The Financial Times: Probe focuses on internal knowledge

By Ian Bickerton in Amsterdam

Published: March 18 2004 18:17 | Last Updated: March 18 2004 18:17  

A probe by the Dutch securities regulator into possible insider trading at Royal Dutch/Shell focuses on media allegations that senior executives at the oil company may have known two years ago that its reserves policy was flawed.

A person familiar with the investigation by the Netherlands' Authority for Financial Markets, said: "It is in regard to reports that this was internally known for more than a year, and potentially more than two years."

The person said: "Under Dutch law that raises the issue as to what extent people have been trading with this knowledge. You are in a hard spot if you had knowledge regarding one of the potential balance sheet items and there has been trading when the market did not know." AFM refused to comment.

Shell on Thursday gave a very different appraisal of what it believed the AFM was investigating, suggesting it was "a routine matter" related to share price movements ahead of the company's January 9 reserves restatement announcement.

Indeed, asked during the company's press conference whether there was an insider trading inquiry in the Netherlands, Jeroen van der Veer, Royal Dutch/Shell chairman, said: "I don't have a clue."

The person familiar with the probe said the Dutch regulator would seek to recover documents from Royal Dutch/Shell. Those would "absolutely include" the internal memos referred to by media last week, which suggested that the issue of reserves accounting was known internally as long ago as 2002, the person said.

Media reports claimed Sir Philip Watts, the company's ousted chairman, Walter van der Vijver, its former head of exploration and production, Judy Boynton, chief financial officer, and Mr van der Veer had been aware of the reserves issue.

On Thursday Mr van der Veer bluntly denied that assertion. "The underlying question which you always get is 'did you know about incorrect bookings in SEC returns?'," he said. "The answer is 'no'."

But he added: "We have a committee of directors and it does not mean that every director is doing the same thing. There is a basic belief in the integrity of your colleagues. It was for Exploration and Production to manage that."

Separately, Euronext, the Amsterdam bourse, has sent two letters to Royal Dutch/Shell. The first addresses disclosure processes around the January 9 announcement; the second asked "broader questions about the facts and circumstances leading up to the disclosure of the reserves recategorisation", Royal Dutch/Shell said.

Mr van der Veer also said that the US Department of Justice had not notified Royal Dutch/Shell of any criminal investigation. "If we get formal notification we are not the kind of company to keep that confidential," he said.

However, US federal criminal prosecutors have launched an investigation into Royal Dutch/Shell. This follows the probe launched by the Securities and Exchange Commission into the circumstances behind the company's huge restatement of oil and gas reserves.

Shell said it was providing documents and information to the SEC's "formal non-public investigation".

It also confirmed that the UK Financial Services Authority had "asked a series of questions in a letter about the facts and circumstances surrounding the reserve recategorisation".

"The correspondence and discussions with the regulatory authorities has been constructive, and information has been exchanged in an open way," it said.