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Newark Star-Ledger: Judge to choose lead plaintiffs in Shell oil reserve fraud case

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“This is a fraud that was orchestrated apparently at the highest levels of the company, extending over many, many years, and executed knowing that this is defrauding the public.”

Newark Star-Ledger: Judge to choose lead plaintiffs in Shell oil reserve fraud case

BY KATE COSCARELLI

Star-Ledger Staff

Wednesday, May 12, 2004

A federal judge in Newark is expected to issue the first significant ruling in a securities fraud complaint against Royal Dutch/Shell Group in what is being regarded as one of the largest cases of its kind.

In the coming days, U.S. District Chief Judge John W. Bissell will issue a decision assigning the lead plaintiffs and lawyers in the case.

For lead plaintiffs, the judge indicated at a hearing last week that he would pick the Pennsylvania state employees retirement system and teachers retirement system, which lost about $70 million in investments in Shell stock when it plummeted earlier this year.

Stanley Bernstein, a New York lawyer, is representing those investors. Bissell indicated he may select an additional law firm to serve as co-counsel.

The position of lead plaintiff and lead attorney is central in cases like this, legal experts said. They often make key decisions and the attorneys collect the biggest fees.

“They are the people that run the litigation,” said Joseph Grundfest, a former commissioner of the Securities and Exchange Commission who now directs Stanford University Law School’s Securities Class Actions Clearinghouse. “And if and when there is a settlement, they get the largest share of the attorneys’ fees. It is a very valuable position.”

As for investors who may have lost money as a result of the stock drop, history shows they usually recoup just pennies on the dollar, said Grundfest.

The case was filed in January, about two weeks after the Anglo- Dutch oil giant announced that following an internal review, it was reducing by 20 percent the amount of oil and natural gas it had in proven reserves. Reserve estimates are a key measure of an oil company’s worth and future strength.

Since that announcement, the market has been jolted by revelations of alleged fraud. Shell’s chairman and the head of exploration and production were asked to resign. In March and again in April, the company restated its reserves, further reducing the total.

In the United States, the Justice Department and Securities and Exchange Commission have both opened investigations into Shell, the world’s third-largest oil company. European agencies are also investigating.

In Newark, a number of shareholder lawsuits have been filed that are being consolidated. Lawyers said they were filed here because the company has several gasoline distribution terminals in New Jersey.

The complaints allege Shell reported “materially false and misleading information” about its reserves and cash flow. As a result, the company “was able to inflate its share price, maintain its credit rating and maintain its status in the petroleum industry as a leader,” court papers state.

It is unclear how many people were impacted by the alleged fraud. But the case is regarded as one of the most significant securities fraud actions because of the size of the company, which operates in 145 countries and territories. What’s more, the class period is five years, beginning in 1999, which is relatively long in this type of litigation, experts said.

The case takes on added importance because of the role gas and oil play in the economy, said Bradley Beckworth, who is representing the Oklahoma retired teachers fund.

“The scope, the breadth, the depth — together, you are talking about one very significant case,” said Bernstein. “This is a fraud that was orchestrated apparently at the highest levels of the company, extending over many, many years, and executed knowing that this is defrauding the public.”

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