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Friday
Sep082017

Fund dumps Petrofac shares on SFO probe concerns

An American mutual fund manager said in an SEC filing today that it sold all shares it held in Petrofac because of an ongoing corruption investigation by the UK's Serious Fraud Office.

That SFO investigation is focused on Petrofac's past relationship with Unaoil.

Ohio National Fund, Inc. said the "escalating fraud investigation seems to us a thesis changer."

London-based Petrofac provides oilfield services. It has about 13,500 employees. Revenues last year were $7.8 billion.

The SFO said in May this year that it's investigating Petrofac over allegations of "bribery, corruption and money laundering" related to Unaoil.

A week after the SFO announcement, Petrofac said it suspended its chief operating officer.

In July 2016, the SFO opened a criminal investigation into Monaco-based Unaoil for suspected bribery.

In Friday's filing, Cincinnati-based Ohio National Fund said, "Over the past three years, nearly all of the SFO’s investigations have led to charges being filed." 

"Of particular concern, the executives currently running Petrofac Limited also ran the company when the alleged improprieties occurred," the filing said.

Ohio National Fund said Friday, "Any legal action against [Petrofac executives] could materially impact Petrofac Limited’s ability to win new business, without which the company’s financial situation is tenuous."

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Here's the full text of the disclosure about Petrofac from Ohio National Fund, Inc.'s Form N-CSR (Certified Shareholder Report of Registered Management Investment Companies) filed with the SEC on September 8, 2017:

Petrofac Limited - Shares of U.K. based oilfield services firm Petrofac Limited declined sharply after the U.K.’s Serious Fraud Office (“SFO”) launched an investigation into bribery allegations related to the firm’s past relationship with controversial Monaco-based consultancy Unaoil. While we had been constructive on the stock given its healthy pipeline of outstanding bids, strategic refocus on core assets, and prudent balance sheet deleveraging, the escalating fraud investigation seems to us a thesis changer. Over the past three years, nearly all of the SFO’s investigations have led to charges being filed. Of particular concern, the executives currently running Petrofac Limited also ran the company when the alleged improprieties occurred. Any legal action against these individuals could materially impact Petrofac Limited’s ability to win new business, without which the company’s financial situation is tenuous. A change in circumstances requires a reassessment of the new reality, and we decided to liquidate our stake in Petrofac Limited given the rising risk profile.

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Richard L. Cassin is the publisher and editor of the FCPA Blog.