Sunday, November 8, 2015

"Exxon Might Be in Trouble Over Climate Change" (XOM)

Both the Los Angeles and New York Times have written on this with increasing frequency over the last month. Links below.
Here's ExxonMobil's response to the L.A. Times.

As the securities law aspect is where any potential liability would lie, you can bet that in the next six months everyone who has an interest in this stuff will become an expert on New York state's Martin Act. Or at least present themselves to be one.

For more on the genesis of the strategy to tie oil and tobacco together see Forbes' "Creative Lawyering On Display As Schneiderman Targets ExxonMobil On Climate Change".
That article points out Naomi Oreskes as one of the folks who came up with the document strategy.
I've footnoted* her NYT opinion piece in the links below if you wish to see her thinking.

We have to leave the legal maneuverings to those involved but, in the meantime, we're trading the news, politics, science, law, economics, finance, psychology and human nature of this stuff.
Same as we always have.

Finally, our headline link, from Matt Levine at Bloomberg View:
A weird thing that some people believe is that it's illegal to lie. It's totally legal to lie! People lie in private all the time, of course, it is no problem. But it is also fine to lie to the public. Every day between now and next November, and then every day after that until the heat death of the universe, there will be a story about a leading U.S. politician who lied to the public. Today it is Republican presidential front-runner Ben Carson with an apparent lie about West Point, but there is no need to single him out. PolitiFact ranks politicians' statements on a scale of "True" through "False" and then "Pants on Fire!" Every leading candidate for president has at least one Pants on Fire except Bernie Sanders, who has six Falses.  None of those people will go to prison for those lies, and one of them will probably be president. But people also think that PolitiFact lies to the public! It is turtles all the way down. It is even conceivable that sometimes columnists lie to the public. Lying to the public is the American way.

It is so literally the American way that there is an actual part of our Constitution that says you can lie. That part is the First Amendment, which protects "freedom of speech," and which also protects freedom of lying. "Some false statements are inevitable if there is to be an open and vigorous expression of views in public and private conversation," shrugs the Supreme Court. Go ahead, lie, it's cool.

It's especially cool -- somewhat ironically -- if your lies are political. Thus the unusual prevalence of fiery pants among presidential candidates. First Amendment law is especially protective of political speech, which means that if you are going to trick people, the best thing to trick them about is voting for you for president, or passing a law that you want. If you run a campaign of thoroughgoing falsehood that tricks people into voting for you, journalists will say mean things about you, and that will be the full extent of the consequences.

On the other hand, it is not so cool to lie for profit. This is usually called "fraud," and it tends to be illegal. If you say false things that trick people into giving you money, you will get in big trouble. Here is a man who allegedly sent some fake tweets about some stocks, making him a total profit of $97. He faces 25 years in prison.

So you can lie in politics, but you can't lie in business. But today's question is: Can you lie in politics, in business? Or: Can a business lie in politics? Corporations are people, my friend, and they have First Amendment rights, including the right to "seek to persuade the voting public" by advertising. But they can't falsely persuade the buying public by advertising. And sometimes the lines are gray.

New York "Attorney General Eric T. Schneiderman issued a subpoena Wednesday evening to Exxon Mobil," as part of an investigation "to determine whether the company lied to the public about the risks of climate change." Of course, if it did lie to the public for years, you can see why people would be upset:
Schneiderman “is leading the charge to further expose the hypocrisy of fossil fuel companies like Exxon Mobil and hold them accountable for denying climate change to the public and blocking necessary action for decades,” Greenpeace spokesman Rodrigo Estrada said in an e-mailed statement. “New York has taken the first step, now other attorneys general should follow suit to protect the rights of the American people against big polluters from lying to them about climate change and its impacts on our communities.”
But lying to the American people is, again, the American way of life. Climate change is a scientific issue, and responses to climate change are policy issues, and lying about science and policy are just totally accepted, much-loved, everyday parts of our great democracy. If Exxon Mobil was knowingly funding misleading research as part of a plan to convince American voters and politicians to vote against laws that it opposed, then of course that would be bad. But it would also be at least a bit strange for prosecutors to punish Exxon -- or anyone -- for political speech that the prosecutors disagree with. Even if the prosecutors' disagreement is on purely factual grounds. Even dishonest or misleading political speech is supposed to be, you know, free, and the prospect of prosecutors and judges punishing people (sorry, corporations) for their political speech is a bit alarming. "Unless they directly lied in Congress, the legal case against them is kind of thin," says a guy.

