Ramirez v. ExxonMobil

Shareholders brought a suit against Exxon for failure to disclose climate risks, arguing that it had misled the public and shareholders by using different accounting for the costs of GHG emissions in public than they did in private.

Background
The oil and gas industry faced a crisis in 2014, where prices crashed and companies faced massive impairment charges. ExxonMobil, however, promised its investors that it didn't have any assets at risk and didn't write down impairment charges. In 2016, regulators began investigating disclosures related to climate costs and nondisclosure of write-downs, which caused a drop in the stock. After the news revealed the investigation, Exxon admitted they could have to write down almost 20% of its oil and gas assets. The plaintiff, Pedro Ramirez Jr., filed a securities fraud suit on behalf of investors who purchased Exxon stock between March 31, 2014 and January 30, 2017. The suit alleges that because Exxon's publicly disclosed costs were different from its internal data, that the company misrepresented its value and reserves to investors and acted fraudulently--investors "paid artificially inflated prices for Exxon common stock" because of "material misstatements and omissions", the plaintiff says. The plaintiff added that climate change risks meant that Exxon could not extract the reserves it claimed to be able to and the price of carbon used to calculate prospects was inaccurate, along with failing to take into account its own internal climate change reports. In response, the defendants argue that misrepresentations did not affect stock price and the claim is unfounded.

Relevant Law and Principles

 * Securities Act 1993
 * Securities Exchange Act 1934

Status
In 2018, a federal judge denied Exxon's motion to dismiss the case, which the defendants claimed lacked a claim for civil action. After a verdict in favor of ExxonMobil by the New York Attorney General in a different case, the company filed a motion asking for reconsideration of the denial, which the plaintiffs responded saying that the Ramirez case was not dependant on the New York case. The case is currently pending.

Takeaways
This case is one of many against ExxonMobil for climate change liability, but it is the first climate-related securities fraud case against a major oil and gas company. The precedent set from this case will have effects on all oil and gas companies, especially related to disclosure of risk and investment fraud. Additionally, the case shows how future whistleblowers might identify potential fraud within oil and gas companies dealing with climate risk disclosure. Exxon is not the only company to continue expanded investment and production of new oil reserves, meaning climate risks are more important than ever to disclose. This case will be monumental for the future of the oil and gas industry.

Links

 * 2018 Case Opinion
 * ExxonMobil