New York attorney general Eric Schneiderman could severely depress Exxon Mobil stock values while piously claiming to protect shareholders from fraud. Welcome to the Orwellian world of climate-policy sanctimony.
Schneiderman “has begun an investigation of Exxon Mobil to determine whether the company lied to the public about the risks of climate change or to investors about how such risks might hurt the oil business,” the New York Times reported last week. According to the Times, Schneiderman is investigating the company under the State’s 1921 Martin Act, the envy of regulatory bullies throughout the land. The statute gives New York’s AG “extraordinary powers and discretion” that “exceed those given any regulatory in any other U.S. State” (Wiki). As one commentator describes it:
The purpose of the Martin Act is to arm the New York attorney general to combat financial fraud. It empowers him to subpoena any document he wants from anyone doing business in the state; to keep an investigation totally secret or to make it totally public; and to choose between filing civil or criminal charges whenever he wants. People called in for questioning during Martin Act investigations do not have a right to counsel or a right against self-incrimination. Combined, the act’s powers exceed those given any regulator in any other state.
Now for the scary part: To win a case, the AG doesn’t have to prove that the defendant intended to defraud anyone, that a transaction took place, or that anyone actually was defrauded. Plus, when the prosecution is over, trial lawyers can gain access to the hoards of documents that the act has churned up and use them as the basis for civil suits. “It’s the legal equivalent of a weapon of mass destruction,” said a lawyer at a major New York firm who represents defendants in Martin Act cases (and who didn’t want his name used because he feared retribution by [former AG Eliot] Spitzer). “The damage that can be done under the statute is unlimited.”
According to Deschert LLP, the Martin Act sets a low bar for establishing guilt. To convict a company of fraud, the AG does not have to show evidence of scienter – an intent to mislead. All he has to show is that the company misrepresented a “material fact” about its securities, and the Act defines “misrepresentation” broadly to include omissions of material facts as well as affirmations of false facts. By that logic, if Exxon Mobil’s public statements on climate-change or oil-market projections omit worst-case scenarios the company does not regard as credible, then it is guilty of defrauding shareholders.
Apparently, Schneiderman wants to build a case that Exxon Mobil misrepresented the seriousness of climate change risks, hiding from investors the financial risks the company will face when science triumphs over denial and governments act to curb the production and use of fossil fuels.
Political Context and Alleged Evidence
Schneiderman’s investigation is conveniently timed to build on the green campaign demanding a Justice Department investigation of Exxon Mobil under the Racketeer Influenced and Corrupt Organizations (RICO) Act. Campaigners cite recent reports by the L.A. Times and Inside Climate News (ICN) allegedly revealing that Exxon Mobil knew the awful truth about climate change since the 1970s yet hid the risks from policymakers and the public in the 1990s and 2000s. Sen. Sheldon Whitehouse (D-R.I.) called for a RICO investigation in May — months before the L.A. Times and ICN published their reports. Both Democratic presidential front runners, Hillary Clinton and Bernie Sanders (D-Vt.), said they will call for a federal probe if elected.
In fact, all the documents reveal is that Exxon Mobil closely monitored and contributed to climate science in the ’70s and ’80s, that the “consensus” then, as now, was based on climate models with rather large acknowledged uncertainties, and that some Exxon scientists worried about worst-case scenarios.
For example, ICN cites an August 1981 memo from Exxon manager Roger Cohen arguing it is “distinctly possible” that the warming trend after 2030 “will indeed be catastrophic.” ICN also cites other ’80s documents opining that climate sensitivity (the long-term warming after a doubling of atmospheric CO2 concentration) is 3.0 ± 1.5°C, and that unchecked consumption of fossil fuels will increase global average temperatures by 2ºC-5ºC during 2000-2100.