Lemann and partners at 3G Capital are the target of lawsuits in the US for breach in 2019 – 03/18/2023 – Market
Investors of the American multinational Kraft Heinz sue in the United States the Brazilian billionaires Jorge Paulo Lemann, Alexandre Behring and Bernardo Hees, as well as 3G Capital, one of the controlling companies of the conglomerate, for an accounting write-off of US$ 15.4 billion four years after the company downgrade values of some brands.
There are at least three lawsuits open, one in the state of Illinois and two in Delaware involving the same episode. This type of action is common in American business law. Last year, a Delaware judge had already denied a similar case.
In the most recent lawsuit, filed on the 6th, a shareholder, Adriana D. Felicetti, sued the group, accusing the company’s directors of misconduct since the merger of Kraft Food with Heinz, in 2015, which gave rise to the conglomerate.
Sought, 3G Capital responded, on behalf of those involved in the action, only that “the case has no merit and we hope it will be filed as a similar previous case.”
Felicetti accuses the company of violating fiduciary duty (upholding the best interests of the company and its shareholders) by cutting costs to meet targets without investors’ knowledge, which were “a spectacular failure, leading to inferior products, deteriorating relationships with distributors and inability to meet retailers’ demand.”
The plaintiff seeks, in the action, compensation for US$ 62 million paid in a fine imposed by the US Securities and Exchange Commission in 2021, which punished the company “a long-term expense management scheme that resulted in the updating of several years of reports finances”, with writedowns of US$ 15.4 billion in 2019.
Another complaint is that the company’s directors used insider information to sell $1.2 billion worth of shares as the company’s stock plummeted after the brand values review scandal.
In August of last year, the same Delaware Court of Chancery dismissed an action that questioned the alleged gain from privileged information of the directors of 3G due to lack of evidence.
Felicetti still claims compensation for an agreement in the Illinois process, not yet confirmed, of US$ 210 million – the cost of this action is already included in the last annual financial report of Kraft Heinz.
This Illinois action is the oldest, from 2019, filed days after the accounting write-down was announced. Last year, in May, two shareholders filed another suit in Delaware on the same grounds of breaches of fiduciary duty on the partners of 3G Capital. In February this year, asset manager Erste asked to be included as an interested party in the process.
Faced with the volume of similar lawsuits, this Thursday (16) the Delaware court authorized shareholders to interrupt for up to 30 days the actions in court to decide whether to unify in a lawsuit.
Kraft Heinz has among its two main controllers 3G Capital and Berkshire Hathaway, owned by American billionaire Warren Buffett, which is not the target of the shareholder lawsuits.
After announcing the companies’ valuation review in 2019, the company was fined by the US Securities and Exchange Commission because, “From the last quarter of 2015 through the end of 2018, Kraft engaged in various types of accounting misconduct, including reporting discounts not granted by suppliers and the maintenance of false and misleading contracts, which unduly reduced the company’s cost of goods sold and supposedly achieved ‘cost cutting’.”
The policy of absolute cost cutting was also used at Americanas, a company in which the founders of 3G Jorge Paulo Lemann, Marcel Telles and Carlos Alberto Sicupira held 31% of control when the company went through bankruptcy last month to settle a debt of R$ 43 billion.