Exxon prevails over New York in climate accounting case

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Exxon Mobil Corp. won a closely watched securities-fraud trial that delved into its internal accounting for the financial risks of climate change, a striking rejection of New York state’s claim that the company misled investors for years.

The ruling Tuesday by New York Supreme Court Justice Barry Ostrager in Manhattan is a blow to the state’s attorney general, Letitia James, who accused the energy company of lying about its use of a “proxy cost” for carbon to account for future climate-change regulations.

“The office of the Attorney General failed to prove, by a preponderance of the evidence, that ExxonMobil made any material misstatements or omissions about its practices and procedures that misled any reasonable investor,” Ostrager wrote in a 55-page ruling. The AG “produced no testimony either from any investor who claimed to have been misled by any disclosure,” the judge said.

Exxon said in a statement that the ruling affirmed that the company gave its investors “accurate information on the risks of climate change” and that New York “failed to make a case even with the extremely low threshold of the Martin Act in its favor.”

New York’s Martin Act empowers officials to target a wide range of corporate behavior that could hurt shareholders. While New York claimed Exxon intentionally misled shareholders, under the act it didn’t have to prove intent to win, or that any investors were misled.

“Lawsuits that waste millions of dollars of taxpayer money do nothing to advance meaningful actions that reduce the risks of climate change,” Exxon spokesman Casey Norton said in the statement. “ExxonMobil will continue to invest in researching breakthrough technologies to reduce emissions while meeting society’s growing demand for energy.”

The attorney general’s office didn’t immediately respond to a request for comment.

Exxon got a hint of victory on the last day of the trial when the attorney general dropped the two most damning of four claims without explanation during his closing statement. The abandoned claims had been crucial elements of the state’s case because they held that Exxon’s misstatements were part of a scheme to mislead and that investors had relied on them when buying the company’s stock.

After the AG’s retreat, what remained for Ostrager to decide was whether Exxon had violated the Martin Act by issuing public statements about proxy costs that were materially misleading. The state couldn’t show that it had.

New York claimed Exxon used two sets of numbers — one public, one secret — to account for greenhouse gas emissions. Exxon said the state, to cook up a discrepancy where none existed, was conflating two figures that served different purposes. On the last day of the trial, Wells called the entire case a “cruel joke.”

Exxon “disclosed its use of both the proxy cost and the greenhouse gas metrics no later than 2014,” Ostrager wrote in his decision.

New York initially claimed that former Exxon chief executive officer Rex Tillerson had spearheaded the scheme to dupe investors and that the plan was readily adopted by his underlings. Tillerson rejected the claim under oath, while Exxon’s lawyer said New York had dragged the names of the company’s executives and engineers “through the mud” by advancing such a claim and then dropping it at the last minute.

During his opening statement to the judge, Exxon’s lawyer, Theodore Wells, said the state had been swayed to investigate the company by talks with environmentalists and billionaires who wanted to vilify the company at the expense of facts.

“It’s almost like the Russians trying to interfere with the election,” Wells said on the first day of the trial. “I mean, think about what’s going on here.”

The case is People of the State of New York v. Exxon Mobil, 452044/2018, New York State Supreme Court (Manhattan).

Erik Larson
Bloomberg News
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