The Case Against ExxonMobil Re: Suppressing the Truth About Climate Change
In response to my recent post on the legal action being taken against ExxonMobil for its role in hiding the truth about climate change, frequent commenter MarcoPolo writes: I know of no law or Statute broken by Exxon in regard to this issue.
Though there are several potential legal approaches, it seem the preferred one is the statutes surrounding securities fraud. At least, that’s the course that New York State Attorney General Eric Schneiderman (pictured) is taking.
The allegation is that Exxon deliberately misled investors as to the value of their assets. This is addressed in the Martin Act, as described here.
Laws in the U.S. are not the same as laws in Australia. It is possible, although not certain, that Exxon could be prosecuted under U.S. law even if a company in Australia behaving the same way could not be prosecuted.
Considering that Exxon’s behavior could be construed as inflating the value of its stock, prosecution might be possible. Laws are subject to interpretation.
It might be interesting to look at the potential damages if the NY criminal case against Exxon is proven. This can help to understand the violation. The damages would be limited to some fine imposed for violating the state statute.
A successful prosecution would also likely open Exxon up to civil suits for damages. The nearest of these might by stockholders claiming some loss. But they would have to prove that they lost money holding Exxon stock and this was due to Exxon’s fraudulent misrepresentations.
A far more distantly related civil suit would by the City of NY for having to shore up its low lying areas against flooding and storm surge. But such a case would involve an entirely different set of issues than the present criminal case.
Even if successful prosecution made class action civil lawsuits possible, many people would find it difficult to collect damages.
Many of us own stocks through mutual funds which are constantly buying and selling stocks. That, unfortunately, would make it exceedingly difficult to prove damages.
I’d certainly like to see Exxon get more than a wrist slap, but I don’t expect it.
Frank, I tend to agree. My exercise into the kind of damages was more to illustrate the type of action (criminal vs civil) and the consequences rather than the unlikely path toward a monetary recovery.
As you might have noticed in other comments it is easy to confuse this suit with some kind of action laying blame for climate change on Exxon. This is essentially a criminal action for fraud. The subject matter happens to touch upon the effect of oil on climate.
The AG doesn’t necessarily have to prove that burning fossil fuels causes climate change. Only that the leadership was advised that it does and covered up the information in disclosures to stockholders. Lying to the public or congress would also be outside the scope of the suit. (Though it might add evidence.)
Frank and Breath,
All fraud cases have certain fundamentals in common. The law requires among other principles, mens rea, or intent to be proven.
The test can’t include speculation, but must be based on verifiable evidence.
It’s not sufficient to demand a director be correct, just have a reasonable belief . The concept that a director could be convicted or held to account for preferring the opinion of one highly qualified scientist over another, is absurd. Nor is it lying if the director genuinely believed he was correct in his assessment. (Being wrong isn’t a crime).
Another element of is evidence from a genuine shareholder complainant who suffered a loss as a result of the defendants action. No such person exists, since EXXON’s share price remains unaffected by climate change.
The whole case is a politically driven publicity stunt. Eric Schneiderman or the other AG’s, cant produce a single reputable, unbiased, US legal expert or authority to support this ill-conceived action.
Even highly regarded legal experts who are famous opponents of EXXON regard this case as nonsense and an abuse of the AG’s office.
Marco, while you infer that you speak from a position of knowledge or authority you seem to be promulgating a mistake common to a lay perspective. It might be excused by a difference between legal systems or specific laws but the difference between a criminal case and a civil case you seem to be confusing is part of the common law upon which most English speaking countries are based.
I previously tried to be subtle but you don’t seem to be understanding. I have not read the details of the Martin Act and only tried to draw upon a comparison to Fraud for some understanding. Unfortunately fraud exists both as a tort and a potential civil cause of action. This is a criminal action. There doesn’t have to be a specific victim any more than speeding or going though a red light has a specific victim. There is a statute and the question is whether the statute was violated.
You mention “reasonable belief” as if you understand the concept of the “reasonable person” but your subsequent writing suggests otherwise. There are many cases where “being wrong” is in fact a crime and will lead to convictions. We can start with the idea that a CEO or “director” may think “no one cares if I pollute the environment” or “there is no law against it.” But here we are not particularly concerned with what a CEO or director “believes.” We are concerned with their obligations under the law.
The crime we are concerned with here and the “wrong thinking” is by a company that says “here is a study that would make my company look bad. If the facts prove true they could lesson the value of my company. The law says I have to report this to my stockholders, but I am not going to do that.” The “wrong thinking” is taking the ability to judge the facts away from the stockholders and simply not giving them the information upon which they can make their own decisions. That is a crime according to the martin act and is actionable. While you are correct that with fraud you would have to prove intent that was my example to suggest that this is not a case about climate change per se. However it is also not a fraud case. Here you might only have to prove the information existed, if true it could affect the value of the company and was not given to stockholders.