Ah but of course misleading people about climate change isn't just political. It's also, plausibly, a business decision. People might not have bought gas if they knew the full risks of climate change, but if Exxon covered up those risks, then people would have been fraudulently induced to buy more gas, and harmed by that fraud in the form of climate change. This is to a large extent the theory of previous investigations of tobacco companies, and "some experts see the potential for a legal assault on fossil fuel companies similar to the lawsuits against tobacco companies in recent decades, which cost those companies tens of billions of dollars in penalties."

The analogy strikes me as a bit strained, though. The harm of misleading smokers is just so direct, as is the commercial benefit of doing it. If you sell people cigarettes that kill them, those same people are obviously harmed. And if you lie about whether cigarettes will kill people, people will probably buy more cigarettes. But who is defrauded by an oil company that funds climate-change deniers? There is no particular reason to think that the people most harmed by climate change and the people who buy a lot of crude oil products are the same set of people, whereas to a first approximation the people most harmed by smoking are smokers. If you stop smoking, your risk of lung cancer goes way down. If you stop putting gas in your car, your risk of ending up underwater when the ice caps melt does not go down by any measurable amount. There is certainly an intuitive argument that a public that is not worried about climate change will buy bigger cars, take more airplane trips and keep more lights on than a public that is worried. But the mechanisms, and the harms, seem considerably more indirect than in classic fraud cases, or in the tobacco cases.

But Americans don't just vote and drive. They also own stocks. And Schneiderman's probe isn't just about lying to the voting public, or the oil-consuming public. It's also about lying to the investing public:
Whether Exxon Mobil began disclosing the business risks of climate change as soon as it understood them is likely to be a major focus of the New York case. The people with knowledge of the case said the attorney general’s investigators were poring through the company’s disclosure filings made since the 1970s, but were focusing in particular on recent statements to investors.
Exxon Mobil has been disclosing such risks in recent years, but whether those disclosures were sufficient has been a matter of public debate.
This is in certain ways the weirdest theory. For one thing, if you actually think that Exxon Mobil is engaged in a diabolical conspiracy to suppress climate science to wring extra profits out of an earth-destroying business, the last people you should be worried about are Exxon's shareholders. They're the ones profiting from all that destruction! For another thing, if you are concerned about those shareholders, the last thing you should do is fine Exxon a lot of money. They're the ones who will ultimately have to pay that money! "This is not good news for Exxon Mobil or Exxon Mobil shareholders," says an analyst....MORE
I'm probably missing some but the NYT stories we have in the link-vault are:
Nov. 6, 2015
More Oil Companies Could Join Exxon Mobil as Focus of Climate Investigations
Nov. 6
Exxon Inquiry Both Mirrors and Contrasts With Tobacco Industry Case
Nov. 5
Exxon Mobil and the G.O.P.: Fossil Fools
Nov. 5
Exxon Mobil Investigated for Possible Climate Change Lies by New York Attorney General
Nov. 3
Gore Calls for Exxon Mobil Inquiry on Climate Change
Oct. 30
Exxon Mobil Accused of Misleading Public on Climate Change Risks
Oct. 9
Exxon’s Climate Concealment*

And from the Los Angeles Times:
Nov. 5
New York investigating whether Exxon hid what it knew about climate change
Oct. 15
Exxon's damaging denial on climate change
Oct. 15
Congressmen want probe of Exxon Mobil 'failing to disclose' climate change data
Oct. 23
How Exxon went from leader to skeptic on climate change research
Oct. 9
What Exxon knew about the Earth's melting Arctic