Management Hiding From Shareholders Potential Multi-Billion Dollar Legal Liability Over "Rainforest Chernobyl", Group Says
1 February 2006 - FOR IMMEDIATE RELEASE
Contact: Karen Hinton at +1.703.798.3109
San Francisco, CA - Amazon Watch, the San Francisco based environmental organization, today formally requested that the Securities and Exchange Commission (SEC) investigate the Chevron Corp. for repeatedly failing to report in its SEC filings a potential multi-billion dollar liability arising from its massive toxic contamination of the Ecuadorian Amazon.
In a letter and legal memo sent to SEC Chairman Christopher Cox, Amazon Watch accused Chevron of breaking federal law and SEC rules by failing to inform shareholders about a historic class-action lawsuit brought in Ecuador against the company by 30,000 people who live in an area that locals call the "Rainforest Chernobyl" for its extensive oil-related toxic contamination.
The Ecuador lawsuit alleges that Texaco (now Chevron) intentionally dumped more than 18 billion gallons of toxic waste during the years it operated a concession in Ecuador's rainforest, from 1964 to 1990. That waste contained an amount of pure crude at least 30 times greater than the Exxon Valdez spill, according to lawyers for the affected groups. The impact has led to the near-extinction of two indigenous groups and escalating rates of cancer, birth defects, miscarriages and other health problems stemming from oil contamination, according to Amazon Watch's analysis of various peer-reviewed scientific studies.
The only comprehensive assessment of the environmental damage, submitted by the American firm Global Environmental Operations, estimated that a clean-up would cost at least $6.14 billion. The estimate did not include personal damages to the thousands of victims in the region, nor compensation for the decades that the local population has lived in a degraded habitat - both of which together could double or even triple the clean-up cost.
Should these cost estimates pan out, the judgment could be the largest in history against an oil company.
All told, the Amazon Watch letter asserts that the California-based oil giant faces potential losses in the Ecuador lawsuit greater than 10 percent of its total assets, which were $81.4 billion the year the case was filed in 2003, and $93.2 billion in 2004, according to the company's filings.
In the letter to the SEC, Amazon Watch Executive Director Atossa Soltani and legal counsel Sarah Aird note that Chevron faces a "staggering potential liability" in Ecuador but has not once disclosed the potential liability in its SEC filings. They add: "SEC vigilance is essential to ensuring the sort of frank corporate disclosure that protects individual investors and the overall health of our financial markets."
Soltani added: "By failing to disclose this massive and growing liability in its filings, we believe Chevron management has misrepresented the financial health of the company to shareholders and thereby distorted the value of Chevron shares in the financial markets.
"The logical conclusion is that all shareholders who have purchased Chevron stock since the case was accepted by the Ecuadorian Court in 2003 may well have a legitimate claim of fraud against the company."
In a legal memo accompanying the letter, Amazon Watch specifically alleges:
- Chevron has failed to mention the lawsuit in its filings with the SEC, including its annual 10-K filing;
- Chevron's omission of the Ecuadorian litigation in its financial statements is in direct breach of Item 303 of SEC Regulation S-K;
- Chevron's silence is also a breach of Item 103 of SEC Regulation S-K, which requires disclosure of substantial "material pending legal proceedings";
- Chevron's lead defense attorney on the case has a conflict of interest for negotiating a previous clean-up with the Ecuadorian government that is now the subject of dispute at the trial, with the plaintiffs alleging it was obtained fraudulently.
Scientific results presented to the Ecuadorian court by both the plaintiffs and Chevron show illegal levels of toxic contamination at all 22 field sites tested and reported to the court. In some sites supposedly "remediated" by Chevron, soil samples were found to contain levels of toxins 2,500 times higher than EPA norms.
"By refusing to clean up this disaster, Chevron is sentencing thousands of rainforest peoples to death in the coming years," said Soltani, the executive director of Amazon Watch.
"Shareholders need to pay close attention to this titanic struggle that could set a global legal precedent," she added. "Unfortunately, they are not going to find out about it from Chevron's management."
Amazon Watch's mission is to protect the environment and defend the rights of indigenous communities in the Amazon basin. The group has been calling for the clean-up of the former Texaco concession in Ecuador.