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UPDATE 2-Brazil police detain JBS CEO Batista on suspicion of insider trading

(Adds background, share performance in paragraphs 3-7)

By Guillermo Parra-Bernal and Gabriela Mello

SAO PAULO, Sept 13 (Reuters) - Brazil's federal police on
Wednesday detained the chief executive officer of JBS SA, the
world's No. 1 meatpacker, saying he used insider information to
avoid hefty losses related to a plea bargain signed earlier this
year.

Wesley Batista, who has been at the helm of JBS since 2011,
was detained under an arrest warrant against him and his younger
brother Joesley Batista for suspected insider trading. The
billionaires, both in their mid-40s, control 42 percent of JBS.

Their lawyer, Pierpaolo Bottini, called the allegations
"unjust, absurd and regrettable." If convicted, both may be
among the first people in Brazil to be jailed for insider
trading.

Shares of São Paulo-based JBS reversed early losses, and
rose as much as 1.5 percent in late morning trading as traders
awaited details on the insider trading probe.

A police investigator said the insider trading allegations
could hamper their plea deal, which they signed in May in
relation to a massive corruption probe in Brazil.

The insider trading case involving JBS and the
Batistas follows probes by markets watchdog CVM on trades both
made before the plea deal was leaked by the press on May 17. The
impact from the leak, which ensnared key politicians, led to
Brazil's worst market selloff in at least a decade.

Police investigators said the Batistas were aware of the
market impact that their plea deals would have on the company's
stock and the currency.

The investigators said both brothers created a strategy to
protect their position in JBS while helping the company amass
large foreign-currency positions ahead of the leak.

On May 18, the stock shed 9.7 percent, while the Brazilian
real tumbled 8.2 percent - the biggest daily decline since Jan.
1999.

Joesley Batista has been under arrest since Sunday after
recordings suggested he tried to take advantage of prosecutors
and conceal details during negotiations that led to the plea
deal. He has denied any wrongdoing.

In their testimony, the brothers accused President Michel
Temer of working to obstruct a corruption probe, which the
latter has repeatedly denied. The family's investment holding
company, J&F Investimentos SA, paid a record leniency fine of
10.3 billion reais ($3.3 billion) related to the scandal.

Since the plea bargain deal was signed on May 31, Temer and
the Batistas have traded barbs - taking their rift to corporate
boardrooms. State development bank BNDES is leading the group of
JBS investors seeking to oust the Batistas from the company's
management and board.

INSIDER TRADING PROBE

According to a person with knowledge of the matter, who
asked for anonymity because of the sensitivity of the issue,
police investigators suspect both brothers gained an unfair
advantage in trading shares of JBS, while helping the company
build abnormal positions in currency futures and forwards in
April and May.

The detention of Wesley Batista comes as his plea deal with
prosecutors is unraveling due to alleged omissions in their plea
bargain testimony. Some minority shareholders seek
his removal from the world's largest meatpacker.

"The Brazilian state is using all means to promote revenge
against those who cooperated with justice," Bottini said in a
statement.

The police said two detention orders were also issued
against executives at the Batista family-owned FB Participações
SA and JBS, without elaborating.

The scheme helped "manipulate markets in a way that all
shareholders incurred some of the losses that FB Participações
would have otherwise had to absorb alone," a police statement
said.

($1 = 3.1292 reais)
(Additional reporting by Pedro Fonseca in Rio de Janeiro and
Tatiana Bautzer in São Paulo; Editing by Catherine Evans, Daniel
Flynn and W Simon)

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