Watchdog lawyer sues Shell, execs over reserves

Economic Times: Watchdog lawyer sues Shell, execs over reserves

Posted 27 June 04

NEW YORK: The army of lawyers swarming around Royal Dutch/Shell Group, which touched off a collapse in its stock price after it admitted inflating proved reserves, has just been joined by a well-known veteran.

Securities lawyer William Lerach, a lead player in many of the biggest shareholder class action suits of the past two decades, on Friday filed a shareholder derivative lawsuit against Shell and its executives in a New Jersey state court.

The suit on behalf of the UNITE National Retirement Fund and the Plumbers and Pipefitters National Pension Fund — alleges Shell directors and auditors failed to properly monitor company management, which ran afoul of new Sarbanes-Oxley corporate reform rules in the United States.

“Our clients view this as a massive oversight failure by the boards of directors,” Lerach said in a news conference. “It is not a class action suit on behalf of defrauded investors; it attempts to recover from directors the damage their misduties caused the company.”

A Shell spokeswoman said the company had not seen the suit and declined to comment.

Shell, in four separate instances this year, disclosed it had exaggerated commercially producible oil and gas by 4.5 billion barrels, or 22 percent of its total. Shell must restate hundreds of millions of dollars in reported earnings.

Lerach’s suit targets Shell’s directors, former and current senior executives and corporate auditors PriceWaterhouseCoopers and KPMG, citing their failure to stop the overstatement of reserves.

The two pension funds are not seeking direct reimbursement for stock market losses, Lerach said. Rather the 172-page suit wants executives to return to the company any bonuses and severance payments that reflected inflated performance.

The suit also looks to force sweeping changes at the century-old company. Shell is 60 percent owned by Royal Dutch Petroleum and 40 per cent held by Shell Trading & Transport, with headquarters in Amsterdam and London.

Lerach’s firm argues their case takes a new tack, starting with the decision to file in a New Jersey state court. The other shareholder lawsuits are in federal court.

It is also one of the first U.S. suits to target foreign executives under Sarbanes Oxley, and the first of the Shell reserves lawsuits to accuse its auditors of malpractice.

To be sure, Lerach arrives on the scene five months after the first Shell reserves suit was filed in New Jersey Federal Court. Since then about 20 suits have been filed seeking reimbursement for losses suffered in the stock market.

Last month, U.S. Chief Judge John Bissell assigned the coveted lead roles in a class action lawsuit to Pennsylvania State Employees’ Retirement System, the Pennsylvania Public School Employees’ Retirement System and law firm Bernstein Liebhard & Lifshitz. He has not yet issued a formal order.

Still, Lerach’s participation is news in legal circles.

Lerach in April split with his partner of more than 20 years, Melvyn Weiss, and the firm Milberg Weiss Bershad Hynes & Lerach. In some ways, the two will be competing for the first time as they seek damages from Shell, since Milberg Weiss has already filed a suit against the company.

“The fact that it’s Bill Lerach is meaningful,” said Henry Hu, corporate and securities law professor at the University of Texas. “He was part of the law firm that was the 800-pound gorilla in terms of securities class actions.” For most investors, the latest suit is not a big deal.

“It comes with the territory. You get any number of firms,” said energy analyst James Halloran of National City Wealth Management. “I can’t get worked up.”

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