ExxonMobil and the Politicization of Law Enforcement In New York
The New York Supreme Court announced its landmark decision earlier this month in the first climate change-related securities lawsuit---“People of the State of New York v. Exxon Mobil Corporation”---to be tried to a verdict in the U.S. On December 10, Justice Barry Ostrager ruled that the New York Attorney General had failed, even under a preponderance of the evidence standard, to prove its claims that ExxonMobil engaged in a “fraudulent scheme” to mislead “investors regarding the risk that climate change regulations posed to its business.”
That absolutely was the right decision in this case. A look at the specific facts revealed by this trial, which stemmed from years of activist planning to exploit the subpoena powers of sympathetic attorneys general, demonstrates the state’s flimsy arguments and flawed witnesses. This lawsuit was driven not by credible evidence or impartial enforcement that make up the rule of law, but instead has been a blatant exercise in prosecutorial abuse to promote an ideological agenda.
Former Acting Attorney General Barbara Underwood filed the “fraud” lawsuit under the New York state Martin Act, which attempted to impose liability on the company for misleading investors. This purported perfidy stemmed from the company’s use of two different costs to account for the potential effects of future climate change regulations on its business operations and profitability. In a nutshell, the state maintained that the two-pronged analytic approach that on one hand estimates a global average cost of climate policies, and on the other, evaluates the effects of individual nations’ policies on specific projects’ business cases, was an exercise in maintaining two sets of books.
But that is analogous to saying that a delivery company is engaged in fraud if it uses a global average fuel cost for evaluation of its worldwide operations but a specific fuel price for evaluation of its costs in a specific nation with, say, high taxes on motor fuels. Seriously?
Bear in mind also when analyzing the state’s flawed argument that this had been the third legal theory pursued by the New York Attorney General over the last four years. The first: ExxonMobil had known for decades the serious future adverse effects of climate change, but, so as to preserve the value of its assets, hid that premise from the public and even engaged in a disinformation campaign to convince the public that such prospective climate impacts would be minor.
The second: the company knew anthropogenic climate change is serious and that governments inevitably would adopt strong policies to deal with it, thus reducing sharply the value of (or “stranding”) much of Exxon Mobil’s assets, a potential reality that ExxonMobil hid from investors.
Both of those earlier theories were deeply dubious, a reality that the NYAG office admitted implicitly when it finally filed its (losing) lawsuit, which was an accounting case.
Consider the witnesses called to testify in support of this purported accounting fraud. First was Natasha Lamb, who openly admitted that she acquired shares of ExxonMobil only so that her client would be empowered to lobby the company on climate change issues. There was Roger Read, a senior energy analyst with Wells Fargo, who when asked if climate change was a significant factor in his analysis, testified that it wasn’t “something we routinely include as a factor in valuation,” substantially undermining the Attorney General’s case.
The legal theories and weak arguments underlying the litigation make it clear that ExxonMobil is a politically unpopular target par excellence. But if government can target them with allegations both dubious and endless, then no one will be immune from the direct and indirect adverse effects of such politicized law enforcement.
The NY AG lawsuit is the product of an activist agenda’s multi-year pursuit of a deep pocket, notwithstanding all the rhetoric about protecting investors. That is not the way law enforcement is supposed to work in a constitutional republic governed by the rule of law. Prosecutors are supposed to wait until evidence of an actual crime emerges, after which sufficient evidence to demonstrate probable cause must be marshalled against a specific suspect, who then is afforded a legal presumption of innocence until convicted in a court of law governed by the rules of due process. That is how freedom is preserved.