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Newark Star Ledger, NJ: Judge allows Shell fraud case to go forward

Newark Star Ledger, NJ: Judge allows Shell fraud case to go forward

“A Newark federal judge has ruled a massive securities fraud case against the world’s third-largest oil company can go forward.”: “The allegations were “adequately” made that the oil company “engaged in material and substantial fraudulent conduct in the United States,” Bissell wrote in the ruling issued last week.”: “A settlement in a separate case brought by pension holders who claimed losses as a result of the stock price drop, is expected to be wrapped up by the end of the month, court officials said yesterday. Shell has agreed to pay about $90 million to compensate the pensions.”

Tuesday, August 16, 2005

Overstatement of oil reserves triggered massive stock losses

BY KATE COSCARELLI

Star-Ledger Staff

A Newark federal judge has ruled a massive securities fraud case against the world’s third-largest oil company can go forward.

U.S. District Court Chief Judge John Bissell issued a 147-page ruling noting the case against Royal Dutch/Shell had merit in American courts and could include foreign investors.

The case is rooted in a steep drop in Shell’s stock last year when the company said it had overstated its oil reserves, one of the key measures of an oil company’s wealth and future strength.

The allegations were “adequately” made that the oil company “engaged in material and substantial fraudulent conduct in the United States,” Bissell wrote in the ruling issued last week.

Further, he wrote, a company that operates in 145 countries and territories and has most of its business outside of the United States does not necessarily preclude it from being held accountable here. The case was filed in New Jersey because the company has several gasoline distribution terminals in New Jersey.

“Just as foreign stock exchange data and information is pertinent to United States investors, the reverse is also true,” Bissell wrote.

It is unclear how many people were impacted by the alleged fraud. Legal experts are watching the case closely because it is regarded as one of the most significant securities fraud actions due to its size and the length of the class period, which is roughly five years.

While the ruling marks an early victory for the plaintiffs, it does not guarantee a win. The decision will allow the case to move forward to the discovery phase where each side must provide information to the other. No trial date has yet been set.

Attorneys for the investors, who lost untold millions, said yesterday they were pleased with the decision issued Wednesday, even though the judge did dismiss a few individual defendants from the case.

“The core allegations were sustained. The core defendants were sustained. We are very satisfied,” lead attorney Stanley Bernstein said.

The attorneys are reviewing what options may be available to bring some of those who were dismissed back into the case, Bernstein said.

Royal Dutch/Shell officials did not respond to requests for comment yesterday.

The case began in January 2004. The suit was filed about two weeks after the oil company announced that, as a result of an internal review, it was reducing its proven reserves of natural gas and oil by 20 percent. The complaint claimed Shell gave false information about its reserves and cash flow to boost its stock price.

Following the news about the reserves, the market was further jolted by revelations of alleged fraud. Shell’s chairman and head of exploration and production were asked to resign. The company had to restate its reserves twice. Those developments spurred investigations by the U.S. Justice Department, the Securities and Exchange Commission and European authorities.

A settlement in a separate case brought by pension holders who claimed losses as a result of the stock price drop, is expected to be wrapped up by the end of the month, court officials said yesterday. Shell has agreed to pay about $90 million to compensate the pensions.

In a separate development, Connell Foley announced that this fall, Judge Bissell will join the Roseland law firm as chair of the alternative dispute resolution department. He has served 27 years on state and federal courts in New Jersey, including as chief judge of the district court for the past four years.

It is unclear who will take over the Shell case when Bissell retires Sept. 1.

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