Risk & Compliance

SEC Probes Citgo on Employee Tip

SEC joins Venezuelan investigation of Houston oil company.
Stephen TaubJune 20, 2005

Officials at Citgo Petroleum Corp. say the Securities and Exchange Commission has launched an informal inquiry into the company’s October 2004 buyback of $550 million in senior notes after receiving an anonymous letter containing allegations from an employee.

The full nature of the allegations wasn’t released by the company or the SEC. But according to Citgo’s filings, the probe concerns a previously disclosed and ongoing investigation by the Venezuelan government.

Further, the regulator is seeking information related to the company’s relocation of its corporate headquarters to Houston from Tulsa, Oklahoma, in 2004, as well as several minor transactions. Citgo’s management stresses that the inquiry did not identify any unlawful or unrecorded activities, and it is unaware of any such activities.

According to Bloomberg, the Venezuelan newspaper El Nacional reported on June 8 that some Citgo employees may have used insider information to purchase bonds before the buyback.

The anonymous letter, sent to the SEC and Citgo’s auditors, PricewaterhouseCoopers LLC, concerns an inquiry being conducted by a special commission of the Venezuelan National Assembly. Citgo is the U.S. unit of Petroleos de Venezuela SA (PDVSA), the largest oil company in South America. Management says it is cooperating with the investigation and has provided the requested information to the SEC.

In its SEC filing, the company said that representatives of the VNA commission visited Citgo’s Houston offices in March 2005 to interview several Citgo employees, but that Citgo hasn’t received any direct statements from the commission describing the scope of its inquiry.

Citgo officials acknowledge that in the past few weeks, current and former officers, directors, and employees have appeared before the commission in hearings relating to these matters and other business decisions, or are scheduled to appear. Management also notes that shortly after the commission’s March visit, a Citgo employee sent a letter to PwC and the SEC referring to the commission and other matters.

A special counsel hired by Citgo’s audit committee to investigate the employee’s allegations did not find evidence of any acts or omissions that could have resulted in material misstatements in any of Citgo’s previously issued financial statements. “They did not find any evidence of any other acts or omissions by Citgo in violation of federal securities laws; however, they took note of, but did not address matters that were the subject of, pending internal reviews,” said the filing.

Those reviews involve payments beginning in 1999, a portion of which were made for the benefit of the Venezuelan government (which owns PDVSA), according to the filing. “The aggregate amount of such payments is not believed to be significant,” the company asserted.