JBS case sheds light on serious problems facing the capital market

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The recent news about the plea bargaining involving JBS’ controlling shareholders has brought several problems that affect minority shareholders in the domestic capital market to the fore, problems that should have been solved based on the several lessons learned in previous cases. “Amec’s members are concerned about the possibility that the amount to be paid by JBS as part of the plea bargaining – BRL 10.3 billion – is used to indemnify only the Brazilian National Bank for Social and Economic Development – BNDES – and the pension funds. What about the remaining shareholders?,” asks Mauro Rodrigues da Cunha, CEO of the Association of Capital Market Investors.
With that in mind, Amec’s Board of Directors published, on May 30, a notice to the market listing a set of measures it considers that should be taken for the market’s sake. The document states that there’s an urgent need to strengthen the Brazilian Securities and Exchange Commission – CVM. “The regulator of our capital market has been adversely affected by years of limitations to executing its budget that strongly impact on its ability to act in favor and protection of the capital market’s investors”. In 2015, CVM raised BRL 323 million, of which it was allowed to spend only 65%.
The compensation for losses to minority shareholders is another item highlighted in Amec’s notice. In the document, investors state that it’s necessary to make the compensation for losses to investors feasible in Brazil. “Despite the profusion of scandals involving listed companies, there is no relevant record of compensation paid to shareholders damaged by directors and controlling shareholders. In several situations (primarily in the cases of Petrobras and Aracruz), foreign investors were compensated, different from the Brazilian investors – who eventually paid twice the price: for the damage to the company and for the fines and agreements paid in settlements with foreigners.”
The notice also brings arguments in favor of the Novo Mercado reform, the review of the Arbitration Chamber, the stewardship principles, the punishment of officers and controlling shareholders, the end of the “pro-forma governance” and the application of effective disciplinary fines as a set of actions that can revert the scenario of repetitive violations committed in the domestic capital market.
Read the Notice to the Market: JBS in full.