to overlook practices such as the processing of rotten meat and the operation of plants with traces of salmonella. On March 17, 2017, news outlets reported that they had raided the offices of dozens of meatpackers, including BRF, also finding evidence of tampering with packaging to sell expired products and using higher-than-permitted levels of parts such as pig heads in sausages and cold cuts.
Three BRF officials were arrested, and the company’s ADR price fell by nearly 8%.
On February 23, 2018, the company held a conference call during which officials discussed the impact of the police operation, including “very serious problems, problems in the market, closing the doors to us.” As quoted in the complaint, they talked about the interruption of a system in which 7 million broilers were slaughtered each day, and how the market renegotiated prices, all of which had an impact on its figures. At this news, the company’s ADR price fell again by about 8%.
On March 5, 2018, Reuters reported that the Brazilian police believed that the company’s executives had been aware of the bribery and fraud, and that “five laboratories accredited by the Agriculture Ministry colluded with the analysis department of BRF” to produce false results on the safety of its processes. At this news, the company’s ADR price fell by nearly 20%.