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BP to Pay the Third-Largest Penalty in SEC’s History for Misleading Investors in Gulf of Mexico Oil Spill

The SEC charged BP p.l.c. with securities fraud relating to the April 20, 2010 explosion of the Deepwater Horizon oil rig.  The charges involved BP’s public filings with the Commission that were also made available to investors, wherein the company made fraudulent public statements significantly understating the flow rate at which oil was spilling into the Gulf of Mexico.  According to the Complaint, on April 29 and 30, and May 4, 2010, BP stated that the flow rate estimates were “up to 5,000 barrels of oil per day” or that 5,000 b.o.p.d. was the current estimate, despite having knowledge of higher internal data, estimates and calculations.

The SEC’s complaint further alleged that BP executives made several public statements in May 2010 supporting the 5,000 b.o.p.d. flow rate estimate, and criticizing higher estimates despite internal evidence showing flow rates well in excess of 5,000 b.o.p.d.  On August 2, 2010, a group of governmental and academic experts declared a final official flow rate estimate of 52,700 to 62,200 b.o.p.d.  Notwithstanding the new findings, BP never corrected or updated its material misrepresentations and omissions about the flow rate.  BP’s failure to disclose the existence of higher estimates caused investors to be misinformed about the consequences and the degree of liability BP faced relating to the spill.  The amount of oil spilled would inform any consideration of the costs of offshore and onshore spill response, claims for natural resource damage under the Oil Pollution Act, as well as other potential liability arising from claims, lawsuits, and enforcement actions related to the explosion and the sinking of the Deepwater Horizon.

BP agreed to settle the SEC’s charges by paying the third-largest penalty in agency’s history at $525 million.  The SEC plans to establish a Fair Fund funded by the penalty to provide harmed investors with compensation for losses they sustained in the fraud.  The SEC stated, “[t]he oil spill was catastrophic for the environment, but by hiding its severity BP also harmed another constituency – its own shareholders and the investing public who are entitled to transparency, accuracy, and completeness of company information, particularly in times of crisis.”