BP Spill Claims Administrator Cleared in Ethics Probe

The administrator of BP Plc’s $9.6 billion partial settlement of claims from the 2010 Gulf of Mexico oil spill didn’t engage in any misconduct, an independent investigation found.

Louis Freeh, former director of the Federal Bureau of Investigation, said he had “not found evidence” that Patrick Juneau, the claims administrator, “engaged in any conflict of interest, or unethical or improper conduct.”

Freeh said that while he found “problematic” conduct by certain claims-administration employees, it shouldn’t stall processing payments to spill victims.

U.S. District Judge Carl Barbier in New Orleans appointed Freeh to investigate allegations of misconduct after a lawyer at the Deepwater Horizon Court Supervised Settlement Program was suspended for allegedly taking payments from law firms while processing their clients’ spill-related claims. A second attorney was later suspended following similar accusations.

Two claims fund attorneys “may have violated federal criminal statutes regarding fraud, money laundering, conspiracy or perjury,” Freeh said in his 93-page report issued yesterday. This alleged misconduct “should not prevent” the claims program from “fairly and efficiently processing and paying honest and legitimate claims,” he said.

BP faces thousands of lawsuits over damages caused by the explosion and sinking of the Deepwater Horizon rig in 2010. The blast killed 11 workers and released more than 4 million barrels of crude from BP’s well off the Louisiana coast.

$9.6 Billion Accord

BP reached the agreement with most private-party plaintiffs last year, initially estimating the cost of the settlement at $7.8 billion. The company has since raised the estimate to $9.6 billion.

“Judge Freeh’s initial investigation report confirms what BP has suspected for some time: there has been fraud and unethical conduct within the facility itself and among various claimants and their lawyers –- and immediate steps need to be taken to prevent it in the future,” Geoff Morrell, a spokesman for the London-based company, said yesterday in an e-mailed statement.

“Judge Freeh has confirmed that ‘many’ of the court-supervised settlement program’s ‘key executives and senior attorneys’ engaged in ‘pervasive’ improper and unethical conduct, some of which may have been criminal,” Morrell said.

Morrell also cited the finding that the claims center’s key fraud-detection vendor was “ineffective and had conflicts of interest.”

Juneau Validated

Juneau said in an e-mailed statement that he “found the Freeh report to validate the work that our team of 2,700 hard working professionals has been doing” since the claims center was created.

Calling the actions of the two former employees “an isolated situation” that has already been addressed, Juneau said Freeh found “no evidence that the two employees directly manipulated the valuation of claims” or that the overall payment of claims was affected by the misconduct.

In a ruling summarizing Freeh’s findings, Barbier ordered the attorneys and law firms singled out for improper conduct to show why they shouldn’t be disqualified from participation in the claims program within two weeks.

Barbier asked Freeh to evaluate the claims administration’s “internal compliance program and anti-corruption controls” and recommend improvements that will “ensure the integrity” of the process.

The judge also asked Freeh to refer his findings to government authorities and initiate legal action to “claw back” fraudulent payments, so long as that effort doesn’t delay or impede payment of legitimate claims.

Integrity, Transparency

“We are pleased -– but not surprised -– that Judge Freeh’s report confirmed what we knew to be true all along: that Patrick Juneau has, for more than a year, led the court-supervised settlement program with integrity, transparency and objectivity,” Steve Herman and Jim Roy, co-lead attorneys for the committee leading the spill litigation, said in an e-mailed statement.

BP has repeatedly urged Barbier to suspend payments by the claims administration while it investigates allegations of widespread fraud and misconduct by employees and certain types of businesses claiming economic losses from the spill. The company established a fraud hot line and encouraged Gulf Coast residents to report suspected ethical violations in the claims program.

Inflated Cost

Barbier refused to halt payments during Freeh’s probe or while BP appeals a policy decision it claims is wrongly inflating the cost of the settlement. BP claims Juneau is misinterpreting the deal in a way that is causing millions of dollars to be paid to businesses that suffered no spill-related losses.

Lawyers for spill victims contend BP is experiencing “buyer’s remorse” and trying to renegotiate a deal that is proving more costly than it anticipated.

The U.S. Court of Appeals in New Orleans heard arguments in BP’s appeal of Juneau’s policy interpretation in July and hasn’t ruled on it.

In a separate appeal, in which spill victims are challenging the settlement as unfair, BP said in court filings that Barbier’s approval of the settlement and certification of the group of victims allowed to participate in the deal “cannot stand” unless the Juneau dispute is resolved in the company’s favor.

The appellate court expedited consideration of that fairness appeal yesterday, tentatively setting oral arguments for the week of Nov. 4.

The case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).

Before it's here, it's on the Bloomberg Terminal.