In re Petrobras Securities Litigation, 150 F. Supp. 3d 337

Background

Lead plaintiff USS and other institutional investors brought a putative class action against Petrobras, related subsidiaries (PGF, PAI), officers, auditor PwC, and underwriters, alleging a multi‑year bribery/kickback scheme and securities fraud under the Securities Act and Exchange Act.
Plaintiffs asserted claims based on purchases of Petrobras debt securities (Notes) and equity, and amended their complaint multiple times, filing the Fourth Amended Complaint (FAC) on November 30, 2015.
Defendants moved to dismiss discrete portions of the FAC; central issues include extraterritorial application of U.S. securities laws to Notes purchases under Morrison and Absolute Activist, extension of the Exchange Act class period based on April–July 2015 disclosures, and various statutory pleading limitations under §§ 11 and 15.
The FAC alleges some Note purchases occurred through U.S. underwriters in New York and that certain plaintiffs (North Carolina, Hawaii) incurred irrevocable liability in the U.S.; other named plaintiffs (Union, USS) alleged purchases settled via DTC or involvement of foreign affiliates.
Plaintiffs relied on the fraud‑on‑the‑market theory to extend reliance to the April–July 2015 period and alleged fourteen corrective disclosures in that span causing market declines.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Morrison bars Notes‑based claims by foreign/international purchasers	Notes were traded in the New York bond market and/or settled through DTC in NY, so U.S. law applies	Morrison limits reach; mere listing/OTC trading or DTC settlement is insufficient; Absolute Activist requires irrevocable liability or title transfer in U.S.	Claims based on Notes purchases by Union and USS dismissed under Morrison; North Carolina and Hawaii adequately pleaded domestic purchases so their Notes claims survive
Whether DTC settlement/beneficial transfers satisfy Absolute Activist title‑transfer prong	DTC book‑entry adjustments effectuate transfer of beneficial ownership in NY, functionally transferring title	DTC mechanics are ministerial settlement actions, not legal title transfer; allowing DTC would swallow Morrison's limits	DTC settlement insufficient to satisfy Absolute Activist; plaintiffs’ DTC theory rejected
Whether class period may be extended through July 28, 2015 (reliance and loss causation)	Fraud‑on‑the‑market supports reliance through July; FAC alleges multiple corrective disclosures and price declines between April and July 2015	Defendants claim public filings (CAC) already disclosed alleged $28bn diversion by Mar 27, 2015, so market could not reasonably rely thereafter; post‑April disclosures are not new	On motion to dismiss, court found reliance adequately pleaded and alleged disclosures and price declines sufficiently pleaded for loss causation; class‑period extension allowed at this stage
Whether §11 claims survive for purchases of 2014 Notes after May 15, 2015	Plaintiffs did not contest applicability	Defendants argued §77k(a) bars §11 claims for purchasers after issuer made generally available earnings statements covering 12 months after offering	§11 claims based on purchases of 2014 Notes after May 15, 2015 dismissed with prejudice
Whether PAI can be liable as a §15 control person and whether Union has standing via assignments	Plaintiffs alleged PAI controlled Helms (signatory) and submitted assignments to show Union’s standing	Defendants argued lack of meaningful culpable conduct by PAI and disputed assignment/standing	Rule 8 pleading sufficed to allege PAI control via Helms; PAI §15 claims survive at this stage; Union’s standing via assignments accepted

Key Cases Cited

Morrison v. National Australia Bank Ltd., 561 U.S. 247 (establishes territorial limits on U.S. securities laws)
Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60 (2d Cir.) (requires irrevocable liability incurred in U.S. or transfer of title in U.S. for extraterritorial reach)
City of Pontiac Policemen’s and Firemen’s Retirement System v. UBS AG, 752 F.3d 173 (2d Cir.) (mere listing without U.S. trading insufficient under Morrison)
Loginovskaya v. Batratchenko, 764 F.3d 266 (2d Cir.) (domestic actions to carry out transactions insufficient for Morrison/Absolute Activist)
Basic Inc. v. Levinson, 485 U.S. 224 (fraud‑on‑the‑market presumption of reliance)
Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (loss causation pleading standard)
In re Omnicom Group, Inc. Sec. Litig., 597 F.3d 501 (on novelty of corrective disclosures in securities fraud contexts)
W.R. Huff Asset Mgmt. Co. v. Deloitte & Touche LLP, 549 F.3d 100 (assignment of claims suffices for injury‑in‑fact standing)