London-based Royal Dutch/Shell Group last week agreed to pay $151 million in fines to resolve investigations by the Securities and Exchange Commission (SEC) and British regulators into the company’s oil and natural gas reserves miscalculations. However, an attorney representing two large shareholder groups that are suing the company over the reserves issue said the news was “disappointing.”

Shell said it had agreed in principle to pay a $120 million civil penalty to resolve a pending inquiry by the SEC into its reserves downgrades. In addition to the SEC fine, Shell agreed to spend $5 million to develop a comprehensive internal compliance program. The agreement is subject to final approval by the SEC, according to Shell. It also agreed to pay a US$31 million fine to resolve an inquiry by Great Britain’s Financial Services Authority (FSA) into the revisions.

Between January and May, Shell revised its proven reserves four times for a total reduction in reserves of 23% or 4.47 billion boe from previously reported levels (see NGI, May 31). In connection with the revisions, Shell dismissed several of its top exploration and production executives and delayed by two months the release of its annual report.

Shell said in a statement that it “will consent, without admitting or denying the SEC’s findings or conclusions, to an administrative order finding that Shell violated, and requiring Shell to cease and desist from future violations of, the antifraud, reporting, recordkeeping and internal control provisions of the U.S. federal securities laws and related SEC rules.” It also made an agreement that did not admit or deny the FSA’s findings or conclusions.

An attorney representing two U.S. institutional shareholder groups suing the company said the SEC’s decision to end its investigation “is short-sighted and disappointing because it does not force the company to correct corporate governance flaws that allowed the oil reserve fraud to occur and fails to hold personally accountable the corporate insiders who perpetrated the fraud.”

Attorney Bill Lerach of Lerach Coughlin Stoia & Robbins said, “The fine is the exact type of damage to the company that should be paid by the defaulting executives or board members.” However, he said, “the settlement involves no admission of wrongdoing and, far worse, includes no promise of changes in the way the Royal Dutch/Shell Group operates. Without significant internal governance reform, there is nothing to keep this disaster from repeating. Also, we will seek to hold board members and executives personally accountable for this fine as well as the other harm their misconduct has inflicted on the Royal Dutch/Shell Group.”

Lerach’s firm filed a lawsuit in late June in New Jersey state court on behalf of workers and retirees participating in the UNITE National Pension Fund, based in New York, and the Plumbers and Pipefitters National Pension Fund, based in Virginia (see NGI, June 28) . The lawsuit names 27 directors and officers of The Shell Group, and also their accounting and audit firms, PricewaterhouseCoopers International and KPMG International, and accuses the executives and board members of “breach of fiduciary duty, abuse of control, mismanagement, fraud and unjust enrichment and alleges that the accounting firms, which had unlimited access to information in all of the companies, were guilty of professional negligence and accounting malpractice.”

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