February 7, 2017 / 4:28 PM / a year ago

UPDATE 3-Brazil's JBS shares drop as prosecutors target J&F's Batista

(Adds Ernest & Young comments)

SAO PAULO, Feb 7 (Reuters) - Shares in JBS SA, the world’s biggest beef exporter, slid on Tuesday after prosecutors demanded Joesley Batista step aside as head of JBS’ controlling shareholder, J&F Investimentos SA.

Common shares fell as much as 6.2 percent to 11.29 reais in early trading before paring losses to 0.6 percent in a rising market.

Billionaire Batista and José Carlos Grubisich Filho, chief executive officer of J&F-controlled pulp producer Eldorado Brasil Celulose SA, are targets of an investigation into state-run companies’ pension funds.

Prosecutors allege that companies and businessmen paid bribes to politicians to win investment deals that resulted in losses to the funds.

The probe is one in a string of investigations into corruption in Brazilian business and politics that have rattled Latin America’s largest economy and fed political instability. Prosecutors say Batista and Grubisich breached an agreement signed in September. Joesley’s brother Wesley Batista, chief executive officer at JBS, was not targeted on Monday. Prosecutors asked a judge to reimpose preventive measures against both executives, requesting the court block as much as 3.8 billion reais ($1.2 billion) worth of their assets and that they surrender their passports.

They also requested all top executives at the pulp producer be temporarily removed.

Prosecutors allege the executives did not cooperate with the investigation, principally by not carrying out an independent internal investigation into the alleged corrupt practices.

According to the prosecutors, the internal investigation, conducted by Brazilian law firm Veirano Advogados and auditing firm Ernest & Young, attempted to mask payments suspected of being bribes as legitimate transactions.

Ernest & Young denied the accusations and said the investigation was independent. Veirano Advogados said the investigation was conducted “in an independent and ethical manner.”

In a statement, J&F denied wrongdoing and said the prosecution’s new accusations were based on statements made by Eldorado board member Max Mauran Pantoja da Costa, appointed by the state bank Caixa Econômica Federal’s pension fund.

“The accusations are baseless and moved by personal interests,” J&F said, without elaborating. A request for comment from Pantoja da Costa through the pension fund’s press representatives was not immediately answered.

In September, a federal judge ordered Joesley and Wesley Batista to suspend their corporate roles and forfeit their passports to avoid jail. A week later, the Batistas deposited 1.5 billion reais in guarantees and signed an agreement with prosecutors to return to their posts.

$1 = 3.13 reais Reporting by Bruno Federowski and Tatiana Bautzer; Editing by Andrew Hay and Cynthia Osterman

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