New York AG Employs Powerful Law in Exxon Probe
September 16 2016 - 6:07PM
Dow Jones News
By Christopher M. Matthews
On first blush, New York Attorney General Eric Schneiderman's
probe into Exxon Mobil Corp.'s accounting practices raises some
questions. For instance, why is the top cop in New York
investigating the Texas-based company's financial disclosures, a
job more commonly handled by the federal Securities and Exchange
Commission?
But Mr. Schneiderman has been knee deep in Exxon's internal
forecasting for more than a year, using a powerful New York state
fraud law to investigate the company's knowledge of the impact of
climate change and how it could affect its future business.
The new probe into why Exxon hasn't written down the value of
its assets two years into a crash in oil prices is an outgrowth of
the climate change investigation, say people familiar with the
matter, and yet another example of the wide jurisdiction of New
York's Martin Act.
Both probes have been examining whether Exxon, the world's
largest publicly traded energy company, violated the 1921 law,
under which prosecutors must prove a company misled or omitted
material facts from investors while offering securities.
The law grants wide powers. It doesn't require prosecutors to
prove there was criminal intent or even that there were victims of
an alleged fraud, something other agencies, including the SEC, have
to prove under federal securities law.
An Exxon spokesman declined to comment on the investigation but
said the company didn't have any material impairment impacts in its
financial results.
Similar investigations brought by at least five other state
attorneys general have been hampered by aggressive moves by Exxon,
which, for instance, has sought to quash subpoenas issued by
Massachusetts and the U.S. Virgin Islands. But the company hasn't
challenged Mr. Schneiderman's broad subpoenas for emails, financial
records, internal forecasts and other documents, a nod to breadth
of the Martin Act.
Still, some legal experts have questioned whether Mr.
Schneiderman is overreaching with his use of the Martin Act.
"You'd think if there was an issue about marking down reserves
or other misstatements, that would be the eminent province of the
SEC," said James Fanto, a professor at Brooklyn Law School.
Since 2014, oil producers world-wide have been forced to
recognize that wells they plan to drill in the future are worth
$200 billion less than they once thought, and revisions have become
a staple of oil industry earnings, helping to push losses to record
levels. Exxon hasn't taken any write-downs -- the only major U.S.
oil producer not to do so -- which has led some analysts to
question its accounting practices.
"The Attorney General's office is conducting an investigation
into potential business fraud, consumer fraud, and securities
fraud," spokesman Eric Soufer said. "As the Attorney General has
said, the company's financial disclosures -- and not the accuracy
of its historic climate change research -- are the focus of this
investigation."
Columbia Law School Professor Merritt B. Fox said the key issue
for Mr. Schneiderman in either probe is whether the information
Exxon allegedly withheld was, in fact, material in the eyes of the
investing world.
"If they have evidence Exxon knew about the effects of climate
change or falling prices on its assets and didn't disclose it to
people outside, that has the possibility of being a material
misstatement or omission," Professor Fox said.
But if the public could make investment decisions with other
publicly available information, "it could be an issue," for Mr.
Schneiderman, he said.
News of Mr. Schneiderman's new focus, reported by The Wall
Street Journal on Friday, also comes amid pushback to the climate
change investigations by conservative advocacy groups, lawmakers
and state AGs.
The Energy & Environment Legal Institute, a conservative
nonprofit, released emails last week from other AGs offices that
were involved in a March press conference set up by Mr.
Schneiderman to announce a coalition to combat climate change. The
group, which obtained the emails through Freedom of Information
requests, say they show skepticism by the other AG offices about
the New York probe.
Meanwhile, a group of 11 Republican state attorneys general have
filed motions to support Exxon's efforts in Massachusetts state
court to challenge a subpoena sent to the company by Massachusetts
Attorney General Maura Healey.
Write to Christopher M. Matthews at
christopher.matthews@wsj.com
(END) Dow Jones Newswires
September 16, 2016 17:52 ET (21:52 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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