In June 2006, the Commodities Futures Trading Commission filed a civil complaint against \(\mathrm{BP}\), alleging that its brokers tried to manipulate the price of propane by manipulating the supply, or at least access to information about the real supply levels. One broker wrote in an e-mail that if they "squeezed" the pipeline, they could drive up the price of propane, "and then we could control the market at will," and "... we would own them." 46 The brokers commented to each other about how easily they could control the supply and therefore the market price for propane.

Following the Prudhoe Bay pipeline incident, government investigators also began looking into BP's trading practices. On August 29, 2006, the Justice Department announced investigations into BP's energy trading and stock sales by executives and others. BP officials said it gets such requests regularly.

One of the investigations focused on alleged insider trading by BP brokers. BP runs one of the world's largest energy-trading firms, dealing not only in the sale of oil and gas but also in energy futures. BP also provides risk-management services for other companies. One regulator has referred to the \(\mathrm{BP}\) operation as one large commodities trading desk. Based on information about BP's storage, refinery, and pipeline facilities, as well as a wide expanse of information about other companies and their risk and exposure, the brokers were indicted for trading in commodities prior to announcements about BP's production quantity and transport systems, information that affects market prices and hence stock prices of companies affected by energy prices. BP had warned its brokers about the inability to use information gained from their positions to profit personally in the markets, commodities or stock, but there are no guarantees that such an artificial wall between information gained, but not used in a personal context, was effective. For example, when the Texas City refinery explosion occurred, BP traders were warned not to trade on that information prior to its dissemination to the public. The shutdown of a major refinery can impact market prices for oil.

Following the indictments, one BP trader entered a guilty plea. BP also entered into a deferred prosecution agreement and paid a \(\$ 303\)-million fine, \(\$ 53\) million of which was used to repay investors for the losses they experienced as a result of BP's advance trading. However, in September 2009, a federal judge tossed the indictments of the BP traders because he concluded that the law used for the basis of the indictments was not violated. \({ }^{47}\)

The series of events resulted in negative press coverage. One London newspaper carried the headline "BP = Big Problems for Oil Giant." 48 From this headline, the public began developing its own translations for the BP acronym, such as "Beyond Pitiful" and "Big Putzes." The BP brand was damaged significantly by the unfortunate series of events.

BP also announced that it had hired former federal judge Stanley Sporkin to investigate what happened at Prudhoe Bay and why. Judge Sporkin was famous for one line in his work in handling the criminal and civil cases resulting from the savings and loans frauds of the 1990s: "Where were the lawyers? Where were the auditors and the other professionals when this fraud was occurring?" Upon his appointment to the BP position, Judge Sporkin said, "I'll call them as I see them." 50 On September 20, 2006, BP announced that it would spend \(\$ 3\) billion to upgrade its oil refinery in northwest Indiana, so it can process significantly more heavy crude from Canada, while also boosting its production of motor fuels at the site by up to \(15 \%\). The heavy crude from Canada is taken from Canada's vast oil sands resources, a source that has been left untapped and is seen as an alternative to the switch to ethanol. BP PLC's U.S. division said the upgrade would create up to 80 new, permanent, full-time jobs and 2,500 jobs during the three-year construction phase. The Whiting refinery, about 10 miles from Gary, Indiana, originally produced about 290,000 barrels a day of transportation fuels such as gasoline and diesel. Mike Hoffman, BP's group vice president for refining, said the project would modernize the equipment at the refinery, include environmental precautions beyond regulatory requirements, "and competitively reposition it as a top tier refinery well into the future." BP indicated that it would deliver the oil to the refinery by an existing pipeline, but that the pipeline would be upgraded. The Indiana Economic Development Corporation provided \(\$ 450,000\) in training grants and \(\$ 1.2\) million in tax credits in order to attract the BP refinery.
BP has stepped up both its safety programs as well as training for those operating refineries and other facilities in the company. \({ }^{51}\) By 2010 , Judge Sporkin's contract as an external ombudsperson (one of the former terms for the functions of ethics and compliance in corporations; another former term was employee concerns officers) had ended. While the end of Judge Sporkin's assignment was seen as a negative action, BP explained that it was always its intention to internalize the function when "the internal processes were sufficiently robust." \({ }^{2}\)...............................

Discussion Questions 1. Discuss the ethical, negligence, and environmental issues you see in this case.
2. BP had rented the rig from Transocean for \(\$ 500,000\) per day. Transocean had been recognized by the U.S. government for its safety record. \({ }^{68}\) Can companies distance themselves from liability and responsibility through the use of contractors? What are the risks of using third-party contractors?
3. Discuss how BP got into the position in which it found itself in late 2006, and what might have prevented the spill, the financial fallout, and the loss of reputation. Be sure to factor in the financial implications of any decision made during the period from 2001 to 2006.
4. What was the impact of the emphasis on cost cutting on BP's culture? What was the impact on the company's performance?