A near century-old statute that gives New York state prosecutors unusually broad authority to prosecute securities fraud could prove a powerful weapon.
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Attorney General Eric Schneiderman probes Exxon Mobil over whether the oil firm mislead the public and shareholders about the perils of climate change.
The 1921 Martin Act, a wide-reaching state law, was dusted off in the early 2000s by former New York Attorney General Eliot Spitzer who used it to aggressively go after Wall Street firms.
Since then, it has been used to prosecute large-scale Ponzi schemes, major investment banks accused of misleading investors and other cases.
Now, Schneiderman is wielding the statute in his probe of Exxon, the world's largest publicly traded oil company, according to a source familiar with the matter. The source said other state laws could be used as well.
Schneiderman subpoenaed Exxon, demanding extensive financial records, emails and other documents to probe the company's knowledge and disclosures about climate change going back to the 1970s.
In response to the probe, Exxon has said it has worked on climate science in a transparent way for nearly 40 years and has regularly disclosed the business risks of climate change to investors for years.
The investigation comes on top of reports last month by Inside Climate News and the Los Angeles Times that the company's own scientists had raised concerns about global warming decades ago that the company executives contradicted.
Under the Martin Act, the state must prove that a company deceived the public by misrepresenting or omitting a material fact in the offering of securities.
Lawyers say the act is unique in that no proof of intent to deceive is required to bring a claim, and prosecutors do not even need to show that anyone was in fact defrauded. The act allows for criminal as well as civil charges.
New York State's highest court ruled in 1926 that it covers "all deceitful practices contrary to the plain rules of common honesty."
The act "is one of the broadest anti-fraud statutes ever devised, at least in a democratic society," wrote Eric Dinallo, a chief prosecutor under former Attorney General Spitzer, in the New York University Journal of Legislation and Public Policy.
It has been used to extract large monetary penalties from finical institutions, said Jim McGuire, a litigation partner at the Dechert law firm in New York.
"The Martin Act is a nearly empty vessel into which the AG can pour virtually any content that he wants," McGuire said. ■