Click here to access the PDF version of the document

May 30, 2017 – The ASSOCIATION OF CAPITAL MARKET INVESTORS – Amec – hereby informs the Equity Capital Market’s participants that its Board of Directors approved the publishing of this notice in the above-mentioned date.

Our members, which have investment mandates of more than $500 billion reais in the Brazilian equity market, are deeply concerned about the series of disclosures made by JBS’ controlling shareholders and directors. The fact adds to other serious problems involving listed companies that been revealed in recent years, which demand a deep reflection by the market’s participants. In this regard, Amec declares that:

  1. There’s an urgent need to strengthen the Brazilian Securities and Exchange Commission – CVM. The regulator of our capital market has been adversely affected by years of limitations to executing its budget that strongly impact on its ability to act in favor of and protect the capital market’s investors. In 2015, CVM raised BRL 323 million, of which it was allowed to spend only 65%. Most of the regulator’s expenditures are related to personnel expenses. CVM’s discretionary spending authorized for 2016 totaled only BRL 20 million– a drop in real terms of almost 50% in five years. The Law 6,385/76, which establishes CVM’s “financial and budgetary autonomy” (Article #5) has been ignored. Additionally, the penalties CVM can impose are many times symbolic considering the damages caused by these scandals. The law has to be reviewed.


  1. It’s necessary to make the compensation for losses to investors feasible in Brazil. Despite the profusion of scandals involving listed companies, there is no relevant record of compensation paid to shareholders damaged by directors and controlling shareholders. In several situations (primarily in the cases of Petrobras and Aracruz), foreign investors were compensated, different from the Brazilian investors – who eventually paid twice the price: for the damage to the company and for the fines and agreements paid in settlements with foreigners. CVM’s settlements, which based on the CVM Resolution 390 should be used to “indemnify the losses caused by the market,” (Article #7, Section II), rarely result in payments that are earmarked to indemnify investors. The Judiciary Branch and the Public Attorney’s Office have not been treating the damages to the popular economy and to the interests of the capital market sensitively, despite the duties they are supposed to fulfill according to the Laws 1,521/51 and 7,913/89, in addition to the Article 173, Paragraph 5 of the Federal Law.


  1. There’s an urgent need to approve the Reform of the Novo Mercado. The most recent scandal reiterates that truly effective internal audits, compliance and risk management activities are absolutely crucial for investors to have confidence in listed companies. This need cannot be repudiated based on lies such as “concerns with costs.” The real costs result from the non-implementation of good practices, as JBS’ shareholders were bitterly reminded.


  1. The Arbitration Chamber should be urgently reviewed. Minority investors of companies listed in the Novo Mercado segment simply do not have a body to complain to as it’s extremely expensive to file an arbitration procedure. Additionally, the decisions are confidential, which may result in private agreements that, in general terms, do not solve the market’s problems. The low demand for the Chamber’s services, considering the profusion of problems, indicates that it needs to be revised.


  1. The Stewardship Principles – as per  the Amec Code – are essential so that institutional investors can navigate in an universe of listed companies, fulfilling their role and supervising directors. JBS did not have members in its Conselho Fiscal and in its Board of Directors appointed by minority shareholders. Nor did Petrobras, until 2013. At the same time, regulators should ensure that voting rights are exercised and are not subject to artificial obstacles. CVM Instruction 561 is a major step in this regard, but it needs to work better. Companies that create barriers to minority shareholders’ voting must be punished.


  1. Directors and controlling shareholders should be exemplarily punished. Those who committed crimes or enriched at the expense of the listed company, as well as those who allowed such crimes as a result of ineptitude or non-compliance with their fiduciary duties should be held responsible. Those who engage in insider trading should be sentenced to prison, as set forth in the Law 6,385. Unfortunately, since the law was created, the conviction rate for insider trading has been very low, indicating that the bar is too high. Evidences should be more easily accepted.


  1. The “pro-forma governance” needs to be reported/denounced. JBS had independent members (appointed by the controlling shareholder) in its Board of Directors, Audit Committee, Risk Committee, and Conselho Fiscal, in addition to auditors and a Compliance Officer. The same as Petrobras until 2013. None of this worked.


  1. The fines should be paid by the offenders – in this case, the controlling shareholders. The advantages offered after that the crimes were reported benefited J&F, which built a true empire. JBS’ shareholders – who have already been affected by the higher costs resulting from the fraudulent overpricing practices to generate unrecorded funds – cannot pay the bill. Let alone the BNDES – the Brazilian National Bank for Social and Economic Development –, which, in fact, is the Brazilian taxpayers themselves.


Board of Directors