Audit Notes: Up the Chain at BP, Bank Blinkers, Goldman’s Board

It’s been clear from The Wall Street Journal’s earlier reporting, and that of other publications, that BP cut all kinds of corners in its Deepwater Horizon operations (and others) in a bid to speed up production. You can infer that the hair-on-fire behavior of the lower-to-mid-level BP people on the rig came from somewhere up the corporate chain.

The Journal moves toward showing that in action with this piece, reporting on how Tony Hayward’s pledges to improve safety clashed with his mandate to cut costs.

It appears that the Macondo Prospect isn’t the only thing at BP that’s sprung a leak. The Journal gets hold of some internal BP documents showing how the company was pushing and pulling internally over safety. For instance:

An internal BP presentation from December 2007, early in Mr. Hayward’s tenure, noted that there had been 10 “high potential” incidents at BP facilities in the Gulf since the start of that year, including one December case in which a worker suffered an electric shock but survived. A common theme, the report found, was a failure to follow BP’s own procedures and an unwillingness to stop work when something was wrong.

“As we enter the last two weeks of 2007, we are experiencing an unprecedented frequency of serious incidents in our operations,” Richard Morrison, vice president for Gulf of Mexico production, wrote in an email to staff. “We are extremely fortunate that one or more of our co-workers has not been seriously injured or killed.”

Mr. Morrison listed five near-miss incidents in November and December, including one in which natural gas escaped from a pipe aboard BP’s Pompano platform, threatening an explosion.

Atrios on the financial prism of the powers that be:

Bernanke could have sent money from the Fed’s magic money machine in all kinds of ways. They could have paid down mortgages. They could have put money in my bank account. They could have given it to state governments. What they did was prop up a failed banking system, and the worst failures of the failed banking system, under the premise that capital misallocating financial intermediaries were necessary for a stable economy.

Bloomberg focuses on the silence and acquiescence of Goldman Sach’s board of directors.

It looks at Goldman director Stephen Friedman, who resigned from the New York Fed last year after the Journal reported he bought Goldman shares (Goldman is an Audit funder). Friedman’s attorney says he got a waiver. But:

Jerry Jordan, a former president of the Cleveland Fed, says the section of the Federal Reserve Act barring Friedman from owning bank stock or buying new shares could not be waived. “It was not allowed,” he says. “You can’t get permission to violate the law.”

This is good, too:

The board should also have been riding herd on its members’ stock trades, says Cornell University Law School Professor Robert Hockett, who specializes in financial regulation from his office in Ithaca, New York. Goldman spokesman Lucas van Praag says directors are periodically informed of such trades. The bank received a Wells notice dated July 28, 2009, notifying the firm that it was the target of an SEC fraud investigation.

At least three company executives, including Vice Chairman Michael Evans, unloaded more than $27 million of Goldman stock from October 2009 through February 2010 in open market sales unrelated to the recent exercise of options or delivery of restricted stock, according to data compiled by Bloomberg.

Van Praag says Goldman’s board was informed of the Wells notice, which was not made public until after the SEC filed its suit. He says the firm’s lawyers determined it wasn’t material.

“On the face of it, the idea that that would not be material — I can’t imagine anybody saying that with a straight face,” Hockett says.

Has America ever needed a media watchdog more than now? Help us by joining CJR today.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.