Parody of a Climate Trial: After three years, the New York AG drops two charges against Exxon

WSJ editorial. 

"Well, that was anti-climactic. New York’s attorney general spent the past three weeks in state court trying to prove that Exxon Mobil deceived investors with its climate-change disclosures. The trial ended this week with the AG dropping two charges of fraud, proving the lawsuit’s dirty political provenance.

To recap: In 2015 former AG Eric Schneiderman launched a sprawling probe aimed at showing that Exxon deceived the public about what it knew about CO2’s climate harms. The AG combed four million pages of documents and interviewed dozens of employees, but well after well ran dry. Then last year the AG’s office sued Exxon for deceiving itself.

The suit claims Exxon told investors that it was projecting a $80 per ton “proxy cost” of carbon in 2040 but had used lower greenhouse-gas cost calculations internally to forecast profitability of particular investments. The prosecutors were the real confused party.

Exxon’s “proxy cost” estimates consider future demand for oil and take into account climate regulation from carbon taxes to electric-car mandates. Its internal greenhouse-gas cost accounts for particular climate expenses related to specific investments in specific jurisdictions such as the Alberta oil sands. Costs for projects are naturally different than the proxy cost. 

Not a single Exxon shareholder at trial claimed to have been deceived. A PricewaterhouseCoopers director who performed 13 years of audits for Exxon said he was not aware of any attempt to manipulate either cost, though he once inadvertently used the two costs interchangeably in an internal memo.

The AG says Exxon’s fictitious fraud cost investors between $476 million and $1.6 billion based on declines in its share price after government investigations were reported. But as one economic consultant interviewed during the trial quipped, “You don’t shoot the arrow and then draw a bull’s-eye around it.”

New York Supreme Court Justice Barry Ostrager several times lectured state attorneys for “agonizing repetitious questioning” and lack of preparation. “This isn’t a teaching exercise here,” he sighed. On Thursday state attorneys dropped two fraud charges that require proof that Exxon knowingly or intentionally defrauded investors who relied on its disclosures.

Current AG Letitia James is now hoping to salvage this joke of a case by resorting to the much lower level of proof required by New York’s Martin Act, which allows that a “reasonable” investor might have been deceived and doesn’t need proof of fraudulent intent. Investors were more likely fooled by the AG’s deceptive press releases than Exxon’s disclosures."