Gaius Publius: A DOJ Lawsuit Against Exxon, a “Slam Dunk” to Win, Would Threaten Investors and Possibly Executives

Yves here. While I agree with Gaius that the evidence against Exxon looks so strong as to virtually demand a lawsuit from the Department of Justice, it’s a bit early to hang one’s hat on particular legal theories, particularly when they have not been examined in any depth. For instance, as much as a RICO suit seems appealing and Exxon’s behavior looks like racketeering, it is apparently harder (for reasons that are over my pay grade) to prevail in RICO suits than in other types of criminal cases.

By Gaius Publius, a professional writer living on the West Coast of the United States and frequent contributor to DownWithTyranny, digby, Truthout, and Cfdtrade. Follow him on Twitter @Gaius_Publius, Tumblr and Facebook. This piece first appeared at Down With Tyranny. GP article archive here.

market-mania1

Collapses, once they start, often happen quickly (chart source)

Sorry about the long title, but all three pieces of it — the “slam dunk,” the threat to investors, the threat to executives — are important.

Your background. Bernie Sanders and Sheldon Whitehouse in the Senate, and Ted Lieu and Mark DeSaulnier in the House, have called on the Department of Justice to investigate ExxonMobil for possibly perpetrating fraud, and if warranted, launch a RICO investigation of the company (and other fossil fuel companies) similar to the tobacco industry lawsuit it launched, and won, more than a decade ago. In addition, four House members including Ted Lieu have also called on the SEC to investigate Exxon for fraud, perhaps under the Sarbanes-Oxley law.

From Sen. Sanders’ letter (quoted here):

“I am writing regarding a potential instance of corporate fraud – behavior that may qualify as a violation of federal law.”

I’ve written about this a number of times, as have others, notably Bill McKibben. Here I want to look at what a set of investigations might mean. My source is this piece from Seeking Alpha, an investor-oriented site. At the end, I’ve appended a request for our Democratic candidates for president in the form of a speech I’d like one of them to give.

A “Slam Dunk” to Win

The first point from my headline is this: So many damaging Exxon documents have already been made public, that according to Seeking Alpha, a Department of Justice lawsuit would be a “slam dunk” to win. Duane Bair at Seeking Alpha:

On October 20, 2015, Vermont Senator Bernard Sanders sent a letter to Attorney General Loretta Lynch asking the Department of Justice to investigate allegations made public through an in-depth expose by InsideClimate News. The Pulitzer Prize winning group is dedicated to providing objective facts regarding the debate around energy and climate change. The reporters spoke with hundreds of former Exxon scientists and executives, combed through thousands of pages of scientific studies and thousands of in-house memos. Their findings are astonishing. […]

Here Bair details why those findings are “astonishing.” I urge you to click through if you want a fast summary of the extend of the wrong done by Exxon executives, and how far back that wrong-doing goes.

After detailing the many ways this lawsuit would be identical to the tobacco case — the comparison, as Bair lays it out, is striking — he then concludes (my emphasis):

If the DOJ opts to take up the case, as Senator Sanders and several members of Congress have suggested they do, it would appear to be a slam dunk case for the Justice Department.

At this point, it would be almost corrupt (though not in the money sense) for the Justice Department not to investigate.

A Threat to Investors

My second point from the headline is this: As much as a RICO lawsuit would threaten the reputation of all fossil fuel companies (and it would) — and be a true game-changer in the climate debate (it would be that too) — a RICO suit could also destroy the companies’ stock valuations. If that’s not a threat to investors, I don’t know what is.

Now remember the rule about collapses — once they start, they often happen quickly. In addition to the four charts at the top of this piece, I could have shown any number of stock market collapses. In 1933, you could have bought a typical S&P stock for pennies on the dollar, but then you’d have to wait until after Eisenhower was elected president, a full generation, for the price to recover.

The problem with a stock collapse in the carbon industry is that prices may never recover. After all, carbon extraction is a doomed industry. Yes, we’ll need carbon for energy for a while, but that while needs to be as short as possible. One of the consequences of a RICO investigation would be that while the suit is going on, its investors are looking at loss of value.

Bair again:

For investors, this [a RICO lawsuit] is a material concern. The cost of defending against a federal investigation will weigh down earnings, distract management and cause public outcry. In the light of a presidential campaign, the intense media attention should be taken seriously. Despite the remaining wide use of tobacco products, American tobacco companies have never recovered from the years of litigation and class action lawsuits. That industry is in a slow decline. If Bernie Sanders has his way, the same fate is imminent for Exxon Mobil.