It has nothing to do with a judgement about the facts. It has everything to do with not providing the information as discovered by the internal investigation.
In a complex society such things are full of politics and back room deals. Certainly you might get an AG interesting in prosecution that would make them look good as you get company acts that try and avoid their looking bad. But we can’t speculate upon what is not at hand. There is a statute and an apparent violation. That is at hand.
While the nuances of the case are perhaps difficult for someone to understand even the wide brush with which you sometimes paint may get into these cracks.
Marcopolo,
Although some laws are common to most countries and although both the U.S. and Australia have legal systems based largely on English common law, there are significant differences in law between the U.S. and Australia. Therefore, it is risky to assume that what is true in Australia is also true here in the U.S.
I am not legal expert. The only law I’ve formally studied was in a three credit course I took as part of my degree in business administration.
It is no doubt true that part of the case at hand is politically driven. However, I would not assume that there are no legal implications. That is for the courts to determine.
Craig,
Your interpretation of the ‘Martin Act’, betrays your lack of legal training.
Although the act is certainly astoundingly wide, the Martin Act still requires a standard of evidence that simply doesn’t exist.
The Act doesn’t also overturn a fundamental principle of law forbidding judges to speculate, or allow speculation as evidence.
Secondly, to apply the Martin Act, the prosecution must have a genuine complainant who suffered demonstrable loss. (the public interest argument is inapplicable).
Eric Scheiderman has no genuine complainant, and given that for the entire period the case covers the main preoccupation absorbing oil shareholders, government, and nearly everyone was the threat of oil depletion due to ‘peak oil’, it makes a nonsense to suggest that oil would be less valuable, due to a lack of demand.
There still is no lack of demand caused by awareness of climate change, but oil prices have been affected by a dramatic increase in production.
Schneiderman has backed away from using the Martin Act and his amendments and delays to pleadings reveal a desperate effort to prevaricate in the hopes of a face saving withdrawal.
There is no law, including the Martin Act, that insists a director accept one expert opinion over another. This would require directors to become prophets.
The directors of Exxon conservatively valued Exxon’s assets, and have been proved correct in their valuation.
There is just no case to answer. The courts do not, and constitutionally can not, be a method of effecting legislation unable to be passed in the legislature.
That speculation is required to substitute for evidence remains to be seen. We’ll just have to see that this unfolds.
Marco, simply, you are wrong. Please see my comments above.
Marcopolo,
You wrote, “The courts do not, and constitutionally can not, be a method of effecting legislation unable to be passed in the legislature.”.
That is correct. Court cases cannot be won simply on the basis of common sense or what is perceived as right or wrong. It would be a disaster if cases could be won on those basis.
Ideally, when the public perceives something as wrong, the political representatives will enact legislation making it illegal and may also establish penalties. Then, if the wrong act is though to have been committed AFTER the legislation has been enacted, the matter can be taken before the courts. If the courts determine that the violation has occurred, then an appropriate s sentence can be imposed.
@ Craig and Breath on Wind – thanks for making intelligent arguments in regards to trying to hold Exxon Oil accountable for their mis deeds over the decades.
Its complex and as Marco Polo points out the existing statues have limitations that present difficulty in winning even when common sense says they did wrong.
The court of Public Opinion is the most important and the Tides are turning in many a developed Nation and the public is clamoring for REFORMS.There is movement now to find ways to craft the statues so that these flawed loopholes that over protect corporations and allow for grave mis deeds to be done with little or no accountability
be reformed and corrected.
What the timeline is is uncertain …but it is good that NY is attempting .
The recent wells Fargo affair exposed more legal loopholes that protected Executive pay from being seized when wrong doing was done. Without a court case Wells Fargo changed their own flawed rules and Clawed Back several million in executive compensation from both of their disgraced executives. The Bank did this without a court order due to public opinion or growing market pressure. So The Tide may be Turning to a degree.
We need more or we will have to resort to rough justice at the end of the day. Enough is Enough .
Common Sense says they did wrong we need to reform courts so that Common sense is applied as the standard of the Law.
Not lawyer parsed Word Salad!
Fine the Hell out of Exxon hurt their earnings send a market message. Teddy Roosevelt did this years ago and its high time our so called political leaders shed the corruption and represent the public good for a change.
we shall see if this is a political stunt or a real effort to reign in corrupted corporations. Its in the air !