Case 1:14-cv-09662-JSR Document 25 Filed 02/06/15 Page 1 of 16 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK PETER KALTMAN, Individually and on Behalf of All Others Similarly Situated, Plaintiff, vs. PETRÓLEO BRASILEIRO S.A. - PETROBRAS, Defendant. KEN NGO, Individually and on Behalf of All Others Similarly Situated, Plaintiff, vs. PETRÓLEO BRASILEIRO S.A. - PETROBRAS, Defendant. JONATHAN MESSING, Individually and on Behalf of All Others Similarly Situated, Plaintiff, vs. PETRÓLEO BRASILEIRO S.A. - PETROBRAS, Defendant. NO. 14-CV-09662 (JSR NO. 14-CV-09760 (JSR NO. 14-CV-09847 (JSR -caption continued on next page- MEMORANDUM OF LAW IN SUPPORT OF THE MOTION OF MOSSEY INVESTMENTS LTD. AND JACOB LICHT FOR CONSOLIDATION, APPOINTMENT AS LEAD PLAINTIFF, AND APPROVAL OF SELECTION OF LEAD COUNSEL
Case 1:14-cv-09662-JSR Document 25 Filed 02/06/15 Page 2 of 16 CITY OF PROVIDENCE, Individually and on Behalf of All Others Similarly Situated, vs. Plaintiff, PETRÓLEO BRASILEIRO S.A. - PETROBRAS, PETROBRAS GLOBAL FINANCE B.V., MARIA DAS GRACAS SILVA FOSTER, ALMIR GUILHERME BARBASSA, MARIANGELA MONTEIRO TIZATTO, JOSUE CHRISTIANO GOMES DA SILVA, DANIEL LIMA DE OLIVEIRA, JOSE RAIMUNDO BRANDAO PEREIRA, SERVIO TULIO DA ROSA TINOCO, PAULO JOSE ALVES, GUSTAVO TARDIN BARBOSA, ALEXANDRE QUINTAO FERNANDES, MARCOS ANTONIO ZACARIAS, CORNELIS FRANCISCUS JOZEF LOOMAN, THEODORE MARSHALL HELMS, BB SECURITIES LTD., CITIGROUP GLOBAL MARKETS INC., ITAU BBA USA SECURITIES, INC., J.P. MORGAN SECURITIES LLC, MORGAN STANLEY & CO., LLC, SANTANDER INVESTMENT SECURITIES INC., BANCO VOTORANTIM NASSAU BRANCH, MITSUBISHI UFJ SECURITIES (USA, INC., HSBC SECURITIES (USA INC., MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, STANDARD CHARTERED BANK, BANK OF CHINA (HONG KONG LIMITED, BANCO BRADESCO BBI S.A., BANCA IMI S.P.A., and SCOTIA CAPITAL (USA INC., Defendants. NO. 14-CV-10117 (JSR
Case 1:14-cv-09662-JSR Document 25 Filed 02/06/15 Page 3 of 16 LOUIS KENNEDY, Individually and on Behalf of All Others Similarly Situated, vs. Plaintiff, PETRÓLEO BRASILEIRO S.A. - PETROBRAS, Defendant. NO. 15-CV-00093 (JSR
Case 1:14-cv-09662-JSR Document 25 Filed 02/06/15 Page 4 of 16 TABLE OF CONTENTS PRELIMINARY STATEMENT...2 FACTUAL BACKGROUND...3 ARGUMENT...4 I. THE RELATED ACTIONS SHOULD BE CONSOLIDATED...4 II. MOSSEY AND LICHT SHOULD BE APPOINTED LEAD PLAINTIFF...4 A. The Motion is Timely...5 B. Mossey and Licht Have The Largest Financial Interest...6 C. Mossey and Licht Satisfy the Requirements of Rule 23 of the Federal Rules of Civil Procedure...7 III. LEAD PLAINTIFF S SELECTION OF COUNSEL SHOULD BE APPROVED...9 CONCLUSION...10 i
Case 1:14-cv-09662-JSR Document 25 Filed 02/06/15 Page 5 of 16 TABLE OF AUTHORITIES CASES Elstein v. Net 1 UEPS Techs., Inc., 13 Civ. 9100 (ER, 2014 U.S. Dist. LEXIS 100574...6 Lax v. First Merchants Acceptance Corp. v. Kahn, No. 97 C 2715, 1997 U.S. Dist. LEXIS 11866...7 In re Olsten Corp. Secs. Litig., 3 F. Supp. 2d 286 (E.D.N.Y. 1998...7 Richman v. Goldman Sachs Grp., Inc., 274 F.R.D. 473 (S.D.N.Y. 2011...4 Sgalambo v. McKenzie, 268 F.R.D. 170 (S.D.N.Y. 2010...8 In re Silvercorp Metals, Inc. Sec. Litig., 12 Civ. 9456 (JSR, 2013 U.S. Dist. LEXIS 89853...8 In re UBS Auction Rate Sec. Litig., 2008 U.S. Dist. LEXIS 56016 (S.D.N.Y. July 16, 2008...5 STATUTES AND RULES 15 U.S.C. 78u-4(a(3 et seq.... passim Fed. R. Civ. P. 42(a...1, 4 ii
