Environment

Why the Exxon Investigation Is More Urgent and More Justified Than Ever

Exxon may be perpetrating an ongoing fraud on the public.

Exxon climate protesters during climate rally march in Washington, D.C., November 10, 2015.
Photo Credit: Johnny Silvercloud/Flickr CC

Over the last two years, reporting by the Los Angeles Times, the Center for International Environmental Law and others has exposed that Exxon and other oil companies have known about climate change and its potentially catastrophic impacts for at least 60 years.

Instead of sounding the alarm and reducing those risks in their products and practices, oil companies spent decades sowing doubt and denial about climate science, deploying the same tools and tactics that saw Big Tobacco indicted on federal racketeering charges. There is now mounting evidence that Exxon misled not only consumers, but also its own investors about the risk of climate change, through advertisements, studies, op-eds, conferences and corporate disclosures.

As part of his ongoing investigation into Exxon’s climate deception, New York Attorney General Eric Schneiderman recently warned of the "urgent" need for further disclosures due to evidence that "Exxon may still be in the midst of perpetrating an ongoing fraudulent scheme on investors and the public." Evidence from more than two million pages of internal Exxon documents indicates that Exxon intentionally underestimated the costs of climate change regulations for years, even as it assured investors it was carefully accounting for climate risks. By publicly proclaiming a higher cost of carbon while actually using a much lower one—or in some instances none at all—the company released valuations and profit projections that made it more attractive to investors than its own calculations justified.

In one noteworthy example cited by Schneiderman, Exxon executives pressured staff to apply a far lower cost of carbon to the company's Canadian tar sands assets than it publicly reported. Internal documents acknowledged that Exxon's tar sands investments would not be profitable if the higher cost were applied. This misstatement takes on even greater significance in light of Exxon's multibillion dollar write-down of those same assets in February.

Exxon has a long history of putting profits first and using concealment, deception and intimidation to get away with it. The true breakthrough of recent revelations lies in evidence that this pattern of misleading investors was recognized and approved at the highest levels of the company—all the way up to its then-CEO, current Secretary of State Rex Tillerson.

This isn't smoke. This is a smoking gun.

More attorneys general are taking notice. The new California Attorney General Xavier Becerra said last week at a town hall in Pasadena that he is "very aware" of the "concern that Exxon along with other petroleum companies have been misrepresenting how much they've known about climate change for quite some time." He went on to say that when companies like Exxon "present one face to the public and one face to their investors," then "they may be committing certain crimes."

It is increasingly clear why Exxon and its allies have gone to unprecedented lengths to stop the investigations by state attorneys general. New York AG Schneiderman's investigations shed even more light when it revealted that Exxon’s attorneys knew about Tillerson's so called "Wayne Tracker" email alias more than a year ago but intentionally hid this information from investigators.  

In an interview filed with the court on June 2, Exxon information technology security and consulting manager Connie Feinstein testified about the company practices that resulted in the destruction of seven months of emails sent under Rex Tillerson's secret email alias "Wayne Tracker." The 301-page transcript of her testimony offers a glimpse of the gravity of this situation for Exxon.

By design, Tillerson's Wayne Tracker account and similar accounts set up for other members of ExxonMobil's Management Committee were completely de-linked from the executives themselves, creating an almost untraceable communications network within the company's top management. Within that network Exxon's leadership discussed not only the company's climate policies but other highly sensitive matters.

This goes beyond creating a simple email alias for an account. For at least nine years, Tillerson had an email account that was effectively invisible to all but a select handful of Exxon executives and support staff and which was not directly associated with his name even within Exxon's internal servers. According to Feinstein, Tillerson's Wayne Tracker alias was registered to Ramona Helble, a senior IT manager at Exxon. Helble was the account holder but had no password; Tillerson had the password, but no other visible link to the account.

The legal discovery consequences are immense. It means that no ordinary discovery request referencing Tillerson (or any other member of Exxon's Management Committee) would turn up these emails unless the person implementing the search was aware of the Wayne Tracker identity. To give a sense for how small that group seems to have been, Feinstein, who described herself as responsible for monitoring audit compliance and electronic discovery for the company, was not aware of the Wayne Tracker emails until 2017, more than a year into the NY AG’s discovery process and after having participated in many other discovery efforts over the years.

