July 11, 2008 -- According to the US Securities and Exchange Commission (SEC), the SEC filed on July 11th a civil action against El Paso Corporation (El Paso), its subsidiaries El Paso CGP Company LLC (CGP) and El Paso Exploration & Production Co. (EPPH), and several former employees alleging that they inflated, or participated in the inflation of, the companies’ proved natural gas and oil reserves in violation of the federal securities laws. The complaint names Rodney D. Erskine, the former president of El Paso’s Exploration and Production Business Segment, Randy L. Bartley, the former senior vice president of El Paso’s Exploration and Production Business Segment, and Steven L. Hochstein, John D. Perry, and Bryan T. Simmons, former vice presidents of El Paso’s Exploration and Production Business Segment. According to the complaint, the defendants violated the antifraud provisions of the federal securities laws. The SECs also alleges that El Paso, CGP, and EPPH violated, and Erskine, Bartley, Hochstein, Simmons, and Perry aided and abetted violations of, the reporting, books and records, and internal controls provisions of the Exchange Act. All defendants have agreed to settle the charges against them, without admitting or denying the SEC’s allegations.

In 2004, El Paso restated its financial statements for years 1999 through 2002, and for the first nine months of 2003, reducing its previously reported proved natural gas and oil reserves at December 31, 2002, 2001, and 2000 by 2.2 trillion cubic feet equivalent of natural gas (TCFe), 3.3 TCFe, and 3.3 TCFe, respectively, and materially reducing its previously reported standardized measures of future cash flows. The total cumulative impact of the restatements reduced El Paso’s stockholders’ equity as of September 30, 2003 by $1.7 billion. CGP and EPPH also restated their previously issued financial statements to correct their material overstatements of proved natural gas and oil reserves, standardized measures of future cash flows, and capitalized costs relating to their natural gas and oil producing activities. The SEC’s complaint alleges that, between 1998 and the quarter ended September 30, 2003, El Paso and its subsidiaries, with the assistance of the individual defendants, inflated its proved natural gas and oil reserves, overstated its standardized measure of future cash flows, and overstated its capitalized costs relating to its natural gas and oil producing activities.

Specifically, the SEC alleges that El Paso violated Section 17(a)(2) of the Securities Act, and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. El Paso consented to a judgment that permanently enjoins it from future violations of these provisions.

The SEC alleges that CGP violated Section 17(a) of the Securities Act, and Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder. CGP consented to a judgment that permanently enjoins it from future violations of these provisions.

The SEC alleges that EPPH violated Section 17(a) of the Securities Act, and Sections 10(b), 13(b)(2)(A), 13(b)(2)(B), and 15(d) of the Exchange Act and Rules 10b-5, 12b-20, 15d-1, and 15d-13 thereunder. EPPH consented to a judgment that permanently enjoins it from future violations of these provisions.

The SEC alleges that Erskine and Bartley violated Section 17(a)(2) of the Securities Act, and Exchange Act Rules 13b2-1 and 13b2-2, and aided and abetted: i) El Paso and CGP’s violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder; and ii) EPPH’s violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 15(d) of the Exchange Act and Rules 12b-20, 15d-1, and 15d-13 thereunder. Erskine and Bartley consented to judgments that permanently enjoin them from future violations of these provisions and order them to pay civil penalties of $75,000 and $40,000, respectively.

The SEC alleges that Hochstein violated Section 17(a) of the Securities Act, and Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aided and abetted: i) El Paso and CGP’s violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder; and ii) EPPH’s violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 15(d) of the Exchange Act and Rules 12b-20, 15d-1, and 15d-13 thereunder. Hochstein consented to a judgment that permanently enjoins him from future violations of these provisions and orders him to pay a $40,000 civil penalty.

The SEC alleges that Perry violated Section 17(a) of the Securities Act, and Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aided and abetted: i) El Paso and CGP’s violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder; and ii) EPPH’s violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 15(d) of the Exchange Act and Rules 12b-20, 15d-1, and 15d-13 thereunder, and iii) CGP and EPPH’s violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Perry consented to a judgment that permanently enjoins him from future violations of these provisions and orders him to pay a $40,000 civil penalty.

The SEC alleges that Simmons violated Section 17(a) of the Securities Act, and Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aided and abetted El Paso and CGP’s violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder. Simmons consented to a judgment that permanently enjoins him from future violations of these provisions and orders him to pay a $40,000 civil penalty.