Exxon Mobil Sued For Fraud
Air Date: Week of November 2, 2018
Prosecutors say ExxonMobil kept two sets of books on the effects of climate change. (Photo: Mike Mozart, Flickr CC By 2.0)
After three years of investigation, the New York state Attorney General has filed a lawsuit against ExxonMobil for allegedly defrauding its shareholders. The lawsuit alleges that Exxon used different numbers publicly and internally to calculate the impact that climate change regulations could have on its business. Michael Burger of the Sabin Center for Environmental Law at Columbia University explains the nuances of this lawsuit with Host Steve Curwood.
CURWOOD: It’s Living on Earth. I’m Steve Curwood.
Investigative reporters from Columbia’s Journalism school, Inside Climate News, and the Los Angeles Times documented in 2015 that ExxonMobil knew decades ago about how fossil fuel burning would disrupt the climate, but told the public otherwise. The New York Attorney General also investigated and now that State has sued the oil giant. It alleges that ExxonMobil defrauded its shareholders by providing them with one set of numbers about the likely financial impact of climate regulations while the company used different numbers internally that minimized regulatory risk. Michael Burger is the executive director of the Sabin Center for Climate Change Law at Columbia and joins me now from New York. Welcome to the show, Mike!
BURGER: Thank you, Steve.
CURWOOD: What exactly has the New York Attorney General filed in this case?
BURGER: So, the New York State Attorney General filed a summons in New York State Supreme Court that alleges that Exxon intentionally misled investors about the risk that climate change regulation poses to its core businesses. And at the heart of the case is the claim that Exxon told investors that it was using one cost of carbon in order to account for the future of greenhouse gas emissions regulation, when in fact, it was using another series of lower numbers, depending on the particular circumstance
CURWOOD: Now, how did having a double set of books feel advantageous to Exxon?
BURGER: The advantage that they got from that was that, on the one hand, they got the positive PR, I suppose, of saying that they were accounting for climate risk, and they also were able to assure investors that in making planning decisions, in making investment decisions, in valuing the known and proved reserves that they had the assets that they have, that they were taking a long view and looking at the risk of stranded assets. In fact, what they were doing, according to the complaint, was they were using much lower numbers, which is to say, they were not accounting for the degree of regulation that they said they were. So, they were able to, according to the complaint, avoid writing off some of their known reserves, they were able to make investment decisions that, had they used the higher number, they might not have made, such as undertaking investments in the oil sands in Alberta. Given the carbon content of that fossil fuel, with a higher number, they probably would not have made those investments.
CURWOOD: Now, a lawsuit like this has to claim damage of some type. How were investors damaged by this approach by Exxon?
BURGER: So, this is an interesting thing. The complaint does claim that investors were harmed. But in order to show a violation of the Martin Act in New York State, which is the statute that the Attorney General is relying on here, harm is not key. The fraud itself is a violation of the statute. Now, the complaint also does claim that there was, what is called legally, actual fraud. And for that, the state attorney general does have to show that investors were harmed. And for that reason, there are allegations that investors were harmed by the misleading statements.
CURWOOD: By the way, what are the penalties for misleading investors and not costing them money?
BURGER: So, one of the things that the Attorney General is seeking is disgorgement of profits. So, the Attorney General is seeking to have Exxon on pay back to the state any profit that it made as a result of its misleading statements.
CURWOOD: Now, the other cities and states have attempted to sue fossil fuel industries on the basis of being negatively impacted by climate change, and some jurisdictions out on the west coast, even New York City itself. To what extent does this particular lawsuit hold Exxon responsible for playing a role in climate change, not just not telling investors what's going on, but actually being related to the cause of climate disruption?
BURGER: This lawsuit is not really about liability for climate damages. It's fundamentally different than the nuisance suits and the tort lawsuits that have been brought by cities around the country against fossil fuel companies. This is really a corporate fraud case. It's about a company saying to investors that it was doing one thing when, in fact, it was doing another. Underlying it is this issue of stranded assets, and whether Exxon was being forthright in acknowledging the risk that dealing with climate change poses to its business. But it's not looking back at what Exxon has done, and seeking compensation for the damages that have resulted from climate change.
CURWOOD: As I understand it, there's another lawsuit against ExxonMobil that began back in August. It's in Texas, that alleges similar transgressions. So, tell me a little bit more about this case, I believe it's called Ramirez v. ExxonMobil.
BURGER: Very similar or even identical facts. But the New York Attorney General had access to millions of documents, from what I've heard, before filing this summons. The shareholder lawsuit, which was filed earlier, the plaintiffs didn't have access to all of these documents. So, there's a much more robust factual basis in the complaint and in the New York Attorney General's case than in the shareholder suit. But they're both talking about the proxy cost and the alleged fact that Exxon told investors that it was using one proxy cost for carbon and in fact, was using another.
CURWOOD: I understand that in the Texas case that you talked about with the shareholders that, in fact, the trial judge, or the would-be trial judge, has allowed it to move forward towards discovery, didn't immediately dismiss it outright.
BURGER: That's exactly right. That case, the plaintiffs in that case survived the motion to dismiss. Exxon has asked the trial judge to reconsider that decision. Generally, those motions for reconsideration fail because you're basically asking the same judge to go back and make a different decision than the one that they just made. So, that case is moving forward.
CURWOOD: So far, what's Exxon been saying about these lawsuits?
BURGER: Well, Exxon's main communications strategy appears to be to sort of cloud the alleged facts by arguing that the attorney general's investigation in the first place and now this lawsuit are the product of a conspiracy between government officials, some foundations and environmental activists, and that this is all a political campaign. So, they're seeking to sort of make this out as if it's an attack on Exxon.
CURWOOD: Over the years, ExxonMobil has acquired a reputation of being difficult to deal with in court. Famously perhaps after the Exxon Valdez spill in Alaska, it was many, many, many, many years before the damages that were awarded there even started to be paid out Exxon. I imagine that Exxon’s response to this case is a similar sort of tough line.
BURGER: Well, Exxon has a reputation for being aggressive in court as well as outside of court, and I expect that the next step in this case will be a motion to dismiss, and that if that motion to dismiss fails that we’ll be watching this case for a long time. So, hold tight.
CURWOOD: So, Michael how much of an existential threat to Exxon are these lawsuits?
BURGER: I don't think these cases pose an existential threat to Exxon, but society reckoning fully with climate change might.
CURWOOD: Michael Burger is the executive director of the Sabin Center for Climate Change Law at Columbia University. Thanks for taking the time with us today.
BURGER: Thank you, Steve. A real pleasure.
CURWOOD: A spokesman for Exxon said in an email -- quote -- “the allegations by the New York Attorney General’s office are baseless. Claims that we used two sets of books are false, and we look forward to refuting them as soon as possible and getting this case dismissed.” Exxon’s full statement is posted on our website, loe.org.
Exxon Mobil Statement on the New York Attorney General's case
"The allegations by the New York Attorney General’s office are baseless. Claims that we used two sets of books are false and we look forward to refuting them as soon as possible and getting this case dismissed.
"These allegations are a product of closed-door lobbying by special interests, political opportunism and the attorney general’s inability to admit that a three-year investigation has uncovered no wrongdoing.
"There is no evidence to support these allegations, which come after a 2016 press conference by former New York Attorney General Eric Schneiderman, Al Gore and other Democrat attorneys general, a discredited media campaign and lobbying by anti-fossil fuel activists."
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