Arco Broke Price Rules, U.S. Claims : Energy Dept. Seeking $499 Million in Fines for Alleged Violations
The Energy Department acknowledged Thursday that it is seeking fines of $499 million from Atlantic Richfield for alleged violations of federal oil price controls.
The department contends that Los Angeles-based Arco sold its oil for more than permitted under federal price controls in effect from the early 1970s until January, 1981.
According to the department, the overcharges occurred through trades with oil trading companies, including Marc Rich & Co., the Swiss commodity trading company. Marc Rich & Co. pleaded guilty to fraud in oil trading a year ago and paid the government a $150-million fine.
The government said Arco owes $240 million in overcharges. The rest is interest due on the overcharges, some of which extend back to 1978.
Denies Wrongdoing
Arco declined comment. The department said the company has denied any wrongdoing.
A department spokesman said Arco has about two weeks to review the alleged overcharges, and some small adjustment in the amount is possible. Arco can fight the government’s claim within the Energy Department or in federal court.
The allegations are part of a broader investigation into possible price control violations by other oil companies, a department spokesman said. The spokesman declined to identify the companies under investigation.
Although a number of companies have been fined for overcharging customers in violation of federal price controls, only one other major claim has been made for alleged overcharges in the trading of oil.
Several Price Categories
Earlier this year, the department filed a claim for $509 million against Cities Service, a unit of Los Angeles-based Occidental Petroleum, for alleged violations of price controls in its dealings with oil trading firms. Cities Service denied any wrongdoing.
Under price controls, oil was divided into several price categories. The difference in price between “old” oil, the lowest-price oil, and uncontrolled oil could be as much as $30 a barrel.
Arco and other major oil companies controlled large amounts of low-priced oil. During four days of testimony before department investigators, former Arco oil trader Frank E. Smith outlined trades in which he contended that Arco was able to obtain higher prices for controlled oil, according to William F. Dwyer, Smith’s lawyer.
Smith told investigators that Arco sold the cheap “old” oil to resellers at the controlled price along with uncontrolled oil at above-market prices. Smith testified that the high price on the uncontrolled oil actually represented a premium on the controlled oil, according to Dwyer.
Arco fired Smith and three other oil traders last March after Smith testified before a New York grand jury about trades involving Marc Rich & Co. Smith and the three other traders contend that they were fired for talking to investigators and are suing Arco over their firings in Superior Court in Los Angeles.
The department said Arco cooperated with its investigation by turning over trading records. The department said New York lawyers for Marc Rich & Co. supplied records of billions of dollars worth of oil trades that the Swiss firm conducted with Arco.
Arco’s stock closed Thursday at $64.125 a share, down 62.5 cents, on the New York Stock Exchange. Oil industry analysts said the overcharge isn’t likely to affect Arco’s earnings much. Raymond Urban, an analyst with Duff & Phelps in Chicago, said such disputes frequently involve lengthy legal proceedings that are settled for less than what the government originally claims.
In 1984, Arco had profits of $567 million on revenue of $24.7 billion, after a $785-million after-tax write-off in its minerals and metals businesses. The company recorded a $1.09-billion loss in the second quarter of this year as a result of a $1.5-billion write-off related to its restructuring. The company has eliminated 7,900 positions and has discontinued refining and marketing on the East Coast.
