Freeh, who ran the FBI from 1993 to 2001 and last year led an internal investigation into the Penn State sex abuse scandal involving disgraced ex-coach Jerry Sandusky and several high-ranking university officials, will be the settlement-fund investigation's "special master," U.S. District Judge Carl Barbier in New Orleans said in an order.
The court needed to create an independent external investigation "to ensure the integrity of the program for the benefit of the parties and the public," said Barbier, who is hearing the case for damages over the 2010 BP oil spill.
The U.S. government estimated 4.9 million barrels of oil spewed into the Gulf after a deadly April 20, 2010, explosion on the Deepwater Horizon drilling rig ripped open a well owned by BP.
A seafloor oil gusher flowed for 87 days, until the well was capped July 15.
The appointment of Freeh, who runs a risk-management firm, came a few days after a senior lawyer with the claims-settlement program resigned over allegations he was going to be compensated by attorneys filing claims on behalf of clients, The Wall Street Journal reported.
Oil spill claims administrator Patrick Juneau said last month he was looking into those allegations.
Freeh's appointment also follows BP PLC complaints it was paying millions of dollars more in compensation than it expected under a settlement it agreed to last year with lawyers representing claimants.
BP argued Juneau's office was approving payouts that were either too large or went to companies that didn't actually suffer losses from the spill.
BP agreed to settle claims from thousands of Gulf Coast businesses and individuals last year. The British multinational oil and gas company estimated at the time the claims would amount to about $7.8 billion but has since raised the estimate to more than $8.5 billion.
Barbier earlier ruled the payments were in compliance with the settlement agreement, but BP has appealed.
An appeals court in New Orleans is scheduled to hear oral arguments in the dispute Monday.
BP said Tuesday it was pleased with Freeh's appointment.
"We believe that Judge Freeh's experience on the federal bench and as director of the FBI make him ideally suited to conduct a thorough investigation into the recent allegations of unethical and potentially criminal behavior within the program," the oil giant said in a statement.
Freeh was a U.S. district judge in New York for two years before being appointed FBI director.
BP pointed to the "wide latitude" given to Freeh "to look for other possible ethical violations or misconduct" beyond the lawyer's alleged misconduct.
Stephen Herman and James Roy, who head the committee of lawyers representing the plaintiffs seeking compensation, said in a statement they were "confident that any impropriety, if confirmed, will prove to be an isolated incident."
Juneau said he also welcomed Freeh's investigation.
"Since we initiated the Deepwater Horizon claims process on June 4, 2012, our mission has been to process claims in a fair, efficient and transparent manner," he said. "This type of investigation is consistent with our goal of transparency of the claims process."
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