Brazilian companies that are headquartered or publicly traded in the United States are subject to double regulation, both by the Brazilian Securities and Exchange Commission (CVM) and by US regulators, such as the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). According to Instituto Empresa, a defense entity for minority investors, this regulatory overlap, although representing compliance challenges, offers additional protection to Brazilian investors.
The recent case of Avenue Securities illustrates this reality. The broker was fined US$ 300 thousand (approximately R$ 1.77 million) by FINRA due to misleading advertising practices aimed at Brazilian investors. Between 2020 and 2023, influencers paid by Avenue disclosed investments without clarifying the real risks involved. Some contents promoted financial products with unrealistic promises of guaranteed return, while others suggested that certain assets were free of costs, omitting information on additional fees. The investigation also revealed flaws in the brokerage supervision of the communication made by these influencer norms of financial influencers, disregarding the compliance with the financial market
“The performance of foreign regulatory bodies in cases affecting Brazilian investors represents an extra layer of protection. While in Brazil enforcement may be limited, in the United States, they are subject to strict standards of” compliance, recalls Eduardo Silva, president of Instituto Empresa.
He notes that the system of class action north American also stands out as a more efficient mechanism for investors seeking compensation for eventual damages. Unlike individual lawsuits or arbitrations in Brazil, which can be long and costly, the class action allows multiple investors to be represented in a single process, increasing the chances of compensation and ensuring greater bargaining power against the offending companies.
On the contrary, Silva warns of the risk of Bill 2925, of 2023, which is one of the priority guidelines of the Ministry of Finance for this year. “With its approval, it would be much safer for investors to buy papers abroad and not in Brazil”. By way of “defending the minority-holders”, with the exercise of demands and exempts companies from liability after the issuance on paper. “If it were in force, IRB and Americans, for example, would be shielded”.
In addition to Avenue Securities, other cases demonstrate the importance of applying American regulation to Brazilian companies.In 2018, the SEC fined Petrobras US$ 853 million for bribery and corruption, guaranteeing compensation to foreign investors affected by the Lava Jato scandal. “Paradoxally, a Brazilian who acquired paper in the US, was compensated by agreement. Who bought at B3 bitter resistance and high combativeness of Petrobras in arbitrations still ongoing”, says Silva.
More recently, StoneCo, a Brazilian fintech listed on Nasdaq, has been the subject of investigations due to flaws in the disclosure of operational risks, reinforcing the importance of transparency required by U. S. standards.
Several Brazilian companies have faced class action lawsuits in the US. Among them, Braskem, which suffered a collective lawsuit in the US for allegations of misleading information about its internal controls and accounting practices. Vale was also class action target after the breach of the Brumadinho dam 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 in the face of allegations of corrupt practices and inadequate disclosure of financial information. Investors who acquired ADRs from the company sought compensation for losses attributed to these practices. Gerdau and Bradesco were also accused of improperly involved in the disclosure of corrupt practices.
“A double regulation imposed on Brazilian companies with a presence in the United States 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 agile judicial system, the Brazilian investor can count on more guarantees and greater security in their” applications, he notes.
