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December 15, 2012
Chevron Hits Sustainable Investors with Subpoenas over Ecuador
    by Robert Kropp

In its latest effort to avoid a $19 judgment for environmental damage in Ecuador, Chevron and Gibson, Dunn, & Crutcher, its law firm, have issued subpoenas to Trillium Asset Management and shareowner advocate Simon Billenness.

As Chevron's options in its efforts to avoid a $19 judgment for environmental damage in Ecuador continue to narrow, the failure of its legal defense can be summed up in a single discrepancy. In its 2011 10K filing with the US Securities and Exchange Commission (SEC), Chevron stated merely that it expected the plaintiffs to seek enforcement of the judgment against it, but did not disclose what the impact of such enforcement might be. However, in a statement to the US District Court, Chevron Deputy Comptroller Rex Mitchell asserted that asset seizures "would disrupt Chevron's supply chain and operations," and "damage Chevron's business reputation as a reliable supplier."

"Defendants' campaign to seek seizures anywhere around the world and generate the maximum publicity for such acts would cause significant, irreparable damage to Chevron," Mitchell continued.

Addressing the apparent discrepancy, three sustainable investment organizations—the Unitarian Universalist Association (UUA), Zevin Asset Management, and Newground Social Investmentwrote to the SEC earlier this year, 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."

"There's clearly a discrepancy," shareowner advocate Simon Billenness told recently. "Does this constitute perjury, or does this constitute securities fraud? I don't know, but the board needs to get to the bottom of this and report back to shareholders."

Chevron's management has had its share of opportunities to engage with concerned shareowners on the issue. In May, a coalition of investors—led by the $150.3 billion New York State Common Retirement Fund and including 40 institutional investors with total assets under management of $580 billion—wrote to Chevron, requesting that the company disclose to shareowners "the risks to its business and its operations from any enforcement of the $18 billion judgment."

The shareowners also requested that the company "reconcile its legal testimony citing 'irreparable damage' to its business with the company's past public statements to shareholders," and "reevaluate whether endless litigation is the best strategy."

"In that letter, we asked for a meeting with Chevron executives to discuss alternative legal strategies around the lawsuit, and also to discuss the discrepancies between their legal statements and their SEC filings," Billenness told "But they declined to meet with the investors who signed the letter."

Instead, Gibson, Dunn, & Crutcher, Chevron's law firm, served Billenness, Trillium Asset Management, and others with subpoenas, requesting, in the subpoena received by Billenness, not only documents pertaining to his work on Ecuador but "All documents concerning SHAREHOLDER ACTIONS, including but not limited to CHEVRON shareholder resolutions sponsored by TRILLIUM beginning as of 2005, CHEVRON investor statements sponsored by TRILLIUM beginning as of 2009, and any SHAREHOLDER ACTIONS taken by the AFL-CIO."

Chevron also filed an ethics complaint against Thomas DiNapoli, the trustee for the New York State Common Retirement Fund, charging that "DiNapoli and his office have aided a fraud apparently in return for money." According to the complaint, DiNapoli received $60,000 in political contributions from lawyers for the Ecuadorian plaintiffs.

According to the Center for Responsive Politics, Chevron ranks among the corporations with the highest levels of political and lobbying expenditures.

In response to the complaint, DiNapoli stated, "This is a baseless attempt by big oil to intimidate me and it won't work."

"There's a couple of things going on here," Billenness said. "There's the ethics complaint against Thomas DiNapoli, and in the subpoenas Chevron is not just asking for documents pertaining to the Ecuador case. That Chevron is asking for everything is the unprecedented and invasive part of the subpoena."

That Chevron is using shareowner funds to take action against its own shareowners is practically unprecedented, he added.

"Instead of a meeting, we get subpoenas," he said. "One would think that if they really wanted to know about shareholder actions, they would meet with the shareholders who requested the meeting."

Following the subpoenas, The Needmor Fund filed a shareowner resolution with Chevron, requesting that its board review the recent legal initiatives against its investors. Chevron's actions, the resolution states, "would establish a horrendous precedent opening the door for companies to sue investors who disagreed with them."

Billenness and other shareowner advocates have re-filed three resolutions from last year's proxy season, rewriting them to include the implications of the recent legal developments.

"To what extent is Gibson Dunn damaging Chevron's relationship with its long-term shareholders through these hardball legal tactics?" Billenness asked.


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