New York sues Exxon for de­ceiv­ing in­vestors on cli­mate

Calgary Herald - - FINANCIAL POST - ERIK LAR­SON

Lawyers for Exxon Mo­bil Corp. stood be­fore a New York judge in Au­gust and told the state’s at­tor­ney gen­eral to “put up or shut up” af­ter spend­ing three years in­ves­ti­gat­ing the com­pany’s pub­lic dis­clo­sures about cli­mate change, say­ing au­thor­i­ties should sue the en­ergy gi­ant or move on.

On Wednes­day, New York chose to strike.

At­tor­ney Gen­eral Bar­bara Un­der­wood filed a fraud law­suit against Exxon in state court in Man­hat­tan, ac­cus­ing the com­pany of mis­lead­ing in­vestors about how fu­ture reg­u­la­tions could af­fect its busi­ness. The com­plaint capped a tu­mul­tuous in­ves­ti­ga­tion that reached the high­est lev­els of Exxon’s lead­er­ship, in­clud­ing for­mer Chief Ex­ec­u­tive Of­fi­cer Rex Tiller­son.

Cen­tral to the probe and the law­suit are Exxon’s use of so-called proxy costs for car­bon to cal­cu­late the fi­nan­cial im­pact of fu­ture reg­u­la­tions on the busi­ness. The costs are sup­posed to as­sure long-term in­vestors in­clud­ing in­sti­tu­tional share­hold­ers and pen­sion funds that they wouldn’t be taken by sur­prise. New York says it was a ruse.

“Exxon built a fa­cade to de­ceive in­vestors into be­liev­ing that the com­pany was man­ag­ing the risks of cli­mate-change reg­u­la­tion to its busi­ness when, in fact, it was in­ten­tion­ally and sys­tem­at­i­cally un­der­es­ti­mat­ing or ig­nor­ing them, con­trary to its pub­lic rep­re­sen­ta­tions,” Un­der­wood said in a state­ment.

Exxon spokesman Scott Sil­vestri called the law­suit “tainted” and mer­it­less.

“These base­less al­le­ga­tions are a prod­uct of closed-door lob­by­ing by spe­cial in­ter­ests, po­lit­i­cal op­por­tunism and the at­tor­ney gen­eral’s in­abil­ity to ad­mit that a three-year in­ves­ti­ga­tion has un­cov­ered no wrong­do­ing,” Sil­vestri said in an email.

The Irv­ing, Texas-based com­pany in March lost a law­suit in which it sought to have the in­ves­ti­ga­tion halted be­cause the case was po­lit­i­cally mo­ti­vated.

In Wednes­day’s law­suit, New York said Exxon’s man­age­ment, in­clud­ing Tiller­son, knew for years that the com­pany was de­vi­at­ing from its pub­lic claims by us­ing a sec­ond set of proxy costs that were lower than the pub­licly dis­closed fig­ures.

“Exxon’s man­age­ment also knew that us­ing these lower fig­ures made Exxon more sus­cep­ti­ble to cli­mate-change reg­u­la­tory risk, but did not align these two sets of proxy costs for years,” Un­der­wood said in the state­ment.

The suit claims Exxon dis­cov­ered that if it ac­tu­ally ap­plied the pub­licly rep­re­sented proxy costs in­ter­nally, it would re­sult in “mas­sive” costs, “large write­downs” and shorter as­set lives, the state says.

For ex­am­ple, the state al­leges, Exxon’s fail­ure to ap­ply its pub­licly rep­re­sented proxy costs to 14 of its oil­sands projects in Al­berta, Canada, re­sulted in un­der­count­ing of an­tic­i­pated green­house-gas re­lated ex­penses by more than US$25 bil­lion over the life­time of the projects, ac­cord­ing to the state­ment.

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