Texas Judge Greenlights Securities Fraud Class Action Against Exxon, Rex Tillerson
Judge Ed Kinkeade wrote that the plaintiffs sufficiently supported their allegations that Exxon Mobil and then-CEO Rex Tillerson misrepresented the value of the company's gas and oil reserves to keep its stock prices high prior to a $12 billion bond issue in 2016.
August 15, 2018 at 02:49 PM
4 minute read
The original version of this story was published on Texas Lawyer
A Texas judge has left alive nearly all of a federal class action accusing Exxon Mobil Corp. and former CEO Rex Tillerson of securities fraud related to its alleged misstatements on the value of oil and gas reserves and the potential costs of paying carbon taxes, which ultimately led to its stock plummeting by 20 percent, erasing billions of dollars in value.
Ruling on Exxon Mobil's motion to dismiss, U.S District Judge Ed Kinkeade of Texas' Northern District Court struck portions of two expert opinions attached to the amended complaint, but said the plaintiffs sufficiently pleaded their allegations that the energy giant knowingly kept its stock inflated by refusing to write down the value of its assets, even as competitors were downgrading their own values as the price of oil began to crater in 2014.
At the time, according to court filings, Exxon Mobile was trying to maintain its AAA credit rating as it planned to issue a $12 billion bond offering in 2016. One month after the bonds were issued, Exxon Mobil's credit rating was downgraded to AA+. A few months later, the company disclosed that almost 20 percent of its oil and gas reserves were likely insufficient to meet Securities Exchange Commission guidelines.
Plaintiff Pedro Ramirez Jr. filed a class action alleging securities fraud in 2016 naming Exxon Mobil, Tillerson and company vice presidents Andrew Swiger and Jeffrey Woodbury as defendants. The Greater Pennsylvania Carpenters Pension Fund was named lead plaintiff the following year.
In upholding the bulk of the pension fund's “voluminous” amended complaint, Kinkeade wrote that the plaintiffs had sufficiently backed up their allegations that Exxon Mobile knowingly made misstatements of material fact regarding the value of reserves in the United States and Canada, and the per-ton carbon costs the company faced.
The order said Tillerson, who left Exxon Mobile to serve as secretary of state under President Donald Trump until he was cashiered in March, signed off on SEC filings and was well aware of internal differences in the cost calculations of government-mandated carbon assessments related to global warming.
“The amended complaint contains numerous allegations to support [the plaintiffs'] contention that Defendant Tillerson, chairman of the board and chief executive officer, had knowledge of ExxonMobil's alleged fraudulent activity,” Kinkeade wrote.
As a member of the Board of Directors and the Management Committee, “both of which allegedly received in-depth briefings on and actively engaged in discussions on ExxonMobil's financial position and risks of climate change,” Tillerson “also allegedly had motive to maintain ExxonMobil's AAA credit rating by using a lower, internal proxy cost and not recognizing asset impairment so as to receive sufficient funds to pay the shareholder dividends,” the order said.
Kinkeade did dismiss one count against Woodbury, the company's vice president of investor relations and corporate secretary.
He also struck certain portions of the affidavits of two experts, one off whom is an attorney with the New York Attorney General's Office who had been investigating the company for “alleged misrepresentations ExxonMobil made to investors and the public about the impact of climate change on ExxonMobil's business.”
The judge struck statements he deemed to be matters of opinion but allowed factual statements to remain on the record.
The attorneys for Exxon Mobil include Nina Cortell and Daniel Gold with Haynes & Boone in Dallas, and Jonathan Hurwitz, Daniel Kramer, Gregory Laufer and Daniel Toal of Paul Weiss Rifkind Wharton & Garrison in New York. Tillerson is represented by Brian Gillett of Squire Patton Boggs in Dallas.
“We continue to believe the complaint is meritless and will vigorously defend ourselves from these baseless claims,” said Exxon Mobil spokesman Scott Silvestri.
The plaintiffs' lawyers include Jeffrey Abraham of New York's Abraham Fruchter & Twersky; Balon Bradley of Dallas' Balon B. Bradley Law Firm; Joe Kendall of Dallas' Kendall Law Group; and Mary Blasy Patrick Coughlin, John Herman, Nathan Lindell, Erika Oliver, Sara Polychron and Darren Robbins of Robbins Geller Rudman & Dowd.
“Our view is that the court's order upholding the adequacy of the complaint is an important first step in holding one of the world's most powerful corporations accountable,” said Robbins in an email.
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