Former Brazilian leader Luiz Inacio da Silva, a top contender to win next year's presidential election, was convicted on corruption charges on Wednesday and sentenced to nearly 10 years in prison.
Judge Sergio Moro on Wednesday gave the man universally known as Lula nine and half years for taking 3.7 million reais ($1.1 million) worth of benefits from a construction company in exchange for favours.
The three-year 'Carwash' probe swept through Brazil's ruling class, and came to focus on Lula, a former factory worker who once was the nation's most popular politician - and a strong contender to regain office. The ruling marked a stunning fall for Lula and a serious blow to his chances of a political comeback.
The former union leader, who won global praise for policies to reduce stinging inequality in Brazil, faces four more corruption trials and will remain free on appeal.
The verdict represented the highest-profile conviction yet in a sweeping corruption investigation that for over three years has rattled Brazil, revealing a sprawling system of graft at top levels of business and government.
Judge Moro found Lula, 71, guilty of accepting bribes worth $1.1 million from engineering firm OAS SA, being the amount, prosecutors said, the company spent refurbishing a beach apartment for Lula in return for his help winning contracts with state oil company Petroleo Brasileiro.
Federal prosecutors have accused Lula, Brazil's first working-class president from 2003 to 2011, of masterminding a long-running corruption scheme that was uncovered in a probe into kickbacks around Petrobras.
Lula's legal team said in an emailed statement that he was innocent and they would appeal.
"For over three years, Lula has been subject to a politically motivated investigation," they wrote. "No credible evidence of guilt has been produced, and overwhelming proof of his innocence blatantly ignored."
Lula's lawyer Cristiano Martins has repeatedly accused judge Moro of being biased against his client, which Moro strongly denies.
Moro wrote in his ruling that he "took no personal satisfaction in this conviction, quite to the contrary".
"It's lamentable that a president of the republic is criminally convicted," Moro said. "No matter how important you are, no one is above the law."
Until now Moro's anti-corruption crusade has enjoyed the support of a broad swathe of society in a country rife with graft. But the verdict on Lula could prove divisive, reviving the latent hostility between the ex-president's sizable loyal following and his many vocal detractors. The opinion poll favourite for the 2018 elections, Lula may now be prevented from running, throwing the race wide open.
Investors happy; currency, stocks up
Investors welcomed the prospect that Lula may be out of the race. Brazil's real and benchmark stock exchange accelerated gains after the decision was announced, each closing up about 1.5 per cent stronger. Meanwhile, Brazil's five-year credit default swap spread, a gauge of investor risk perception, dropped to the lowest in nearly two months.
The benchmark Bovespa stock index rose to a session high. Investors fear that another Lula presidency would mean a return to more state-directed and less business-friendly economic policies.
Lula would be barred from office if his guilty verdict is upheld by an appeals court, which is expected to take at least eight months to rule.
If he cannot run, political analysts say Brazil's left would be thrown into disarray, forced to rebuild and somehow find a leader who can emerge from the immense shadow that Lula has cast on Brazilian politics for three decades.
Lula's two terms were marked by a commodity boom that momentarily made Brazil one of the world's fastest-growing economies. His ambitious foreign policies, aligning Brazil with other big developing nations, raised the country's profile on the global stage.
There were signs of unease with the verdict. As night fell, rival crowds started to gather in some of Brazil's main cities to protest or celebrate the decision. Earlier in the day Lula's Workers' Party, or PT, released a statement describing the verdict as an "attack on democracy" and announced plans to hold nationwide demonstrations against the ruling.
Since June 2013, large-scale protests have periodically convulsed Brazil, with rising discontent accompanying the country's slide into its worst recession on record. President Dilma Rousseff, Lula's handpicked successor, was impeached in 2016. But the administration of Michel Temer has been dogged from the outset by chronically low approval ratings as well as accusations of illegitimacy and corruption (See: Brazil's Rousseff voted out, Michel Temer sworn in as new President).