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October 1, 2023

Exxon Mobil May Have Escaped an SEC Penalty Over Climate-Change Accounting But Not a Class-Action Lawsuit

Earlier this month, we reported that the Securities and Exchange Commission ended its two-year accounting probe into how Exxon Mobil Corp. calculates the value of its assets and whether the oil and gas company failed to alert investors about potential climate-change risks. The SEC decided to take no enforcement action against Exxon Mobil, but investors aren’t giving up the fight just yet.

Investors filed a securities class-action lawsuit against Exxon Mobil, former CEO Rex Tillerson, and several other executives in November 2016, accusing the company of failing to properly account for the impact of climate change to its business and making public statements and financial disclosures that caused its share price to fall. Exxon Mobil tried to get the lawsuit dismissed, arguing that the investors failed to state a claim for the civil action. But a Texas judge on Aug. 14 rejected Exxon Mobil’s motion to dismiss the lawsuit, thus allowing it to proceed, according to Reuters.

In his ruling, Judge Ed Kinkeade of the U.S. District Court for the Northern District of Texas said the lead plaintiff, Greater Pennsylvania Carpenters Pension Fund, “sufficiently pleaded” securities fraud claims against the company on behalf of the investors.

Kinkeade wrote:

In mid-2014 oil and gas prices began to fall worldwide. Other oil and gas companies were forced to write off or abandon more than $200 billion worth of oil and gas reserves because the cost of production was higher than the profits. ExxonMobil did not write off or abandon assets but instead repeatedly reassured investors that ExxonMobil had superior investment processes and project management that allowed it to continue operating without writing down any assets. Pension Fund alleges these representations were materially misleading because ExxonMobil knew it could not survive the historic drop in oil and gas prices without writing down assets.

As points out, Tillerson—who thought it was a good idea to leave Exxon Mobil in late 2016 to become President Trump’s secretary of state, a relationship that lasted until March 13, 2018, when Tillerson got the finger-point and the “You’re fired” from his boss—“signed off on SEC filings and was well aware of internal differences in the cost calculations of government-mandated carbon assessments related to global warming.”

The judge wrote:

The Amended Complaint contains numerous allegations to support Pension Fund’s contention that Defendant Tillerson, Chairman of the board and Chief Executive Officer, had knowledge of ExxonMobil’s alleged fraudulent activity. Defendant Tillerson was on the Board of Directors and the Management Committee, both of which allegedly received in-depth briefings on and actively engaged in discussions on ExxonMobil’s financial position and risks of climate change. Defendant Tillerson also allegedly had motive to maintain ExxonMobil’s AAA credit rating by using a lower, internal proxy cost and not recognizing asset impairment so as to receive sufficient funds to pay the shareholder dividends. Also, Defendant Tillerson signed the allegedly materially misleading Form 10-Ks while aware of their misleading statements.

Exxon Mobil contends that the investors’ complaint is “meritless” and the company “will vigorously defend ourselves from these baseless claims,” spokesperson Scott Silvestri told Reuters.

The attorneys general in New York and Massachusetts also are investigating whether Exxon Mobil’s public statements about climate change misled investors.

Exxon Mobil tried to block the states’ investigations in court, saying they were politically motivated, but a federal judge dismissed the lawsuit in March 2018, saying, “Exxon’s allegations that the AGs are pursing bad faith investigations in order to violate Exxon’s constitutional rights are implausible,” according to the New York Times.

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