Photographer: Daniel Acker/Bloomberg

Exxon Might Be in Trouble Over Climate Change

Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
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A weird thing that some people believe is that it's illegal to lie. It's totally legal to lie! People lie in private all the time, of course, it is no problem. But it is also fine to lie to the public. Every day between now and next November, and then every day after that until the heat death of the universe, there will be a story about a leading U.S. politician who lied to the public. Today it is Republican presidential front-runner Ben Carson with an apparent lie about West Point, but there is no need to single him out. PolitiFact ranks politicians' statements on a scale of "True" through "False" and then "Pants on Fire!" Every leading candidate for president has at least one Pants on Fire except Bernie Sanders, who has six Falses.  None of those people will go to prison for those lies, and one of them will probably be president. But people also think that PolitiFact lies to the public! It is turtles all the way down. It is even conceivable that sometimes columnists lie to the public. Lying to the public is the American way.

It is so literally the American way that there is an actual part of our Constitution that says you can lie. That part is the First Amendment, which protects "freedom of speech," and which also protects freedom of lying. "Some false statements are inevitable if there is to be an open and vigorous expression of views in public and private conversation," shrugs the Supreme Court. Go ahead, lie, it's cool.

It's especially cool -- somewhat ironically -- if your lies are political. Thus the unusual prevalence of fiery pants among presidential candidates. First Amendment law is especially protective of political speech, which means that if you are going to trick people, the best thing to trick them about is voting for you for president, or passing a law that you want. If you run a campaign of thoroughgoing falsehood that tricks people into voting for you, journalists will say mean things about you, and that will be the full extent of the consequences. 

On the other hand, it is not so cool to lie for profit. This is usually called "fraud," and it tends to be illegal. If you say false things that trick people into giving you money, you will get in big trouble. Here is a man who allegedly sent some fake tweets about some stocks, making him a total profit of $97. He faces 25 years in prison.

So you can lie in politics, but you can't lie in business. But today's question is: Can you lie in politics, in business? Or: Can a business lie in politics? Corporations are people, my friend, and they have First Amendment rights, including the right to "seek to persuade the voting public" by advertising. But they can't falsely persuade the buying public by advertising. And sometimes the lines are gray.

New York "Attorney General Eric T. Schneiderman issued a subpoena Wednesday evening to Exxon Mobil," as part of an investigation "to determine whether the company lied to the public about the risks of climate change." Of course, if it did lie to the public for years, you can see why people would be upset:

Schneiderman “is leading the charge to further expose the hypocrisy of fossil fuel companies like Exxon Mobil and hold them accountable for denying climate change to the public and blocking necessary action for decades,” Greenpeace spokesman Rodrigo Estrada said in an e-mailed statement. “New York has taken the first step, now other attorneys general should follow suit to protect the rights of the American people against big polluters from lying to them about climate change and its impacts on our communities.”

But lying to the American people is, again, the American way of life. Climate change is a scientific issue, and responses to climate change are policy issues, and lying about science and policy are just totally accepted, much-loved, everyday parts of our great democracy. If Exxon Mobil was knowingly funding misleading research as part of a plan to convince American voters and politicians to vote against laws that it opposed, then of course that would be bad. But it would also be at least a bit strange for prosecutors to punish Exxon -- or anyone -- for political speech that the prosecutors disagree with. Even if the prosecutors' disagreement is on purely factual grounds. Even dishonest or misleading political speech is supposed to be, you know, free, and the prospect of prosecutors and judges punishing people (sorry, corporations) for their political speech is a bit alarming. "Unless they directly lied in Congress, the legal case against them is kind of thin," says a guy.

Ah but of course misleading people about climate change isn't just political. It's also, plausibly, a business decision. People might not have bought gas if they knew the full risks of climate change, but if Exxon covered up those risks, then people would have been fraudulently induced to buy more gas, and harmed by that fraud in the form of climate change. This is to a large extent the theory of previous investigations of tobacco companies, and "some experts see the potential for a legal assault on fossil fuel companies similar to the lawsuits against tobacco companies in recent decades, which cost those companies tens of billions of dollars in penalties."

The analogy strikes me as a bit strained, though. The harm of misleading smokers is just so direct, as is the commercial benefit of doing it. If you sell people cigarettes that kill them, those same people are obviously harmed. And if you lie about whether cigarettes will kill people, people will probably buy more cigarettes. But who is defrauded by an oil company that funds climate-change deniers? There is no particular reason to think that the people most harmed by climate change and the people who buy a lot of crude oil products are the same set of people, whereas to a first approximation the people most harmed by smoking are smokers. If you stop smoking, your risk of lung cancer goes way down. If you stop putting gas in your car, your risk of ending up underwater when the ice caps melt does not go down by any measurable amount. There is certainly an intuitive argument that a public that is not worried about climate change will buy bigger cars, take more airplane trips and keep more lights on than a public that is worried. But the mechanisms, and the harms, seem considerably more indirect than in classic fraud cases, or in the tobacco cases.

But Americans don't just vote and drive. They also own stocks. And Schneiderman's probe isn't just about lying to the voting public, or the oil-consuming public. It's also about lying to the investing public:

Whether Exxon Mobil began disclosing the business risks of climate change as soon as it understood them is likely to be a major focus of the New York case. The people with knowledge of the case said the attorney general’s investigators were poring through the company’s disclosure filings made since the 1970s, but were focusing in particular on recent statements to investors.

Exxon Mobil has been disclosing such risks in recent years, but whether those disclosures were sufficient has been a matter of public debate.

