DoubleLine Capital has sued scandal-hit Odebrecht, Latin America's largest engineering and construction conglomerate, over losses incurred on bonds bought by three of the asset manager's funds.
In a complaint filed at the United States District Court for the Southern District of New York, DoubleLine alleged that Odebrecht Finance, the shell company Odebrecht set up to raise capital via bond issuances, misled investors by reporting large revenues and net income, and portrayed itself as being extraordinarily successful in obtaining large public contracts based on its business skills, expertise and efficiencies.
However, the Brazilian firm has since been exposed for being involved in the country's widespread bribery and kickback scheme where it paid more than $800 million in bribes to various governmental officials in 12 countries to win work.
In June 2015 the firm's chief executive Marcelo Odebrecht was arrested over his role in the scandal and despite denials from the engineering giant the price of its bonds fell to 30% or less of their face value.
In December 2016 Odebrecht admitted to paying $800 million in bribes and agreed to pay a $2.6 billion criminal penalty.
DoubleLine's case spells out that it was unaware of the bribery scheme, and therefore bought a substantial amount of Odebrecht Finance bonds, which traded on the secondary market at prices approximating par value.
The funds affected are the US-domiciled DoubleLine Core Fixed Income fund series, DoubleLine Emerging Markets Fixed Income fund series and the Luxembourg-domiciled DoubleLine Shiller Enhanced Cape fund.
DoubleLine alleges that Odebrecht sold bonds on the basis that they were backed by a successful company that generated hundreds of millions or billions of dollars per year through engineering and construction work, which it won via competitive bidding processes.
The memoranda used to sell the bonds contained financial results for Odebrecht that DoubleLine alleges were 'materially false and misleading and overstated due to the bribery and kickback scheme.'
DoubleLine declined to comment. A spokesperson for Odebrecht could not be reached at the time of publication.