Three points here:

  1. Would you invest in a stock whose price was declining over a protracted period, or collapsing, even if that decline or collapse was deemed temporary? If you wouldn’t, who would? Investors in cases like these won’t reenter a market until they think the price has found a bottom.
  2. What kind of turmoil would the fossil fuel industry find itself in, if it could not finance its operations, even if its product was deemed necessary? Would this turmoil itself not accelerate a stock price collapse?
  3. If investors won’t put new money into an industry they deem temporarily toxic, even one as (currently) vital as carbon extraction, wouldn’t that accelerate investment in a promising and necessary replacement industry, like renewables?

If investors won’t risk their money buying carbon stock; if the industry’s stock prices fall precipitously; if there’s an accelerated demand for a replacement (again, renewables) whose investment price is deemed likely to rise — how is any of that not good?

And if that weren’t enough of an incentive to force this legal action, there’s more.

A Threat to Executives

A final point, one that’s not made by the Seeking Alpha article but that has to be considered. The Sarbanes-Oxley law makes corporate executives personally and criminally liable for fraudulent statements on annual and quarterly reports that go out under their signature. The value of corporate assets — including, in the case of the carbon industry, its oil, gas and coal reserves — is part of every annual statement. If a corporation knows, for example, that climate change will inevitably “strand” (render valueless) a large percentages of those assets, and yet misdeclares and knowingly overvalues those assets … well, that sounds like investor fraud to me.
Exxon_CEO_RexTillerson_climate

Could this man, Rex Tillerson, Exxon CEO, go to jail for committing criminal fraud under Sarbanes-Oxley? If he’s guilty, should he?

Once a Sarbanes-Oxley investigate starts, especially in the roiling climate of a RICO investigation, you may see not just price chaos, but CEO chaos as well — by which I mean the chaos of CEOs mounting their corporate jets for Switzerland, family and numbered bank accounts in hand.

It’s Going To Take Force

It’s going to take force, not discussion, to end the death grip of the carbon industry, and lawsuits are force. Just ask the tobacco industry.

Look, this business has to die, selling carbon as fuel, and at the fastest possible rate. To ensure the best possible future for ourselves and our children, we need to switch to 100% renewable energy starting now and at a WWII “wartime production” pace. Yet this industry is so wealthy and so “connected” — after all, both Obama and Clinton have supported more extraction, even while speaking against it — that its executives will not stand down, will not stop, until they are forced to.

This is the crucial question, isn’t it? Are we willing to force them to stand down? Many of us are; perhaps many of you are as well. If so, god and the U.S. criminal code has given us an incredibly powerful tool. The tool is, in fact, so powerful that on consideration, I fully understand why Loretta Lynch and Barack Obama may be afraid to use it. Given what’s been revealed about Exxon already, a RICO suit against the big carbon companies would be a slam dunk.

I’d bet money that the government is afraid to use it … precisely because it would work.

A Call to Democratic Presidential Candidates

So I make this appeal. If any pro-climate Democratic presidential candidate makes the following statement, she or he would be greeted as a hero by the large majority of the country that is actually starting to see the problem clearly. Here’s the statement, as plainly as I can write it, as a series of easy-to-digest bullet points:

▪ If I am elected, I will immediately appoint an Attorney General who will open a RICO investigation into the fossil fuel industry. I do not need Congress to give me permission. Investigating fraud under the U.S. criminal code is the job of the Justice Department, and I will appoint only someone who will do that job, starting on day one.

▪ In addition, if I am elected, and if it is determined that the fossil fuel industry has violated the corporate fraud law known as Sarbanes-Oxley, I will see that law enforced, even against the executives themselves, to the extent the law provides.

▪ Why will I do this? Because as president I’m sworn to enforce the law. It is my duty, and if you elect me to this office, I will do the duties of the office, all of them, in a responsible manner.

▪ But there’s more. I am also doing this because I have children and grandchildren. Many of you have children and grandchildren as well. Almost every climate scientist on earth is telling us that we are facing an emergency unlike any our species has ever encountered. Many of you, a great many of you, are coming to that realization as well. It’s a simple fact. We see it every day. This planet, our home, is becoming less and less habitable. That degradation has to stop, and it will only stop when we stop emitting carbon into the air. It’s that simple … that easy.

▪ So I am doing my part, and I will do more. I have a duty, we all have a duty, to our children and grandchildren, to leave the planet as habitable as it was when we, your generation and my generation, were born into it.

▪ That is also the duty and the goal of your government, to protect our common inheritance, and I will aggressively pursue that goal with every tool of the executive branch.

You have my word.

It’s a simple thing to say, grounded in both simple truths and simple next-step actions. Giving some form of the above speech is almost a no-brainer, assuming a presidential candidate who “gets it” about carbon and the climate. Here’s what our future looks like if we don’t act.