As a result of this invisibility, the Wayne Tracker account wasn't frozen and protected by the company's electronic discovery software after the AG's original subpoena should have triggered a litigation hold on messages to and from Tillerson and other senior executives to keep probative evidence from being deleted. Because they were not protected from Exxon's automated deletion system, several years' worth of evidence from Tillerson and other key executives have reportedly been destroyed.

(image: ExxonKnew)

If this were just an example of gross corporate incompetence and reckless mismanagement of vital records, it would rightly cause serious concern for shareholders and investors.

But there are at least two compelling pieces of evidence that the concealment and destruction of the Wayne Tracker emails was more than simple oversight:

Feinstein acknowleged that several Exxon executives responsible for answering the subpoena were aware of the Wayne Tracker account, and indicated that at least one of those executives, Bob Lauck, was directly involved in producing the documents subpoenaed from Tillerson and other senior managers. Despite this, the Wayne Tracker emails were not released to the NY AG until the AG discovered the account name on its own.

Even more disturbingly, Exxon outside counsel Michele Hirshman testified she was aware of the Wayne Tracker email account in early 2016, more than a year ago, but intentionally refused to disclose its existence to the AGs office. Her rationale was that it "would be an interesting test of whether the Attorney General's office is reading the documents." If Feinstein’s testimony is accurate, Exxon’s "test" led to the irreversible destruction of highly relevant evidence.

Exxon's intentional refusal to disclose the existence of this account and its ultimate destruction of relevant records from Tillerson and other executives hints at the significance of this investigation even beyond the climate context. Those accounts have been in place for many years—in Tillerson’s case, since 2007. During that time, Exxon has faced litigation, investigations, and inquiries on a number of fronts. Yet Exxon's witness could not answer whether the Wayne Tracker or similar emails had ever been acknowledged or produced in prior litigation.

The AG's interview of Feinstein hints at the implications of this: were the Wayne Tracker emails produced in the Kivalina case or in Comer v. Murphy? Were they produced to the SEC? Or in any suit against Exxon in the last seven years? The obvious answer to that question is the most likely: The world is just learning about Wayne Tracker because he's been completely hidden before now.

What began as an investigation about climate change is starting to raise fundamental and far reaching questions about the company and its practices. Exxon has fought furiously and using unprecedented legal tactics and political pressure to stop this and similar investigations from going forward. With each new discovery revealing whole new categories of secrets, it begs the obvious question: just how much more is this company hiding?

Such conduct should outrage not just climate advocates, but everyone. If you’re a consumer or concerned citizen, you should be outraged by proof of Exxon and Tillerson deceiving the public about the climate risks of their products

If you’re an investor—in fossil fuels or in clean energy—you should be outraged that a company that misleads investors about the material risks it faces or the value of its assets. Exxon’s climate denial and misdirection are already troubling to the overwhelming majority of ExxonMobil shareholders who voted in May that the company must come clean about its role and response to climate change.

And if you are a state attorney general charged with protecting the public from fraud, then this revelation should convince you that it is time to join the investigation into Exxon, its practices and its secrets.

For nearly two years, the Attorneys General of New York and Massachusetts have stood up to Exxon’s legal roadblocks, vast war chest and political allies to ensure that their laws are enforced and their citizens protected—from climate change and from common fraud. Despite Exxon’s challenges, these AGs are winning in court—and proving that both the facts and the law support further investigations.

I am encouraged by signs and statements in California that more states are considering launching their own investigations to protect their constituents and be watchdogs. Standing up to companies like Exxon is daunting, however, and these attorneys general now need shows of public support from citizens in their home states and from enforcement officials elsewhere.

Like Big Tobacco before it, Exxon has misled the public for too long. Six decades of deception is six decades too many. It is time to hold the oil industry accountable before it causes even more damage.

Carroll Muffett is the President and CEO of the Center for International Environmental Law. Follow him on Twitter @cmuffett1.