The attorneys general of New York and Massachusetts, along with the Securities and Exchange Commission, are investigating whether ExxonMobil has been misleading investors about the full costs and benefits of some of its oil and gas projects. The New York Attorney General has accused the company of making “materially false and misleading statements” in its reports to investors, which would be a violation of both state and federal law.
At issue in the New York probe is how the company accounts for the potential risks associated with climate change, which could have an impact in any number of areas. Exxon accounts for this risk by using an estimate called a “proxy value,” which it inserts into cost-benefit analyses of projects like production of oil sands petroleum.
Indeed, the oil sands project is central to the controversy. According to the New York AG, it may be touting the proxy value to investors but it doesn’t actually appear to be using it in its calculations.
“The exercise described to investors may be a sham,” he wrote. “If Exxon had applied the proxy cost it promised to shareholders, at least one substantial oil sands project may have projected a financial loss, rather than a profit.”
Exxon has already turned over 2 million documents, ordered to give more
The company is resisting additional requests for documents from New York’s Attorney General, as it has already handed over some 2 million documents. However, on May 23, it was ordered to comply with the AG’s requests for more.
The oil giant considers the New York investigation to be politically motivated and abusive, and also claims it will be fully exonerated.
However, the Attorney General of Massachusetts is involved in a federal investigation into the company’s accounting practices, and SEC has also been investigating the company since September. According to Reuters, the SEC is looking into a slightly different question. Considering today’s low oil prices and reductions in petroleum use that may be put into place, the securities regulator is questioning how Exxon values its oil and gas reserves.
From a criminal defense perspective, the major point is that companies need dedicated criminal defense representation at the investigation stage. If you own a small company, you might not realize you can’t afford to wait until charges are filed. The bulk of the government’s effort and resources go into the investigation, not the trial. A smart company doesn’t rely on public relations to defend it from potential criminal charges. You need to get the right help right away in order to prevent charges from being filed.
