By Karen Savage
Exxon witnesses testified on Wednesday that witnesses for the New York attorney general inaccurately calculated the climate risks to Exxon’s Canadian oil sands assets and inflated potential damage to shareholders. Their testimony wrapped up Exxon’s defense in its climate fraud trial in New York Supreme Court.
Judge Barry Ostrager will hear closing arguments from both sides on Thursday to conclude the trial. He has said he will render a verdict within 30 days after receiving post-trial memos.
In its final day of defense, Exxon recalled Jason Iwanika, a development planner for Canadian-based Imperial Oil who is familiar with the spreadsheets used by some of the AG’s witnesses.
Iwanika told the court that spreadsheets and models used by financial expert Peter Boukouzis included aggregate numbers for some of Exxon’s oil sands assets, meaning the numbers were in some cases double and even triple counted. The result was an overcalculation of Exxon’s climate risk, Iwanika testified.
Exxon further contends the total shareholder loss calculated by Boukouzis is inaccurate because he relied on the work of another AG witness, Eli Bartov, which it says is also inaccurate.
Attorney General Leticia James alleges that Exxon violated her state’s Martin Actby failing to disclose it used two different sets of numbers to assess climate risk, one for shareholders and the other for its own internal calculations.
Exxon has not denied using two different numbers, but maintains it clearly disclosed how it uses them in its 2014 Energy and Climate and Managing the Risks reports. The reports were issued to shareholders in exchange for their withdrawal of a proposal seeking disclosure on the way the company calculates its climate risk.
Those reports duped shareholders into thinking Exxon was managing the risks of climate change according to the AG. As evidence, it showed the court earlier in the trial an analysis by Boukouzis, who testified that investors and analysts initially found Exxon’s disclosure to be “reassuring” and “ahead of the curve on pricing in climate risks.”
Boukouzis also testified that if Exxon had calculated the value of its Canadian oil sands assets in the manner it disclosed to investors, the company would have found the assets to be at much higher climate risk than previously known.
To make that determination, Boukouzis used spreadsheets containing economic models that Exxon was forced to turn over during the AG’s investigation. The only change he made to the models was to insert the proxy cost of carbon disclosed in the Energy and Climate and Managing the Risks reports.
Boukouzis told the court he used per share inflation rates calculated by Bartov, another expert for the AG, to determine losses to Exxon shareholders to be between $476 million and $1.6 billion.
To calculate per share inflation rates, Bartov analyzed whether Exxon’s potentially deceptive disclosure had caused stock to rise and whether stock prices dropped when the potential deception was revealed to shareholders. Bartov found instances where both occurred. He then determined how many shares were affected and how much loss those shares—which were purchased high and sold low—would have likely incurred.
Bartov’s conclusion is inaccurate according to Allen Ferrell, a Harvard law professor and financial expert who conducted a similar analysis for Exxon.
“There’s just nothing going on in the stock price,” Ferrell testified, saying Bartov’s findings “do not support the finding of damage to shareholders” because he did not establish that Exxon stock was inflated.
Ferrell also testified that analysts and shareholders didn’t consider Exxon’s potentially deceptive disclosure—-or the revelation that it was under investigation by AG’s in several states—to be important when making investment decisions.
In her cross examination, Kim Berger, an attorney for the AG’s office, pointed out that instead of using the generally accepted methodology, Ferrell applied an alternative methodology presented in an unpublished paper when conducting his analysis.
In order to prove fraud under the Martin Act, the AG must established that potentially deceptive information provided by Exxon was false and that investors would have considered the misinformation to be important to their investment decision. It does not have to prove that the deception was intentional.
In addition to monetary damages, the AG is asking the court to order an examination of Exxon’s past and future accounting methods and to appoint an independent monitor to supervise the process.
Ostrager said he will allow each side one hour on Thursday for closing arguments. Attorneys will then have 10 business days to submit their post-trial memorandums and Ostrager is expected to rule within 30 days after receiving the memos.