May 21, 2012
Shareowners Ask SEC to Investigate Chevron
by Robert Kropp
Three sustainable investment organizations say that the company's management appears to be covering
up the risks associated with an $18 billion legal judgment against it for environmental damage in
Ecuador. Second of a two-part series.
Two recently published reports document the mounting legal setbacks to Chevron's attempts to avoid
liability for widespread environmental damage in Ecuador, and the company's repeated failure to
fully inform investors of the risks associated with an $18.1 billion judgment against it for the
The first report,
written by Simon Billenness of the Unitarian Universalist Association (UUA), reports that an appeals court in Ecuador upheld
the judgment against Chevron in January, and that a New York federal appellate court recently
vacated a preliminary injunction purporting to bar worldwide enforcement of the judgment.
written by Graham Erion, an attorney for the Ecuador's rainforest communities, states in its
opening sentence, "Chevron's management is publishing false or materially misleading information
regarding its $18.1 billion judgment in Ecuador for causing environmental damage."
Sustainable investors are not standing idly by while poor corporate governance threatens to
decimate Chevron's share price and exacerbate the environmental, social, and corporate governance
(ESG) risks faced by one of the world's largest companies. Three shareowner resolutions—calling for
the appointment of an independent board chair, the appointment of a director nominee with
environmental expertise, and the adoption of country selection guidelines—have been filed with the
company this year.
Shareholder Services Inc. (ISS), the influential proxy advisory firm, has recommended a
shareowner vote in support of all three proposals.
Furthermore, three sustainable
investment organizations—UUA, Zevin Asset
Management, and Newground Social
Investment—have submitted a letter to the Securities
and Exchange Commission (SEC), requesting that it launch an investigation into "evidence that the
company is violating securities laws by repeatedly making misrepresentations and material omissions
regarding its adverse judgment in Ecuador of $18.1 billion for despoiling the environment."
Referring to Erion's report on Chevron's publication of "false or materially misleading
information," the letter states, "It essentially implicates Chevron's management in what appears to
be an extensive cover-up of the risks faced by the company regarding this litigation."
"Chevron's continued failure to disclose these risks is potentially harmful to investors and
the integrity of the financial markets that your agency is charged with protecting," the letter
This is not the first time that sustainable investors write to the SEC,
requesting that it investigate Chevron's failures of disclosure. Last May, Trillium Asset Management wrote to the Commission, expressing its concern over "disclosures and omissions"
in the company's annual report.
"We request that the staff review whether Chevron has
appropriately disclosed to shareholders the scope and magnitude of financial and operational risk
from a recent adverse legal judgment in Ecuador," Trillium wrote.
The recent letter to the
SEC from UUA and its partners also noted that a coalition of shareowners representing $158 billion
in assets under management wrote to Chevron last year, requesting that the company "pursue an
'equitable negotiated settlement' to end its nearly 20-year legal battle with indigenous
populations in the Amazon rainforest."
Chevron never replied to the letter from the
investors, the recent submission to the SEC reveals.
Whether the Commission launched an
investigation after receiving the investor letter last year—or, for that matter, whether it will do
so upon receipt of the more recent submission—remains unknown, as it never publicly comments on an
ongoing investigation. However, Erion, who practices securities law, spoke with SocialFunds.com
about the possible measures the Commission might take.
"Depending on what the SEC finds in
its investigation, they may go back to the company and ask that they restate their filing," Erion
said. "Companies do this rather frequently. Where the SEC finds more egregious violations, they
will release a public comment letter that comments on the disclosure. If they believe that Chevron
is acting with intent to deceive—in my opinion, Chevron is willfully withholding information from
investors—that's when you start getting into SEC fines and potentially even criminal
"Chevron's worse-case scenario is the SEC telling them they've
intentionally withheld information that has falsely inflated its stock price, and a fine for a
company of this size could be in the billions of dollars," he continued. "By continuing this course
of action of evading regulations and withholding material information, Chevron could face
liabilities that surpass the liability they're facing now."