SEC Settles Insider Trading Case Tied to BP Oil Spill

by Dorsey & Whitney LLP

The SEC filed a settled insider trading action against an employee of BP p.l.c. tied to the Deepwater Horizon oil spill in 2010. Specifically, the Commission claims that Keith Seilhan had material non-public information regarding the severity of the spill that had not been disclosed at the time he sold his BP securities . SEC v. Seilhan, Civil Action No. 2:14-cv-00893 (E.D. La. Filed April 17, 2014).

Keith Seilhan was employed by BP from 1990 to 2011. At the time of the Deepwater Horizon explosion on April 20, 2010 he was an Area Operations Manager. Two days after the explosion, the off-shore rig sank into 5,000 feet of water. At that point oil began leaking into the sea.

Shortly after the explosion, the federal government established Unified Command or UC to coordinate the response to the spill and continued leak. By statute Unified Command includes representatives from BP, the U.S. Coast Guard and the National Oceanic and Atmospheric Administration or NOAA. Mr. Seilhan was designated by BP to serve at the organization. He was named as an Incident Commander and an On-Scene Coordinator within Unified Command.

From the BP center, beginning on April 23, Mr. Seilhan coordinated BP’s initial oil collection and clean-up operations in the Gulf of Mexico and along the coast. The day before he arrived, Mr. Seilhan received an e-mail from a company manager “commenting on worst case discharge estimates performed by BP engineers . . . [which] ranged from 64,000 bopd [barrels] to 110,000 bopd . . .” At the center, and through his position with UC, he received additional information about the spill and the flow rate which included:

First UC estimate: On April 24th Unified Command released its first estimate of the oil flow rate which was specified to be about 1,000 barrels per day;

NOAA memo/flow estimate: April 26th he received a NOAA memorandum, distributed to other senior BPO employees, which estimated, based on over-flight observations of the oil slick, that the flow rate was 5,000 barrels although the authors made it clear the rate could be higher;

Memo limits: At the time of the NOAA memo Mr. Seilhan knew that it did not account for the oil that had been dispersed, suggesting the flow rate estimate might be low;

Additional BP information: He also learned about the amount of chemical dispersants used by BP and reviewed the over-flight data that was transposed on computers to color-coded maps of the slick from which density at different points could be discerned;

Second UC estimate: On April 28th Unified Command updated its estimate of the flow rate in an announcement, stating that it could be “as much as 5,000” barrels per day;

BP on TV: On April 29 a BP executive appeared on three nationally televised programs stating that the flow rate was in a range of 1,000 to 5,000 barrels per day;

SEC filing: On April 29, 2010 BP filed a Form 6-K stating that the flow rate was “estimated at up to 5,000 barrels per day,” an estimated reiterated in a second filing the next day.

On the morning that BP filed its Form 6-K, Mr. Seilhan sold a portion of the BP securities held in the family retirement accounts. The next day he sold three series of BP options. The sales liquidated the family portfolio of BP securities, valued at about $1 million.

Five days after the last stock sale BP in-house counsel circulated an e-mail to Mr. Seilhan and others reminding them not to trade on price sensitive information. While Mr. Seilhan responded that he would like to chat and the attorney left him a voice mail the two did not speak.

The Deepwater Horizon disaster caused BP’s stock price to decline by about 55% at its lowest point. By selling his shares Mr. Seilhan avoided losses of over $100,000.

Six days after BP announced it had successfully capped the well, Mr. Seilhan purchased BP securities. Specifically, he liquidated certain index holdings in the family retirement accounts and purchased 94,025 shares of BP Stock Fund units for a total price of $733,642.39.

Ultimately a group of government, academic and industry experts called the Flow Rate Technical Group concluded that the flow rate was much greater than disclosed. Its final estimate, on August 2, 2010, was 52,700 to 62,200 barrels. Overall the group estimated that about 4.9 million barrels of oil leaked into the Gulf.

The Commission’s complaint alleges that Mr. Seilhan sold his BP securities on April 29 and 30 while in possession of material non-public information. Those sales were made in violation of Exchange Act Section 10(b) and Securities Act Section 17(a), according to the complaint.

To resolve the case Mr. Seilhan consented to the entry of a permanent injunction prohibiting future violations of the Sections cited in the complaint. He also agreed to pay disgorgement of $105,409, prejudgment interest and a civil penalty equal to the amount of the disgorgement. See Lit. Rel. No. 22975 (April 17, 2014).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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