Corporate & Securities Law

By Jim Hamilton

A Dutch appeals court has approved the largest securities fraud settlement ever reached in Europe. The Amsterdam Court of Appeal ordered Royal Dutch Shell plc. to begin payment of $381 million plus interest to a foundation representing a group of institutional investors from 17 European countries, plus Canada and Australia The court had agreed to serve as a forum for the investor group and Shell to work together in reaching a settlement of securities fraud claims stemming from the company?s alleged inflation of its proven oil and gas reserves during the years 1997-2003. The agreement is particularly important given that European courts lack a class action mechanism for pursuing securities fraud claims.

The agreement provides relief in the amount of US$352.6 million to qualifying non-U.S. shareholders who bought Shell shares on any stock exchange outside the United States from 8 April 1999 through 18 March 2004. The settlement amount includes a US$12.5 million payment which is to be distributed equally to all shareholders who submit a valid claim for relief, regardless of the number of shares held by the person or entity submitting a claim. In addition to the US$352.6 million, an amount of US$28.4 million was made available to align the relief available under the Non-U.S. Settlement Agreement with the relief available under the U.S Settlement. Shell furthermore agreed to pay interest as per 1 April 2008.

Theo Raaijmakers, chairman of the foundation, said that this is the first time a Dutch court has declared such a large international settlement agreement binding. The settlement was already supported by many individual shareholders and more than 150 institutional investors. Now that the Court has confirmed that the settlement is fair and reasonable, the foundation will finally be able to start with the process of making claim forms available, assessing the validity of the claims and distributing the settlement amount.

Shell had earlier settled an SEC enforcement action in federal court alleging that the company overstated proved reserves and materially misstated its reserves replacement ratio, a key performance indicator in the oil and gas industry. The Commission also said that the company lacked effective internal controls over the reserves estimation and reporting process. Without either admitting or denying the allegations, the company agreed to pay a $120 million penalty and to implement a comprehensive internal compliance program. Later a federal judge approved a plan to distribute the $120 million to eligible investors as part of the resolution of the claims.

Full post as published by Jim Hamilton's World of Securities Regulation on June 09, 2009 (boomark / email).