Mail on Sunday: Now FSA probes scandal at Shell
By Tom McGhie,
14 March 2004
THE City watchdog has launched an urgent investigation into whether Shell broke stock market rules by not telling investors earlier that it had overstated its oil reserves by a fifth.
The oil giant faces huge fines if it is found guilty of market abuse by the Financial Services Authority*. It is understood that the FSA is examining the circumstances surrounding Shell's shock announcement in January of the overbooking problem.
Latest reports suggest that Sir Phillip Watt, who resigned earlier this month as Shell's chairman in the wake of the scandal, knew about the problem two years ago but did not tell shareholders.
Shell executives were first informed in a memo two years ago that the company's accounting of reserves appeared inconsistent with rules set out by the Securities and Exchange Commission, the US regulator, which has already launched a formal inquiry. News of the latest probe comes as the SEC has extended its inquiry.
Last week, Financial Mail revealed that a number of Shell managers in Nigeria might have been tempted to inflate the level of oil reserves by the prospect of huge bonuses.
Shell has refused to discuss the timing of its January announcement, pending the outcome of its own internal inquiry. And the company insists that bonuses awarded to executives were ' negligible'.
Its inquiry is being carried out by independent law firm Davis, Polk & Wardwell. However, the New York law firm is familiar with the company, having acted for Enterprise Oil when it was taken over by Shell. The SEC investigators also want to know how many executives received the bonuses. Proven oil and gas reserves are an important asset and are closely watched by investors as a key measure of an energy company's profit potential.
Meanwhile, sources at Shell have told Financial Mail that there is a frenzied atmosphere in the company with suspected whistleblowers having their internal lines tapped and e-mails monitored.
A spokesman for the FSA said: 'We never discuss individual companies.'