Case 1:14-cv-09662-JSR Document 25 Filed 02/06/15 Page 6 of 16 Mossey Investments Ltd. ( Mossey and Jacob Licht ( Mr. Licht respectfully submit this memorandum in support of their motion, pursuant to Section 21D(a(3 of the Securities Exchange Act of 1934 (the Exchange Act, 15 U.S.C. 78u-4(a(3, as amended by the Private Securities Litigation Reform Act of 1995 (the PSLRA and Rule 42 of the Federal Rules of Civil Procedure, for an Order: (1 consolidating all related securities class actions pursuant to Fed. R. Civ. P. 42(a; (2 appointing Mossey and Mr. Licht as Lead Plaintiff on behalf of all persons or entities who purchased ordinary American Depositary Shares and/or preferred American Depositary Shares of Petróleo Brasileiro S.A. - Petrobras ( Petrobras or the Company on a United States Exchange from January 7, 2010 through November 26, 2014 (the Class Period 1 ; (3 approving Lead Plaintiff s selection of Wolf Popper LLP ( Wolf Popper as Lead Counsel for the Class; and (4 granting such other and further relief as the Court may deem just and proper. PRELIMINARY STATEMENT The five Related Actions are pending in the Southern District of New York. Pursuant to the PSLRA, the court shall appoint as lead plaintiff the movant who possesses the largest financial interest in the outcome of the action and who satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure. 15 U.S.C. 78u-4(a(3(B(iii(I. Mossey and Mr. Licht, 1 The five federal securities class actions captioned above (the Related Actions contain different class periods, with the longest and most inclusive being the Class Period in the Kennedy Action. The Kaltman, Ngo, Messing and Kennedy Actions are brought pursuant to the Exchange Act on behalf of persons or entities who purchased American Depositary Shares ( ADSs of Petrobras on a United States exchange. The City of Providence Action is brought pursuant to the Exchange Act on behalf of all persons or entities who, purchased or otherwise acquired the securities of Petrobras, including debt securities issued by Petrobras s wholly-owned subsidiaries Petrobras International Finance Company S.A. ( PifCo and Petrobras Global Finance B.V. ( PGF, on the New York Stock Exchange or pursuant to other domestic transactions, and pursuant to the Securities Act of 1933 on behalf of all persons or entities who purchased certain debt securities issued by PifCo and/or PGF pursuant and/or traceable to any of three public offerings registered in the United States. 1
Case 1:14-cv-09662-JSR Document 25 Filed 02/06/15 Page 7 of 16 with respective losses of $1,663,007 and $685,934 in connection with their purchases of ordinary and/or preferred Petrobras ADSs during the Class Period, are adequate and typical to serve as lead plaintiff. Mossey and Mr. Licht believe that they are the most adequate plaintiff as defined by the PSLRA and should be appointed Lead Plaintiff in this action. Mossey and Mr. Licht believe that they have largest financial interest in the relief sought in this action by virtue of their substantial investments in Petrobras during the Class Period and the losses they suffered as a result of defendants misconduct. Mossey and Mr. Licht further satisfy the requirements of Rule 23 of the Federal Rules of Civil Procedure because they are adequate representatives with claims typical of the other Class members. Accordingly, Mossey and Mr. Licht respectfully submit that they should be appointed Lead Plaintiff, either individually or as a group under the PSLRA. Significantly, Mossey and Mr. Licht have retained Wolf Popper to represent them individually and the Class in this Action. Wolf Popper, working with Brazilian counsel Almeida Advogodos researched and filed the initial Kaltman complaint that precipitated the filings of the subsequent complaints. FACTUAL BACKGROUND Petrobras is an integrated oil and gas company incorporated in Brazil with operations in all stages of the petroleum production process including exploration, development, production, refining, marketing, transportation, and distribution. The Company s operations account for the majority of Brazil s oil and gas production and it also operates in 17 other countries. Prior to and during the Class Period, senior personnel within the Company facilitated a scheme in which third party contractors paid bribes to certain influential individuals in Petrobras and other organizations in exchange for the award of lucrative oil and gas construction contracts. Petrobras compensated the contractors for these bribes by paying inflated amounts under the contracts. 2
