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Brazil police detain JBS CEO Batista on suspicion of insider trading

Stock MarketsSep 13, 2017 12:25PM ET
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© Reuters. Batista, chief executive of JBS leaves the federal police HQ to give a testimony in the federal court in Sao Paulo

By Guillermo Parra-Bernal and Gabriela Mello

SAO PAULO (Reuters) - Brazil's federal police on Wednesday detained the chief executive officer of JBS SA, the world's No. 1 meatpacker, saying he used insider information to avoid hefty losses related to a plea bargain signed earlier this year.

Wesley Batista, who has been at the helm of JBS since 2011, was detained under an arrest warrant against him and his younger brother Joesley Batista for suspected insider trading. The billionaires, both in their mid-40s, control 42 percent of JBS.

Their lawyer, Pierpaolo Bottini, called the allegations "unjust, absurd and regrettable." If convicted, both may be among the first people in Brazil to be jailed for insider trading.

Shares of São Paulo-based JBS reversed early losses, and rose as much as 1.5 percent in late morning trading as traders awaited details on the insider trading probe.

A police investigator said the insider trading allegations could hamper their plea deal, which they signed in May in relation to a massive corruption probe in Brazil.

The insider trading case involving JBS (SA:JBSS3) and the Batistas follows probes by markets watchdog CVM on trades both made before the plea deal was leaked by the press on May 17. The impact from the leak, which ensnared key politicians, led to Brazil's worst market selloff in at least a decade.

Police investigators said the Batistas were aware of the market impact that their plea deals would have on the company's stock and the currency.

The investigators said both brothers created a strategy to protect their position in JBS while helping the company amass large foreign-currency positions ahead of the leak.

On May 18, the stock shed 9.7 percent, while the Brazilian real tumbled 8.2 percent - the biggest daily decline since Jan. 1999.

Joesley Batista has been under arrest since Sunday after recordings suggested he tried to take advantage of prosecutors and conceal details during negotiations that led to the plea deal. He has denied any wrongdoing.

In their testimony, the brothers accused President Michel Temer of working to obstruct a corruption probe, which the latter has repeatedly denied. The family's investment holding company, J&F Investimentos SA, paid a record leniency fine of 10.3 billion reais ($3.3 billion) related to the scandal.

Since the plea bargain deal was signed on May 31, Temer and the Batistas have traded barbs - taking their rift to corporate boardrooms. State development bank BNDES is leading the group of JBS investors seeking to oust the Batistas from the company's management and board.

INSIDER TRADING PROBE

According to a person with knowledge of the matter, who asked for anonymity because of the sensitivity of the issue, police investigators suspect both brothers gained an unfair advantage in trading shares of JBS, while helping the company build abnormal positions in currency futures and forwards in April and May.

The detention of Wesley Batista comes as his plea deal with prosecutors is unraveling due to alleged omissions in their plea bargain testimony. Some minority shareholders seek his removal from the world's largest meatpacker.

"The Brazilian state is using all means to promote revenge against those who cooperated with justice," Bottini said in a statement.

The police said two detention orders were also issued against executives at the Batista family-owned FB Participações SA and JBS, without elaborating.

The scheme helped "manipulate markets in a way that all shareholders incurred some of the losses that FB Participações would have otherwise had to absorb alone," a police statement said.

Brazil police detain JBS CEO Batista on suspicion of insider trading
 

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