In a stunning and contemptible end to what has been an embarrassing trial against ExxonMobil, today the New York Attorney General dropped two of its four fraud claims against the company in a move reminiscent of a child quitting a game early and running home with her ball because she was losing.
Indeed, almost as soon as the State began its closing arguments, New York Supreme Court Justice Barry Ostrager interrupted the prosecutor “to clarify that the AG is dropping two counts against Exxon – common law fraud and equitable fraud claims – focusing only on [the] Martin Act.” The prosecutor responded affirmatively. “That’s correct, your honor,” he said.
The charge of common law fraud, as laid out in the State’s complaint, alleged that ExxonMobil “intentionally, knowingly, or recklessly” defrauded investors who “did in fact rely on Exxon’s misrepresentations and omissions in making investment decisions.” The complaint continued, adding “Exxon’s investors suffered damages in connection with purchasing and retaining securities that were the direct and proximate result of Exxon’s fraud.” The charge of equitable fraud also alleged that investors had relied on “Exxon’s misrepresentations and omissions in making investment and other business decisions.”
The NYAG failed to provide any evidence to support this claim, even though they told the press that investors had suffered damages totaling up to $1.6 billion, and dropped it at the last minute, depriving ExxonMobil of the opportunity to be declared “not guilty” of the charges.
Having very vocally and repeatedly accused ExxonMobil of committing fraudulent schemes for the last four years, the NYAG’s move can aptly be characterized as cowardly, and almost certainly as an admission that it had no evidence to support its common law and equitable fraud law claims against the company (readily apparent to all those who have followed this trial).
The stunning retreat at the close of trial speaks to just how baseless the case was from the beginning (are you watching, Maura Healey?). It also reeks of abuse of power and should be a miscarriage of justice.
ExxonMobil attorney Ted Wells clapped back at the NYAG:
“To be clear, I think there is a real issue about whether a regulator- I’m being quite candid here. This is a very serious issue. It says that they can track us, harass the company for three years, that the company can say ‘I want to stand on my right to a trial,’ that you can go to trial, that the government proofs on the most serious counts can be insufficient, and they can say at the last minute ‘oh, never mind.'”
Their entire case now rests solely on the Martin Act, which has been so thoroughly criticized by legal experts that the Wall Street Journal called it “the worst law in America.”
From bad to worse to downright pathetic
Even before trial began last month, the NYAG’s case was roundly criticized for bringing a lawsuit based on its own misunderstanding of accounting. What the NYAG was alleging constituted fraud, actual investors were calling “good business judgement.” After four years of investigation and reviewing over four million pages of internal company documents and interviewing countless employees, the NYAG had failed to find anything that could remotely constitute a “smoking gun.”
Heading into trial, the New York Post editorial board said the case was “most notable for … how badly it has fizzled,” adding that “the entire thing has been a shameless exercise in prosecutorial abuse.” The Wall Street Journal editorial board called it a “show trial.”
Once trial began, the NYAG didn’t fare any better. “A series of witnesses failed to provide any concrete evidence that the oil giant knowingly misled shareholders about its climate change accounting,” Bloomberg reported. The NYAG’s “expert” witnesses demonstrated beyond the shadow of a doubt that they were “expert” in name only.
Everything now hangs on the powerful and deeply flawed Martin Act
The State’s case now relies solely on the Martin Act, the most powerful securities law in the country, which gives the NYAG the power to investigate and prosecute just about any company for any reason they want.
The Wall Street Journal calls it “the worst law in America,” adding:
“The Martin Act lets prosecutors call almost anything fraud, and there’s no requirement to prove evil intent in civil cases. Yet proving scienter, or the intent or knowledge of wrongdoing, has been a staple requirement of British and American law for centuries lest innocent mistakes be prosecuted as intentional frauds. The Martin Act thus gives prosecutors a huge legal advantage against defendants, though for decades it was used sparingly. That changed in the early 2000s when then New York Attorney General Eliot Spitzer wielded the Martin Act to bludgeon settlements out of big Wall Street firms without going to court. The law does particular damage because New York is America’s financial capital and nearly every company sooner or later does business there.” (emphasis added)
Columbia Law School professor Philip Hamburger says the Martin Act invites “profoundly dangerous constitutional violations,” and his colleague Merritt Fox has warned that the NYAG can use it “to make public policy over almost any kind of business activity.” Adam Morey of the Lawsuit Reform Alliance of New York writes that “this nearly century-old law affords the Empire State’s lead lawyer more power than any other prosecutor,” while a Bloomberg View editorial called the Martin Act a “dangerous arrogation of power.”
Conclusion
The NYAG’s decision to withdraw two of their charges means they didn’t have the confidence in their own arguments to move forward. They could not provide a single investor to say they would have changed their investment strategy if ExxonMobil had described its accounting differently. They could not prove that ExxonMobil had defrauded its investors. They could not prove that ExxonMobil’s investors had suffered any damages, let alone the $1.6 billion they had alleged for the past month. ExxonMobil attorney Ted Wells made a salient point:
“The executives that came to court- some of whom are retired- came here because they wanted to clear their reputations. I submit they have a right to either a stipulation that says there is no intentional misconduct or a court ruling. They can’t put us through a whole trial then at the last minute recognize they didn’t prove the claims and then say ‘I’m gonna dismiss it.’ That leaves a cloud over the reputations of the people.”
ExxonMobil and the men and women who work for the company have had their names dragged through the mud by the NYAG and its allies for the last four years. By dropping two of their charges, the NYAG is depriving ExxonMobil and its people of the opportunity to have their names cleared. They’re moving the goal posts during the field goal. It’s a shameful and cowardly last act for the NYAG’s dying case.
