Executives with Anadarko Petroleum, the largest oil and gas driller in Colorado over the last decade, cashed out millions of dollars in stock holdings while suppressing internal reports from company engineers who warned they were misleading investors about the value of a new oil field in the Gulf of Mexico, newly unsealed court documents allege.
A former Anadarko senior reservoir engineer, who relocated to Colorado after becoming a whistleblower, contends in federal court documents that the executives fraudulently inflated the value of one of the firm's oil fields in the Gulf by hundreds of millions of dollars, and perhaps billions, pumping up the price of their stock holdings in the process.
As investors rushed in, pushing the value of the company ever higher, those executives dumped their stock holdings at just the right time, likely benefiting from inside information, the court documents allege.
Robert Daniels, one senior Anadarko vice president, dumped more than $6 million of his Anadarko stock, netting a profit of $3.1 million, roughly two months after he and other company officials fraudulently, and illegally, overstated the value of the Gulf oil field during an investor conference, according to the court documents.
While that executive and others profited through timely stock sales and also bonuses for hitting company targets, profits never materialized for investors lured by Anadarko’s characterization that its Gulf holdings represented a “$2 (billion) to $4 billion net opportunity,” the court filings state. Cobalt International Energy, a Houston firm that was a 20% investor in one highly touted oil field in the Gulf, the Shenandoah, ended up having to file for bankruptcy protection and saw losses of nearly $235 million.
The allegations of insider stock trading and investor fraud are contained in recently unsealed court documents filed in federal court in Texas on behalf of the whistleblower, who resigned from Anadarko after asking the federal Securities and Exchange Commission to investigate. She moved her family to Colorado, where she is rebuilding her life as a wildlife photographer in Buena Vista, and where her husband now works as a fly-fishing guide.
“I don’t really care to be in the limelight,” Lea Frye said in a recent interview. “I’ve just been brought up to say the right thing and to try to do the right thing, and that’s basically what I’ve been trying to do. I did not want to be embroiled in this for this many years, but here we are.”
Frye claims Anadarko executives badgered and humiliated her and attempted to silence her after she resisted what she believed was an attempt to use phony and unscientific data to inflate the value of Andarkdo’s Gulf holding to entice investors. Court documents show those executives barred her, and other engineers, from sharing with investors their internal reports that found that the Shenandoah field had far less oil than was publicly projected and would not produce the touted profits.
The warnings from Frye found vindication in 2017 when Anadarko disclosed in a federal filing that it was writing off the Shenandoah project and taking a $467 million impairment charge and expensing $435 million in suspended exploratory costs. The next day the company’s stock price plunged by 8%.
After more than three years of legal wrangling through the court system, her lawyer David Minces, of Bellaire, Texas, succeeded in convincing a judge to unseal more than 1,000 pages of court records tied to her lawsuit, including Frye’s 24-page letter to the SEC alleging investor fraud and insider trading by Anadarko.
The judge in 2018 dismissed Frye’s lawsuit that claimed Anadarko targeted her for workplace retaliation, and the 5th Circuit Court of Appeals upheld that ruling, noting that she resigned 10 days after alerting the SEC of alleged fraud. But her efforts to alert investors of what she contends are illegal investor fraud and insider trading have found new life after the federal judge unsealed her lawsuit and many documents filed in the case.
Anadarko’s lawyers tried to shield from public view the documents, threatening to sue Frye if she made her allegations she filed with the SEC public because they contended doing so would violate a confidentiality agreement she signed when she was hired. Her allegations to the SEC and the other documents remained sealed from the public even as Occidental Petroleum bought out Anadarko in August 2019, an acquisition that included “golden parachute” payoffs to Anadarko executives, including $98 million for Anadarko CEO R. A. Walker and $55 million for Robert Gwin, the chief financial officer.
Last month, U.S. District Court Judge Lee Rosenthal unsealed Frye’s letter to the SEC and the other records filed in her court case, although portions of the documents remain redacted.
Now her allegations have attracted a top securities fraud legal team that includes litigator Jason Forge of San Diego, who deposed President Donald Trump in the Trump University fraud case, in a lawsuit that netted a $25 million settlement. The securities fraud case filed in federal court against Anadarko that Forge is helping shepherd repeatedly cited information Frye conveyed to the SEC and in her own wrongful termination lawsuit. It names as defendants Anadarko as well as Walker, Gwin, Daniels and Ernest Leyendecker III, who was Anadarko’s vice president of Gulf of Mexico exploration.
The SEC has declined to state to The Gazette whether it is acting on the information from Frye.
“I have no idea if the SEC will ever act on the evidence I provided,” Frye said. “But I am glad that a court has unsealed much of that evidence. After all, it took many years and lots of speaking up before Bernie Madoff was finally held accountable. The people who were defrauded deserve to see the evidence so they can have an insider perspective on what some companies will do to make money. That is why I blew the whistle.”
Anadarko in court documents has argued the case is without merit, and that the investor fraud lawsuit cites only vague statements that amount to nonactionable puffery over the Shenandoah oil field. The company’s lawyers have declined to comment.
