Exxon Misled Investors Over Climate Change, Court Told
October 22 2019 - 9:08PM
Dow Jones News
By Corinne Ramey
To illustrate how Exxon Mobil Corp. allegedly deceived investors
about its climate-change accounting, a lawyer from the New York
attorney general's office showed a packed Manhattan courtroom
Tuesday a multicolored world map the company presented to
shareholders.
In red were countries including the U.S. and Canada where Exxon
said it was planning for tougher climate-change regulation, showing
the number the company used to calculate the higher cost.
"Investors were led to believe that Exxon applied the costs
represented on the map," said Kevin Wallace, a lawyer from the New
York attorney general's office.
In reality, Mr. Wallace said, Exxon didn't apply the costs.
The projected costs of climate-change regulation these colors
represent are at the core of a case in which the state attorney
general has accused the oil giant of defrauding its investors.
On Tuesday, New York state court Justice Barry Ostrager, who
will be deciding the case, heard opening statements in what is
expected to be a three-week trial.
Last October, after a three-year investigation, the New York
attorney general sued Exxon for securities fraud. The office said
the oil giant told investors it used one formula to project future
costs, but undisclosed internal guidance instructed staffers to
make calculations using lower figures.
In his opening remarks, Theodore Wells, a lawyer representing
Exxon from firm Paul, Weiss, Rifkind, Wharton & Garrison LLP,
called the attorney general's arguments sad, bizarre and
twisted.
"This is like no other securities-fraud case in the history of
the country," he said.
Prosecutors brought the case under the Martin Act, a broad
antifraud statute that has more commonly been used to investigate
Wall Street. The attorney general's office said the company's
misrepresentations caused investors to overvalue its stock, with
the estimated damage to shareholders between $476 million and $1.6
billion.
Exxon has denied wrongdoing and said reasonable investors
wouldn't expect to know such proprietary details. It also contends
the prosecution is politically motivated.
In his opening statement, Mr. Wallace said his office isn't
telling Exxon how to plan for climate change. The case, he said, is
purely about whether the company deceived investors and whether
those alleged deceptions mattered to how they valued Exxon as a
public company.
He presented investor materials and internal documents that he
said showed how Exxon told investors one thing about climate-change
accounting, while privately using different numbers.
The practice was approved at the top, Mr. Wallace said. One
email, from an Exxon planning manager, referenced former Exxon
Chief Executive Rex Tillerson and the regulation formulas.
"Rex has seemed happy with the difference previously," read the
email from the manager, which was displayed in court. A spokeswoman
for Mr. Tillerson didn't respond to a request for comment.
Mr. Wells fired back that the company had for years acknowledged
that climate change was real and that governments should address
the issue. Exxon has sophisticated ways of calculating projected
impacts, he said. In some cases, he said, the attorney general had
oversimplified and conflated the way the company used different
formulas.
He also noted that the attorney general's case is based on
cash-flow projections for future projects, not current ones.
"You can't have a securities-fraud case that has absolutely
nothing to do with the public books and records of the
corporation," he said.
At the end of his remarks, Mr. Wells brought up what he called
the elephant in the room: politics.
He said climate activists pushed state attorneys general,
particularly former New York Attorney General Eric Schneiderman, a
Democrat who launched and championed the Exxon investigation, to
bring the case. A spokeswoman for Mr. Schneiderman declined to
comment.
It was, Mr. Wells said, much like "the Russians trying to
interfere with the [2020] election." That pressure left the office
with no choice but to bring a meritless complaint, he said.
During the proceedings, climate activists squeezed into the
courtroom, some wearing "ExxonKnew" stickers and one with a fake
plant, a prop from an earlier rally outside the courthouse,
protruding from her handbag.
(END) Dow Jones Newswires
October 22, 2019 20:53 ET (00:53 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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