Brazilian companies that have headquarters or are publicly traded in the United States are subject to dual regulation, both by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) in the United States, as well as by the Securities and Exchange Commission (CVM) in Brazil. According to the Institute Empresa, an organization that defends minority investors, this regulatory overlap, although it presents compliance challenges, provides 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 advertising 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 that certain assets were free of costs, omitting information about additional fees. The investigation also revealed failures in the brokerage's supervision of the communication made by these influencers, violating transparency standards of the financial market.
“The involvement of foreign regulatory bodies in cases that affect Brazilian investors represents an extra layer of protection. While in Brazil oversight may be limited, in the United States, it is subject to strict compliance standards,” says Eduardo Silva, president of Instituto Empresa.
He notes that the system ofclass actionNorth American also stands out as a more efficient mechanism for investors seeking redress for potential damages. Unlike individual lawsuits or arbitrations in Brazil, which can be lengthy and costly, class actions allow multiple investors to be represented in a single case, increasing the chances of compensation and ensuring greater bargaining power against infringing companies.
In the wrong direction, Silva warns about the risk of Bill No. 2925 of 2023, which is listed as one of the Ministry of Finance's priority agendas for the current year. "With your approval, it would be much safer for the investor to buy securities abroad rather than in Brazil." Under the guise of "defending minorities," the project practically hinders the exercise of claims and exempts companies from responsibilities after issuance on paper. "If it were in effect, IRB and Americanas, for example, would be protected."
In addition to Avenue Securities, other cases demonstrate the importance of applying American 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 acquired paper in the USA was compensated through an agreement. Those who bought on B3 face the resistance and high combativeness of Petrobras in ongoing arbitrations," says Silva.
More recently, StoneCo, a Brazilian fintech listed on Nasdaq, was the target of investigations due to failures in disclosing operational risks, reinforcing the importance of transparency required by US regulations.
Several Brazilian companies have already faced class actions in the USA. Among them is Braskem, which faced a class action in the USA for allegations of misleading information about its internal controls and accounting practices. Vale was also the subject of a class action after the Brumadinho dam break in 2019, resulting in lawsuits filed by investors who claimed losses due to the company's lack of transparency regarding environmental and operational risks. Another was Eletrobras in light of allegations of corrupt practices and inadequate disclosure of financial information. Investors who purchased the company's ADRs sought compensation for losses attributed to these practices. Gerdau and Bradesco were also accused in American court of involvement in corrupt practices and inadequate disclosure of information.
“The dual 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 more rigorous regulatory environment and a more agile judicial system, Brazilian investors can count on more guarantees and greater security in their investments,” he notes.