Case 1:14-cv-09662-JSR Document 25 Filed 02/06/15 Page 8 of 16 The money laundering and bribery scheme has been estimated to total R$10 billion BRL or approximately $4.4 billion USD. Besides Petrobras s top executives, the illegal bribery and kickback scheme also involved politicians and a group of, at least, 16 contractors who formed a cartel that assured that its members would win Petrobras s major contracts. The Company and its senior executives misrepresented and failed to disclose the following adverse facts, or recklessly disregarded them, including that: (i the Company was overcharging certain line items on its balance sheet by overpricing contracts to certain construction companies relating to its refineries and operations and accepting kickbacks from such companies approved for those contracts; (ii the Company was receiving multi-billion dollar bribes from third party contractors to secure contracts from Petrobras; (iii the Company was in violation of its own Code of Ethics as its employees and executives were routinely accepting bribes from certain construction companies; (iv the Company s internal controls were ineffective and deficient; and (v the Company was aware of irregularities in connection with bribes from third party contractors. Through a series of disclosures including the arrests of former Petrobras s executives and admissions that the Company may have to adjust its historical financial statements to recognize the difference in overpricing its construction contracts, Petrobras ordinary ADSs have declined from $19.38 per ADS on September 5, 2014 to $9.72 per ADS on November 28, 2014, representing a total decline of $9.66 per ADS or approximately 50%. Similarly, Petrobras preferred ADSs declined from $20.27 per ADS on September 5, 2014 to $10.21 per ADS on November 28, 2014, representing a total decline of $10.06 per ADS or approximately 50%. 3
Case 1:14-cv-09662-JSR Document 25 Filed 02/06/15 Page 9 of 16 ARGUMENT I. THE RELATED ACTIONS SHOULD BE CONSOLIDATED The PSLRA provides that [i]f more than one action on behalf of a class asserting substantially the same claim or claims arising under this chapter [is] filed, the court shall not appoint a lead plaintiff until after the decision on the motion to consolidate is rendered. 15 U.S.C. 78u-4(a(3(A(ii; Richman v. Goldman Sachs Grp., Inc., 274 F.R.D. 473, 475 (S.D.N.Y. 2011. Moreover, pursuant to Rule 42(a of the Federal Rules of Civil Procedure, consolidation is appropriate when the actions involve common questions of law or fact. See Fed. R. Civ. P. 42(a; Richman, 274 F.R.D. at 475. Here, the Related Actions all allege claims concerning Petrobras s materially false and misleading statements concerning the inflation of its construction contracts and accepting kickbacks from such third party companies approved for those contracts. Accordingly, consolidation of the related actions is appropriate. See id. II. MOSSEY AND LICHT SHOULD BE APPOINTED LEAD PLAIFF Section 21D(a(3(B of the PSLRA sets forth procedures for the selection of Lead Plaintiff in class actions brought under the Exchange Act. The PSLRA directs courts to consider any motion to serve as Lead Plaintiff filed by class members in response to a published notice of class action by the later of (i 90 days after the date of publication, or (ii as soon as practicable after the Court decides any pending motion to consolidate. 15 U.S.C. 78u-4(a(3(B(i & (ii. Under 15 U.S.C. 78u-4(a(3(B(iii(I, the Court is directed to consider all motions by plaintiffs or purported class members to appoint lead plaintiffs filed in response to any such notice. Under this section, the Court shall appoint the presumptively most adequate plaintiff to serve as lead plaintiff and shall presume that plaintiff is the person or group of persons, that: (aa has either filed the complaint or made a motion in response to a notice... ; 4