CO2_SkepticalScience_PastfutureCO2figure1

Atmospheric CO2 for the last 450 million years. Over these time frames, CO2 tracks to average planetary temperature. For most of this period the earth has been hot. The genus Homo is less than three million years old. At no point in our past as a species was CO2 higher than it is today, at 400 ppm. The projected spike in CO2 at the far right correlates to about +7°C warming in a “business as usual” scenario. How warm would you like our planet to become? (source; click to enlarge)

Mr. Sanders, Mr. O’Malley, Ms.Clinton — are you ready to defend the future of our children? Feel free to make this speech on the first day it makes sense to do so.

(If you would like to add your name to a “Prosecute Exxon” petition, click here. Blue America has endorsed Bernie Sanders for president. If you like, you can help him here; adjust the split any way you wish at the link.)

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20 comments

  1. Northeaster

    Why would the DoJ start actually enforcing the rule of law equally now? The new U.S. Attorney General is the same as the last. The money men win, everyone else loses. Maybe they get that fine the banks pay for the cost of doing business, but that’s it. No one of any significance (read money backers) is going to prison in this era.

    1. Gaius Publius

      > Why would the DoJ start actually enforcing the rule of law equally now?

      Depends on who is appointing her or him. We seem to have a populist in this race, and I take him at his word about his intentions. I’m trying to see how far he will commit in his actions.

      For example, IIRC Sanders has committed to appointing only SC justices who will rule against Citizens United. My ask, that he (or someone) appoint an AG who will commit to looking at RICO, and also who will commit to Wall Street prosecutions, is in that vein and not out of his wheelhouse.

      I just want to see those public commitments, and I think his campaign would benefit greatly if he gave them. That’s the case I’m pushing anyway.

      If O’Malley wants to separate from the pack, he could make the same statements pre-emptively. If you’re so inspired, his campaign and ask for that.

      GP

  2. Eric Patton

    Nothing is going to happen to Exxon. I’m sorry, but if you’re waiting for the capitalist class to allow the destruction of its own economic system, you’ll be waiting a long time.

    The left tends to do this: It roots for these sorts of things to happen, thinking some sort of internecine warfare among the owners will do its work for it. Sorry. Na ga happen.

    The big people will keep everything under control. Exxon will skate, just like Volkswagon. You can either believe me, or you can wait and see for yourself.

    Unless there’s some serious movement from below that threatens the private enterprise market system itself. But that would require that people get serious about discussing alternatives to capitalism, starting with participatory economics. Nothing else has the cutting power to scare elites. The proof? Parecon is reviled by the coordinator class, which is loathe to see itself as a separate class in the economy.

  3. Field Marshall McLuhan

    I’ve never understood the use of ‘slam dunk’ as a metaphor for an easy accomplishment. Slam dunks are impressive because they’re *difficult*.

    It would be much more accurate to call the case a layup.

    1. JTMcPhee

      Or in card game terms, a “laydown,” though the other Street definition, “to give up or lose,” is more likely to apply. And slam dunk are difficult only thanks to the twirls and fillips the players add — going up and over to push the ball through the hoop ain’t much of a feat, don’t even need to gauge the carom off the backboard…

  4. JTMcPhee

    One way to share the wealth by holding the “Capitalists” to their claimed efficiency.

    “Use it or lose it…” http://mobile.nytimes.com/2009/11/06/business/06norris.html?referrer=,, and http://www.heritage.org/research/reports/2011/09/congress-should-repeal-or-fix-section-404-of-the-sarbanes-oxley-act-to-help-create-jobs, and http://akerman.com/practices/practice.asp?id=453&more=1, and http://public.lobbytools.com/index.cfm?type=bills&id=34411 “Let us reason together, and render the threat to our position dead or toothless…”

  5. Bearpaw

    I’ll be surprised if this gets anywhere, but hell yes, we need to push for it.

    That said, I wish there were some way of prosecuting those involved at Exxon and elsewhere for treason, or even better (and less likely) whatever’s the rough equivalent in international law. These people betrayed an entire planet for money.

  6. Linda Galindo

    I find this quite compelling. It has me wondering if women are emerging as a voice in investment and can be urged to insist their financial planner scour their portfolio to dump Exxon if it is bundled into any of their funds. It took me a while to find a financial planner who would do what I asked as pertains to social / green investment and aligning with my value system at the cost of 1 – 3% in gain. My thinking has been I’d give that gain up in exchange for something that works for all of us. She understood completely and has since found many more women this appeals to. We are all mothers. Love the talking points that can also serve as an “ask the candidate” list.

