Chevron Censored Shareholders Who Wanted to Challenge Management Over $19 Billion Ecuador Liability
Amazon Defense Coalition
31 July 2012 - FOR IMMEDIATE RELEASE
Contact: Karen Hinton at +1.703.798.3109
San Ramon, CA – Chevron's top management – including Chief Financial Officer Patrician Yarrington – appeared to be censoring shareholders who wanted to pose some tough questions about the company's $19 billion Ecuador environmental liability during its quarterly earnings call last Friday, according to several sources.
During the call, which lasted more than an hour, Yarrington refused to let three shareholders with a known history of criticizing Chevron over the Ecuador liability ask questions. One of the shareholders, Larry Dohr of Newground Social Investment, had previously asked for the SEC to determine whether Chevron management is misleading shareholders over the issue. See letter here.
Another shareholder who was shut out of the call, Simon Billenness of the Unitarian Univeralist Association, authored an independent analysis of the company's risk on the Ecuador case. The third shareholder who wanted to ask a question but was denied was Sonia Kowel, from Zevin Asset Management.
Zevin Asset Management was one of 40 institutional shareholders that signed on to a letter blasting Chevron for causing "severe" reputational damage by its bungling of the Ecuador case.
"This is a clear case of censorship by Chevron management that is part of a longstanding pattern of covering up the enormous risk faced by shareholders over the Ecuador liability," said Karen Hinton, the U.S. spokesperson for the Ecuadorians.
"It is pretty clear that Chevron management maintains a list of shareholders that it wants to silence on earnings calls," she added.
The refusal to call on the three shareholders comes after Chevron CEO John Watson suffered a humiliating rebuke over the Ecuador issue at the company's annual meeting in May. See here. Separately, several shareholders and U.S. Congresswoman Jan Schakowsky (D-Ill) have called on the SEC to investigate growing evidence that Chevron violated U.S. securities laws by failing to disclose material information about the Ecuador liability.
Dohrs said he wanted to use the earnings call to ask whether Chevron had set aside a reserve to cover the Ecuador judgment, the largest in history for an environmental case and one that could eat up almost the entire amount of the company's annual profits. Chevron is the second largest oil company in the U.S. after ExxonMobil and in 2011 earned approximately $27 billion in profits on $244 billion in revenue.
Chevron also faces enforcement actions filed by the Ecuadorian plaintiffs that target billions of dollars of key company assets in Canada and Brazil, jurisdictions critical to the oil major's long-term growth. The Ecuadorian plaintiffs – mostly indigenous and farmer communities in the Amazon rainforest who have suffered through decades of oil pollution – also have ordered their lawyers to file actions to seize Chevron assets in other countries around the world, said Hinton.
An Ecuador court last week increased the damages award against Chevron to $19.02 billion after calculating various mandatory costs. The previous total was $18.2 billion.
Dohrs told the Amazon Defense Coalition that he was not happy with being shut out of the earnings call, where Yarrington clearly favored certain analysts who stick to company talking points about the Ecuador case in their own reporting.
"It is nothing less than outrageous that Chevron appears to be denying the right of shareholders to pose fundamental questions about the largest legal judgment faced by any oil company in the world," Dohrs said.
"Shareholders need to know if Chevron is setting aside funds to satisfy the Ecuador judgment rather than risk the loss of strategic assets," he added.
Billenness, of the Unitarian Universalist Association, said he had planned to ask how much interest mandated by statute in Canada could increase the size of the judgment. Canada has a law that permits interest to run on a foreign judgment, potentially adding $250 million annually to Chevron's Ecuador tab, according to the plaintiffs – a fact Chevron has yet to disclose in its public filings.
Chevron management seems to be exhibiting thin skin over the Ecuador case.
CEO Watson has been heavily criticized for having a conflict of interest given that he failed to adequately vet Texaco for the Ecuador liability when the two oil giants merged in 2001, said Hinton. At the time, Watson was the Chevron official in charge of the merger.
Under Watson's leadership, Chevron has suffered a series of devastating legal setbacks in the Ecuador case and has been caught trying to bribe Ecuador government officials, threatening judges to rule in its favor and mounting an espionage campaign against lawyers for the rainforest communities. Its lead outside law firm, Gibson Dunn & Crutcher, has been sanctioned and criticized for committing ethical violations on Chevron's behalf.
Just last month, Chevron management snubbed a group of 40 institutional shareholders (who collectively manage $580 billion in assets) who wanted to meet to discuss the company's strategy toward the Ecuador case. See letter here.
"By refusing to let shareholders air their questions and concerns, Chevron's management continues to engage in a pattern of deception to try to hide the true extent of its Ecuador liability from the financial markets," said Graham Erion, a securities lawyer who advises the plaintiffs and wrote a detailed report on Chevron's breaches of U.S. disclosure laws. See here.
"Chevron management is burying its head in the sand over the Ecuador issue even though some important institutional shareholders are posing critical questions that merit a full, complete, and honest response," said Erion.
Erion cited a number of recent instances where Chevron management has deliberately misled analysts and investors over the Ecuador case, including:
**In June, CEO Watson told an audience at Morgan Stanley that the Ecuador case is "very low risk…our view is this issue has significantly receded from relevance for [Chevron] since 2009." In reality, Chevron's legal position has significantly deteriorated since 2009, with the company losing the $19 billion judgment and appeal in Ecuador; losing a key U.S. appellate court decision that reversed a preliminary injunction blocking enforcement of the Ecuador judgment; and watching 15 courts reject or refuse to accept its fabricated "fraud" charges against the plaintiffs.
**At the 2012 Chevron annual meeting, Watson called the Ecuadorians and their counsel "criminals" – a shocking lack of professionalism demonstrating that the CEO is unable to separate his personal feelings from his fiduciary responsibilities to shareholders, said Erion. Watson faced a revolt over the lawsuit when shareholders holding over 38% of Chevron's stock, representing $73 billion worth of shareholder value, supported a resolution to separate Watson's dual role of Board Chairman and CEO due in part to problems created by the Ecuador lawsuit. See here.
"Chevron's Board should force Watson to recuse himself from all decisions relating to Ecuador given his clear conflict of interest," said Erion.
Despite Chevron's campaign to silence its shareholder critics, some analysts are seeing beyond the company's spin. Oppenheimer & Co. wrote earlier this year that a "reasonable settlement" in the case "could boost the stock" of Chevron. See here. Other analysts have sharply criticized the company, saying its stock price could drop 20% as a result of the lawsuit.
A summary of the evidence that the court used to convict the company and a short video about Chevron's human rights violations against indigenous groups in Ecuador can be found here.