SÃO PAULO, Brazil — The onetime Brazilian billionaire Eike Batista has begun his formal defense against the insider trading allegations brought by Brazil’s main securities regulator.
Federal prosecutors in the country are also investigating Mr. Batista’s actions. But Mr. Batista’s ultimate saving grace may be that no one in Brazil has ever gone to jail for insider trading, and lawyers say that is unlikely to change now. Based on previous cases, the worst outcome Mr. Batista probably faces is a fine.
Ever since Mr. Batista’s six publicly listed firms began their stock market collapse last year, minority shareholders have accused him of foul play.
This April, an internal committee at the regulator, known as the C.V.M., recommended that Mr. Batista be charged with insider trading and manipulating stock market prices in his petroleum exploration company, OGX. The federal prosecutor’s office subsequently opened a criminal investigation into the case.
Mr. Batista sold 126.6 million shares in OGX last May and June. on July 1, the company publicly acknowledged that three of its most promising oil fields were probably not viable, and its stock price plunged.
The regulator is accusing Mr. Batista of having early knowledge that these fields were not viable and selling his shares as a result. As he was selling these shares, Mr. Batista was posting optimistic messages on Twitter about the health of his firm.
OGX subsequently defaulted on $5.8 billion worth of bonds and became Latin America’s largest corporate bankruptcy. Shareholders were wiped out.
Mr. Batista’s lawyers on Wednesday insisted that he had no advance knowledge of the issues at the oil fields. They also said Mr. Batista was contractually obliged to sell the shares, since they had been offered as security on loans that had matured, and that all revenue from the sale went directly to the creditors.
Mr. Batista’s lawyers also note that he held on to more than 50 percent of OGX shares to the bitter end, although he was under no obligation to do so.
“We are confident that if the case is carefully judged, he will be declared innocent,” said Caetano Berenguer, a partner with the Rio de Janeiro law firm Sergio Bermudes, which is defending Mr. Batista. “He had no insider knowledge and he achieved no personal gain from the sale of the shares.”
The C.V.M., like the S.E.C. in the United States, can impose only civil penalties, like fining a guilty party or barring a person from serving as a corporate officer.
Should the parallel criminal investigation lead to an indictment and trial, a court could impose a prison sentence of up to five years for insider trading or eight years for manipulating prices.
The courts have already issued an injunction to freeze $55 million worth of Mr. Batista’s assets.
The injunction came shortly after the Brazilian press revealed that Mr. Batista last year transferred ownership of his mansions in Rio de Janeiro and in a nearby beach resort, Angra dos Reis, to his sons.
Mr. Batista’s lawyers are appealing the injunction. Francisco Satiro, who teaches securities law at two of Brazil’s elite universities, Fundação Getulio Vargas and the University of São Paulo, said the C.V.M. would take many months to rule on Mr. Batista’s insider-trading proceedings, but a settlement agreement might be reached earlier.
“This case looks like their best bet to convict Eike Batista, but from what I’ve seen in news reports, the evidence does not look all that scandalous. It will be a hard case to prove.”
Insider trading cases are tricky for prosecutors, since it is hard to find evidence that demonstrates when an individual knew a given fact, and that this fact motivated a particular stock market operation.
Yet the C.V.M. has succeeded in imposing heavy fines in several prominent cases.
In 2010 the regulator found three people liable for insider trading ahead of the sale of Ipiranga, a petroleum company, to Petrobras in 2007; and in 2011 it found seven people and three institutions liable for trading shares in the food products company Sadia just before it reported huge losses on currency derivatives in 2008.
The courts also convicted Sadia’s chief financial officer and one of its directors of insider trading — the only such conviction in Brazil’s history. But the defendants were allowed to perform community service instead of serving jail time.
Luiz Cantidiano, a former president of the C.V.M. who is a now a partner at the law firm Motta, Fernandes Rocha, said the problem was a general one with Brazil’s criminal justice system, which is not rigorous when it comes to white-collar crime.
“Many people commit barbarous crimes, receive light sentences and find a way not to serve them,” Mr. Cantidiano said.