  7. a different chris

    Arrgh I would love to see Exxon die as painfully as possible not only because (a) I get the science and it is real an (b) they are a-holes who deserve a thrashing even if they weren’t going to destroy the planet.

    But a “Slam Dunk” — ???? So a bunch of people in Exxon’s employ said they were ruining the planet? So what, they are employees and as all us schlubs know, there is no legal reason the high and mighty have to listen to us. When there is at least one credentialed person on the planet, in Exxon’s employ or not, who says something different that the fat cat likes the fat cat is allowed to use that and it’s up to his board (ha!) for any challenge. Not a democracy, you know, and certainly not illegal to ignore your underlings.

    Also please don’t bother us with speeches you write “for politicians.” It somewhat like teaching a pig to sing, except for the annoying part because unlike the pig they will never see it and don’t even know you exist. But it annoys me because you don’t actually seem to see the distance between you and them.

  8. a different chris

    Man that came of harsher than I intended, or maybe more correctly my irritation (pre-irritation, maybe) at the whole mess sounded too much like it was directed at Gaius, not the world in general. So apologies and read it in that vein.

    1. MojaveWolf

      FWIW, just following the Sanders campaign & changes it has made over time (some that I like & some that I don’t, but both count for this purpose), he DOES listen to his constituents. Also, both he & O’Malley actually seem to understand the importance of this particular issue. I was happily shocked when both of them made this clear at the debate.

      Also, on general topics other than climate change: if you write something intelligent in the places those Bold Progressive opinion polls give you to elaborate on your positions, they seem to pay attention. And my Republican representative went from undeclared to publicly speaking against fast track on the TPP and actually credited hearing from his constituents on the sovereignty issue as a reason why (I am one of the people he heard from and I give him credit for actually paying attention to what is going on in some things instead of just cashing the corporate check and towing the corporate line) . (tho if you’re in Cali, don’t expect much from emailing Boxer or Feinstein–Feinstein’s office sends very condescending sounding form responses and Boxer u r slightly more likely to get no response at all than a form letter)

  9. Gaius Publius

    Replying to a different chris (both messages), no problem. And I write those speeches so that (a) people will ask politicians to give them, and (b) to lay down an easy mark for the politicians themselves to hit. (Plus the rhetorical turn in those speeches is interesting to me as a writer; like writing dialog for a certain type of character.)

    I would never write a speech like that (for publication) if Sanders were not in the race. And in fact, we have two candidates in the Democratic primary who could easily give this one, their beliefs are that in sync already with the need for RICO.

    So I’m doing my bit to help the last coin drop in their respective slots. Feel free to help the effort by communicating with the campaigns yourself.

    And thanks!

    GP

  10. susan the other

    I like the reasoning for hitting Exxon from all sides. Especially the investor and SarbOx angles. We could shut Exxon down; we could shut VW down too using the same legal arguments. Already VW stock is crashing. And together, the oil companies and their most important patron – the automobile industry – could be seriously damaged. Proving the intent to defraud is always tricky tho’ – even if they’ve all been caught red-handed. I think the fact that oil is terminal and will not recover could cut both ways in court in that it might be seen to be overkill to crush Exxon et.al. when they are done for anyway. I think it might be good to RICO them and in addition do such heavy sanctions that it makes their defense (whatever it will be) pointless.

    1. Gaius Publius

      Thanks, Susan. Re RICO, keep in mind that there’s both criminal action and civil action available under the statute. The tobacco case was a civil lawsuit, not a criminal prosecution. I think everyone contemplating a RICO suit (Whitehouse, for example) contemplates a civil action.

      HTH,

      GP

    1. Vatch

      Very few; at least one: Health South boss Richard Scrushy, who was acquitted in 2005. I remember seeing somewhere that a few CFOs have also been prosecuted, and this article says that there has been at least one conviction, but I don’t know whether the defendant was convicted of violating SOX or other laws.

      http://blogs.reuters.com/alison-frankel/2012/07/27/sarbanes-oxleys-lost-promise-why-ceos-havent-been-prosecuted/

  11. brightdarkness

    I’m still trying to understand just what Exxon did that is worthy of a RICO suit in the first place.

    1. Yves Smith Post author

      They did what Big Tobacco did, engaged in a multi-decade campaign to lie about science. Reporters recently found and released evidence that Exxon knew incontrovertibly as of the late 1970s, that carbon emissions were producing global warming and that it would lead to widespread, adverse climate and ecological changes.

      1. Synoia

        Mistakes were made…blah, blah, blah,…too difficult to prosecute…other priorities…statute of limitations…work together….study committee…

  12. Joe Firestone

    I really like this idea. It’s just perfect both for Bernie and O’Malley. I hope Bernie picks up on it first and does it tomorrow!

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