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Why BRF SA Stock Plunged Today

By Steve Symington – Mar 5, 2018 at 6:27PM

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The Brazlian food processor is under a fraud investigation. Here's what investors need to know.

What happened

Shares of BRF SA (BRFS 4.13%) fell 19.4% on Monday following news that the Brazilian food-processing giant's former CEO, Pedro Faria, has been arrested on charges of fraud.

Brazilian federal police also revealed that they have launched a new phase in an investigation targeting BRF that accuses the company of avoiding food safety checks for years.

Stock market prices on a digital display with red and green arrows indicating direction

IMAGE SOURCE: GETTY IMAGES.

So what

In a press conference early today, Brazilian investigators alleged that BRF and its executives began actively working to avoid the food safety checks in 2012 and continued the practice as late as 2017. 

In addition to the arrest of BRF's former CEO, a Brazilian federal judge ordered the arrest of Helio Santos Junior, who resigned as BRF's vice president of global operations exactly a week ago.

Now what

BRF insists that it is fully cooperating with Brazilian authorities and is currently "collecting further details [...] to elucidate the facts."

It also stated, however, that it "fully complies with Brazilian and international norms and regulations concerning the production and commercialization of its products," citing a commitment to food safety for over 80 years.

Of course, time will tell whether the investigation and arrests are merited. But in the meantime, given the shadow they cast on the company, it's no surprise to see BRF shares plunging in response today.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool is short shares of BRF. The Motley Fool has a disclosure policy.

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