BP plc last week launched a Gulf Claims Fraud Hotline "to help protect the integrity of the claims processes" related to the 2010 Macondo well blowout and Deepwater Horizon oil spill.
The hotline "is a reliable resource for people who want to do the right thing and report fraud or corruption," BP noted. "Reports should be made of any fraudulent or corrupt activity, no matter where in the claims process it occurs -- whether in the solicitation of the claim by attorneys, accountants or other claims preparation services, the preparation of the financial records and claim application or the processing of the claim -- and no matter whether the claim was filed with BP, the Gulf Coast Claims Facility (GCCF), or the Court Supervised Settlement Program (CSSP)."
BP's legal team has balked at the way payments are being made through an agreement last year with the Plaintiffs Steering Committee (PSC). Earlier this month former FBI Director Louis Freeh was appointed a special master to investigate apparent misconduct by one of the lawyers who helped to manage the settlement fund with Gulf Coast plaintiffs (see NGI, July 8).
On Friday an attempt by BP to suspend Macondo-related payments was rejected by Judge Carl Barbier of the U.S. District Court for the Eastern District of Louisiana, who is overseeing the multi-district litigation. BP had asked for an emergency preliminary injunction to temporarily suspend all payments from the court supervised settlement program while Freeh conducts his investigation. The company had no produced evidence that would warrant shutting down the claims program, Barbier said following a hearing in New Orleans Friday morning.
"BP is disappointed in the district court's ruling, which we believe is wrong under the law," said BP spokesman Geoff Morrell. "We continue to believe that a temporary pause of all claims payments is prudent and necessary during Judge Freeh's investigation into allegations of corruption within the claims program. There is a material risk that payments going out the door have been and continue to be tainted by possibly fraudulent or corrupt activity, and BP should not be forced to bear the risks of improper payments pending the outcome of Judge Freeh's investigation. BP will review all available legal options in light of the court's decision."
BP committed $20 billion for a compensation fund for individuals and businesses impacted by Macondo, and claims administrator Patrick Juneau has been in charge of processing the claims. Last year BP and the PSC came to terms on the $7.8 billion agreement to settle claims, and the administrator has determined that to date more than $3 billion in claims are eligible.
Lawyers representing the plaintiffs have claimed a personal "bonanza" and the "perverse and outrageous results" indicate that the settlement was misinterpreted by Juneau, who has allowed "absurd" payments that violated the agreement's aim to compensate legitimate victims, BP said. Plaintiffs' lawyers in turn told the court that Juneau has interpreted the agreement properly, but BP is suffering "buyer's remorse" because the agreement likely will cost more than expected.
"The launch of the hotline comes as federal law enforcement officials are clamping down on cases of fraud and other abuses in the claims process," said BP. "In recent months, U.S. attorneys in Florida, Alabama and Louisiana have secured guilty pleas and convictions against multiple individuals for attempting to defraud the claims process and take money to which they are not entitled under the law."
The hotline "is particularly timely because the CSSP spends substantially less than the GCCF spent to combat fraud. This seems inappropriate given that the GCCF's fraud detection program enabled it to identify more than 7,000 claims as 'multi-claimant scams or even efforts at criminal fraud.' The GCCF referred more than half of these to the U.S. Department of Justice for criminal investigation."
BP said it has spent $14 billion on response and cleanup to help restore the environment and paid more than 300,000 claims totaling more than $11 billion to help restore the Gulf Coast economy.
Ted Olson has represented BP in the Louisiana district court, where Barbier is overseeing the multi-district litigation. Olson argued earlier this month before Judge Edith Brown Clement that BP has a right to appeal the settlement, despite being ordered not to by Barbier.
"The district court has made it very clear that he does not want to hear any more arguments with respect to these issues," Olson said. "We had no choice. We sought relief with this court in every means available to us to stop the hemorrhaging of cash, which is otherwise not going to be recoverable, potentially at least." The interpretation of the claims process was altered after it was agreed to without BP's knowledge, Olson said.
"There was no evidence that my clients knew what was going on with respect to this event," he said of BP. "In fact, this was an interpretation of the settlement agreement that was not shared with my clients at the time it was made for some reason. Then we found out about it."
An analysis of the claims reached to date indicates that the average offer made to law firms that filed the claims has been $812,000, which is more than three times the average for all the claimants, BP lawyers stated in court filings. Payments to law firms almost doubled in May and June to $1.5 million per claim, versus an average of $756,000 in March and April.
According to Olson, Juneau did not take into account inflated income because of variable profits, where businesses experience increased income/losses in a short period of time. The calculations allowing the increased income artificially inflated payments, he told the court. "There is no question about what the purpose was, to calculate that amount of profits lost during a claim period versus a benchmark period and the calculation between the difference between a comparable period."
People with "knowledge of fraud or corruption" are asked to call BP at (855) 662-3728. Reports may be made anonymously.
Tips received would be "reviewed and referred for further evaluation, if warranted, to fraud investigators at the CSSP, the National Center for Disaster Fraud or other law enforcement agencies. Tips that lead directly to an indictment, a recovery of money paid, or the denial of a claim because of fraud or corruption may entitle the reporter to a reward."
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