By Christie Smythe
10 November 2015
(Bloomberg) – For years, energy companies have couched the possible effects of climate change-related regulations in public reports to investors as "uncertain," "difficult," or "not possible" to reasonably predict. Now a probe by New York Attorney General Eric Schneiderman is raising questions as to whether the companies knew more than they were letting on.
Exxon Mobil received a subpoena last week by the state official seeking documents from as far back as the 1970s in a probe that aims to determine whether oil giant lied to investors and consumers, or withheld information about the effects of climate change. On Sunday, meanwhile, Schneiderman reached a settlement with the largest U.S. coal miner, Peabody Energy, in which the company agreed to include more detailed disclosures in reports to investors about the potential costs of climate-related regulations.
Exxon has denied implications that it lied to investors or the public. Peabody neither admitted nor denied the official’s findings.
While environmental advocates have cheered Schneiderman’s effort to take energy firms to task over a global crisis, some legal scholars question whether he is the right man for the job. "You wonder why this is the sort of thing that a New York attorney general should be doing," said James Fanto, a professor at Brooklyn Law School. "It seems like it’s just completely politically motivated."
Still, the state’s powerful Martin Act, a broad anti-fraud statute, could prove the best tool to expose anything companies could be hiding. "The Martin Act is a perfectly appropriate vehicle for addressing issues of investor disclosure," said Tom Sanzillo, director of finance for the Cleveland-based Institute for Energy Economics and Financial Analysis and a former first deputy comptroller for New York State.
Here are answers to some key questions about the probe as it continues.
Why is New York able to bring this investigation?
One of the laws the state is asserting under its probe, according to a source familiar with the matter, is the Martin Act, an almost century-old enforcement statute that predates the U.S. Securities and Exchange Commission.
To prove securities fraud in federal court, U.S. prosecutors must show that a defendant intended to defraud victims and that the investors relied on misstatements or omissions. Under the Martin Act, New York prosecutors aren’t required to prove intent, making it easier for New York to bring a case. The statute also allows for the official to launch broad-based investigations.
What does New York need to prove?
In his subpoena to Exxon, Schneiderman is seeking a wealth of documents related to research on causes and effects of climate change, how the information was used in business decisions, financial projects and analysis, and communications with trade groups, according to a source familiar with the investigation. [more]