Brazilian companies with headquarters or publicly traded capital in the United States are subject to dual regulation, both by the Brazilian Securities and Exchange Commission (CVM) and by U.S. regulatory bodies, such as the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). According to Instituto Empresa, an entity advocating for minority investors, this regulatory overlap, although posing compliance challenges, offers additional protection to Brazilian investors.
The recent case of Avenue Securities illustrates this reality. The brokerage was fined $300,000 (approximately R$1.77 million) by FINRA due to deceptive marketing practices targeting Brazilian investors. Between 2020 and 2023, influencers paid by Avenue promoted investments without clarifying the actual risks involved. Some content promoted financial products with unrealistic promises of guaranteed returns, while others suggested certain assets were cost-free, omitting information about additional fees. The investigation also revealed failures in the brokerage’s oversight of the communication made by these influencers, violating financial market transparency rules.
“The intervention of foreign regulatory bodies in cases affecting Brazilian investors represents an extra layer of protection. While oversight in Brazil may be limited, in the U.S., they are subject to strict compliance standards,” recalls Eduardo Silva, president of Instituto Empresa.
He notes that the U.S. system of class action also stands out as a more efficient mechanism for investors seeking compensation for potential damages. Unlike individual lawsuits or arbitrations in Brazil, which can be lengthy and costly, collective action allows multiple investors to be represented in a single lawsuit, increasing the chances of reimbursement and ensuring greater bargaining power against non-compliant companies.
On the other hand, Silva warns about the risk of Bill No. 2925 of 2023, which is listed as one of the priorities of the Ministry of Finance this year. “If approved, it would be much safer for investors to buy securities abroad rather than in Brazil.” Under the guise of ‘protecting minority shareholders,’ the bill, in practice, makes it difficult to file claims and exempts companies from liability after issuance. “If it were in effect, IRB and Americanas, for example, would be shielded.”
In addition to Avenue Securities, other cases demonstrate the importance of U.S. regulation for Brazilian companies. In 2018, the SEC fined Petrobras $853 million for bribery and corruption, securing compensation for foreign investors affected by the Lava Jato scandal. “Paradoxically, a Brazilian who bought shares in the U.S. was compensated through a settlement. Those who bought on B3 face Petrobras’ resistance and fierce litigation in ongoing arbitrations,” says Silva.
More recently, StoneCo, a Brazilian fintech listed on Nasdaq, was investigated for failures in disclosing operational risks, reinforcing the importance of transparency required by U.S. regulations.
Several Brazilian companies have already faced collective lawsuits in the U.S. Among them is Braskem, which faced a class action in the U.S. for alleged misleading information about its internal controls and accounting practices. Vale was also targeted by a class action after the Brumadinho dam collapse in 2019, resulting in lawsuits filed by investors who claimed losses due to the company’s lack of transparency about environmental and operational risks. Another was Eletrobras, facing allegations of corrupt practices and inadequate disclosure of financial information. Investors who acquired ADRs of the company sought compensation for losses attributed to these practices. Gerdau and Bradesco were also accused in U.S. courts of involvement in corrupt practices and inadequate disclosure of information.
“The dual regulation imposed on Brazilian companies with U.S. presence not only reinforces the commitment to transparency and good practices but also benefits Brazilian investors, who often face difficulties in obtaining compensation for damages in the national legal scenario. With a stricter regulatory environment and a more efficient judicial system, Brazilian investors can count on more guarantees and greater security in their investments,” observes.
