BP Unit Accused of Mismanaging Retirement Plans by Investing in Own Stock

BP Plc (BP)’s North American unit was accused in a lawsuit by its employees of mismanaging their retirement savings plans by investing heavily in its own stock before last year’s Gulf of Mexico oil spill.

BP’s safety and compliance record before the April 2010 sinking of the Deepwater Horizon drilling rig made the company’s U.S. shares an “imprudent investment,” according to a consolidated master complaint filed yesterday in federal court in Houston. BP Corp. North America Inc., its directors and members of the savings plan committee breached their fiduciary duty by buying BP stock and “failing to divest the plans” of the shares, the employees said.

“A disaster of the proportion of Deepwater Horizon and the resulting losses were both predictable and likely,” the employees said. “Because of defendants’ failure to protect the participants’ retirement savings from being imprudently invested in an excessively risky BP stock fund, plaintiffs and the class have lost hundreds of millions of dollars in retirement benefits.”

BP workers last year filed multiple lawsuits on behalf of all U.S. employees participating in the company’s retirement savings plans. The suits, combined together in the Houston court, claim losses of more than $1 billion from the stock plunge after the rig explosion and subsequent spill.

Scott Dean, a BP spokesman, didn’t immediately return an e-mail seeking comment yesterday.

Fatal Blast

The employee suits, brought under the federal Employee Retirement Income Security Act, or ERISA, are among hundreds of claims filed in U.S. courts after the explosion. The blast killed 11 rig workers and set off the largest offshore oil spill in U.S. history.

BP’s U.S. shares initially lost more than half their value after the explosion, before rebounding. BP’s American depositary receipts, each representing six ordinary shares, which closed at $60.48 on April 20, 2010, the day the well blew out, had fallen as low as $26.75 on June 28.

About one-third of investments in the employees’ retirement plans were in the BP stock fund, according to court papers. The value of the plans dropped from $9.5 billion in total assets in 2007 to $7 billion in 2010, according to the filing. The value of BP shares in the plans dropped from $3.1 billion to about $1.25 billion in that period, it said.

‘Prudent Funds’

The workers are seeking a return of the profit “that had been lost by investing in the BP stock fund instead of investing in other prudent funds within the plans that were available at the time,” they said in yesterday’s filing. These funds have outperformed the returns on BP shares, they said.

U.S. District Judge Keith P. Ellison in Houston is overseeing the employee cases along with two other categories of BP investor lawsuits consolidated in his court: claims brought by shareholders on the company’s behalf accusing its directors and officers of mismanagement; and securities-fraud allegations claiming diminished share value.

Claims by fishermen, restaurants, real estate interests, governments and others for economic losses have been combined with personal-injury and wrongful-death suits for pretrial treatment in a federal multidistrict litigation in New Orleans before U.S. District Judge Carl Barbier.

Cash Flows

Defendants in the employee lawsuits include BP Plc (BP/), BP Corp. North America and BP America. The employees have also sued current and former members of the North American unit’s board, including Robert A. Malone, Lamar McKay and Stephen J. Riney, as well as current and former BP Plc officers such as John Browne and Anthony Hayward.

The employees claim BP and its subsidiaries appointed people to oversee the plans “who were likely to, and did,” maintain investments in company stock. These defendants “reaped the benefits of the company stock being offered and held as a plan investment option, including tax benefits, keeping significant amounts of stock in friendly hands, and helping with the corporate defendants’ cash flows,” the employees said.

BP and its subsidiaries “had effective control over the disposition of the plans’ assets,” according to the complaint.

The case is In re BP Plc Securities Litigation, 4:10-md- 2185, U.S. District Court, Southern District of Texas (Houston).

To contact the reporters on this story: Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net; Laurel Brubaker Calkins in Houston at laurel@calkins.us.com

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.