A number of pension funds in the US are suing BP (BP) for fraud. The institutional investors, including funds for public workers in Texas, Louisiana, and Maryland, and Bank of America’s (BAC) private pension plan, claim, that the corporation bilked them when it made misstatements about the Deepwater Horizon oil spill in 2010. Also bringing securities fraud causes against the oil company, just within the statute of limitations, are a number of foreign institutions.
The oil spill claimed the lives of 11 people. It is considered the worst offshore spill in US history. According to Reuters, BP is now the defendant in numerous securities fraud cases filed by at least 20 institutional investors contending that their investment managers were influenced by misrepresentations the company made when they deciding whether to purchase BP shares. The securities lawsuits claim that BP violated British securities and fraud laws when misrepresenting it safety record and the extent of the oil spill.
It was in 2010, when the Supreme Court issued its decision in Morrison v. National Australia Bank that foreign-based companies in general obtained immunity from securities fraud claims. In that lawsuit, the nation’s highest court held that American securities laws couldn’t be applied beyond the borders of the United States. Trial courts took this to mean that companies found on foreign exchanges cannot be sued for fraud under the Exchange Act of 1934—save for claims made by investors that traded in American Depository Shares.
Since then, it has been tough getting foreign-based companies to pay. Shareholders have even tried to get to companies on non-US exchanges by filing lawsuits under state fraud law instead, albeit unsuccessfully.
A shift occurred last year, however, when a district judge in Houston ruled that plaintiffs of a US class action securities case by common shareholders could go ahead with their lawsuit against BP. A previous ruling had dismissed the securities fraud lawsuit. However, the plaintiffs’ attorneys filed separate cases to try to get around Morrison by claiming that the oil company committed fraud under both state law and common law. (BP’s attorneys countered that under the Commerce clause, state laws cannot endow rights beyond what are given under federal law.)
Judge Keith Ellison in Houston, who is the judge on all of the securities fraud cases against BP, determined that because British law governs the funds’ claims against BP, the US Constitution couldn’t be applied. (It was BP who asked that British Fraud law be applied, expecting the judge to find that England should be the proper venue for the securities claims and then toss out the U.S. cases.)
Ellison said that the shareholder case could proceed in federal court in Texas and not England because the lawsuits involve BP’s U.S. outfit .The judge decided that because British and US laws share a common lineage, he can oversee the lawsuits. His ruling paved the way for this latest onslaught of securities fraud cases against BP.
Institutional investors step off sidelines to sue BP for fraud, Reuters, April 21, 2014
BP Oil Spill, The Guardian
More Blog Posts:
As BP Oil Spill Reaches Crisis Mode, A Number of Wall Street Analysts Placed “Buy” Rating On the Company’s Plunging Shares, Stockbroker Fraud Blog, January 22, 2010
BP Oil Spill Payouts Recipients May Be Targeted by Investment Scam Fraudsters, Says SEC, Stockbroker Fraud Blog, October 22, 2010
Federal Reserve Passes New Rules for Deutsche Bank, UBS, and Other Foreign Banks, Institutional Investor Securities Blog, February 20, 2014