Chevron Accused of Misleading Investors over $16 Billion Litigation Risk on Eve of Earnings Report
Lawsuit’s Plaintiffs Claim Oil Giant Avoiding Full Disclosure
Amazon Defense Coalition
1 August 2008 - FOR IMMEDIATE RELEASE
Contact: Karen Hinton at +1.703.798.3109
QUITO, Ecuador--In advance of Chevron's quarterly earnings report, representatives of Amazon indigenous leaders are warning oil industry analysts and the public markets that Chevron's management is downplaying the company's $16 billion litigation risk in a historic environmental case in Ecuador.
Representatives of the indigenous groups that brought the case say that Chevron's recent 10-Q filing was full of "misrepresentations and obfuscations" about the liability, which could consume almost a year of Chevron's robust profits should the plaintiffs prevail as the oil giant expects.
In non-public documents obtained by the plaintiffs, Chevron said in February of this year that it expects "a near-term unfavorable ruling" in Ecuador resulting in "enormous liability." Yet the company never has disclosed this internal risk assessment in its public filings to the SEC.
"We want to share our opinion with analysts and shareholders that Chevron's last quarterly report does not accurately present the risk factors the company is facing in Ecuador, nor does it reflect the company's own internal risk assessment which is far more negative that what it has revealed publicly," said Luis Yanza, the coordinator of the case for the 30,000 Amazon residents who live in Chevron's former concession area.
Julio Prieto, a legal advisor to the plaintiffs, said Chevron's 10-Q filing "raises serious questions about a possible deliberate strategy to hide Chevron's litigation risk in Ecuador from shareholders."
Chevron has been under increasing pressure from large shareholders and environmental groups to more fully disclose the litigation risk in Ecuador. In March, the environmental group Amazon Watch urged the SEC to impose a "substantial" fine on Chevron for misrepresenting the lawsuit to shareholders. The group said the oil giant has "spoon fed" Chevron shareholders a "series of falsifications, exaggerations, omissions, and misleading public statements..." regarding the environmental case.
The Amazon Watch letter to the SEC can be seen at www.chevrontoxico.com. Separately, the New York City pension fund - which owns roughly $600 million of Chevron stock -- has sponsored shareholder's resolutions urging the company to reassess its approach to the Ecuador litigation.
Events for Chevron took an ominous turn in March when an independent, court-appointed special master found that environmental and other damages were between $7.2 billion and $16.3 billion. As the party found responsible for the contamination, Chevron would have to pay 100% of the damages if the judge accepts the report.
The release of the special master report prompted Chevron for the first time to disclose its potential liability in a May filing with the SEC. In that report, Chevron claimed the lawsuit "lacks legal or factual merit" and that the special master report cannot be used as a basis for calculating Chevron's potential exposure even though the practice is customary in Ecuadorian jurisprudence.
Yet three months earlier, in a non-public document submitted to the United States Trade Representative, Chevron presented an entirely different and more negative spin on its litigation risk. That's where Chevron said it expects an "enormous financial liability" in the near term from the case. Chevron has requested that USTR cancel Ecuador's trade preferences to pressure the government of Ecuador to have the lawsuit dismissed.
The legal battle has become bitter as the plaintiffs assert hundreds of rainforest residents have died of cancer and other diseases because Texaco (bought by Chevron in 2001) used sub-standard practices in the rainforest. The company had admitted it dumped more than 18 billion gallons of toxic waste into Amazon waterways and gouged roughly 1,000 unlined toxic waste pits out of the jungle floor, which the plaintiffs assert are still leeching toxins in soils and groundwater.
Texaco operated a 1,700 square mile concession in Ecuador's Amazon, containing more than 350 wells, from 1964 to 1990.
As the case in Ecuador comes to a close, Chevron has hired several A-list Washington lobbyists to convince the Bush Administration to cancel Ecuador's trade preferences as retaliation for letting the lawsuit proceed. The plaintiffs have accused Chevron of trying to undermine the rule of the law in both Ecuador and the U.S. by misleading the USTR and Congress. Indigenous leaders are planning a trip to Washington in September to counter Chevron's inaccurate information.
Because of the extent of the contamination, locals call the concession where Texaco operated the "Rainforest Chernobyl". A final decision on liability is expected in 2009.
Chevron reported a $18.7 billion profit in 2007, up from $17.1 billion in 2006. Its first quarter profit in 2008 was $5.17 billion, a 10% increase over 2007.
About the Amazon Defense Coalition
The Amazon Defense Coalition represents dozens of rainforest communities and five indigenous groups that inhabit Ecuador's Northern Amazon region. The mission of the Coalition is to protect the environment and secure social justice through grass roots organizing, political advocacy, and litigation.