Some Consolation for BP: Corruption Found in Oil Spill Compensation

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The shadow of BP’s (NYSE:BP) 2010 Gulf of Mexico oil spill is a long one. The company has spent more than $25 billion cleaning up marshes, fisheries, and beaches along the Gulf Coast and compensating victims. And that spending is just the tip of the company’s spill bill iceberg: $42.4 billion has been spent or earmarked for spending on cleanup, compensation, fines, and other costs.

The cost of the disaster has grown to such massive proportions that in recent months, the company has taken to legal tactics to cap its financial tab. In particular, the oil producer wants to renegotiate the terms of a settlement it made last year with the individuals and business harmed by the spill, a desire BP has pursued in the courts.

Up until approximately six months ago, BP attempted to cooperate with the mountain of litigation that government agencies, private individuals, and businesses dumped on a court docket following the 2010 Gulf of Mexico oil spill. But in February, that changed. The company stopped pursuing a settlement for the federal government’s civil charges, and a trial began in a New Orleans district court.

Several months later, when the restitution payments to victims started to overshoot the company’s original $7.8 billion estimate, BP began to contest the manner in which restitution payments were awarded, arguing in a formal complaint that court-appointed fund administrator Patrick Juneau compensated “fictitious and inflated losses.” Costs have now soared above $9.6 billion, and further increases will push the bill over $42.4 billion.

The company also tried a separate approach — BP claimed that a senior lawyers working for the administrator referred claims to a New Orleans law firm in exchange for a share of subsequent settlement payments. Former FBI Director Louis Freeh was charged with examining the payout program, and for months, BP asked that the U.S. District Court in New Orleans suspend the payouts until Freeh concludes his investigation. But for the court, that allegation was not cause enough to halt the payments while the claims were investigated.

In a filing submitted to the court in early August, BP said it discovered that two lawyers reviewing appeals of disputed claims were partners at law firms that represented claimants before the Court Supervised Settlement Program. The information was acquired by simply cross-indexing lawyer partnerships and operating a fraud hotline.

Through that tip line, the company learned that a worker at a Mobile, Alabama, claims center helped individuals submit fraudulent claims in return for a share of the restitution payment. But the court “concluded that the allegations were uncorroborated and that there was no evidence of internal fraud with respect to any of those claims,” Juneau said in a court filing seen by the Financial Times.

However, Freeh did find “pervasive” improper and unethical conduct by some senior lawyers involved in the payouts, U.K. newspaper The Telegraph reported on Saturday. He found that the two attorneys involved in the claims process “may have violated the federal criminal statutes regarding fraud, money laundering, conspiracy or perjury.“

In particular, Freeh’s report said that two private attorneys — Glen Lerner and Jon Andry — used Lionel Sutton, a lawyer on Juneau’s staff, to process a $7.9 million claim made by their firm more quickly, according to the publication. In exchange, Sutton was paid more than $40,000 in fees from payments on claims that he referred to that law firm before joining Juneau’s staff, the report said.

But Freeh also said that the evidence was not enough to warrant a halt of the payments, as BP has requested. He did recommend that the Department of Justice and the U.S. Attorney’s Office consider whether to press charges against Sutton, Lerner, Andry, and Sutton’s wife, Christine Reitano, who also worked as a lawyer on Juneau’s staff.

Additionally, he said the court should consider disallowing the $7.9 million payment based on “long-held principles of equity which prohibit a party before the court to benefit and enrich itself after having engaged in dishonest, unethical and improper conduct,” The Telegraph reports.

“In this matter, the conduct of The Andry Law Firm is particularly egregious,” Freeh wrote. “In effect, Mr. Jon Andry’s AndryLerner firm was making secret, improper payments to Mr. Sutton at the precise time Mr. Sutton was a senior CAO attorney, working in concert with Mr. Jon Andry to expedite payment of The Andry Law Firm claim.”

Sutton resigned from his job on Juneau’s staff in June, and Reitano was fired that same month. Sutton’s attorney, Michael Walsh, has maintained that Freeh’s allegations were “absolutely unfounded,” and James Cobb, Andry’s lawyer, told The Associated Press that it appeared to him that “Freeh reached a conclusion first and then worked his way backwards, citing facts which are unsupported in the record.”

While many of the senior attorneys involved in the settlement payments “engaged in dishonest, unethical and improper conduct,” Juneau himself was cleared of misconduct. As he told The Telegraph, the corruption was an “isolated situation,” one that was both “shocking” and proof that “neither BP nor the public has had any idea of what’s really going on” in the claims program. “We will continue the job of processing claims,” he said to the publication. “We welcome the recommendations from the Freeh report and we look forward to working with him to help improve all aspects of the claims process.”

As for BP, company spokesman Geoff Morrell told The Telegraph that the report confirmed “what BP has suspected for some time: there has been fraud and unethical conduct within the facility itself and among various claimants and their lawyers — and immediate steps need to be taken to prevent it in the future.”

Follow Meghan on Twitter @MFoley_WSCS

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