This is in certain ways the weirdest theory. For one thing, if you actually think that Exxon Mobil is engaged in a diabolical conspiracy to suppress climate science to wring extra profits out of an earth-destroying business, the last people you should be worried about are Exxon's shareholders. They're the ones profiting from all that destruction! For another thing, if you are concerned about those shareholders, the last thing you should do is fine Exxon a lot of money. They're the ones who will ultimately have to pay that money! "This is not good news for Exxon Mobil or Exxon Mobil shareholders," says an analyst.

The Martin Act

But of course there's a good reason for prosecutors to pursue a securities fraud theory. That reason is, basically, that securities fraud is perhaps the least protected speech of all. Securities law fits notoriously uncomfortably with the First Amendment; the Securities and Exchange Commission forbids even truthful speech by companies in many situations. And lying anywhere near a security will get you in trouble, especially in New York, where the Martin Act gives Schneiderman unusually broad powers to prosecute financial fraud without worrying too much about proof of direct harm causation. If you lie to the public about the risks that fossil fuel use poses to life on earth, you are just exercising your right as a citizen. But if you lie to your investors about the risks that fossil fuel regulation poses to your stock price, you are committing fraud and will get in bad trouble.

Realistically, any time a public corporation lies to the public about something material, that lie will come with a side dish of lying to investors about what will happen when the first lie is disclosed. It may be awkward to prosecute the first lie if, for instance, it is a political lie. But it's easy to prosecute the second! That's just securities fraud; it has no free-speech value at all.

One thing that this means is that public corporations actually do have more limited free-speech rights than you or I do. I can lie about climate science all I want, and there's not a thing that Eric Schneiderman can do about it. But if Exxon Mobil lied about climate science, securities fraud is an easy way for Schneiderman to catch it. If you are worried, as many people are, about expanding corporate power in the wake of the Supreme Court's Citizens United decision granting them constitutional rights, this might be some consolation. Corporations are people, perhaps, but they're not quite as free as you might have thought.

  1. If you think that my cutoff for "leading candidate" is arbitrary, I do not want to hear it.

  2. Have I reminded you recently that nothing in this column is legal advice? Also what if I am lying to you? Is your mind blown?

  3. I cannot emphasize enough that this is all half-jocular oversimplification. In particular, I have spent a lot of time thinking about which sorts of dishonesty might constitute securities fraud. There are issues of materiality, of reliance, of market practice; it is all far more subtle than I'm suggesting in the text.

  4. I am being a bit silly, but the Supreme Court sometimes talks in terms of distinguishing commercial from non-commercial speech, and "core political speech" from other kinds of speech. Core political speech is very protected. Commercial speech is much less protected.

  5. I emphasize that I have no idea if it did, and of course Exxon Mobil vehemently denies the accusations:

    Exxon Mobil General Counsel Kenneth Cohen has been waging a public-relations battle since mid-September against the accusations. In a series of blog posts on a website known as “ExxonMobil Perspectives,” Cohen said “anti-oil and gas activists” had “cherry-picked documents” to distort the company’s role in climate research.

  6. Here's a giant tobacco case. I should say that the tobacco cases go considerably far afield of pure fraud charges. Wikipedia mentions "civil conspiracy, willful and negligent breach of a special duty, fraudulent misrepresentationfraudulent concealment, negligent design, strict liability, unfair trade practices, public nuisance, and negligent and intentional entrustment." I think of tobacco cases as being, at their core, about product liability: If you sell someone a product that kills them, they can sue you, unless you gave them fair warning about the killing.

    Again, the harms to someone buying fossil fuels seem more indirect. Still, "New York is examining whether the company may have violated state consumer protection law," and you could imagine making out a product-liability-ish case for oil too.

  7. More subtly, though, investors don't care about climate change. What they care about are the business risks of climate change, which means, primarily, the regulatory risks of climate change. The New York Times cites some risks:

    Last year, for example, the company warned investors of intensifying efforts by governments to limit emissions. “These requirements could make our products more expensive, lengthen project implementation times and reduce demand for hydrocarbons, as well as shift hydrocarbon demand toward relatively lower-carbon sources such as natural gas,” the company said at the time.

    But in another recent report, Exxon Mobil essentially ruled out the possibility that governments would adopt climate policies stringent enough to force it to leave its reserves in the ground, saying that rising population and global energy demand would prevent that.

    If Exxon's disclosures were inadequate, it means primarily that they were insufficiently pessimistic about what regulators will do. That is a strange -- and self-fulfilling -- case for a regulator to make. "Your disclosure was inadequate, because you didn't disclose that we were going to do this thing that we're doing now."

  8. Notice, though: public corporations. Exxon Mobil, by virtue of its publicly traded stock and SEC reports, is an easy target for securities-fraud lawsuits. But what if, say, Uber or Airbnb were found to be lying in some of their political activities? There might be consequences, but a securities-fraud case probably wouldn't be one of them; it is much harder for Eric Schneiderman to claim to act on behalf of the unicorns' venture capital investors than on behalf of dispersed public shareholders.

    Like other sorts of shareholder-related lawsuits, this is kind of a reason to stay private.

  9. This is not legal advice (to me).

  10. One of them, interestingly, is Leo Strine of the Delaware Supreme Court, a leading thinker in corporate law, who argues that:

    Taken together, the decisions of the Roberts Court and other like-minded federal judges have had the practical effect of increasing the power of corporations to influence the electoral and regulatory process, diminishing the ability of human citizens to constrain their corporate creations in the public interest, and reducing the practical ability of Congress and executive agencies to adopt and implement externality regulations and new social welfare regulation. The result has been to alter the relationship between society and the corporations that it has created. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Matt Levine at

To contact the editor responsible for this story:
Zara Kessler at