"The upshot of plaintiff's allegations is that defendants must have been lying when they spoke positively about Shenandoah during this period because Anadarko ultimately suspended its appraisal activities," the Anadarko lawyers said in one recent court filing. "But plaintiff makes only conclusory allegations as to why these statements were false or misleading and, most glaringly, fails to allege particular facts sufficient to support a strong inference that defendants made the statements about Shenandoah with an intent to deceive, manipulate or defraud, with severe recklessness."
A federal judge has yet to rule on Anadarko's effort to have the lawsuit tossed out because the lawyers suing over alleged investor fraud have filed an amended complaint with new details. The revised lawsuit alleges that another senior reservoir engineer who worked with Frye planned to give a company presentation that would show why the Shenandoah was an uncertain bet. Leyendecker abruptly confronted that engineer and told him his presentation would not go forward, and all references to the presentation were removed from Anadarko's internal computer network for sharing information, the new lawsuit states.
It’s the second time within the past three years Anadarko has been sued for allegedly misleading investors. A class-action lawsuit filed in 2018 alleged the company cut corners and knowingly violated rules and laws, setting up conditions that led to a fatal home explosion in April 2017 in Firestone. Although that lawsuit was dismissed, the devastating accident, which left two men dead, helped propel legislators to overhaul Colorado’s regulations guiding oil and gas development.
At the crux of the latest investor fraud lawsuit are allegations that Anadarko misled investors about the value of the Shenandoah in the Gulf, discovered in 2009 and touted in 2013 by Anadarko as “one of the largest discoveries in the company’s history” with “the potential to become one of the most prolific new areas in the deepwater Gulf of Mexico.”
In reality, that lawsuit contends, “Anadarko’s public face was a mask, hiding defendants’ ugly scheme to defraud investors (and their partners) by multiple methods and means.”
At the center of the case is Frye, who in a recent interview described her life in Colorado as a vast improvement over the turmoil she claims to have faced as a senior Anadarko reservoir engineer who bucked the company line and urged a proper scientific analysis of the true value of its Shenandoah field.
Back in Texas, during her struggles with Anadarko, she gained 35 pounds, grew depressed and struggled with sleepless nights, she said.
“To me, work became more of a boxing match each day, which left me so drained that I had nothing left when I came home to my family,” she said in an email. “I had previously enjoyed the mental challenges of being a reservoir engineer, and in particular, the shared discussions among peers. However, as time wore on — with no resolution in sight — the continued push to ignore or bury real information began to take a toll.”
Court records state that the tensions back in Texas grew to the point her husband ultimately cornered her to ask, “What is it going to take to get my wife back?”
The family’s solution involved selling their Texas home and one of two vacation rental homes they owned in Buena Vista, consolidating resources after the company rejected her effort to participate in a workforce reduction that would have paid her a $300,000 severance.
Frye quit her job at Anadarko, where she had worked for a decade, often logging 12-hour days providing oil field analysis. She moved herself, her husband, her two stepchildren and her own child across the country and into the rental home in Buena Vista she and her husband still owned. She said the primary reason she sued the company was to get a ruling allowing her to share with shareholders what she saw at Anadarko.
"I am sure many out there think I am in it for money," Frye said in her email. "So let's be clear. I walked away with nothing more than my unused vacation pay and a bill for lawyer's fees. I stand to gain nothing from the (shareholder) lawsuit other than peeling back the curtain on what I believe was massive impropriety by Anadarko and some of its highest-ranking executives."
She would receive a whistleblower payment if the SEC assesses penalties against Anadarko, though she said she has always viewed that as a long shot.
Now, most days she is tracking down wildlife in the mountains of Colorado as she pursues her hopes of making a new living as a wildlife photographer.
Her childhood was spent near York, Pa., the daughter of blue-collar workers. Her father was a line worker for the Caterpillar manufacturing company, and her mother was a stay-at-home mom who became a dental assistant after the children started high school. Frye cites her humble roots as partly explaining why she stood up to Anadarko executives.
She said she turned her back on a six-figure salary with Anadarko as a well-respected reservoir engineer in the energy industry. Court records show her immediate supervisor at Anadarko gave her glowing reviews and acknowledged that she wasn’t afraid to speak up and voice unpopular opinions that were grounded in science.
She said she misses colleagues, several of whom joined her in arguing the company inflated in its presentations to investors the value of its oil field in the Gulf, but is able to persevere due to the frugality she said her parents taught her. Her work as a photographer has not yet turned a profit, but she said she still finds solace in the work of tracking and photographing Colorado wildlife.
“I’m out a lot, pretty much most days,” Frye said.
“I enjoy it, and part of the enjoyment is going out and finding the animals and just spending time with them,” she continued. “They all have their own personality. It’s fun to sit down and spend time with the animals. I will run into a marmot that will have nothing to do with you, and another will come up into your lap if you let it and will be like, ‘Hi.’”