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Tuesday, January 14, 2020

ANALYSIS/OPINION:

Energy companies have long been in the crosshairs of headline-hunting politicians looking to collect scalps in the name of climate change. But the scope of allegations and meandering arguments presented by New York’s attorney general highly publicized lawsuit, the People of the State of New York v. Exxon Mobil Corp., is the first of its kind litigation. 

This is thanks in large part to the overly broad powers prescribed under New York State’s Martin Act. Fortunately, this lawsuit utilizing what has been dubbed by The Wall Street Journal as the “worst law in America” has finally concluded, with a resounding win for ExxonMobil. The New York attorney general lost a protracted case that was doomed to fail from the start.


The Martin Act, enacted in 1921 to crack down on boiler-room scammers, has since been repurposed by advocates of extremist climate action to engage in unchecked investigations into energy-related businesses, hammering them with prosecution, back-breaking fines and disingenuous reputational harm. But what was the real result of this crusade? Four years of taxpayer resources down the drain, all in an attempt to make a political splash. An unfortunate outcome for the honest taxpayers of New York.

It all stems from the Martin Act’s authority to bestow the attorney general with the powers of a “Grand Inquisitor,” who can subpoena the financial records of any company trading securities with no evidence of wrongdoing or even criminal intent. This is all allowed under the umbrella of “the public interest,” a legal standard through which an oil tanker would fit, and the phony pretext behind New York’s baseless investigation into ExxonMobil.

Desperate for whatever tools they can use, this precedent-setting lawsuit sought to use the judicial system to assign responsibility for a global crisis and make the guilty party pay to fix it. Originating under former Attorney General Eric Schneiderman, the state used the Martin Act to lead a three-year, evolving investigation, first to find evidence that ExxonMobil allegedly lied to the public about the impact of fossil fuels on climate.

Then, after a parallel investigation led by the U.S. Securities Exchange Commission (SEC) failed to provide any compelling evidence of wrongdoing by the company, Mr. Schneiderman pivoted, narrowing the scope to claims that the company was just misleading its shareholders.

But in examining the meat of the AG’s arguments, this second-string legal theory was barely supported with any evidence, despite the more than 4 million documents provided by the company and hours of depositions by company employees. In an attempt to prove securities fraud, the attorney general paraded three investor witnesses to the stand, all of which contained some fundamental flaw.

In fact, one witness, an analyst from Wells Fargo, explained that while he was confused about the ExxonMobil’s accounting practices under inquiry (proxy costs vs. greenhouse gas costs) he admitted that it didn’t have any effect on how they rate the company’s stock and his investors never experienced any material harm. Then, to add insult to injury, in the final moments of closing arguments the state dropped two of its formal claims, conceded it was no longer pursuing claims that ExxonMobil committed fraud.

Over the years, numerous energy companies have already felt New York’s wrath, with more sure to follow. But this lawsuit was different. It exposed just how far politicians are willing to go to push their agenda. The New York attorney general had access to four years’ worth of investigation materials and was armed with authority from one of the most expansive laws in the country. Nevertheless, the judge ruled that the state was unable to prove that ExxonMobil had made any quantifiable misstatements or oversights that would have deceived its investors.

Any industry that suddenly finds itself in political disfavor could be next, and in the end consumers will be hurt the most, courtesy of the worst law in America. 

• Gerard Scimeca is a lawyer and co-founder of CASE, Consumer Action for a Strong Economy, a free-market oriented consumer advocacy organization.


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