BP officials queried in federal investigation into possibility of insider trading


Federal investigators have visited the homes of several BP officials in recent weeks to question them on what they knew about how much oil was spewing out of the company’s busted Gulf well last spring and how their findings may have differed from what the government and the public were being told at the time, sources say.

BP’s consistently low flow-rate estimates grabbed headlines and infuriated federal officials last April and May as response teams tried to get a handle on the massive oil leak a mile below the Gulf of Mexico. President Barack Obama said the company wasn’t “fully forthcoming” about the size of the spill, and congressional investigators uncovered documents showing that BP, while telling the public that a relatively minor 1,000-5,000 barrels were escaping each day, actually knew that as much as 14,000 barrels could have been coming out every 24 hours.

Government scientists eventually determined the flow reached as high as 62,000 barrels a day.

The amount of oil had an immediate impact on efforts to contain the spill and still factors heavily into how much BP and other responsible parties can be fined for polluting the Gulf.

But the difference between what BP officials knew about flow rate and what they were telling others has sparked the interest of Justice Department Criminal Division investigators, according to the sources. Giving false statements to a federal agency is a five-year felony.

Non-public information

Two sources familiar with the Justice Department’s investigation say the feds have been trying to determine whether BP officials used their knowledge of non-public information about the spill to engage in illegal insider trading.

BP itself has acknowledged for months in public securities filings that the Justice Department and the Securities and Exchange Commission are “investigating securities matters arising in relation to the incident.”

There are no public records indicating that BP executives took advantage of inside information to beat the stock market, where BP shares lost more than half their value in the six weeks after the April 28 disclosure that BP’s initial estimate of a 1,000-barrel-a-day spill was wrong. But major BP investors allege in a civil case in Houston that the company low-balled the spill’s effects to artificially buttress the stock price.

The interest in possible manipulation of BP’s stock price after the April 20 spill may be part of a major change last week in the way that Justice is running its criminal and civil probe of the incident.

James Cole, recently named the No. 2 man in President Obama’s Justice Department, has put the department’s Criminal Division in charge of the oil spill investigation. That took the lead prosecution role away from the Environment Division, signaling that prosecutors are taking a serious look at possible crimes beyond what caused the spill itself.

BP declined to comment and Justice and the SEC declined to confirm or deny that such an investigation exists.

Investors’ class-action lawsuits

Separate class-action lawsuits in federal court in Houston by some of BP’s largest investors allege that BP leaders manipulated stock prices after the Deepwater Horizon oil rig exploded, but they do not accuse the insiders of taking advantage with their own stock trades.

The states of New York and Ohio have taken the lead in that case because of the large investments in BP stock made by their public employee pension funds. They claimed in a complaint last month that BP officials made a series of public statements in April and May 2010 that low-balled the amount of oil gushing from the well, which in turn artificially propped up the company’s plummeting stock price.

They also allege that before the April 20 incident, BP leaders made false statements to investors overstating the safety of the company’s operations. The New Orleans Employees’ Retirement System and the Louisiana Municipal Police Employees’ Retirement System lead what’s called a shareholder derivative lawsuit against 17 BP insiders. Mark Lebovitch, an attorney representing the plaintiffs in that case, said the Louisiana police pension fund held around 400,000 shares of BP stock at the time of the spill.

The New York and Ohio suit cites comments by former BP Chief Executive Tony Hayward and Chief Operating Officer Doug Suttles touting their confidence in various attempts to shut off the well. The investors allege those officials should have known that devices like the containment dome and the smaller “top hat” were unlikely to succeed in unprecedented water depths.

“As a result, when the truth was revealed, BP’s stock price plunged in value, causing Plaintiffs and the Class to lose as much as 40% of their investments,” the complaint says.

From $60 to below $30

BP stock was trading at more than $60 a share on the New York Stock Exchange on April 20 when the well blew. The price remained pretty stable through April 28, when the public first learned that early BP estimates of the flow rate were far too low.

The government eventually estimated the spill rate was 60 times larger than BP initially said. Congress unearthed BP documents showing that the firm knew in April that the spill could be 14 times larger than it was disclosing publicly.

As various attempts to close the well failed, BP’s stock price fell below $30 a share in late June.

Jason Leviton, co-lead counsel for the plaintiffs in the securities case in Houston, said he has no evidence of any BP directors or executives engaging in illegal insider trading. BP is the largest foreign stock issuer in the U.S., and the SEC does not require foreign issuers to disclose stock transactions by directors and top managers.

BP does report transactions by its directors and executives to the British government, but none of those reflected stock dumps in the days before the bottom fell out. In fact it was during that period that top BP executives, including Hayward, made several prescheduled purchases of BP stock. An investment firm owned by BP board chairman Carl-Henric Svanberg bought 175,000 shares on the London Stock Exchange on April 28, just as the stock began to crash.

The first major sale of stock after the spill came from the company’s human resources director, Sally Bott, who sold 22,282 shares on the New York Stock Exchange for almost $850,000 on July 27, but that was after the well was capped and the stock price had already hit rock bottom.

David Hammer can be reached at dhammer@timespicayune.com or 504.826.3322.

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Stuart H. Smith is an attorney based in New Orleans fighting major oil companies and other polluters.
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