The New York Attorney General's office ("NYAG") has recently initiated securities fraud investigations of energy companies based on possible discrepancies between the companies' public statements about climate change and their internal communications and research. Earlier this month, the NYAG subpoenaed Exxon Mobil Corp. ("Exxon Mobil"), requesting documents prepared by or for industry trade groups, documents relating to Exxon Mobil's support or funding of trade groups involved in climate change, and marketing and advertising documents regarding climate change. Separately, Peabody Energy Corp. ("Peabody") recently resolved an investigation by the NYAG by agreeing to make additional disclosures in its securities filings about the risks of climate change and climate-related regulations.

The NYAG's investigations are based on potential violations of the Martin Act, New York's securities fraud statute. The statute applies to the offer, sale, or purchase of securities or commodities within or from New York, and prohibits the use of "any device, scheme or artifice to defraud or for obtaining money or property by means of any false pretense, representation or promise." Unlike the federal securities fraud statute, or fraud actions at common law, the Martin Act permits liability even in cases where there is no evidence of intent to defraud, no evidence of reliance on any fraudulent misstatement or omission, and no evidence of monetary damages. Indeed, all that is required to support liability under the Martin Act is a misstatement of a material fact, and that the misrepresentation is in fact false. New York's highest court has said that the purpose of the Martin Act is to prevent "deceitful practices contrary to the plain rules of common honesty."

The NYAG has broad authority to conduct an investigation to determine whether a Martin Act violation has occurred. As part of that investigation the NYAG may collect documents and take sworn testimony from witnesses. Following its investigation, the NYAG may elect to bring either civil or criminal charges against the investigation target—civil penalties can include an injunction barring a defendant from selling securities in New York State, as well as restitution of any money obtained directly or indirectly from the fraudulent practice; criminal violations are punishable by up to four years in prison.

News reports have noted that the NYAG's investigation into Exxon Mobil may focus on Exxon Mobil's funding and support for advocacy groups that question the need to address climate change, and whether its internal research contradicted those group's statements and positions, or Exxon Mobil's own public statements regarding climate change.

The NYAG's settlement with Peabody was based on Peabody's alleged failure to disclose information about the risks of climate change and climate-related regulations to its business model, despite internal projections showing that such regulations might cause financial harm. As part of the settlement, Peabody was not required to admit to wrongdoing or pay a monetary settlement.

Other energy companies should be aware that the NYAG, as well as other regulators, may conduct similar investigations, and could soon seek information regarding their internal communications and research regarding climate change and climate change-related regulations. These companies should consider taking the following steps in advance of any subpoena:

  • Review any public statements the company has made regarding climate change or climate-related regulations
  • Review the company's relationship with trade or advocacy groups and determine what statements, if any, those groups have made regarding climate change and climate-related regulation
  • Review the company's own internal research and communications regarding climate change and climate-related regulations