Brazen Fraud Involved Tens of Thousands of Phantom Clients

BP today filed a civil lawsuit in the federal District Court in New Orleans against plaintiffs’ lawyer Mikal C. Watts, accusing him of having fraudulently claimed to represent more than 40,000 deckhands who allegedly suffered economic injuries as a result of the Deepwater Horizon oil spill. BP relied on Mr. Watts’ representations when it agreed to pay $2.3 billion to the Seafood Compensation Program, which was established to compensate those who earn their livelihood from Gulf waters and were directly affected by the spill.

Today’s lawsuit and related motions collectively seek to suspend the distribution of the remaining money in the Program fund, and  grant BP discovery and an evidentiary hearing regarding the extent of Mr. Watts’ fraud and how much of the balance of the Seafood Compensation Program fund should be returned to BP as a result of it.

“The facts in this case shout fraud. Tens of thousands of Mikal Watts’ ‘clients’ have proved to be phantoms,” said Geoff Morrell, Senior Vice President, U.S. Communications & External Affairs. “Mr. Watts’ false representations improperly inflated the value of potential claims against the Seafood Compensation Program and resulted in an overblown $2.3 billion fund. Under these circumstances, BP is not going to stand idly by and allow payments to proceed without first addressing the fraudulent conduct.”

The lawsuit and related motions filed by BP today concern the Seafood Compensation Program of the Deepwater Horizon Economic and Property Damages Settlement Agreement. Mr. Watts, a member of the Plaintiffs’ Steering Committee (PSC) from October 2010 until March 2013, claimed to represent more than 40,000 deckhands who allegedly suffered economic injuries as a result of the oil spill – more than 76% of the individual crew members projected to be potential claimants under the Seafood Compensation Program.

BP has checked the Social Security numbers for Mr. Watts’ so-called clients and discovered that more than half were phantoms. For 40 percent, the Social Security number belonged to a living person other than the named claimant. For 13 percent, the Social Security number given was incomplete or a “dummy” number (e.g., a number such as 000-00-0001). For 5 percent, the Social Security number belonged to a dead person other than the named claimant.

Mr. Watts ultimately filed only 648 individual crew claims under the Seafood Compensation Program – less than two percent of the more than 40,000 claimants he purported to represent. Of those 648 claimants, only eight have been found eligible for payment by the Seafood Compensation Program, with 17 claims still pending. 

In March 2013, the District Court confirmed Mr. Watts’ resignation from the PSC. Earlier media stories had reported that the United States Secret Service had executed search warrants at Mr. Watts’ law offices in San Antonio, Texas, as part of a federal investigation.

Approximately $1 billion has already been paid out of the Seafood Compensation Program fund to thousands of businesses and individuals, including Mr. Watts’ eight claimants that were found eligible for payment by the Program. Through the legal actions brought by BP today, the company is pursuing two alternative avenues for recovering that portion of the $1.3 billion that remains in the Seafood Compensation Program that resulted from fraud. The first is the lawsuit alleging that Mr. Watts defrauded BP and that the Class stands to unjustly benefit from the full distribution of the money remaining in the fund. BP filed a related motion seeking to enjoin further distributions from the fund. The lawsuit does not allege that the Class engaged in any wrongful conduct – only that it unjustly benefited from the wrongdoing of Mr. Watts. In addition, BP filed a Rule 60(b) motion asking the Court to suspend further distributions from the Seafood Compensation Program fund and to grant discovery in order to determine the extent of the fraud and what portion of the fund should be returned to BP as a result.