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ENFORCEMENT-ED La: BP Pays $525 Million to Settle SEC Charges Related to Gulf Oil Spill

By Matthew Garza, J.D.

The SEC announced that BP has agreed to pay a settlement of $525 million, the third-largest civil penalty assessed in the history of the SEC, for misleading investors regarding the rate of oil leaking into the Gulf of Mexico following the sinking of the Deepwater Horizon oil rig. (SEC v. BP p.l.c., Nov. 15, 2012).

An April 20, 2010 explosion aboard the Deepwater Horizon killed eleven crew members and created an oil leak into the Gulf of Mexico that BP estimated at "up to 5,000 barrels of oil per day" in Form 6-K filings made on April 29 and 30, and May 4, 2010. These filings materially misrepresented the oil flow, according to the SEC compliant, and omitted material information regarding BP's own internal calculations regarding the rate of the oil flow into the Gulf. The complaint specified that BP obtained a number of estimates showing flow rates significantly higher than 5,000 barrels per day after the 6-K filings, but nonetheless continued to make statements to the press reiterating the 5,000 barrels per day estimate.

This information was material to BP investors because the amount of oil spilled would affect the costs of cleanup, claims for natural resource damage under the Oil Pollution Act of 1990, penalties for strict liability under the Clean Water Act, and other potential liability arising from lawsuits and enforcement actions. The misleading filings violated Exchange Act Sections 10(b) and 13(a) and Rules 10b-5, 12b-20, and 13a-16. The civil penalties paid by BP will become part of a fund for the benefit of approximately 127,500 American Depository Shares (ADS) holders that existed at the time of the violations, pursuant to the Fair Funds provisions of Sarbanes-Oxley Act Section 308. The complaint noted that the closing price for BP ADS declined from $52.56 on April 29, 2010 to $36.52 on June 1, 2010. As of June 25, 2012, the price per ADS was $37.66.

Robert Khuzami, Director of the Division of Enforcement, said "the core of our allegations is that the eyes of the world were on BP in the spring and summer of 2010. The company had an opportunity to provide fulsome, accurate disclosure about the facts needed by the public to make informed investment decisions. And instead, BP chose to mislead the public."

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