New York Attorney General Launches Groundbreaking Fraud Suit Against Exxon
Attorney Todd Paglia of Stand Earth says the New York Attorney General’s fraud suit stands a good chance of success
DIMITRI LASCARIS: This is Dimitri Lascaris reporting for The Real News Network from Montreal, Canada.
Last week, New York State’s Attorney General Barbara Underwood filed a fraud suit against fossil fuels giant Exxon. The suit alleges that Exxon engaged in a “longstanding fraudulent scheme to deceive investors by providing false and misleading assurances that it was effectively managing the economic risks posed by increasingly stringent policies and regulations it expected to be adopted to address climate change.” The complaint filed in court states, “Instead of managing those risks in the manner it represented to investors, Exxon employed internal practices that were inconsistent with its representations, were undisclosed to investors, and exposed the company to greater risk from climate change regulation than investors were led to believe.”
The attorney general’s office also alleges that Exxon’s former chairman and CEO, and later United States Secretary of State, Rex Tillerson, knew about direct misrepresentations for years. This lawsuit follows a highly contentious three year investigation into Exxon, which Exxon attempted unsuccessfully to block. Now here to discuss this lawsuit with us is Todd Paglia. Todd is the Executive Director of Stand.earth, an environmental advocacy organization that focuses on protecting forests. Before joining Stand.earth, Todd was an attorney for Ralph Nader, focusing on consumer protection issues such as the environmental purchasing by governmental energies to spur alternative markets, enforcement of anti-trust laws, corporate welfare issues and corporate accountability.
Thanks for coming back onto The Real News, Todd.
TODD PAGLIA: Nice to be here.
DIMITRI LASCARIS: So Todd, why don’t we start by unpacking the alleged fraud? According to The New York state attorney general’s office, how exactly did Exxon deceive investors?
TODD PAGLIA: Well, it sounds like what’s happening, and this is what The New York AG claims, is that they were maintaining two sets of books, so one that they would communicate publicly about the costs of mitigating certain climate regulations, which were quite a bit lower than their internal books that showed the actual costs of accommodating for climate regulations. So it’s actually a fascinating turn of events legally, and it’s really a kind of a parallel, because as you know, there’s been a lot of lawsuits going after oil companies for bad acts or pollution, climate pollution, that causes a huge amount of damages to cities or to states. This is very different. This is going after Exxon for misrepresenting risk to its investors, which is a little bit like going after Al Capone, not for the bad things he did, but for tax evasion. I think it’s brilliant.
DIMITRI LASCARIS: Now, this is a civil fraud suit as I understand, meaning that the attorney general is not asking in this suit that anyone be sent to jail. Rather, it’s asking essentially that Exxon pay damages and that it be enjoined from continuing to perpetrate this fraud, which the attorney general alleges is ongoing. And moreover, the only defendant in this civil fraud suit is Exxon itself. No executive, not even Tillerson, is named, even though the attorney general alleges that Tillerson knew about the misrepresentations for years. If in fact the attorney general has compelling evidence of fraud, and in particular that Rex Tillerson knew about it, why wouldn’t the authorities bring criminal charges against Tillerson and any other Exxon executives who were responsible for this fraud?
TODD PAGLIA: Well, I think this is a long play, and it’s hard to say what the exact strategy is going forward. My guess is that given how many lawsuits have failed against the oil majors, that they’re looking for any way to sort of breach this wall. Can they get something to stick? And just like you saw with the tobacco wars for years and years and years, there was a sense of sort of impermeability, that you couldn’t get to them. So I think what the New York AG is doing is trying to figure out a very crafty legal strategy with a limited scope. And on the civil side, not criminal, to just see if they can land something. And I think if they do, and I think that this has a very good chance of succeeding, that it’ll expand from there.
DIMITRI LASCARIS: The case, as you’ve noted, is fundamentally about deceiving investors, not about the colossal damage that Exxon has done to the environment over a period of decades. It seems remarkable that the Securities and Exchange Commission, which is charged with the responsibility of policing United States capital markets and is claimed by many to be the most rigorous enforcer of the securities laws in the world, is not pursuing any claims against Exxon for this alleged fraud. How would you rate the Security and Exchange Commission’s overall performance when it comes to forcing companies to make adequate disclosure of their climate change related risks?
TODD PAGLIA: Obviously, major holes in the program over there. And the SEC has had a good reputation in certain circles. I think over time that is really sliding, and on climate change, I think it’s sliding in a major way and it is going to be something that needs to be reckoned with. I think you see this all over, from the SEC to big companies to governments. Climate change is something we’re having a hard time wrapping our minds around and we wish it would just go away and it’s not. And the New York AG is showing some real shortcomings with the SEC, and it’s a real sign of hope, honestly, that someone, somewhere is trying to break this wall down. And I think this lawsuit has the best chance of any I’ve seen.
DIMITRI LASCARIS: And lastly, Todd, we’ve reported extensively at The Real News on the concept of the carbon bubble. That concept includes the idea that fossil fuel companies are overvalued because the reserves on which their valuations are heavily based cannot be exploited without causing a climate catastrophe. Have you seen signs recently that investors are beginning to assess, in a realistic manner, the dangers of fossil fuel reserves becoming stranded, which is to say that they would have to remain in the ground in order to avoid a climate catastrophe?
TODD PAGLIA: It’s not happening fast enough, Dimitri, but it is happening. I happen to be right now in the city of Vancouver, British Columbia, where there has been an epic battle, for example, over the Kinder Morgan Tar Sands Pipeline. And throughout the last year, many investors in that pipeline actually pulled out, as they saw it as a potential stranded asset not only at the far end, as far as the tar sands that would go into that pipe, but even just getting the pipeline built over First Nations resistance. So we’re seeing money move away from these projects.
Ironically, in the case of Kinder Morgan, then the Canadian government bought it. So it is actually still alive somehow, even though the smart money left that project. But we’re seeing investors more and more, when you look at coal, oil, and I think the next that’s going to be happening is looking at natural gas projects, as not viable if you look out over the length of time needed to recoup costs. That’s the way the world needs to move. It’s beginning to happen.
DIMITRI LASCARIS: Well, we’ve been speaking to Todd Paglia, Executive Director of Stand.earth, about a major new fraud suit against Exxon by the New York state attorney general. Thank you for joining us from Vancouver today, Todd.
TODD PAGLIA: Thanks, Dimitri.
DIMITRI LASCARIS: And this is Dimitri Lascaris reporting for The Real News from Montreal, Canada.