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Judge won't block new round of BP seafood payments amid fraud allegations against Texas lawyer

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NEW ORLEANS - A federal judge refused Wednesday to halt payments from a BP fund to compensate deckhands and other seafood workers harmed financially by the 2010 Gulf oil spill, turning back arguments by the oil giant that the payment process was tainted by a Texas lawyer's alleged fraud.

BP argues the $2.3 billion it agreed to put into the oil spill seafood compensation fund was inflated, based on the belief that attorney Mikal Watts represented more than 40,000 clients.

BP claims that more than half of the Social Security numbers on Watts' client list were fake. Watts' attorney has denied that Watts committed fraud.

More than $1 billion of the fund has been distributed in an initial round of payouts. BP wanted a second round of payments suspended.

However, U.S. District Court Judge Carl Barbier said a suspension was unnecessary. He said the second round, for which no date has been set, is at best months away.

Barbier added that the people Watts claimed to represent were deckhands and other workers who usually worked temporary jobs with little or no documentation of past employment and scant means of proving losses. Such clients would likely not account for a large percentage of the $1 billion-plus left in the fund, he said.

"They were at best the tail wagging the dog. Maybe the flea on the tail wagging the dog," Barbier said.

Barbier did grant a request from Watts' lawyers for a delay in BP's lawsuit against Watts, agreeing to put that matter on hold at least temporarily while a criminal case against Watts unfolds.

Watts' criminal lawyer Robert McDuff has said in court filings that if the BP suit continues while the criminal investigation is underway, he would advise Watts not to testify in depositions regarding the lawsuit. Another attorney for Watts, Gerald Meunier, said in court that Watts expects to know by June whether he will be indicted.

There should be no second-round payments until the fraud allegations against Watts are more fully investigated, BP attorney Kevin Downey said.

Jim Irwin, attorney for the class suing BP and others over the oil spill, said it was BP's duty to investigate whether claims were legitimate.

And people who may be due legitimate payments should not have claims delayed or denied because of allegations against Watts, he said.

"Proper restitution is to go after the people who committed the fraud," Irwin said.

Although BP has publicly raised questions about the validity of some seafood industry claims, the focus of Wednesday's hearing was not on specific fraudulent claims that may have been paid out.

"We are pleased that the court explained that the first round distribution is incomplete and the second round distribution process, including further review by the judge, cannot occur until then," BP spokesman Geoff Morrell said in an email.

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