Criminal Charges?: Justice Department Investigates BP Execs for Possible “Insider Trading” Scheme


The U.S. government is taking a dramatic new tact that shifts its investigation surrounding the BP oil spill away from the Justice Department’s Environmental Division and into the Criminal Division, leading BP executives to face the well-weathered coverup questions nobody wants to hear: What did you know and when did you know it?

Part of the debate centers on what BP officials actually knew early on about how much oil was spewing from its runaway Macondo well – and what they were telling the world (investors included). Much like what we’re hearing from Japan about the radiation leakage in that country, companies and governments often don’t have their act together information-wise. But in the case of BP, giving false statements to a federal agency is a felony. That fact changes the game dramatically.

The real issue here is that the initial lowball estimates, in effect, propped up BP’s share price – until the true extent of the damage and the accompanying liability became known. Then, of course, the stock price sunk like a stone (though it has since rebounded). Remember that BP initially pegged the flow rate at a relatively modest 1,000-5,000 barrels a day. In the end, the government concluded that the rate was actually in the neighborhood of 62,000 barrels a day. The enormous gap between the early estimates and the final determination has been exceedingly difficult for the oil giant to explain with any sort of conviction (if you’ll excuse the word choice).

The Times-Picayune is reporting (citing two unnamed sources) that federal investigators have recently “visited the homes” of BP officials to ask questions. That implies many things: Why questions at home instead of an office? Why not at their attorneys’ offices? The answer could simply be that at-home visits create drama: When the feds come knocking, the neighbors notice and so does your family and so do your colleagues.

It’s also interesting because nobody – not even those involved in investor lawsuits againt BP – is accusing the officials of profiting from lowballing the flow estimates. It’s more of a “protect the stock price” allegation.

So the shift to a criminal focus may be, as most speculate, a look into actual charges. But it might also be strategic, driving a wedge between individual executives and the company. Anyone facing an “individual” criminal charge suddenly has a different set of priorities – and legal representation – than those safely inside the corporate cocoon. Either way, it’s an interesting strategy, and we’ll be keeping an eye on where it goes from here.

A very solid story in the Times-Picayune, which does a good job adding context about the investor lawsuits and tracking executive trading, is here:

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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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