The Independent: Regulators to pursue former Shell chiefs over market abuse: “The UK's market regulator set out in detail a pattern of "false and misleading" information given to the market between 1998 and 2003 which Shell did not start to correct until January this year.” (ShellNews.net)

Saeed Shah

United Kingdom; Aug 25, 2004

REGULATORS IN the UK and US will pursue the individuals responsible for the overstatement of reserves at Shell after the watchdogs yesterday agreed fines of pounds 84m over the scandal.

Although the oil group had announced last month that it had offered to pay $120m (pounds 67m) to the US Securities & Exchange Commission and pounds 17m to its UK equivalent, the Financial Services Authority, it was only yesterday that the regulators agreed to the penalties. The FSA's fine, for market abuse and breaching the listing rules, dwarfs its previous highest penalty - pounds 4m against Credit Suisse First Boston in 2002.

Three senior managers have left Shell in the wake of the reserves crisis, which emerged in January. Sir Philip Watts, the former chairman, and Walter van de Vijver, who was head of exploration and production, were sacked in March. In April, the finance director, Judy Boynton, agreed to "step aside" although she continued to work as an adviser to the company for some weeks.

Harold Degenhardt, the administrator of the SEC's Fort Worth office, said: "As our investigation continues, we intend to focus on, among other things, the people responsible for Shell's failures."

Similarly, the FSA said that although its inquiry into Shell's misconduct was closed, "investigations into other aspects of this matter are ongoing". As with companies, the FSA has the power to impose unlimited fines on individuals.

Sir Philip received a pay-off of pounds 1m, it was announced in June. Earlier this month, Shell said it had agreed to pay Mr van de Vijver pounds 2.5m, in instalments and "subject to continuing co-operation with and review by the relevant authorities". Sir Philip's compensation was not subject to any such conditions.

A Shell spokesman said the difference in the size of the two awards reflected the fact that Mr van de Vijver would have had many years of his career left at Shell, whereas 59-year-old Sir Philip was due to retire next year.

Andrew Procter, the director of enforcement at the FSA, said: "The FSA views timely and accurate disclosure to shareholders and markets as fundamental to maintaining the integrity of the UK's financial markets. The size of the penalty in this case reflects the seriousness of Shell's misconduct and the impact it had on markets and shareholders."

The UK's market regulator set out in detail a pattern of "false and misleading" information given to the market between 1998 and 2003 which Shell did not start to correct until January this year. The FSA said the company had been alerted to the problem through repeated warnings, from internal and external sources, between 2000 and 2003 but chose not to act on them.

Shell has now admitted that it overbooked 4.47 billion barrels of oil - 25 per cent of its proven reserves.

The SEC said: "These failures led Shell to record and maintain proved reserves it knew or was reckless in not knowing did not satisfy SEC requirements, and to report for certain years a stronger RRR [reserves] than it actually had achieved.... Shell either rejected the warnings as immaterial or unduly pessimistic, or attempted to `manage' the potential exposure."

In the US, the Department of Justice is conducting a criminal inquiry into the affair.

A series of shareholder lawsuits have been filed against Shell. In agreeing to pay the fines, the company did not admit nor deny the regulators' findings. The SEC and the FSA acknowledged Shell's co-operation with their investigations, without which the fines would have been higher.