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U.K. FSA Asks for Ruling on Ex-Shell Boss’s Challenge

BLOOMBERG: U.K. FSA Asks for Ruling on Ex-Shell Boss’s Challenge

“Class-Action Ammunition: While Watts wasn’t identified by name in the FSA’s notice, it may provide ammunition in the class-action suits filed against him.”: “Watts, 59, asked for the tribunal to challenge the notice the FSA published when Shell agreed to pay fines of $150 million in Britain and the U.S.

Oct. 18 (Bloomberg) — The U.K.’s financial regulator will ask a tribunal to decide whether former Royal Dutch/Shell Group chairman Philip Watts was “identified and prejudiced” by the regulator’s penalty against Shell for overstating oil reserves.

“We are confident that he was not and that the tribunal will agree with us,” the Financial Services Authority said in an e- mailed statement. “This would mean that the tribunal will have no jurisdiction to consider the other matters which Sir Philip has referred to the tribunal.”

The overstatement of Shell’s reserves, first disclosed on Jan. 9, led to more than a dozen shareholder lawsuits, the loss of the company’s top-tier credit rating and the departure of Watts and two other executives. The former chairman’s defense may slow Shell’s efforts to move forward, investors have said.

Shell settled with the FSA for a record 17 million pounds ($31 million) and also settled with the U.S. Securities and Exchange Commission in July this year. In August, the two regulators signaled they are pursuing individuals at the company, without naming them.

Class-Action Ammunition

While Watts wasn’t identified by name in the FSA’s notice, it may provide ammunition in the class-action suits filed against him. Watts has said he acted within Shell guidelines, that the FSA findings were “fundamentally flawed” and he should have been able to challenge them.

“If the FSA wins on either of the points, that’s the end of the matter,” said Dorian Drew, an enforcement lawyer at London- based law firm Norton Rose. “If the FSA loses, then the tribunal will have to deal with the substantive points Sir Philip is making. It could be that the FSA has to at least amend or correct its Shell notice insofar as he is concerned.”

Watts said on Sept. 16 he’s challenging the FSA’s finding that implicated him in “unprecedented misconduct” when Shell overstated its reserves. Watts, 59, asked for the tribunal to challenge the notice the FSA published when Shell agreed to pay fines of $150 million in Britain and the U.S.

The FSA said it’s continuing its investigation and said Watts had agreed to its proposal that the tribunal reach a decision on the issue of identification and prejudice, before considering any other matters if necessary.

“We have further enquiries which we are pursuing and we have made no determination whether, if at all, any individual is at fault,” the FSA said. “If and when the need arises, we will ensure that any affected parties are given their full rights.”

Defense

In a 19-page statement filed to the tribunal, Watts said he relied on reviews by Shell experts of the company’s reserves and that he “is not an expert” in estimating them or the reporting of them under U.S. Securities and Exchange Commission rules.

Under SEC rules, proven oil and gas reserves are those that offer a “reasonable certainty” of recovery. Proven reserves are a measure of an oil company’s value and growth potential.

Watts, who ran Shell’s oil and gas division from 1997 to 2001, in the statement said reserves removed from Shell’s books had been recorded as early as 1986 and as late as 2002, before and after the period during which he led the unit.

Shell also settled in August with the U.S. Securities and Exchange Commission. Shell, based in London and The Hague, neither admitted nor denied wrongdoing. The SEC was still continuing its investigation into “the people responsible for Shell’s failures,” Harold F. Degenhardt, the administrator of the SEC’s Fort Worth, Texas, office said in a statement Aug. 24.

“This is a matter between Sir Philip and the FSA,” said Andy Corrigan, a Shell spokesman in London today. “We cannot comment further.”

Asked To Resign

Watts and Shell’s former head of oil and gas, Walter van de Vijver, were asked to resign March 3 after Shell’s boards lost confidence in them. Judy Boynton lost her position as chief financial officer in April, while remaining a Shell employee.

On Jan. 9, Shell said it had wrongly booked a fifth of its proven oil and gas reserves. Three more reductions followed, bringing the total removed to 23 percent, or 4.5 billion barrels of oil equivalent.

The FSA is under pressure as more companies and individuals challenge its sanctions and the way it arrived at them. Chairman Callum McCarthy has twice this month cautioned about the use of the Financial Services and Markets Tribunal, which was set up by the U.K. government to hear challenges to FSA penalties.

Appeals Increasing

His remarks come as the regulator faces a number of pending appeals, including one from Legal & General Group Plc, Britain’s fourth-biggest insurer, marking the first time a FTSE 100 company has openly defied an FSA penalty.

McCarthy and FSA Chief Executive John Tiner imposed a record 27.3 million pounds of fines in their first year of office, more than double their predecessor. Now the regulator faces an increasing number of challenges to its enforcement practices, with 23 appeals pending at the tribunal so far this year compared with 24 in total in 2003.

The watchdog said today it’s hired Lord Grabiner QC to represent its case to the tribunal. He’s one of the country’s highest-paid advocates, charges as much as 3,000 pounds an hour and earns 3 million pounds a year, according to the Lawyer magazine. The FSA is also represented by Javan Herberg.

Watts has hired a former FSA enforcement chief, Martyn Hopper.

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