N.Y.’s ExxonMobil overreach
Earlier this year, a group of attorneys general embarked upon a highly publicized effort to prosecute ExxonMobil under the same legal theory that their predecessors employed in the 1990s against the tobacco industry. The accusation read like a Hollywood script, wherein a corporation was behind a decadeslong conspiracy to deceive the public about the threat that fossil fuels posed to the planet.
Real life rarely mimics Hollywood thrillers, and in this instance, the company is no villain. Instead, the legal theory advanced against ExxonMobil by a group of Democratic AGs has quickly unraveled.
The conspiracy theory advanced by the anti-ExxonMobil crowd suffered an embarrassing collapse this summer when the attorney general of the U.S. Virgin Islands withdrew a sweeping subpoena aimed at trying to discover whether ExxonMobil committed fraud. Since then, the legal threats have largely faded from the 16 other AGs who announced — at a March event hosted by New York Attorney General Eric Schneiderman — that they would pursue the world’s largest publicly traded energy company.
Regrettably, the only AG refusing to put an end to this ill-advised crusade is Schneiderman himself. Instead, he has come up with a new conspiracy theory that is more far-fetched than the first.
He’s done so even as a federal judge in Texas has found that there is enough evidence of possible inappropriate collusion that he has allowed the company to subpoena Schneiderman to determine whether his investigation is politically driven or improperly coordinated with climate activists and plaintiff lawyers targeting the company.
Bizarrely, Schneiderman is no longer looking at what ExxonMobil might have said in the past about climate change. Instead, his fishing expedition now focuses on how the company forecasts future impact. Specifically, he thinks that ExxonMobil and other energy companies are overvaluing their reserves in public disclosures. His theory is that if the world burns too much energy from fossil fuels, then the planet will heat up so dangerously that “there’s no one left to burn the rest.”
With this twisted reasoning, he suggested in an interview with The New York Times: “There may be massive securities fraud here . . . . If, collectively, the fossil fuel companies are overstating their assets by trillions of dollars, that’s a big deal.”
This new line of attack suggests ExxonMobil is overvaluing its reserves because the company is not sufficiently taking into account future laws which may be passed that will prevent ExxonMobil from extracting all of its energy reserves. The suggestion is that ExxonMobil should now write down a substantial value of its energy reserves.
This preposterous argument represents a dangerous turn toward capricious enforcement of financial regulations for any publicly traded company that bases its market value in part on reserve assets.
Recently, ExxonMobil did announce it was adjusting the value of its reserves in light of low energy prices, removing about 4.5 billion barrels of oilsands reserves from its balance sheets. The move is fairly standard among energy companies as they attempt to provide shareholders accurate and timely estimates of the value of assets based upon foreseeable circumstances, not political rhetoric.
But environmental activists bent on destroying ExxonMobil have attempted to cast this standard accounting move into an implicit admission by the company that it had been deliberately underestimating the impact of climate change on its business.
Schneiderman, who has received substantial political support from green energy, appears to be doing the bidding of environmental activists bent on using regulatory muscle to accomplish what they have been unsuccessful in doing through legislation. The true extent of the collaboration remains unclear as he continues to fight in Texas federal court and in New York State Supreme Court to prevent public disclosure of information of potentially unlawful and certainly embarrassing collusion.
New York’s attorney general has in the Martin Act an important tool to make sure that investors are not deceived when making investments. Schneiderman should not use that vast power to personally pick Wall Street’s winners and losers.
The stock market provides ample opportunity for voting with investment dollars: Investors who think that energy companies are understating the threat of climate change can simply sell their stocks or go short and profit from any decline in price.
In the wake of the tumult created by Schneiderman and his allies, the Securities and Exchange Commission has informed ExxonMobil that it is looking into how it evaluates project costs based on climate change risks, as well as its accounting practices. No business looks forward to being questioned by its regulator. But at least the SEC is the appropriate authority to look into the question of valuation — unlike New York’s attorney general.