Apr 24

Criminal Charges Finally Filed Against BP Employee

Today the Department of Justice filed the first criminal charges in a Louisiana court related to the devastating oil spill in 2010 involving BP’s Macondo well off the Gulf of Mexico. The named defendant in the case, Kurt Mix, was an engineer employed by BP working on efforts to measure the amount of oil leaking into the Gulf as a result of the spill, as well as on efforts to contain the leakage. Mix is charged with two counts of Obstruction of  Justice. The affidavit and the complaint include contentions that Mix deleted several email and text message exchanges he had with contractors and his superiors at BP. The text messages and email communications contained estimates of oil leakage that far exceeding the amounts provided to the public. Moreover, the messages contained candid discussions regarding the likelihood of success of efforts to cap the well which were overstated in public comments by BP and communications with government officials.

As discussed in detail below, MIX deleted numerous electronic records relating to the Horizon disaster response, including records concerning the amount of oil potentially flowing from the well, after being repeatedly informed of his obligation to maintain such records and after it became apparent that his electronic records were to be collected by an outside vendor retained by BP’s counsel to collect electronic documents….

From the Department of Justice’s statement:

On or about Oct. 4, 2010, after Mix learned that his electronic files were to be collected by a vendor working for BP’s lawyers, Mix allegedly deleted on his iPhone a text string containing more than 200 text messages with a BP supervisor.  The deleted texts, some of which were recovered forensically, included sensitive internal BP information collected in real-time as the Top Kill operation was occurring, which indicated that Top Kill was failing.  Court documents allege that, among other things, Mix deleted a text he had sent on the evening of May 26, 2010, at the end of the first day of Top Kill.  In the text, Mix stated, among other things, “Too much flow rate – over 15,000.”  Before Top Kill commenced, Mix and other engineers had concluded internally that Top Kill was unlikely to succeed if the flow rate was greater than 15,000 barrels of oil per day (BOPD).  At the time, BP’s public estimate of the flow rate was 5,000 BOPD – three times lower than the minimum flow rate indicated in Mix’s text.

In addition, on or about Aug. 19, 2011, after learning that his iPhone was about to be imaged by a vendor working for BP’s outside counsel, Mix allegedly deleted a text string containing more than 100 text messages with a BP contractor with whom Mix had worked on various issues concerning how much oil was flowing from the Macondo well after the blowout.  By the time Mix deleted those texts, he had received numerous legal hold notices requiring him to preserve such data and had been communicating with a criminal defense lawyer in connection with the pending grand jury investigation of the Deepwater Horizon disaster.

While I am heartened by Eric Holder’s decision to prosecute someone with ties to any of the various criminal conspiracies that have occurred or continued to occur on his watch, I hope this does not close the book on the BP oil spill prosecutions. Mr. Holder has indicated that this complaint represents only the initial charge in an ongoing investigation. I will have to take him at his word. More importantly however, the charge is not related any criminal behavior that may or may not have caused the spill itself, rather it represents elements of the cover-up after the fact. It is an open question as to whether anyone will be charged criminally for any of the decisions that were made that led to the spill, or whether Mr. Mix was acting on instructions from supervisors higher up the chain of command at BP or other entities. It hardly makes sense that Mr. Mix would put his career in jeopardy by deleting electronic communications in which it appears that he is being forthright concerning the spillage amounts and likelihood of success of capping the well during “top kill” efforts in 2010.

Apr 18

Obama attempts to Overcome Institutional Insolence on Oil Prices?

Yesterday President Obama stood at the White House with Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler, Treasury Secretary Timothy Geithner, Attorney General Eric Holder, Federal Trade Commission (FTC) Chairman Jon Leibowitz, and proclaimed that he will be putting “more cops on the beat” to investigate Wall Street oil price speculation and potential wrongdoing. I have written on this subject before here, here, and here. While I have little confidence that anything will come of this third call by the President for the Department of Justice, the FBI, and the CFTC to investigate oil futures speculation and other speculation in the commodity derivatives markets, he is at least taking his act public this time.

“We can’t afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage, and driving prices higher, only to flip the oil for a quick profit,”

Many argue that the President can not do much at all to influence oil prices. Many simply buy the Wall Street rhetoric hook, line and sinker, and even go so far as to turn sheer conjecture into fancy charts in order to confuse the public. I disagree. First, there is no greater motivator than personal freedom, and under current law Eric Holder can punish those found to have run afoul of the law by sending them to federal prison. Moreover, while the fines currently permitted are small change, the embarrassment that would accompany fines has consequences. I do not have any explanation for the extraordinary impotence and insolence at the Department of Justice under Eric Holder. The entire soap opera could just as easily be an elaborate act wherein the President calls for investigations of this thing or the other thing, and subsequently sends Eric Holder privately on his way with instructions to do nothing.

I find it extraordinarily difficult to believe that if Eric Holder made the decision to call in the FBI and begin interviewing the big Wall Street players in the commodity futures derivatives markets and put a few of them in prison, that the oil prices wouldn’t drop in an instant. I envision FBI agents and federal regulators walking through hallways at Goldman Sachs, owner of the Goldman Sachs Gold Index, and other large firms carrying lawfully issued subpoenas and search warrants. I have a hunch that some of the more egregious activities would stop immediately if people realized they might actually be sent to prison. Exxon Mobil, the Saudi Oil Minister, among others, are on record as believing that the current price of oil has no basis in the realities of supply and demand nor the potential disruption in delivery that could ensue following a conflict with Iran. Holder’s behavior with regard to oil futures speculation is not dissimilar from his approach to both the larger mortgage and financial instrument fraud which caused the recession, and his utter infecundity with regard to prosecuting those responsible for the BP oil spill. It is as if the entire Department of Justice loathes prosecuting anyone, for anything, at any time.

What is particularly troublesome about Obama’s footing on oil prices is that it is not Republicans who are obfuscating efforts to initiate investigations, make arrests, and prosecute those responsible. It is his own administration and administration officials who stand in his way. It is cerytainly true that Republicans, Mitch McConnell in particular that are placing the blame at Obama’s feet, but the President has the tools to demonstrate through concrete actions that he takes Wall Street fraud and price manipulation seriously. One man, let alone the President of the United States, can alone control the world price of oil, but one man can use the tools available to him to take action. Some time ago CBS’s 60 Minutes ran a piece in which it interviewed the chief prosecutor at the Department of Justice concerning the lack of criminal prosecutions stemming from the financial collapse. His response was a contemptuous “just wait.” Well, the American people have been patiently waiting for nearly four years for the administration to show that it will prosecute wrongdoing perpetrated by the golden boys of Wall Street. My guess is that the wait will continue.

Ian Masters interviewed Michael Greenberger, the former Director of Trading and Markets at the Commodity Futures Trading Commission, on this subject yesterday. It’s worth a listen.

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