Chevron in Ecuador

The archive of the Clean Up Ecuador campaign website

Report: Chevron Misleading Investors Over Ecuador Environmental Judgment

Amazon Defense Coalition

Amazon Defense Coalition
Contact: Karen Hinton at +1.703.798.3109

New York, NY – Chevron's 2011 annual report (Form 10-K) misleads shareholders and the financial markets with information that is either demonstrably false or materially misleading regarding the $18 billion judgment against the company in Ecuador for causing environmental damage, according to a new report published by the Amazon Defense Coalition.

The misleading information is so severe that the company might be committing securities fraud in violation of the U.S. Securities Act, according to the report, authored by Graham Erion, a Canadian securities lawyer licensed to practice in New York who is advising the rainforest communities in Ecuador that won the judgment.

"Chevron is simply refusing to disclose the material financial risks it faces over the Ecuador litigation, and in fact appears to be actively trying to hide those risks from its investors and the markets," said Erion, who studied Chevron's disclosures relative to the Ecuador matter over the last several years.

Chevron is obligated under the U.S. Securities Acts of 1933 and 1934 to disclose material information about its business operations to enable investors to make informed investment decisions about the company.

Misleading or false disclosures can be criminally or civilly sanctioned by the Securities and Exchange Commission or the Department of Justice, and can lead to civil litigation against the company by private investors.

A summary of Erion's findings with regard to Chevron's public filings is as follows:

  • Chevron refuses to disclose the impact of the potential enforcement of the Ecuador judgment against its assets in countries around the world – even though a high-level company official recently stated under oath that such enforcement would cause "irreparable injury" to Chevron's business reputation and business relationships.
  • Chevron claims that it cannot estimate its potential loss in the case – despite an $18.1 billion judgment affirmed on appeal in Ecuador a full six weeks before the most recent Form 10-K was filed.
  • Chevron explained numerous legal rulings in the U.S. and Ecuador in a misleading fashion, trying to minimize their negative implications for the company.
  • Chevron made demonstrably false statements that Ecuadorian courts lack jurisdiction and the statute of limitations bars the claims of the plaintiffs – despite the fact Chevron voluntarily submitted to the jurisdiction of Ecuador's courts and waived statute of limitations claims as a condition of the case being transferred out of U.S. federal court in 2002.
  • Chevron made misleading statements that the Ecuador lawsuit was barred by a release obtained from the government of Ecuador in 1998, when in fact the release expressly carved out the legal claims of the rainforest communities. See here.
  • Chevron attempted to downplay the fact its Ecuador subsidiary was the sole operator of the oil fields that created the pollution at issue in the trial, a key legal fact for assigning liability.

Chevron's latest annual report also ignores a 2009 letter to the company by then New York Attorney General Andrew Cuomo seeking information on whether the company properly disclosed all risks associated with its Ecuador liability. It also disregards a recent letter from numerous Chevron institutional shareholders – representing $156 billion of assets – calling on the company "to fully disclose ... the risks to its operations and business from the potential enforcement" of the Ecuador judgment.

Karen Hinton, the spokesperson for the Ecuadorians, said the purpose of releasing Erion's report was to inform investors and the financial markets that Chevron is not disclosing all material facts about the Ecuador litigation.

"This perspective and the public materials referenced are not readily available to the investing public," Hinton said. "Securities regulators need to be aware of these facts so they can better protect investors and the US capital markets."

Hinton added: "Our indigenous clients are slowly dying off because of Chevron's pollution, so we are not going to sit on the sidelines and watch the company mislead its own shareholders without saying something. People can obviously make their own independent judgments about these issues, but we are not going to be shy about sharing ours."

In February 2011, an Ecuador trial court found overwhelming scientific evidence that Chevron deliberately dumped billions of gallons of toxic waste into Amazon waterways when it operated in Ecuador under the Texaco brand from 1964 to 1992. An appellate court upheld the decision in January 2012. The dumping decimated indigenous groups and caused an outbreak of cancer that could lead to thousands of deaths in the coming years, according to evidence before the court. See here and here.

Erion, who is licensed to practice law in Ontario and New York, has an LL.M. (Kent Scholar) from Columbia University and a LL.B. from Osgoode Hall Law School in Toronto. He practiced corporate and securities law at two leading Canadian firms, and has published multiple articles on securities law and corporate disclosure including one on securities-related litigation in the Review of European Community and International Environmental Law.