Exxon Facing Toughest Fraud Statute in the Country

Exxon went on trial on Tuesday Oct. 22. The allegation is that Exxon defrauded investors by willfully misleading them about the risks posed to its business by climate change. The oil giant is facing what is generally acknowledged to be the toughest anti-fraud statute in the country, New York’s Martin Act, which is often criticized by the defense bar for taking fundamental rights away from defendants. The law, enacted in 1921, was specifically designed to protect investors from unethical brokers and dealers, and grants the AG’s office broad pre-filing subpoena powers. Most fraud statutes require intent as an element of guilt, but not the Martin Act, and where other statutes require the court to use the legal standard known as reasonable reliance — whether a prudent person would believe and act on the alleged deception — the Martin Act doesn’t require that determination. The broad powers it gives the New York Attorney General to investigate and prosecute securities fraud against publicly traded firms was used by former AG Eliot Spitzer in the early 2000s to investigate some of New York’s biggest investment firms, which were ultimately fined more than $1.4 billion. Like all oil companies, Exxon uses a proxy cost of carbon that represents its best estimate of what those costs could be in the future. New York AG Letitia James alleges that Exxon deceived investors by using one proxy cost internally, which took climate change into account, and used a separate cost to communicate projections to shareholders. Exxon claims could have determined that through its disclosures.