Steven Donziger has a problem. The problem is not necessarily that he committed fraud (though maybe he did if Chevron is right). The problem is that people who should be his allies are accusing him of fraud. We have already seen the Reyes Declaration and the Calmbacher deposition, as well as the case brought by the Huaorani people, whom Donziger supposedly represented, which I have called an airing of dirty laundry. Now we have some excellent reporting from Roger Parloff on another erstwhile ally, Burford Capital. Burford was one of the financial backers of the Lago Agrio litigation. Parloff has brought to light a September 2011 letter from Burford to Donziger, Pablo Fajardo, and others asserting that Lago Agrio plaintiffs and their lawyers had committed fraud:

[W]e believe that you and particularly your US representatives engaged in a multi-month scheme to deceive and defraud in order to secure desperately needed funding from Treca [Financial Solutions], all the while concealing material information and misrepresenting critical facts in the fear that we would have walked away had we known the true state of affairs.

The main example of supposed fraud relates to the Cabrera report, a topic I have previously covered in detail:

Both your public statements prior to the date of the Funding Agreement and your statements to us during our diligence suggested (1) that your ex parte communications were limited, (2) that they were lawful under Ecuadoran law, and (3) that chevron’s suggestions to the contrary were false. In the Invictus report, we were told, “Chevron claims that the outtakes show unlawful collusion between Plaintiffs, their experts, and Mr. Cabrera. … But as with virtually any other claim by Chevron, reality is being distorted here.” The Invictus report also said that “Chevron has cited in its submissions no Ecuadorian law or rule that prevents ex parte communication” and that Chevron is “[c]leverly using the lens of U.S. norms to distort what transpired in Ecuador” and “us[ing] its findings regarding Plaintiffs’ involvement with the Cabrera Report to create the impression that it is the victim of an injustice in Ecuador.” Throughout, you characterize Chevron’s “arguments concerning Mr. Cabrera” as “misleading.” Separately from the Invictus Report, you assured us that your contacts with Cabrera were limited and entirely permissible.

At the start of discovery before Judge Kaplan, Mr. Donziger attempted to maintain the same position taken with us before Treca’s funding: namely, that the ex parte communications were limited and lawful, and that Chevron’s allegations to the contrary are false. But over the course of discovery Donziger admitted that plaintiffs had in fact ghost written the entire Cabrera report and had worked very hard to cover that up. Donziger also revealed that “one of your own Ecuadorian lawyers representing the Lago Agrio plaintiffs on the ground in Ecuador wrote to you in late March that they all might end up in jail if it came out what Stratus had done for Cabrera.” These statements by plaintiffs’ own representatives—that the ex parte contacts consisted of full-blown ghost-writing and that their legality in Ecuador was of great concern—flatly contradict your representations that the contacts were limited and lawful and that Chevron’s allegations to the contrary were false.

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… [I]t is now clear that you were willing to do and say anything to attract new funding. …

According to Parloff’s article, Burford had planned to invest $15 million, and had actually delivered a first tranche of $4 million in return for a 1.5% stake in the eventual recovery. Burford later sold a participation interest in its stake for $4 million, thus recovering its investment while still retaining an interest in the outcome. But in 2011, Burford refused to continue to fund the litigation, citing the supposed fraud.

To be clear, I am not concluding or even suggesting that Burford could prove a claim for fraud. Even assuming Burford could show a false statement of material fact, could it show that it reasonably relied on the false statements? No doubt Donziger will say that Burford’s eyes were wide open when it entered into the deal. And in fact Karen Hinton, the Lago Agrio plaintiffs’ PR representative, has made precisely that point in a response to Parloff’s article. And maybe Donziger could show that nothing untoward happened between the plaintiffs and Cabrera. But the bigger problem is that people who should be on Donziger’s side, aren’t. What’s going on? Is the problem that allies don’t have confidence in an eventual payday and are trying to get off what looks to them like a sinking ship? Or is the fraud problem not just a problem of perceptions but a problem of substance? Either way, the cumulative weight of the defections has to be troubling for the plaintiffs.

Photo credit: Marie-Lan Nguyen