Brazil’s Superior Court of Justice (STJ) is due to resume on Tuesday a case over how to calculate a penalty Citibank DTVM owes to Fusesc, a pension fund for current and former employees of companies linked to the state of Santa Catarina and the state government. The court has already ruled in Fusesc’s favor on the underlying claim; the remaining dispute concerns the penalty and its calculation.
The case stems from losses Fusesc says it suffered in 2013 in a receivables investment fund managed by Citi and linked to the now-liquidated Banco BVA. The loss is estimated at nearly R$3 million in current values. Fusesc argues that a regulatory penalty under a Securities and Exchange Commission of Brazil (CVM) instruction should be applied at 0.5% for each day since the loss could have been avoided.
Citibank disputes both the starting date and the method of adjustment. It says Fusesc’s approach would bring the amount to R$450 million, which the bank considers disproportionate to the original loss. Citi argues that the calculation should start when Fusesc actually incurred the loss, rather than when it could have been prevented. It also says the penalty does not apply to this type of fund and proposes using the São Paulo Court of Justice’s adjustment table, with monthly default interest of 1%, while capping the penalty at 20% and adjusting it by the Selic rate.
Fusesc has submitted its own calculation, putting the current compensation at R$70 million. It described Citi’s arguments in court filings as an attempt to create procedural disruption. The Brazilian Federation of Banks (Febraban) also wrote to the STJ to express concern about the size of the potential penalty, warning that a large disparity could distort the investment-fund industry and encourage litigation.
The case is before the STJ’s Third Panel, where the vote on whether to cap the penalty at 20% is tied at two to two. Justice Daniela Teixeira, the rapporteur, and Justice Humberto Martins voted to reopen the judgment and allow the penalty without a cap. Justices Ricardo Cueva and Nancy Andrighi voted for the 20% limit. Justice Paulo Dias de Moura Ribeiro is to cast the deciding vote. The parties’ legal representatives did not comment when contacted.
The dispute began after Fusesc requested in a December 2012 investors’ meeting to redeem its shares in the fund, as Banco BVA faced liquidation. The redemption took place only in February 2013. Fusesc says the delay caused its losses and sued for compensation. Citi argued that the bank’s liquidation was not foreseeable when the December meeting was scheduled. Banco BVA was liquidated in June 2013, but the courts rejected the bank’s argument and ruled for Fusesc, including on the principle that the loss should be adjusted from the time the foundation requested to withdraw its position and Citi did not act.
Sources: Folha Mercado.