The media have appropriately called out the hypocrisy of celebrities who rail about climate change but leave a huge carbon footprint. They should also call out New York’s attorney general, Letitia James, who is claiming to champion investors with an assault on ExxonMobil but may actually be hurting them, by forcing them to bear the cost of frivolous litigation — all the while, cloaking the true, underlying political goals.
This anti-Exxon lawsuit — closing arguments for which are expected to begin Thursday — is a blow to the very rule of law that the attorney general’s office is supposed to uphold, and a tragic waste of New York taxpayer money.
Let’s face it: This suit, in New York state Supreme Court, is not about the harm Exxon supposedly caused shareholders, climate science or who knew what when; it is about raw politics.
It centers on two Exxon calculations that try to quantify the financial impact of future, potential government policies regarding environmental issues — a purely speculative undertaking in any situation.
The first calculation is voluntarily disclosed by Exxon in various publications and offers an estimate of how potential government climate policy might affect global demand for Exxon’s energy products — estimates that are essential for corporate planning.
The second calculation is an internal cost-planning tool that helps management evaluate whether to pursue a particular project or investment and is not made public for competitive reasons.
The AG’s office wants to hold the company liable for more than $1 billion in alleged shareholder losses from the existence of these two different sets of numbers, even though they were developed for two distinct purposes and use hypothetical circumstances for their calculations.
In classic political pandering, a string of New York’s AGs have set their sights on Exxon for many years, eyeing shifting theories as a basis for a suit — all to no avail before an appropriately skeptical judge.
James has now resorted to the same abusive tactic used by ambitious former Attorneys General Eliot Spitzer and Eric Schneiderman: invoking the Martin Act.
Enacted in 1921, the Martin Act is a New York state law meant to punish fraud on investors. The act, however, is far more expansive than any other anti-fraud law.
Unlike federal securities law and common law, it allows the NY AG to obtain a judgment without having to prove intent, reasonable reliance by investors on the purported fraudulent statements or even that investors sustained any damages.
The AG need only prove that “fraud” or misrepresentation occurred, which is perhaps why the state appears to have based its case on the claims of a couple of climate activists.
Rex Tillerson denies Exxon Mobil hid financial costs of climate change
Supreme Court Judge Barry Ostrager says he’ll issue a ruling within 30 days. The question at hand is: Did the company mislead shareholders through its climate-change accounting methods?
Importantly, the Securities and Exchange Commission examined these same ExxonMobil accounting methods for two years. In concluding its investigation, the SEC staff issued a letter informing Exxon that it had done so, with no consequences for the company. Historically, SEC staff have been hesitant to send such a letter if they think there is a chance they might need to revisit the issue.
Yet that has not stopped New York’s AG from pursuing Exxon and its climate-change policies, regardless of evidence. There really is no indication that the company misled anyone or fudged its books.
Its only crime is that it produces and distributes a fossil fuel, oil, which currently happens to be enormously critical for the modern world to function.
Alas, such efforts are becoming a trend. Recently, Massachusetts’ AG filed a new lawsuit against the company alleging climate-change deception, after her previous years-long efforts hit roadblocks.
Congress can and should end the use of the Martin Act as a blunt-force legal tool, but for now Judge Ostrager has an important decision to make in this case that will have ripple effects with either outcome. So far he seems focused on the facts and appears unamused by the gamesmanship on display from the AG’s office.
Let’s trust that he will hold firm to the facts and not be distracted by the courtroom climate.
Paul S. Atkins, a former member of the Securities and Exchange Commission, recently testified before Congress on environmental, social and governance disclosure issues.