Case 1:14-cv-09662-JSR Document 25 Filed 02/06/15 Page 10 of 16 (bb in the determination of the Court, has the largest financial interest in the relief sought by the class; and (cc otherwise satisfies the requirements of Rule 23 of the Federal Rules of Civil Procedure. 15 U.S.C. 78u-4(a(3(B(iii(I; In re UBS Auction Rate Sec. Litig., 2008 U.S. Dist. LEXIS 56016 (S.D.N.Y. July 16, 2008. As set forth below, Mossey and Mr. Licht satisfy all three of these criteria and thus are entitled to the presumption that they are the most adequate plaintiff and thus should be appointed Lead Plaintiff. A. The Motion is Timely On December 8, 2014, counsel in the Kaltman action caused a notice ( Notice to be published over Globe Newswire pursuant to 21D(a(3(A(i of the PSLRA, which announced that a securities class action had been filed against Petrobras and advised Petrobras investors that they had until February 6, 2015 to file a lead plaintiff motion. See Declaration of Robert C. Finkel in Support of Motion of Mossey Investments Ltd. and Jacob Licht for Consolidation, Appointment as Lead Plaintiff, and Approval of Selection of Lead Counsel ( Finkel Decl., Ex. A. Mossey and Mr. Licht have filed the instant motion pursuant to the Notice, and have attached Certifications attesting their willingness to serve as Lead Plaintiff for the Class and to provide testimony at deposition and trial, if necessary. See Finkel Decl, Exhibits B and C. Roberto Gomes de Melo ( Mr. Gomes, a 62 year old Brazilian citizen, executed the certification in his capacity as Mossey s President. See Finkel Decl, Ex. D. (the Joint Declaration at 2. Mr. Gomes is a sophisticated investor who is an accountant by trade. Id. Mr. Gomes was employed as an auditor at PricewaterhouseCooper for numerous years. Id. Mr. 5
Case 1:14-cv-09662-JSR Document 25 Filed 02/06/15 Page 11 of 16 Gomes has had experiences in retaining and supervising attorneys in several private litigation matters in Brazil. Likewise, Mr. Licht, also a Brazilian citizen, is a retired 70 year old sophisticated investor who is an attorney by trade. Id. at 3. Mr. Licht has been investing professionally and personally for numerous years. Thus, Mossey and Mr. Licht satisfy the first requirement to serve as Lead Plaintiff. Furthermore, Mossey and Mr. Licht have already taken significant steps demonstrating their commitment to protect the interests of the Class. Indeed, before the filing of this motion, Mossey and Mr. Licht participated in a joint conference call to discuss the litigation, the benefits of working together jointly to prosecute the litigation, and procedures for overseeing the progress of the litigation and communicating regularly among themselves and with counsel. See Id. at 5-6. Additionally, Mossey and Mr. Licht understand that it is Lead Plaintiff s responsibility to keep informed regarding the status and progress of the litigation and any prospects for resolution; and that they will have responsibility for making important litigation decisions and directing counsel with respect to this litigation. Id. at 7. Also, if the Court determines that it is in the best interests of the Class for Mossey and Mr. Licht to serve individually as Lead Plaintiff, they are willing to do so. Id. at 5. B. Mossey and Licht Have The Largest Financial Interest The PSLRA requires a court to adopt a rebuttable presumption that the most adequate plaintiff... is the person or group of persons that... has the largest financial interest in the relief sought by the class. 15 U.S.C. 78u-4(a(3(B(iii. The PSLRA does not specify a method for calculating which plaintiff has the largest financial interest, and neither the Supreme Court nor the Second Circuit has provided instruction on the appropriate method. Elstein v. Net 1 UEPS Techs., Inc., 13 Civ. 9100 (ER, 2014 U.S. Dist. LEXIS 100574, at *19 (S.D.N.Y. July 23, 2014. 6
Case 1:14-cv-09662-JSR Document 25 Filed 02/06/15 Page 12 of 16 To determine the largest financial interest, courts have utilized the four-factor test promulgated in Lax v. First Merchants Acceptance Corp. v. Kahn, No. 97 C 2715, 1997 U.S. Dist. LEXIS 11866, at *5 (N.D. Ill. Aug. 11, 1997 and adopted in In re Olsten Corp. Secs. Litig., 3 F. Supp. 2d 286, 295 (E.D.N.Y. 1998 (the Lax/Olsten factors. Id. at 20. The four Lax/Olsten factors are: (1 the number of shares purchased during the class period; (2 the number of net shares purchased during the class period; (3 the total net funds expended during the class period; and (4 the losses suffered. Id. AMossey and Mr. Licht believe that they have the largest financial interest based on the Lax/Olsten factors. Mossey purchased 115,562 shares of Petrobras ordinary ADSs during the Class Period for $2,505,211; retained all of its ordinary ADSs at the end of the Class Period; and suffered a loss of $1,663,007. Mr. Licht purchased 150,000 shares of Petrobras preferred ADSs and 10,000 shares of Petrobras ordinary ADSs during the Class Period for $2,883,465; retained 80,000 shares of his preferred ADSs at the end of the Class Period; and suffered a loss of $685,934. See Finkel Decl, Ex. E. Because Mossey and Mr. Licht possess the largest financial interest and purchased in the aggregate both ordinary and preferred ADSs, they may be presumed to be the most adequate plaintiff. 15 U.S.C. 78u-4(a(3(B(iii(I(bb. C. Mossey and Licht Satisfy the Requirements of Rule 23 of the Federal Rules of Civil Procedure Section 21D(a(3(B(iii(I(cc of the PSLRA further provides that, in addition to possessing the largest financial interest in the litigation, a lead plaintiff must otherwise satisfy the requirements of Rule 23 of the Federal Rules of Civil Procedure. Rule 23(a generally provides that a class action may proceed if the following four requirements are satisfied: (1 the class is so numerous that joinder of all members is impracticable, (2 there are questions of law or fact common to the class, (3 the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4 the representative parties will fairly and adequately protect the interests of the class. 7
Case 1:14-cv-09662-JSR Document 25 Filed 02/06/15 Page 13 of 16 At the lead plaintiff stage of the litigation, in contrast to the class certification stage, a proposed lead plaintiff need only make a preliminary showing that it will satisfy the typicality and adequacy requirements of Rule 23. Sgalambo v. McKenzie, 268 F.R.D. 170, 173 (S.D.N.Y. 2010 (citation omitted. See In re Silvercorp Metals, Inc. Sec. Litig., 12 Civ. 9456 (JSR, 2013 U.S. Dist. LEXIS 89853, at *5 (S.D.N.Y. June 13, 2013 (appointing co-lead plaintiffs as the Court was satisfied that the joint movants who were retired but remain active investors sustained substantial losses and demonstrated care and knowledge about the allegations in the complaint and the activities undertaken on behalf of the class thus far.. Typicality requires that the claims of the class representatives be typical of those of the class, and is satisfied when each class member s claim arises from the same course of events, and each class member makes similar legal arguments to prove the defendant s liability. Sgalambo, 268 F.R.D. at 173-74 (citation omitted. The adequacy requirement is satisfied where the proposed Lead Plaintiff does not have interests that are antagonistic to the class that he seeks to represent and has retained counsel that is capable and qualified to vigorously represent the interests of the class.... Id. at 174 (citation omitted. Mossey s and Mr. Licht s claims are typical of those of the Class. They allege, as do all class members, that Defendants violated the Exchange Act by making what they knew or should have known were false or misleading statements of material facts concerning Petrobras, or omitted to state material facts necessary to make the statements they did make not misleading. Mossey and Mr. Licht, as did all members of the Class, purchased ordinary ADSs and/or preferred ADSs of Petrobras during the Class Period at prices artificially inflated by Defendants misrepresentations or omissions and were damaged upon the disclosure of the truth regarding those misrepresentations and/or omissions. These shared claims, which are based on the same 8
