Exxon Found Not Guilty of Deceiving Investors Over Climate Risks

By Karen Savage

The New York attorney general did not prove that Exxon defrauded investors or misled them about climate risks to its business, New York Supreme Court Judge Barry Ostrager ruled on Tuesday.

Ostrager’s ruling, is the culmination of a suit that began more than three years ago, when then-New York Attorney General Eric Schneiderman began an investigation into Exxon’s climate change accounting and its communication with investors.

Ostrager dismissed the case with prejudice, meaning the AG cannot file the same claims again. The AG’s office has not yet said whether it will seek an appeal to the Appellate Division of the New York State Supreme Court.

“Today’s ruling affirms the position ExxonMobil has held throughout the New York attorney general’s baseless investigation,” Exxon spokesperson Casey Norton said in a statement. “We provided our investors with accurate information on the risks of climate change. 

“The court agreed that the Attorney General failed to make a case, even with the extremely low threshold of the Martin Act in its favor.” Norton said.

Based on evidence gathered during the lengthy and contentious investigation, the AG’s office filed suit against Exxon last year, alleging that the oil giant violated the Martin Act by 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.

The AG originally charged Exxon with four fraud-related claims, but dropped the charges of equitable fraud and common law fraud as the trial concluded earlier this month.

Over the course of a nearly three week trial, the court heard testimony by Exxon employees, accountants, auditors and experts, and saw documents offering a glimpse into Exxon’s inner workings. In a scathing decision, Ostrager ruled that the AG failed to prove that Exxon’s disclosures misled investors.

“Perhaps, the 2014 paragraph in Managing the Risks which indicated that ExxonMobil applied a GHG cost ‘where appropriate’ and which was the subject of questioning of virtually every witness in the case could have been written in bold type, but the sentence was consistent with other ExxonMobil disclosures and ExxonMobil’s business practices,” Ostrager wrote, adding that the report had no market impact and was “essentially ignored by the investment community.”

While the AG focused on the conflation of certain terms by Exxon employees, Ostrager said it was “hardly surprising that internal documents from the different groups do not use identical terminology” because employees worked in different groups within the company.

Ostrager reserved his harshest words for the AG’s expert witnesses, which he said were “eviscerated on cross-examination and by ExxonMobil’s expert witnesses.” One didn’t understand the way some of Exxon’s internal models worked, Ostrager wrote, adding there was no evidence that the company over-valued its Alberta oil sands assets.

Testimony by 10 present and former Exxon executives and employees showed they were “uniformly committed to rigorously discharging their duties in the most comprehensive and meticulous manner possible” and “demonstrated that EM has a culture of disciplined analysis, planning, accounting, and reporting,” Ostrager said, adding that each testified that they were unaware of any scheme within the company to mislead investors about the way it manages climate change-related risk. 

“There was not a single ExxonMobil employee whose testimony the court found to be anything other than truthful,” he added. 

Phil Goldberg, special counsel for the Manufacturers’ Accountability Project, a project of the National Association of Manufacturers that has advocated on behalf of fossil companies in climate liability suits, said it was obvious at trial that the AG’s office was trying to impose liability on ExxonMobil for its political viewpoint.

“Today’s ruling makes clear that politically-motivated investigations and legal actions against energy manufacturers over the shared global challenge of climate change have no place in the courtroom — whether they target one company or an entire industry,” Goldberg said.

“Trying to scapegoat energy manufacturers over climate change, whether here or in other lawsuits, is not going to solve climate change. New York and other governments should focus on fostering the policies and innovations required to address this challenge, not sue and undermine these efforts,” Goldberg said.

Attorney General Leticia James said it was the first time in history, ExxonMobil was compelled to answer publicly for their internal decisions that misled investors.

“As Rex Tillerson admitted at trial, all investors are entitled to the truth,” James said in a statement.

“The oil giant never took seriously the severe economic impact that climate change regulations would have on the company, contrary to what they were telling the public. Throughout this case, we laid out how Exxon made materially false, misleading, and confusing representations to the American people about the company’s response to climate change regulations. Exxon’s inability to tell the truth, further underscores the lies that have been sold to the American public for decades,” James said. 

Ostrager was careful to say his ruling was related only to the fraud charges filed by the AG.  

“Nothing in this opinion is intended to absolve ExxonMobil from responsibility for contributing to climate change through the emission of greenhouse gases in the production of its fossil fuel products. ExxonMobil does not dispute either that its operations produced greenhouse gases or that greenhouse gases contribute to climate change,” Ostrager wrote.