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BP Asks Court to Suspend Seafood Payments for Fraud Probe

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Dec. 17 (Bloomberg) -- BP Plc asked a U.S. judge to stop payments in the $2.3 billion seafood-industry portion of its settlement over the 2010 Gulf of Mexico oil spill pending an investigation of fraud claims against a plaintiffs’ attorney.

BP today also sued the lawyer, Mikal Watts, alleging that he fraudulently claimed to represent more than 40,000 spill victims in the seafood industry, primarily crew members of fishing boats.

“Watts’s representations caused BP to offer $2.3 billion to establish the seafood compensation program,” the company said in a complaint in federal court in New Orleans. “But we now know that over half of Watts’s alleged clients were phantoms; individuals never represented by Watts, in a number of cases not even commercial fishermen, and in some instances individuals who are deceased.”

BP agreed to pay $9.2 billion to settle most private-party claims over the spill. U.S. District Judge Carl Barbier approved the settlement last December. The London-based company today asked him to suspend further payments to seafood claimants. BP officials said the U.S. Justice Department is investigating whether Watts falsified client lists tied to oil-spill compensation claims by fishermen.

“BP’s attack is unfair and unwarranted,” Watts’s attorney, Robert McDuff, said today in a statement. “Mr. Watts never committed identity theft and did not defraud BP or anyone else.”

The BP claims against Watts, of Watts Guerra LLP in San Antonio, are “another in a series of efforts to walk away from the settlement to which it agreed,” McDuff said. “BP is a recidivist corporate felon. Mr. Watts is an innocent man.”

Fatal Blowout

The blowout of BP’s deep-water Macondo well off the coast of Louisiana in April 2010 killed 11 people and sent millions of barrels of oil into the Gulf of Mexico.

The worst offshore spill in U.S. history, it sparked thousands of suits against BP, as well as Transocean Ltd., owner of the Deepwater Horizon drilling rig that burned and sank, and Halliburton Co., which provided cement services for the well.

BP settled with most private plaintiffs in March 2012, just before a trial on liability for the disaster was to begin. BP initially valued the economic-loss accord at $7.8 billion. It later put the cost at $9.2 billion in an Oct. 29 regulatory filing.

As part of the settlement, the company set aside $2.3 billion for the seafood compensation program, aimed at commercial fishermen directly affected by the spill. BP is seeking an evidentiary hearing to consider the allegations against Watts and determine how much of the money still in the fund should be returned to the company.

Offices Raided

“BP is not going to stand idly by and allow payments to proceed without first addressing the fraudulent conduct,” Geoff Morrell, a company spokesman, said today in a statement.

BP officials pointed to press reports in February about U.S. Secret Service agents raiding two of Watts’s San Antonio law offices over questions about “the legitimacy of his client list,” according to court filings.

The San Antonio Express-News newspaper said the probe was centered in Jackson, Mississippi.

“I can’t comment since its an ongoing criminal investigation,” John Dowdy, chief of the criminal division for the U.S. attorney’s office for the Southern District of Mississippi, said in a phone interview.

BP officials contend Watts claimed to represent more than 42,000 deckhands who suffered economic injuries from the spill and deserved compensation. Watts used those claims to become part of a group of plaintiffs’ lawyers appointed by Barbier to oversee the consolidated cases, the company said.

Fake Numbers

When BP began investigating the claims, officials found more than 40 percent of the claimants were using someone else’s social-security number and 13 percent were using fake numbers, according to the filing. The verification process found Watts had only 648 legitimate clients and only eight of those qualified for compensation, BP’s lawyers said.

“There is now ever reason to think that the explanation for this glaring discrepancy is fraud,” BP’s attorneys said in the filing.

Watts stepped down from the BP spill case’s Plaintiffs Steering Committee in March without giving a reason. Michael McCrum, a lawyer representing Watts at the time, told the San Antonio Express-News his colleague “didn’t want the fact of this investigation to impact the opportunity for plaintiffs to receive compensation for their injuries.”

‘Integrity’ ‘Paramount’

Steve Herman and Jim Roy, who lead the plaintiffs’ committee overseeing the BP settlement, said today the group believed “integrity in the settlement process is paramount” and the accord had built-in protections to make sure only deserving fishermen received compensation.

“BP’s overreaching attempt to hold the entire seafood program hostage is part of its continuing effort to rewrite history and the settlement agreement -– and is unfair to the hardworking men and women of the seafood industry whose livelihoods were destroyed by BP’s reckless conduct,” the lawyers said in an e-mailed statement.

BP officials have complained Patrick Juneau, the settlement administrator, has approved millions of dollars in payments to businesses for “fictitious” economic losses that weren’t related to the spill.

BP appealed Barbier’s ruling upholding Juneau’s interpretation to the U.S. Court of Appeals in New Orleans. The appeals court sent the dispute back to Barbier to review his interpretation of some of the accord’s terms. The panel also ordered Barbier to stop some payments under the settlement until he can sort out who has legitimate claims.

The new lawsuit is BP Exploration & Production Inc. v. Watts, 13-cv-06674, U.S. District Court, Eastern District of Louisiana (New Orleans). The settlement is part of In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, 10-md-02179, U.S. District Court, Eastern District of Louisiana (New Orleans).

To contact the reporter on this story: Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net

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

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