November 7, 2015 / 12:51 AM / 4 years ago

NY attorney general wields powerful weapon in Exxon climate case

By Mica Rosenberg
    NEW YORK, Nov 6 (Reuters) - A near century-old statute that
gives New York state prosecutors unusually broad authority to
prosecute securities fraud could prove a powerful weapon as
Attorney General Eric Schneiderman probes Exxon Mobil Corp
 over whether the oil firm mislead the public and
shareholders about the perils of climate change.
    The 1921 Martin Act, a wide-reaching state law, was dusted
off in the early 2000s by former New York Attorney General Eliot
Spitzer who used it to aggressively go after Wall Street firms.
    Since then, it has been used to prosecute large-scale Ponzi
schemes, major investment banks accused of misleading investors
and other cases.
    Now, Schneiderman is wielding the statute in his probe of
Exxon, the world's largest publicly traded oil company,
according to a source familiar with the matter. The source said
other state laws could be used as well.
    Schneiderman subpoenaed Exxon on Wednesday, demanding
extensive financial records, emails and other documents to probe
the company's knowledge and disclosures about climate change
going back to the 1970s. 
    In response to the probe, Exxon has said it has worked on
climate science in a transparent way for nearly 40 years and has
regularly disclosed the business risks of climate change to
investors for years.  
    The investigation comes on top of reports last month by
Inside Climate News and the Los Angeles Times that the company's
own scientists had raised concerns about global warming decades
ago that the company executives contradicted.
    Under the Martin Act, the state must prove that a company
deceived the public by misrepresenting or omitting a material
fact in the offering of securities.
    Lawyers say the act is unique in that no proof of intent to
deceive is required to bring a claim, and prosecutors do not
even need to show that anyone was in fact defrauded. The act
allows for criminal as well as civil charges.
    New York State's highest court ruled in 1926 that it covers
"all deceitful practices contrary to the plain rules of common
honesty." 
    The act "is one of the broadest anti-fraud statutes ever
devised, at least in a democratic society," wrote Eric Dinallo,
a chief prosecutor under former Attorney General Spitzer, in the
New York University Journal of Legislation and Public Policy.
    It has been used to extract large monetary penalties from
finical institutions, said Jim McGuire, a litigation partner at
the Dechert law firm in New York. 
    "The Martin Act is a nearly empty vessel into which the AG
can pour virtually any content that he wants," McGuire said.
    Exxon did not comment on Friday when asked about the Martin
Act. 
    
    CALLS FROM CONGRESS 
    U.S. congressman have called for the U.S. Department of
Justice and the Securities and Exchange Commission to
investigate the claims against Exxon as well, saying the
company's alleged failure to disclose scientific findings was
similar to tobacco companies that concealed the harms of
smoking.
    Democratic California representatives Ted Lieu and Mark
DeSaulnier, along with other lawmakers, asked the U.S.
Department of Justice and Securities and Exchange Commission to
investigate Exxon. In interviews they said they hoped other
state attorneys general would follow New York's lead.
    "My view is that this should be even more serious than
tobacco, if it's the whole world that's being harmed," said
Lieu.  
    Lieu also circulated a letter to lawmakers citing an
investigation by the Union of Concerned Scientists, a U.S.
non-profit organization, that said other oil companies also had
spread misinformation about global warming.
    Both the SEC and the U.S. Attorney General's office in
California declined to comment on whether they were pursuing
investigations of their own over Exxon's climate statements.
    Unlike the Martin Act in New York, prosecutors would have to
overcome a "far higher bar" to bring a federal case, said
McGuire, who previously served as chief counsel to former New
York Governor George Pataki. 
    Federal securities fraud under SEC rules require a showing
of scienter, a legal term for intent or knowledge of wrongdoing.
    Daniel Riesel, a white-collar defense attorney at Sive,
Paget & Riesel said that the tobacco cases actually highlighted
the challenges in bringing federal enforcement actions against
companies over climate change claims.
    "The tobacco companies knew they were selling a product that
was killing people and they failed to disclose that," said
Riesel who specializes in environmental matters.
    "Here it's not as stark. You'd have to be able to show that
Exxon had knowledge - knowledge that couldn't be questioned -
that their activity was going to contribute to global warming in
a way that would materially hurt the company," he said.
    Oil and gas lawyers in Houston - the world's energy capital
- said they did not expect Schneiderman's probe to widen much,
if at all, to other companies or states.
    While Exxon and other major oil companies may have business
in New York state, scores of other independent U.S. exploration
and production companies have no operations there and probably
could not be targeted because of jurisdictional questions, the
lawyers said.

 (Reporting by Mica Rosenberg; Additional reporting by Terry
Wade in Houston and Joel Schectman and Sarah N. Lynch in
Washington; Editing by Noeleen Walder and Lisa Shumaker)
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