NY Attorney General Turns Up the Heat on Exxon Mobil; Issues Subpoena to Investigate Climate Change Disclosures to Public and Investors

iStock_000058498448_SmallOn November 5, 2015, New York Attorney General Eric Schneiderman’s office confirmed that it has launched an investigation concerning Exxon Mobil’s statements to the public and investors about the risks of climate change and its potential impact on the company’s operations.  As first reported by the New York Times, the Attorney General has subpoenaed extensive financial records, emails and other documents from as far back as 1977. Exxon Mobil has denied all allegations that it suppressed climate change research or distorted the facts.

The basis for the Attorney General’s investigation is reportedly the Martin Act, a controversial tool for New York law enforcement officials to investigate and combat financial fraud.  Under the Act, the Attorney General must prove that a company deceived the public by misrepresenting or omitting a material fact in the offering of securities.  There is no need to demonstrate scienter or an intent to defraud.  Attorney General Schneiderman, like his predecessors, has frequently invoked the Martin Act, using it to bring claims against Credit Suisse and Barlcays, among other financial institutions.

Since the 1970s, Exxon has funded outside organizations that conduct climate science research.  Some advocates and news sources have argued that these organizations undermined the validity of climate science and that Exxon used them to downplay the risks of climate change to the public.  They further allege that Exxon was actually aware of the real risks of climate change from its internal studies and considered those risks in planning its operations.

Exxon’s funding of these studies was far from unique, and the reach of the Attorney General’s investigation is uncertain.  It bears noting, however, that on the heels of AG Scheiderman’s announcement about Exxon, Peabody Energy Corp.–one of the world’s largest private-sector coal companies–agreed to end an ongoing investigation by the New York Attorney General by revising its shareholder disclosures to more fully outline the impact of potential climate change regulations on its business.

Is this an example of an AG’s use of his office’s broad investigative authority to achieve what public interest groups have not, and will it succeed?  Reviews are mixed.  The Martin Act is a powerful weapon, but some commentators are skeptical about the evidence that may be unearthed, noting that parallels to litigation against the tobacco industry—which cost those companies billions of dollars—may be overblown.

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