Case 1:14-cv-09662-JSR Document 25 Filed 02/06/15 Page 14 of 16 legal theory and arise from the same events and course of conduct as the class claims, satisfy the typicality requirement of Rule 23(a(3. Mossey and Mr. Licht are also adequate representatives for the Class. There is no antagonism between interests of Mossey and Mr. Licht and those of the Class, and their losses demonstrate that they have sufficient interests in the outcome of this litigation. Mossey and Mr. Licht are not subject to any unique defenses and, as discussed below, have retained counsel highly experienced in vigorously and efficiently prosecuting securities class actions such as this action. III. LEAD PLAINTIFF S SELECTION OF COUNSEL SHOULD BE APPROVED The PSLRA vests authority in the Lead Plaintiff to select and retain lead counsel, subject to the approval of the Court. 15 U.S.C. 78u-4(a(3(B(v. The Court should not interfere with Lead Plaintiff s selection of counsel unless necessary to protect the interests of the class. 15 U.S.C. 78u-4(a(3(B(iii(II(aa. Mossey and Mr. Licht have selected Wolf Popper, the firm that researched and filed the initial Kaltman complaint as Lead Counsel. Wolf Popper is highly experienced in the area of securities litigation and class actions, and has successfully prosecuted numerous securities litigations and securities fraud class actions on behalf of investors as detailed in its attached resume. See Finkel Decl, Ex. F. As a result of the firm s extensive experience in litigation involving issues similar to those raised in this action, Lead Plaintiff s counsel has the skill and knowledge which will enable it to prosecute this action effectively and expeditiously. Wolf Popper has already affiliated itself with an established Brazilian law firm, Almeida Advogados to assist Wolf Popper s investigation of claims against defendants and in any necessary litigation proceedings in Brazil. See Resume of the Almeida Advogados law firm, attached thereto Finkel 9
Case 1:14-cv-09662-JSR Document 25 Filed 02/06/15 Page 15 of 16 Decl, Ex. G. Thus, the Court may be assured that by approving their selection of Lead Counsel, the members of the class will receive the best legal representation available. CONCLUSION For the foregoing reasons, Mossey and Mr. Licht respectfully request the Court to issue an Order (1 consolidating the Related Actions; (2 appointing Mossey and Mr. Licht as Lead Plaintiff; (3 approving Wolf Popper as Lead Counsel; and (4 granting such other relief as is deemed just and proper. Dated: February 6, 2015 New York, New York Respectfully submitted, WOLF POPPER LLP /s/ Robert C. Finkel Robert C. Finkel Fei-Lu Qian 845 Third Avenue, 12 th Floor New York, New York 10022 Tel: (212 759-4600 Fax: (212 486-2093 rfinkel@wolfpopper.com fqian@wolfpopper.com Attorneys for Movant and Proposed Lead Counsel for the Class 10
Case 1:14-cv-09662-JSR Document 25 Filed 02/06/15 Page 16 of 16 CERTIFICATE OF SERVICE I hereby certify that on February 6, 2015, I authorized the electronic filing of the foregoing with the Clerk of the Court using the CM/ECF system, which will send a Notice of Electronic Filing to all counsel of record. I certify under penalty of perjury under the laws of the United States of America that the foregoing is true and correct. Executed on February 6, 2015. /s/ Robert C. Finkel Robert C. Finkel 11