BP Plc investors accused the company of lying about its commitment to safety, inflating company shares for three years before the explosion of the Deepwater Horizon set off the largest offshore oil spill in U.S. history.
BP management claimed the company had learned its lesson after an accident at a refinery in Texas in 2005 killed 15 workers and injured hundreds of people, the lawyers said yesterday in a lawsuit brought by institutional investors, including Ohio’s pension plan. Investors discovered after the rig explosion that the company didn’t live up to promises in 2007 to increase its focus on safety and maintenance, the lawyers said in an amended complaint filed yesterday.
“The truth about BP and its lack of commitment to and implementation of safety processes to avoid preventable incidents began to emerge,” said attorneys for the Ohio and New York state pension funds. “Investors were deceived as to BP’s true risk profile in deep sea drilling.”
The investor securities-fraud lawsuit is among hundreds of claims filed in U.S. courts after the explosion and sinking of the Deepwater Horizon drilling rig last April. Injury, economic loss and environmental suits are combined before a federal judge in New Orleans. The investor suit, which seeks unspecified billions of dollars in lost share value, is combined with other shareholder actions in federal court in Houston.
Share Drop
Investors claim BP violated U.S. securities laws by misleading investors before and after the spill. London-based BP fell about 40 percent in the weeks after the explosion, investors said in yesterday’s filing. The drop eliminated billions of dollars in the company’s total market capitalization, shareholders’ lawyers said.
The Ohio and New York pension plans are seeking class- action, or group, status for the suit, covering investors in American depositary receipts from Jan. 16, 2007, to May 28, 2010. The suit also seeks recovery of losses over that period for U.S. investors who bought stock in markets outside the U.S.
Daren Beaudo, a BP spokesman, declined to comment on the amended complaint.
BP investors began filing shareholder lawsuits in May, alleging securities fraud, within weeks of the explosion. Lawyers for the investors, led by the Ohio and New York pension funds, added details to their claims in yesterday’s amended complaint.
The lawyers said multiple incidents before the Deepwater Horizon explosion reflected flawed company safety and maintenance procedures in the U.S.
Criminal Fine
BP in 2007 agreed to pay a $50 million criminal fine for a violation of U.S. environmental law related to the explosion at its Texas City, Texas, refinery in 2005. The company was also fined by the U.S. Occupational Safety and Health Administration for safety violations at the plant.
BP pleaded guilty to violation of the Clean Water Act and agreed to pay $20 million over the 2006 release of more than 200,000 gallons of oil from its Prudhoe Bay oil field in Alaska. The U.S. claimed neglect of company pipelines caused the spills.
BP responded by promising to change its corporate culture, the investors said. The company instead ignored internal concerns and cut back safety and compliance staff, they said.
“Cutbacks and layoffs hit their height in 2009,” the investors said. BP merged its U.S. group compliance office in Houston with its global compliance and ethics office in London, leading to “huge staff reductions,” according to a former company manager, cited as a confidential witness in the complaint.
Compliance Personnel
Houston compliance staffing was cut 33 percent, while that in London was reduced 44 percent, the investors’ lawyers said. The company also cut back staff in its health, safety, security and environment department, according to the complaint.
Just before the Deepwater Horizon was dispatched to drill the Macondo well, BP’s senior vice president for Gulf drilling operations, Kevin Lacy, resigned “because of disagreements with BP over its lack of commitment to process safety,” the lawyers said.
Lacy had been recruited by BP in 2007 to improve and standardize drilling policies and he resigned “because he believed that the company was not adequately committed to improving its safety protocols in offshore drilling” compared with that of its industry peers, investor lawyers alleged.
BP continued to mislead investors after the Gulf spill, downplaying the size as it attempted to cap the well, investor lawyers said yesterday.
‘Recklessly Disregarded’
“BP knew or recklessly disregarded that its statements regarding the size of the oil spill were false and materially misleading when made,” according to the complaint.
U.S. District Judge Keith P. Ellison in Houston is overseeing three categories of BP investor claims consolidated in his court — derivative suits brought on behalf of the company, shareholder securities-fraud suits claiming diminished share value and claims by BP employees over losses in their retirement savings funds allegedly caused by the mismanagement.
The lawsuit names as defendants the company and current and former executives including Chief Executive Officer Robert W. Dudley and former CEO Anthony B. Hayward.
In December, Ellison appointed the New York and Ohio state pension funds as lead plaintiffs in the shareholder fraud claim. The amended complaint was filed by lawyers representing the pension funds from the firms Cohen Milstein Sellers & Toll in Washington, Berman DeValerio in Boston and Yetter Coleman in Houston.
Investor Subclass
Ellison also established a smaller subclass of individual investors who bought BP ADRs from March 2009 to April 20, 2010, the date of the explosion.
The individual investors filed a separate complaint Feb. 11. These investors, including California state court Judge Peter D. Lichtman in Los Angeles, claim that BP management represented that the company had the commitment, resources and risk-management procedures in place to safely drill in the deep- water Gulf of Mexico.
“These representations were untrue, and the catastrophic consequences are now manifest in the sullied waters and beaches of the Gulf, the decimated businesses operated by Gulf residents, and the massive losses suffered by BP investors,” their attorneys, Joseph Cotchett and Richard Mithoff, said in the Feb. 11 filing.
“While focusing on marketing itself as being able to achieve substantial revenue growth from new oil exploration in the Gulf of Mexico, BP misled investors that it was conducting such operations in a safe manner,” the lawyers said.
“The Deepwater Horizon explosion was not the result of unforeseeable forces, but rather the predictable outcome of BP’s intentional decision to disregard repeated warnings,” they said.
The case is In re BP Plc Securities Litigation, 4:10-md- 2185, U.S. District Court, Southern District of Texas (Houston).
