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Hullabaloo


Monday, November 09, 2015

 
Sometimes you have to clear out the old to make room for the new

by Gaius Publius



Which would you rather see go over the cliff, Exxon's stock price or your grandchildren's future? Sometimes you have to clear out the old to make room for the new.


Short and simple — this is about Exxon, climate change, fraud, and investor value. As you may know, there have been multiple calls for RICO investigations and/or lawsuit filings against Exxon and the rest of the fossil fuel industry thanks to the investigative work by Inside Climate News and separately, the LA Times.

There have also been calls for the SEC to investigate Exxon, using, I think, Sarbanes-Oxley, which provides for criminal penalties and jail time for corporate executives who sign off on knowingly false annual and quarterly statements.

That's two methods of approach, RICO and Sarbanes-Oxley. A third approach is the little-known Martin Act, a New York state statute that gives prosecutors very broad powers of subpoena and discovery.

What's the news? New York Attorney General Eric Schneiderman is using the Martin Act (at least) to subpoena documents from Exxon, looking for evidence of investor fraud (at least). This comes from two sources. Let's start with the New York Times (my emphasis everywhere):

Exxon Mobil Investigated for Possible Climate Change Lies by New York Attorney General

The New York attorney general has begun a sweeping investigation of Exxon Mobil to determine whether the company lied to the public about the risks of climate change or to investors about how those risks might hurt the oil business.

According to people with knowledge of the investigation, Attorney General Eric T. Schneiderman issued a subpoena Wednesday evening to Exxon Mobil, demanding extensive financial records, emails and other documents.

The investigation focuses on whether statements the company made to investors about climate risks as recently as this year were consistent with the company’s own long-running scientific research.

The sources said the scrutiny would include a period of at least a decade when Exxon Mobil funded outside groups that sought to undermine climate science, even as its in-house scientists were outlining the potential consequences — and uncertainties — to company executives.

Kenneth P. Cohen, vice president for public affairs at Exxon Mobil, said on Thursday that the company had received the subpoena and was still deciding how to respond. [...]

Now from Inside Climate News:

New York Attorney General Subpoenas Exxon on Climate Research

New York State Attorney General Eric Schneiderman’s office demanded that ExxonMobil Corporation give investigators documents spanning four decades of research findings and communications about climate change, according to a person familiar with the year-long probe.

An 18-page subpoena issued to the oil giant late Wednesday seeks documents from Exxon (NYSE:XOM) related to its research into the causes and effects of climate change, to the integration of climate change findings into business decisions, to communications with the board of directors and to marketing and advertising materials on climate change, the person said.

Investigators have been looking closely into the company’s disclosures to shareholders and the Securities and Exchange Commission, and the subpoena also sought documents related to those communications. The probe is based on New York’s powerful shareholder-protection statute, the Martin Act, as well as the state’s consumer protection and general business laws. [...]
This is already broader than many people realize. Looks like Exxon's not alone (via the Times article):
The people with knowledge of the New York case also said on Thursday that, in a separate inquiry, Peabody Energy, the nation’s largest coal producer, had been under investigation by the attorney general for two years over whether it properly disclosed financial risks related to climate change. That investigation has not been previously reported, and has not resulted in any charges or other legal action against Peabody.

Peabody deserves whatever it gets. This could get big quickly:

Mr. Schneiderman’s decision to scrutinize the fossil fuel companies may well open a new legal front in the battle over climate change. To date, lawsuits trying to hold fossil fuel companies accountable for the damage they are causing to the climate have been failing in the courts, but most of those have been pursued by private plaintiffs.

Attorneys general for other states could join in Mr. Schneiderman’s efforts, bringing far greater investigative and legal resources to bear on the issue. Some experts see the potential for a legal assault on fossil fuel companies similar to the lawsuits against the tobacco companies in recent decades, which cost them tens of billions of dollars in penalties.

This could open up years of litigation and settlements in the same way that tobacco litigation did, also spearheaded by attorneys general,” said Brandon L. Garrett, a professor at the University of Virginia law school. “In some ways, the theory is similar — that the public was misled about something dangerous to health. Whether the same smoking guns will emerge, we don’t know yet.”

This should strike a huge blow to the whole industry, but especially to Exxon. And not soon enough, considering the cliff we may be about to go over — as a species. Watch that stock price (NYSE:XOM). Would you buy Exxon stock tomorrow morning? If you owned it, would you sell it? Collapses often happen quickly.

And finally, which would you rather see go over the edge into the canyon, Exxon's corporate valuation or your grandchildren's odds of living in something like civilization? Don't weep for Exxon. Sometimes you have to clear out the old to make room for the new.

Think of it as emptying the closet so you can buy new clothes.

(A version of this piece appeared at Down With Tyranny. GP article archive here.)

GP




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