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BP Fund Is a Magnet for Fraud, Experts Say

A version of this article appeared in print on June 19, 2010, on page A11 of the New York edition.


The $20 billion BP compensation fund announced by the Obama administration this week has those along the coast hoping that it will provide a more benevolent gusher than the one at the bottom of the Gulf of Mexico.

While it has been applauded as an advance in addressing economic losses, the fund will also be a lure for the unscrupulous, said Richard A. Nagareda, a professor at Vanderbilt University Law School and an expert on mass litigation. “Any time you put a multibillion-dollar pot out there, you’ve just got to be really careful,” Professor Nagareda said. “The vast majority of lawyers involved are people of integrity, but that doesn’t describe all of the legal profession.”

Kenneth R. Feinberg, the man named by President Obama to head the fund, agreed, saying that fraud was an issue that “has to be addressed.”

“Nothing can undercut the credibility of a program more than the perception that you’re paying fraudulent claims,” said Mr. Feinberg, who administered the settlement for victims of the 9/11 attacks and has done similar work for people affected by Hurricane Katrina, the defoliant Agent Orange and the 2007 killings at Virginia Tech University.

The key to fighting fraud, he said, is corroboration of large claims. Of the 7,300 claims processed in the $7 billion 9/11 fund, he said, his team determined that 35 were fraudulent. “Some people went to jail, others paid a fine,” he said.

Emergency claims, which tend to be smaller, will not get that kind of scrutiny, he said. “You’ve got to get these payments out quicker, so people can stay in business and pay the light bill and put food on the table.”

BP, which has insisted that it will pay all “legitimate claims,” has sent out 25,000 checks totaling $63 million so far. But gulf residents have complained that the company has dragged its feet on many claims. The White House, in announcing the independent program, stressed that it was intended to address economic losses and that it would not be tied to other forms of liability or penalties.

Some members of Congress called this week for BP’s minority partners in the doomed Macondo well, Anadarko Petroleum and Mitsui, to also contribute to the escrow fund.

In a statement on Friday, Anadarko emphatically rejected the notion that it was liable and said it was “shocked” by mounting evidence that “BP operated unsafely and failed to monitor and react to several critical warning signs during the drilling of the Macondo well. BP’s behavior and actions likely represent gross negligence or willful misconduct and thus affect the obligations of the parties under the operating agreement.”

Mr. Feinberg said he hoped to have a plan in place in 30 days to determine what kinds of claims would be paid and how far BP’s liability would extend. He relies on state law, he said. In Louisiana, he said, fishermen working in the gulf who claim a loss from the spill would not have trouble establishing a causal link.

But, he said, it would be a different result “if you’re an Omaha restaurant and you say your restaurant is losing business because you can’t get a certain kind of shrimp.”

Long-term health effects can be a challenge in such cases, said Elizabeth Chamblee Burch, an assistant professor at Florida State University College of Law and an expert in class-action procedure. The fund “will have to address whether people who receive compensation on the front end will be precluded from bringing claims later on if they develop more serious injuries,” she said.

Mr. Feinberg has dealt with such issues in the Agent Orange and 9/11 cases. He gave those making claims a choice: document their current disease and get compensation, or opt out of the program and sue.

“If you go to court, you’re rolling the dice,” Mr. Feinberg said.

“Your lawyer will get 40 percent, you’ll wait five years and there’s no guarantee you’ll succeed.”

New York Times Article


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