In the Dark
Chevron's Misrepresentations in Public Filings Regarding Its $19.04 Billion Environmental Liability in Ecuador
By Graham Erion
May 2013
Chevron Corp. ("Chevron") is currently in default of a $19.04 billion civil judgment over environmental contamination left in Ecuador when it operated there under the Texaco brand from 1964 to 1992. Chevron's refusal to comply with its court-ordered legal obligation in Ecuador forced the plaintiffs in 2012 to file enforcement actions targeting approximately $20 billion in Chevron assets located in Canada, Brazil and Argentina. Rather than disclose the risks faced by Chevron due to its default of the Ecuador Judgment, CEO John Watson and his senior management have chosen to keep their shareholders and the financial markets in the dark by misrepresenting basic facts in its public disclosures. Examples of this "in the dark" strategy include:
- Materially downplaying risks posed by enforcement actions: Watson and Chevron are grossly misleading investors on how enforcement actions pose threats to company operations and business relationships including, most prominently, the embargo of its assets in Argentina;
- Refusal to disclose required loss contingency: Chevron continues to keep its investors guessing about the risk and range of loss the company faces, despite the Ecuador judgment being upheld on appeal with quantifiable assets at risk of seizure;
- Misrepresenting facts in the court record: Chevron tends to exaggerate the significance of what the company deems "victories" in the Ecuador litigation while ignoring adverse rulings, such as recent losses relating to a key defense in five U.S. appellate courts and the U.S. Supreme Court;
- Selective disclosure of merits of Ecuador judgment: To maintain its highly questionable fraud narrative (see below), Chevron has often repeated statements about the Ecuador judgment that are either demonstrably false or materially misleading; and
- Mischaracterization of the Ecuador judgment as a fraud: Chevron tries to justify its refusal to comply with the Ecuador judgment by falsely claiming the lawsuit is a product of fraud, despite overwhelming evidence submitted by the company at trial that pointed to its own guilt.
Given the need to protect the investing public from securities fraud, any of the above examples should be worthy of investigation by the Securities and Exchange Commission, the agency in the U.S. responsible for regulating the public markets. The cumulative list represents a stunning portrait of a company that ignores its obligation to provide full, true and plain disclosure of material facts as required by law.