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August 12, 2004
Accuracy of Dow Chemical Statements and SEC Filings Questioned
    by William Baue

On behalf of two socially responsible investment firms, an environmental attorney asks the SEC to probe the factuality of public statements and filings made by Dow Chemical.

Earlier this week, Attorney Sanford Lewis filed a letter with the US Securities and Exchange Commission (SEC) alleging a number of material misstatements and misrepresentations by Dow Chemical Company (ticker: DOW). The letter alleges that Dow is misleading investors on a series of potential liabilities related to the 1984 chemical disaster at a Union Carbide Corporation (UCC) plant in Bhopal, India (Dow acquired UCC in 2001) and potential dioxin-related liabilities.

The letter hones in on comments made by Dow CEO William Stravropoulos at the May 2004 annual meeting, quoting him and then citing evidence that calls into question the veracity of Mr. Stravropoulos' official commentary.

"There was a 1989 settlement that resolved all civil, criminal charges," Mr. Stravropoulos stated on the floor at the annual meeting, referring to Bhopal. "The Supreme Court of India upheld this and said it was fair, just, and equitable."

A statement posted on the Dow website echoes Mr. Stravropoulos' annual meeting comments. Before acquiring Union Carbide, Dow "conducted an exhaustive assessment to ensure there was absolutely no outstanding liability in relation to Bhopal," the statement reads. "There was none; the company Dow acquired retained absolutely no responsibility for either the tragedy or for the Bhopal site."

However, Mr. Lewis produced evidence of continuing litigation in both India and in the US Second Circuit Court of Appeals. Mr. Lewis is a prominent environmental lawyer representing Trillium Asset Management and Boston Common Asset Management, two socially responsible investing (SRI) firms.

As recently as July 21, 2004, the Chief Judicial Magistrate of Bhopal called on Dow's Indian subsidiary to answer summons in the pending criminal case against Union Carbide, which Indian courts officially consider an "absconder from justice." And on March 17, 2004 the Second Circuit Court sanctioned further property damage, environmental remediation, and personal injury claims against Union Carbide, going so far as to invite the Indian government to intervene. Mr. Lewis's letter amends the June 28, 2004 response from the Indian government authorizing such litigation to proceed on US soil.

The letter also quotes Mr. Stravropoulos downplaying the health hazards of dioxin in response to shareowner questions about ongoing litigation related to Dow's Midland, Michigan plant.

"The key to any health risk is exposure," said Mr. Stravropoulos from the floor of the annual meeting. "The dosage makes the effect."

"When there's no dosage, a low dose, there's no health effects… the facts have shown that chloracne, so far in humans…not in animals, in humans… is the most severe illness that is shown," he continued, as quoted in the letter.

The letter cites conflicting evidence from the US Environmental Protection Agency (EPA), which holds that dioxin's cancer risk does not have a minimum threshold of exposure that carries no risk. The International Agency for Research on Cancer (IARC) considers dioxin a known human (or "class one") carcinogen, according to the letter.

The letter also cites an April 2004 report by Innovest Strategic Value Advisors, an SRI research firm, exposing undisclosed liabilities related to Agent Orange claims and a 2003 settlement for $2 million with the New York Attorney General over false Dursban ads.

Investors may find it challenging to reconcile Dow's public statements with this significant body of facts and expert opinions, upon which they also rely to make investment decisions, that seems to contradict Dow's positions.

"In my opinion, the comments by CEO Stavropoulos on the floor of the shareholder meeting seemed intended to make it seem as though the ongoing Bhopal litigation is a nonissue," Mr. Lewis told "Similarly, Stavropoulos seemed intent on distorting the science of dioxin--his two-fold declaration, that the only known human health risk is of chloracne, and that low levels of exposure do not threaten health, were quite inconsistent with what mainstream science understands about dioxin."

"As one who works to ensure that investors get accurate information, I've been surprised and appalled to see the insistence of Dow officials at making the kinds of distorted statements and assertions that they have made regarding Bhopal and Midland," he added.

Asked to identify inaccuracies in the letter, Dow balked.

"The news release appears to contain no substantially new information regarding the issues," Dow spokesperson Anne Ainsworth told, referring not to the letter but to the press release announcing it. "Dow has provided information to investors regarding environmental matters in its SEC filings in full compliance with legal requirements."

SEC Rules 10b-5 and 14a-9 specifically prohibit untrue or misleading statements or omissions of material facts, and the Sarbanes-Oxley Act requires CEOs to certify the accuracy of SEC filings, according to the letter. Given that multiple court cases that could result in significant financial penalties are pending, it seems Dow's duty is to be forthcoming about these cases so that investors can make their own decision about the likelihood of such liabilities materializing.

"Investors need honest projections of potential liability, not comments filtered through rose-colored lenses," said Shelley Alpern, director of social research and advocacy at Trillium Asset Management. Trillium filed a shareowner resolution on asking Dow to prepare a report on liabilities related to dioxin and several other toxic chemicals it produces. Boston Common Asset Management, the other firm being represented by Mr. Lewis, filed a shareowner resolution asking Dow to report on the impacts of ongoing Bhopal-related risks.

"The SEC is under increasing public scrutiny for its past failures to enforce environmental liability disclosures by companies like Dow," said Mr. Lewis. "This case presents a good opportunity for the SEC to look more closely at these issues, and to do the right thing."

Whether the SEC will investigate the matter remains to be seen.

"In general, the SEC reviews the letters it receives and responds as appropriate, does not discuss potential actions the agency may or may not take, . . . and does not comment on correspondence," SEC spokesperson John Nester told


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