A court in Brazil has dealt Gerdau SA (ADR) (NYSE:GGB) another blow on its attempt to block four cases. The ruling by the tax auditing court CARF means the cases involving charges worth $1.2 billion will proceed. The news adds to a string of bad news that has hit the steel company in the recent past, sending its shares plummeting in the market.
Impact of Bribery Allegations
Shares of the company came crumbling by more than 5% on the latest setback as it becomes clear; the company is in for a tough ride as it seeks to clear its name over bribery allegations. Gerdau is the subject of lawsuits in the US over allegations it provided shareholders misleading statements regarding its business operations.
It is alleged that the company tried to defraud tax authorities in Brazil $429 million. The allegations came to the limelight last year when authorities uncovered a multi-billion tax fraud scheme in the Ministry of Finance. Seventy companies have so far been implicated in the scandal. Authorities have already raided a good number of the companies’ offices including Gerdau, in search of crucial evidence.
The company was also the target of Operations Zealots in Brazil, where it was the subject of investigations over claims it paid bribes to influence agency decisions affecting it. The Federal Police are believed to have uncovered a number of CARF decisions that were made in Gerdau favor between 2012 and 2014.
Mounting Class Action Lawsuit Pressure
Gerdau faces a number of class action lawsuits in the US over allegations it absconded its fiduciary duty of putting shareholders interest first. Even though the company insists it never used its name for illegal negotiations on tax matters, law firms representing affected shareholders and other entities maintain the company has to pay for damages caused so far.
Gerdau SA (ADR) (NYSE:GGB) stock has been on a free fall in the market ever since the bribery allegations became known. Given the recent wave of setbacks, the stock faces unprecedented future given the waning investors’ confidence