An ongoing investigation by the New York Attorney General into whether one of the world’s largest oil producers misled markets about the risks posed by climate change may prove to be a groundbreaking moment. As other state and federal authorities are expected to pursue similar actions, the fossil fuel industry is facing a bolder regulatory environment questioning the integrity of the industry’s marketing and research practices.
THE INVESTIGATION INTO EXXON
The investigation began with a subpoena issued by Eric Schneiderman, New York Attorney General, to Exxon in early November 2015, requesting a massive discovery of Exxon’s corporate records going as far back as 1970s. The Attorney General is seeking to understand if Exxon breached New York State’s Martin Act by misleading the market and greater public about climate change.
Several investigative reports by Inside Climate News and the Los Angeles Times spurred Schneiderman’s investigation. These reports allegedly document that in the 1970s, when global warming began attracting scientific attention, Exxon “assembled a brain trust” that deepened the company’s understanding of climate change. According to the reports, in the late 1980s, the company went into a policy change and adopted a strategy of “climate denial,” manufacturing “doubt about…global warming,” despite the potential research information available to the company that proves otherwise. For years, as a commercial company, Exxon has downplayed the possible effects of climate change-related regulations in public reports to investors by referring to the issue as “uncertain,” “difficult,” or “not possible” to reasonably predict.
THE MARTIN ACT OF NEW YORK
The Martin Act is an almost century-old New York state enforcement statute that predates the SEC. In Martin Act cases between private parties, New York courts apply a standard of strict liability and define “fraud” broadly as“all deceitful practices contrary to the plain rules of common honesty” including any act “tending to deceive or mislead the public” without requiring an actual proof of scienter or intent. 
Originally, the law only conferred a power to pursue civil suits, but was later amended to allow for criminal prosecutions. In its current form, the Act gives New York Attorney General a virtually executive authority to “implement and enforce” the Act and delegates “regulatory and remedial powers aimed at detecting, preventing and stopping fraudulent securities practices.”  The Act particularly addresses the“advertisement” and the “distribution” of securities as suspect activities, and has been used to stop Ponzi schemes, mortgage fraud and Wall Street abuses in the past.
This month, in a case brought against Barclays in relation to high-frequency trading, New York Supreme Court denied Barclay’s motion to dismiss the New York Attorney General’s fraud claim against the bank, finding that the attorney general’s claim properly alleged misrepresentations about Barclay’s “Dark Pool” alternative trading platform. People of the State of New York by Eric T. Schneiderman v. Barclays Capital Inc., No. 451391/2014, 2015 WL 641803 (N.Y. Sup. Ct. Feb. 13, 2015). Thus, these exceptional powers granted to the attorney general by the Martin Act make the New York attorney general a key regulatory figure in bridging certain shortcomings of federal agencies due to the constitutional and statutory restrictions in their authority.
In his subpoena to Exxon, Schneiderman is seeking a myriad of documents related to Exxon’s internal research on the causes and effects of climate change, and how this information was used in business decisions, projects, analysis and communications with trade groups. Experts think the issue of what counts as “material” information will be the decisive factor in the case.
The investigation raises interesting questions. At the end of the day, not all undisclosed research is material information that needs to be disclosed to the public if the relevant piece of information is obvious or otherwise generally available to the knowledge of the outside world. But, perhaps Exxon or other similarly situated energy companies are in a unique position, and indeed hold certain information that is not available to the rest of the world on the issue of climate change.
Exxon embraced the need to curb greenhouse gasses in 2006, following the company’s change in its chairman and CEO. Since 2009, the Texas-based company has advocated for a revenue-neutral carbon tax as the fairest way to cap harmful emissions. According to the General Counsel of Exxon, the “[company]scientists have been involved in climate research and related policy analysis for more than thirty years, yielding more than fifty papers in peer-reviewed publications.” Its scientists have participated in the United Nations Intergovernmental Panel on Climate Change since its inception and were involved in the National Academy of Sciences review of the third U.S. National Climate Assessment Report.
Despite Exxon’s affirmative steps, many environmental organizations continue to take issue with Exxon’s activities. A 2007 report by the Union of Concerned Scientists, is a non-profit organization with over 200,000 members, alleged that the company financed “a sophisticated disinformation campaign…to deceive the public” about global warming. The report argues that Exxon Mobil gave $16 million to forty-three groups that advocated climate change skepticism from 1998 to 2005.
For the prosecutor, a case could be built if enough evidence exists to prove that Exxon actually knew – or reasonably should have known – that climate change is real, but failed to affirmatively disclose this risk and its potential implications on the company’s business outlook. Since this perception would potentially hurt Exxon’s stock prices, Exxon’s omission may have also caused market-price distortion regarding its publicly traded stocks.
“SETTLING” THE TONE
The current probe comes after New York Attorney General Schneidermann reached a settlement with the largest U.S. coal mining company, Peabody Energy, after the company was accused of misleading investors about the financial risks of climate change. In the settlement, Peabody agreed to include more comprehensive disclosures in its disclosures to the market about the potential costs of climate-related regulations. Settlements such as this – although do not represent a binding judicial authority – reflect a growing consensus and a pattern of self-correcting behavior among the high echelons of the American economy, which is gearing up for a sustainable energy future.
A discussion on the causal link between climate change and the fossil fuel industry often slips away from having its day in the courtroom. A judicial inquiry into the truth of global climate change as a fact has been thus far too elusive for the courts to handle despite widespread consensus among the scientific community about the anthropogenic climate change. The magnitude of the phenomenon defies a conclusive study, and the divisive nature of the surrounding public debate moves the courts to defer to regulators that are protective of the global interests of U.S. energy conglomerates – an industry that has been a historical stalwart of the U.S. economy.
FREE SPEECH AND CORPORATIONS
Some commentators questioned the investigation as a cynical and heavy-handed government action to curb free speech in the climate change debate. Yet Exxon, like other energy companies, has been historically instrumental in shaping the policy debate and the scientific discourse surrounding our understanding of the climate change. Today, under a series of laws and court rulings, including the much-debated Citizens United case, corporations enjoy broad First Amendment rights. However, the exercise of political speech by a commercial enterprise, and a public reporting company, can conflict with its other duties towards the market.
The U.S. Securities and Exchange Commission (“SEC”) regulates and prohibits even truthful speech by companies in many situations. A duty of truthfulness about material business information for publicly traded companies is essential to maintain market integrity and
to balance the asymmetrical playing field that the corporations are enjoying in shaping the climate change debate.
This trend is particularly meaningful when reviewed in tandem with the Obama Administration’s achievements in steering America and the world towards renewable energies. The Obama Administration oversaw the proliferation of innovative technologies by the U.S. oil companies, which resulted in substantial reductions in the global oil-prices and political gains towards U.S. energy independence. Whether this investigation ends in a trial or not, changes may be on the horizon.
 See, State v. 7040 Colonial Rd. Associates Co., 671 N.Y.S.2d 938, 941-42 (Sup. Ct. 1998).
 E. Midtown Plaza Hous. Co. v. Cuomo, 20 N.Y.3d 161, 169 (2012)
*This article was originally published in Rights Wire, and is republished here with edits.