The Mail On Sunday: Shell’s top bosses named in £8 billion lawsuit after being spared the sack
25 April 2004
By now, investors might have hoped that they could once more be sure of Shell. But Financial Mail has established that the two most senior directors left in charge only narrowly avoided being sacked over their role in the oil giant's reserves scandal.
The revelation that chairman Jeroen van der Veer and vice-chairman Malcolm Brinded almost lost their jobs is a further blow to Shell, which last week admitted overbooking its oil and gas reserves for two years before it told investors. It will also add pressure on the group to publish the full report into the affair by American law firm Davis Polk.
Shell this weekend sought to bolster its defences against a blizzard of shareholder lawsuits when Ralph Ferrara, a top attorney with Debevoise Plimpton, a second US law firm hired by Shell, flew into London to plot strategy.
So far the Anglo-Dutch company has released only an executive summary - still highly explosive stuff - that largely pinned the blame for the disaster on former chairman Sir Philip Watts and Walter van de Vijver, his exploration and production chief. Both were fired last month.
In one extraordinary email, Van de Vijver complained to Watts of becoming 'sick and tired about lying about the extent of our reserves issues'.
Significantly, no mention is made of Van der Veer or Brinded in the abbreviated report. Yet three days before it was published, their fate was discussed at a crisis meeting of the Anglo-Dutch firm's twin boards in The Hague.
It is understood that their positions hung in the balance as the board considered the findings of the full 463-page Davis Polk report, which has been released only in short form for legal reasons. In the end, however, they were spared and the company's finance director, Judy Boynton, was axed. Shell spokesman Andy Corrigan declined to comment on the board meeting.
On Monday, Shell's non-executives 'unanimously gave their complete support-to Van der Veer and Brinded. Van der Veer added that he hoped the report would 'draw a line under the uncertainties that have surrounded the status of our reserves since January 9' when Shell finally admitted 'proven' oil and gas reserves had been exaggerated by a fifth.
But that hope looks increasingly forlorn this weekend. Financial Mail has learned that both directors are accused in at least one of 13 lawsuits lodged in US courts of issuing 'false and misleading' statements, which artificially boosted the shares of London-quoted Shell Transport & Trading and Amsterdam-listed Royal Dutch.
The alleged fraud has cost shareholders roughly £8 billion.
The lawsuits, lodged on behalf of angry shareholders and employees at the world's third-biggest oil company, throw yet another legal cloud over the future leadership of Shell, already under investigation by the US Justice Department, the Securities & Exchange Commission and UK and Dutch regulators.
American legal experts said Shell's disclosures last week made it more likely that the company would eventually be forced into a record settlement of the shareholder class action lawsuits. The highest payout so far is $3.5 billion (£2 billion) to shareholders in hotel and car rental group Cendant.
'This is a major fraud,' said Carol Gilden, a partner at Chicago law firm Much Shelist Freed and a former SEC enforcement attorney.
'Executives at the highest levels knew that reserves were being overstated and they knowingly misled their investors over a period of two years.'
David Scott, a Connecticut-based lawyer representing Shell employees whose pension funds have been damaged by the drop in Shell shares, said the disclosures could mean that the company was preparing for a settlement with American regulators.
But he thought that Shell's decision to hire Washington-based law firm Debevoise Plimpton signalled its readiness to fight the shareholder lawsuits, which are already before civil courts and are separate from the US government investigations.
Key to the assessment of potential damages would be a '90-day look back rule' employed by American courts. Scott said: 'In essence, it tallies up the losses to shareholders in the 90 days after an adverse announcement, in this case from January 8.' The total loss in market value for Royal Dutch and Shell is about £7.7 billion.
One thing has become clear. After more than a century of being regarded as one of the world's most reputable corporations, Shell will struggle to draw a line under this increasingly damaging saga.