Tillerson Testimony in Exxon Trial May Add Spark to Climate Case
Tillerson Testimony in Exxon Trial May Add Spark to Climate Case
(Bloomberg) -- Former Exxon Mobil Corp. Chief Executive Officer Rex Tillerson is set to testify Wednesday in New York’s securities-fraud trial over the oil giant’s climate-change disclosures, adding an element of drama to proceedings that have had few fireworks so far.
Tillerson’s testimony in state court in Manhattan may be crucial for both sides of the dispute, given his control over Exxon during the years the company began to regularly account for the expected financial impact of climate change on its bottom line.
The Texas native, who resigned from Exxon in 2016 to become President Donald Trump’s first Secretary of State, will likely be questioned at length about his role in setting the company’s “proxy cost” for greenhouse gas emissions -- a method of baking in the impact of future climate-change regulations that’s at the center of New York’s lawsuit.
New York Attorney General Letitia James claims Exxon, with Tillerson’s blessing, intentionally misled investors by telling the public that the company was using a higher proxy cost than they were using internally.
By saying publicly that it applied a proxy cost rising to about $80 a ton in 2040 in developed countries, it appeased investors who were concerned about climate change risks. Internally it used a figure of $40 a ton though, which made its books look better and inflated the company’s stock by as much as $1.6 billion, according to James.
James Fanto, a professor at Brooklyn Law School, said he doubts Tillerson’s testimony will reveal anything new about Exxon’s proxy costs but could provide value for New York by forcing him to answer questions under oath about the impact of fossil fuels on the environment.
“The attorney general is probably hoping that they can trip Tillerson up in some way on the issue of what Exxon knew about its effect on climate change, or get him to say something that contradicts Exxon’s disclosure,” Fanto said. “They get more free publicity for the case by calling him in.”
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Tillerson also is likely to be grilled about his use of an alias email account while he was at Exxon for his most-sensitive internal communications, including messages about proxy costs. New York’s discovery of that account, under the pseudonym “Wayne Tracker,” became a major point of contention between the state and Exxon during the probe.
Exxon has said Tillerson’s use of an alias was for security purposes and was entirely proper. However, many of the relevant emails in the account were deleted because Exxon failed to put a litigation hold on the account after receiving subpoenas from the state.
New York argued the emails would have corroborated other evidence indicating that Exxon’s senior management had tweaked the internal proxy numbers starting in 2014.
Exxon argues New York is confusing its use of a public proxy cost with a different greenhouse gas cost (GHG) that’s applied internally to potential oil and gas projects, and that the GHG cost isn’t meant to be public anyway. Exxon says New York is conflating the two metrics to show a discrepancy where there is none.
Since the trial kicked off last week, New York’s witness list has consisted of a mix of activist investors and current Exxon employees. None of the investors were able to provide evidence that Exxon had intentionally misled them.
Former New York Attorney General Eric Schneiderman started investigating Exxon in late 2015, sending a flurry of subpoenas aimed at uncovering any misleading public statements about climate change science or accounting. The wide-ranging probe narrowed to a fraud suit that was filed a year ago by Schneiderman’s successor.
Even if Tillerson’s testimony doesn’t give New York a smoking gun, his scheduled appearance in the case has already pleased Exxon’s biggest detractors.
“It will be momentous to see Tillerson on the stand testifying,” said Lindsay Meiman, a spokeswoman for the environmental group 350.org, which arranged a protest outside the courthouse on the first day of the trial. “Frankly, he should get used to it, since the demand to hold Exxon accountable is only getting louder.”
To contact the reporter on this story: Erik Larson in New York at elarson4@bloomberg.net
To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Joe Schneider, Steve Stroth
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