Exxon Mobil has triumphed over New York State and its crusading Attorney General Letitia James in the largest climate-change-related case ever brought against a major energy company in the US.
That Exxon Mobil prevailed is hardly a surprise. Rather than being inspired by investors with genuine complaints, the case was tainted by politics from the beginning. It was brought by New York State’s crusading Attorney Generals, Barbara Underwood and her successor, Letitia James (the current New York State AG), centrist Democrats clearly hoping to punish one of the world’s largest energy companies for purportedly suppressing and misconstruing research about the environmental impact of fossil fuels. Unfortunately, the Manhattan judge who handed down the ruling must have missed Greta Thunberg’s UN speech.
When the case was filed in October of last year, the AG’s office had already been investigating the energy giant for nearly four years. Perhaps James’s office believed they had simply invested too many resources and too much time into the case to let Exxon Mobil walk.
The lawsuit alleged that Exxon Mobil was responsible for $1.6 billion in investor losses by lying to them about the impact of future climate change regulation on its business. Specifically, the company was accused of fabricated a “proxy cost” metric upon which Exxon Mobil based its projections, Reuters reports.
First of all, these “projections” are merely that – estimates, informed guesswork at best. Even these “proxy cost” figures probably won’t be exactly accurate. But the AG’s office thought it had evidence that the company had crossed a legal line by distributing one set of numbers, while using another “more conservative” set of forecasts internally.
By the last day of the trial, it had become clear that the AG’s case was crumbling. During closing their closing statement, the AG dropped the two most damning of four charges without explanation – these were the charges claiming that Exxon’s misstatements were part of a deliberate scheme to mislead investors, and that the data were critical to investors’ decision-making when deciding whether to buy ExxonMobil stock (we’re not lawyers, but having purchased securities before, we can say with some authority that these seems extremely doubtful).
After those charges were dropped, the judge in the case, New York Supreme Court Justice Barry Ostrager, was left to decide whether Exxon had violated New York State’s Martin Act by issuing public statements (in this case, disclosures of the “proxy costs”) that were misleading. Clearly, the judge disagreed.
Here’s a summary of the judge’s comments courtesy of Bloomberg.
“The office of the Attorney General failed to prove, by a preponderance of the evidence, that ExxonMobil made any material misstatements or omissions about its practices and procedures that misled any reasonable investor,” Ostrager wrote in a 55-page ruling. James “produced no testimony either from any investor who claimed to have been misled by any disclosure,” while the company disclosed its use of both the proxy cost and the greenhouse gas metrics no later than 2014, the judge said.
On Oct. 30, former Exxon CEO Rex Tillerson took the stand (many might not remember this; it was easily overshadowed by the latest Brexit deadline delay and the media circus on Capitol Hill). During his testimony, Tillerson alleged that the case was politically motivated, and that the AG’s office was deliberately misleading Exxon Mobil’s intentions. But it shouldn’t take a CEO to understand what’s happening here. Anybody with a background in corporate strategy or finance would probably find the notion that developing a range of internal-only projections is illegal to be disturbing. It’s a widely used practice.
As we’ve mentioned in the past, though it’s commonly applied to insider-trading cheats and embezzlers, ‘securities fraud’ is, in reality, much more vague: Any kind of corporate wrongdoing – or even normal behavior – can be construed as securities fraud if it wasn’t explicitly disclosed to investors.
Read the judge’s 55-page ruling below: