BP was slapped with the third largest penalty in the SEC's history on Thursday for misleading investors about the rate of the oil flow in the Deepwater Horizon disaster in the Gulf of Mexico in 2010.
Additional recent actions taken by the SEC were charges filed against three executives of an electronic game card company and its independent auditor for fraud, and charges filed against an investment advisor for fraud and diversion of client funds.
BP Agrees to Pay $525 Million Penalty Over Gulf Spill
British oil company BP agreed Thursday to pay $4.5 billion to the government in fines and other charges, including $525 million to the SEC—the third largest penalty ever assessed by the SEC—over the oil spill in the Gulf of Mexico.
Criminal charges account for $4 billion of that amount, according to a company statement, and BP also agreed to plead guilty to 14 criminal charges. Eleven people died and 17 were injured in the Deepwater Horizon oil rig explosion in April 2010. Oil flooded the Gulf for three months before it was capped, contaminating beaches with millions of gallons of oil from the damaged rig. Three BP employees also faced criminal charges from the Justice Department.
The SEC charged BP with misleading investors by significantly understating the flow rate of the oil gushing into the Gulf in multiple reports filed with the SEC. Although BP repeatedly indicated in fraudulent public statements that the flow rate was estimated at 5,000 barrels per day, its own internal data indicated that potential flow rates could be as high as 146,000 barrels of oil per day.
BP executives also made numerous public statements after the filings were made in which they stood behind the flow rate estimate of 5,000 barrels of oil per day. In fact, they criticized other much higher estimates by third parties as scaremongering.
According to the SEC's complaint filed in the U.S. District Court for the Eastern District of Louisiana, BP stated that the flow rate was estimated to be 5,000 barrels of oil per day (bopd) in three separate Form 6-Ks filed with the SEC following the Deepwater Horizon oil rig explosion on April 20, 2010. In a 6-K filed on April 29, BP stated in part, "[e]fforts continue to stem the flow of oil from the well, currently estimated at up to 5,000 bopd[.]" BP filed another report the next day similarly referencing "[e]fforts to stem the flow from the well, currently estimated at up to 5,000 barrels a day are continuing[.]"
The SEC alleges that when the company made those statements, BP possessed at least five different flow rate calculations, estimates or data indicating a much higher flow rate. BP did not possess or generate any piece of data suggesting that 5,000 bopd represented a ceiling for the rate of oil flowing into theGulf of Mexicoor was the best estimate. The failure to disclose the existence of these higher estimates rendered BP's statements in its Reports on Form 6-K materially false and misleading.
According to the SEC's complaint, BP issued another 6-K on May 4 that stated, "Accurate estimation of the rate of flow is difficult, but current estimates by the U.S. National Oceanic and Atmospheric Administration (NOAA) suggest that some 5,000 barrels (210,000USgallons) of oil per day are escaping from the well."
The SEC alleges that BP omitted from its disclosure the material fact that, by this date, it possessed at least six estimates, calculations and data indicating that the oil flow rate far exceeded 5,000 bopd. Therefore, it was no longer accurate to suggest that 5,000 bopd was the best estimate or that the NOAA estimate was the current estimate.
The SEC's complaint further alleges that BP executives made numerous public statements in May 2010 supporting the 5,000 bopd flow rate estimate and criticizing other estimates despite internal evidence showing that flow rates were likely well in excess of 5,000 bopd. Eventually on Aug. 2, the Flow Rate Technical Group, consisting of government and academic experts tasked with reaching a final official flow rate estimate, announced that the flow rate estimate was actually more than 10 times higher at 52,700 to 62,200 bopd. BP never corrected or updated material misrepresentations and omissions it made about the flow rate in SEC filings for investors.
The SEC plans to establish a Fair Fund with the BP penalty to provide harmed investors with compensation for losses they sustained in the fraud. The SEC's investigation is continuing as well.
Game Over: Execs Charged With Lying to Investors
The SEC recently charged three executives with repeatedly lying to investors about the operations and financial condition of an Irvine, Calif.-based company that purported to sell credit card-size electronic games. The agency also charged the company's independent auditor with facilitating the scheme.
According to the SEC's complaint filed in federal court in Manhattan, chief executive officer Lee Cole and chief financial officer Linden Boyne orchestrated a scheme in which Electronic Game Card Inc. (EGMI) enticed investors by claiming to have millions of dollars in annual revenue, hold millions of dollars in investments, and own an offshore bank account worth more than $10 million.
In reality, many of the company's purported contracts were phony, the purported investments were merely in entities affiliated with Cole or Boyne, and the bank account did not exist.
