THE NEWARK STAR-LEDGER: Hearing in Newark could determine fate of Shell lawsuit: “…securities fraud case against the world's third-largest oil company. The hearing before U.S. District Chief Judge John Bissell gets to the heart of the case against Royal Dutch/Shell Group.”: “It isn't clear how many people were affected by the alleged fraud. But the case is regarded as one of the most significant securities fraud actions because of the size of the company and the length of the class period, which is roughly five years. It is being closely watched by regulators and lawyers around the world.”: "There was activity in the United States to perpetuate... fraud," said Stanley Bernstein, the lead attorney.”: “Attorney Norton was co-lead counsel in a separate case before Bissell concerning the oil company. That case, brought by pension holders, settled earlier this week. Shell agreed to pay $90 million -- about 80 percent of the claimed losses -- to the pension plan so it can be distributed to members.”: Posted Sunday 24 July 2005
Thursday, July 14, 2005
BY KATE COSCARELLI
Star-Ledger Staff
A "monster" of a two-day hearing that kicked off in a Newark courtroom yesterday will determine the success and shape of a securities fraud case against the world's third-largest oil company.
The hearing before U.S. District Chief Judge John Bissell gets to the heart of the case against Royal Dutch/Shell Group. Nearly a dozen lawyers were on hand to argue whether the case should be thrown out, and, if not, whether foreign investors should be included in the class.
The case stems from a sharp drop in Shell's stock last year, when the company announced it had overstated its oil reserves, a key measure of an oil company's wealth and future strength. The securities case was filed here because the company has several gasoline distribution terminals in New Jersey.
Attorneys for investors who lost untold millions called the hearing a "monster" in terms of its potential effect.
It isn't clear how many people were affected by the alleged fraud. But the case is regarded as one of the most significant securities fraud actions because of the size of the company and the length of the class period, which is roughly five years. It is being closely watched by regulators and lawyers around the world.
"It will be a huge decision either way," attorney Jeffrey Norton said of Bissell's ruling.
Yesterday, plaintiffs' attorneys argued the case has every reason to be litigated in American courts since the company has strong activity here. Shell operates in 145 countries and territories.
"There was activity in the United States to perpetuate... fraud," said Stanley Bernstein, the lead attorney. Bernstein cited meetings in Houston about calculating the company's reserves in Nigeria and Angola. Shell's group reserves auditor came from Europe to attend at least one of those meetings, he added. And the oil company had a New York office for investor relations. "This was a central location. ... The fraud does not have to be masterminded in the United States," Bernstein said.
Ralph Ferrara, who represents Shell, argued the U.S. courts do not necessarily have jurisdiction. More than 90 percent of the shares were traded abroad, he said, making the American damage a rather small slice of the alleged wrongdoing. A judge here should not have jurisdiction over the case unless he is nearly certain foreign courts will not exercise their reach, Ferrara said.
Yesterday's hearing was the most important development so far in the case, which began in January 2004. The lawsuit was filed about two weeks after the company announced that as a result of an internal review, it was reducing its proven reserves of natural gas and oil 20 percent. The complaint claimed Shell reported "materially false and misleading information" about its reserves and cash flow to boost its stock price.
Following the news about Shell's reserves, the market was further jolted by revelations of alleged fraud. Shell's chairman and head of exploration and production were asked to resign. The company had to restate its reserves twice.
Those developments touched off investigations by the U.S. Justice Department and the Securities and Exchange Commission, as well as European authorities.
Attorney Norton was co-lead counsel in a separate case before Bissell concerning the oil company. That case, brought by pension holders, settled earlier this week. Shell agreed to pay $90 million -- about 80 percent of the claimed losses -- to the pension plan so it can be distributed to members.
Beat Hess, Shell's legal director, said Tuesday the settlement was "an important step toward putting litigation relating to the reserves recategorizations behind us."
The settlement is still subject to Bissell's approval, which could come at a final hearing scheduled for August.
Arguments in the securities fraud case are scheduled to resume tomorrow. It was unclear yesterday when Bissell would issue a ruling, but observers expect it will come by the end of the summer, since the judge is scheduled to retire from the bench this fall.
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