Shareholders angry about BP Plc's battered stock price are heading to the courthouse in hopes of reclaiming some of their losses, but they face an uphill battle.
Since the Deepwater Horizon oil rig exploded in April, several BP shareholders have filed lawsuits accusing the company of breaking securities laws and hiding the risks of its drilling operations. The stakes are potentially huge, with the BP's market value down as much as $100 billion since the disaster.
Some of the largest U.S. pension funds could join the battle. Already, the $132.6 billion New York State Common Retirement Fund has said it wants to be named lead plaintiff so it can direct the investor litigation.
"BP was telling the world that they are really a safe company,'' said Houston-based plaintiffs' lawyer Mark Lanier. ''What was being told to the public -- including the shareholders -- was a fraudulent facade.''
Lanier said he might get involved as an attorney for plaintiffs in the proposed shareholder class-action litigation. He said he already was preparing to file a lawsuit on behalf of former BP workers who hold company stock in their retirement plans.
But experts say investors will probably have a tough road ahead in court, since it could be hard for them to unearth any evidence about the company's disclosures on its safety procedures that rises to the level of securities fraud.
"It's entirely possible that (BP) made statements and honestly believed them and they were dead wrong,'' said James Cox, a professor at Duke University Law School. "That's not a basis for liability under securities law.''
A spokeswoman said BP does not comment on legal actions.
Securities litigation represents only a small segment of the more than 300 total lawsuits brought against BP so far. A federal judicial panel is scheduled to meet on July 29 in Boise, Idaho, to consider how to consolidate the various cases.
Shareholder lawsuits must be certified as class-actions by a court before investors can sue collectively. Typically, about one-third of shareholder lawsuits are thrown out, and two-thirds settle. They rarely go to trial.
Cox said shareholders would be lucky to get a settlement of $10 million to $20 million, which would be a pittance divided among the large number of affected investors.
That would be a far cry from the biggest recoveries in class-action litigation, the $6 billion to $7 billion awarded in the cases of WorldCom Inc. and Enron Corp.
Those cases differed from BP in that they stemmed from financial fraud, such as claiming phantom profits, rather than potential misrepresentations about safety. Enron and WorldCom also sold lots of securities in the period covered by the case, and plaintiffs were able to target third parties such as banks and underwriters.
BP investors do have a potentially powerful ally: the U.S. government. U.S. investigations could do the heavy lifting for plaintiffs, possibly using broad subpoena powers to turn up damning evidence.
The U.S. Departments of the Interior and Homeland Security are jointly investigating the rig disaster, and congressional committees are as well. The U.S. Department of Justice has also said it would open civil and criminal probes.
"You want a smoking gun,'' said Adam Savett, director of securities class actions at the Claims Compensation Bureau in Conshohocken, Pennsylvania. "A document that goes to the board room and says: 'We're not living up to industry standards, and we're not safe, and on and on.'''
But even that type of evidence might not be enough to prove securities fraud, said Jill Fisch, a professor at the University of Pennsylvania Law School in Philadelphia.
Shareholders may have little recourse unless documents show that top management knew, for example, that the company was violating specific safety regulations while publicly stating it was exceeding them and that those rules were critical to their business.
BP has already scored one victory. The U.S. Supreme Court's recent ruling in an unrelated case involving National Australia Bank essentially limited BP's liability in the United States to losses suffered by U.S. shareholders.
By excluding foreign holders of BP shares, the universe of potential plaintiffs could be cut by as much as 80 percent, said University of Michigan Law School professor Adam Pritchard.
For BP, whose spill-related legal woes are expected to drag on for years, the stockholder lawsuits may end up being a relatively minor problem, said Savett, of the Claims Compensation Bureau.
"They have a public relations nightmare,'' he said, "but I don't think they have a securities litigation nightmare.''