Chevron in Ecuador

The archive of the Clean Up Ecuador campaign website

Chevron Deceiving SEC and Shareholders Over $19 Billion Ecuador Liability, Says New Report

Amazon Defense Coalition

Amazon Defense Coalition
Contact: Karen Hinton at +1.703.798.3109

New York, NY – Chevron's CEO John Watson and his management team are continuing to publish false and materially misleading information to government regulators and shareholders regarding the enormous risks posed by the company's failure to pay a $19 billion environmental damages judgment in Ecuador, according to a new report published today.

Written by securities lawyer Graham Erion, the report details how Chevron has "refused to materially amend its disclosure of the risks posed by the final Ecuador judgment" despite a series of devastating setbacks in 2012 to the company's litigation position in Ecuador, the US, and the three countries where the judgment is in the process of being enforced (Canada, Brazil and Argentina).

The report was released in conjunction with the filing of four separate shareholder resolutions that reflect growing concern in the investor community that Watson is mishandling the historic Ecuador judgment, which was handed down in February 2011 after an eight-year trial. One of the shareholder resolutions – which received significant support at Chevron's annual meeting last year – directly attacks Watson's management failures over the Ecuador case by seeking to strip his title as Chairman of Chevron's Board.

The Ecuador court found Chevron deliberately dumped more than 16 billion gallons of cancer-causing toxins into streams and rivers local communities relied on for drinking water, causing an outbreak of cancer and other oil-related health problems. Locals call the disaster the "Amazon Chernobyl" and have launched lawsuits in Canada, Argentina, and Brazil to seize Chevron assets to pay for a clean-up, health care, and clean water.

Chevron has refused to pay the court judgment – which was affirmed unanimously on appeal – even though it fought for years to shift the case from the U.S. to Ecuador and promised to abide by any adverse decision in the country.

"The evidence is clear that under Watson's leadership Chevron suffers from severe corporate governance problems related to the Ecuador case," said Erion, who analyzed deficiencies in Chevron's most recent public filing submitted to the U.S. Securities and Exchange Commission in November of last year. The SEC is charged with protecting the integrity of public markets in the U.S. and can impose civil and criminal sanctions on corporations that fail to properly disclose required information.

Erion, who advises the indigenous and farmer communities in Ecuador that won the judgment, added: "Watson is trying to keep shareholders and regulators in the dark about risk the Ecuador liability is causing to the company's balance sheet. All this strategy can achieve is additional liability for Chevron shareholders, backlash from securities regulators and ruined business relationships for the company around the world."

The Erion report noted that Chevron has refused to disclose in its securities filings the impact enforcement of the lawsuit may have on the company, despite an internal assessment that the seizure actions will likely cause "irreparable harm" to Chevron and are like the "Sword of Damocles" touching the company's forehead, according to a statement Chevron lawyer Randy Mastro made in open court.

The report noted other deficiencies in Chevron's SEC filing:

  • Chevron refuses to disclose the value of its assets subject to the four separate enforcement and recognition actions filed thus far (estimated by the plaintiffs to be more than $15 billion) and what impact an adverse ruling in such actions will have on the company;
  • Chevron fails to mention multiple adverse rulings against it in numerous federal courts in the U.S. and that the U.S. Supreme Court in October rejected a company attempt to block global enforcement of the Ecuador judgment;
  • Chevron continues to refuse to estimate a potential loss in the Ecuador case even though there is a judgment with a precise dollar amount (upheld on appeal) and the quantity of assets in each of the targeted countries is known by the company; and
  • Chevron repeats demonstrably false statements about the merits of the lawsuit despite such statements being directly contradicted by court rulings in the US and Ecuador.

The release of the initial version of Erion's report last April on Chevron's disclosure deficiencies produced a firestorm of criticism of Chevron, much of it directed at Watson. At the company's annual meeting in May 2012, over 38% of shareholders, representing a whopping $73 billion in Chevron stock, voted to strip Watson of his dual CEO/Chair role – largely over his mishandling of the Ecuador liability. (Only 14% of shareholders voted for the same resolution in 2008.)

The first Erion report also prompted dozens of large Chevron investors representing $580 billion in assets under management to demand that Watson "fully disclose ... the risks to its operations and business from the potential enforcement" of the Ecuador judgment. They also asked Watson, who played a key role in Chevron's purchase of Texaco in 2001, to explore options to settle the case.

Following the 2012 Chevron annual meeting, a group of shareholders and a U.S. Congresswoman petitioned the Securities and Exchange Commission to investigate whether Chevron had breached securities laws.

Watson and his senior management team not only have refused to meet with leaders of the dissident shareholders, but have retaliated by targeting them with subpoenas and claiming they are colluding with the Ecuadorian villagers. Several shareholders and journalists have condemned the strategy as unethical and ineffective.

The four shareholder resolutions citing the Ecuador case on tap for a vote at Chevron's 2013 annual meeting in May target Watson for his dual role as CEO and Chairman; try to lower the threshold for shareholder meetings; seek the appointment of an independent Board member with environmental expertise, and demand an independent evaluation of management's attacks against its shareholder critics over this lawsuit.

Erion, who is licensed to practice law in New York and Ontario, has an LL.M. (Kent Scholar) from Columbia University in New York and a LL.B. from Osgoode Hall Law School in Toronto. He has practiced corporate and securities law at two leading Canadian firms and has published multiple articles on securities law and corporate disclosure.