The Martin Act is a powerful law unique to New York State that essentially lets prosecutors investigate and accuse almost any company of fraud, without a grand jury process, without proof of intent, and even without evidence of harm. Some have dubbed the Martin Act the “worst law in America.”
Unsurprisingly, this law, which is as vague as it is broad, has been abused to create a multitude of lawsuits against big companies based more on politics instead of any actual fraud or any effort to restore losses suffered by shareholders.
Bad laws like the Martin Act prompt bad lawsuits. Nowhere is that more evident than in the abusive civil suit and subsequent trial brought by the New York attorney general’s office against ExxonMobil, which just ended on Nov. 7. The judge’s decision is expected by mid-December.
When then-New York Attorney General Eric Schneiderman announced his office’s investigation into ExxonMobil back in 2015, he did so under the guise of determining whether the company hid climate change risks and research from the public and investors. Not only could he find no basis for criminal charges, but the Securities and Exchange Commission essentially exonerated ExxonMobil of any supposed violation of securities laws.
But four years later and after changing legal theories several times, the successor New York attorney general ginned up a civil lawsuit that boils down to simple accounting practices, but repackaged to sound like misleading claims about climate change.
The allegation is not about how ExxonMobil deals with science or with environmental regulations, but that the company’s accounting supposedly underestimated the cost of future regulations — regulations that don’t even exist yet!
That sounds like a bad joke, but it’s true. Seventeen times the New York attorney general’s legal complaint states that the lawsuit is about possible future regulations. Only a law as expansive as the Martin Act makes such a lawsuit possible. Yet after years of using the Martin Act to subpoena corporate records in a fishing expedition, the best New York could do was to accuse ExxonMobil of not reading a crystal ball correctly.
Meantime, untold amounts of taxpayer dollars were spent on this political campaign launched simply because New York politicians don’t like the oil and gas industry. They had no case under normal laws but relied only on the Martin Act. Its vagueness allowed state prosecutors to spend years diving into company documents and subpoenaing witnesses while claiming they would uncover evil conduct that deceived or misled the public.
Then, on the last day of trial, the attorney general’s office abruptly dropped all its non-Martin Act fraud claims, doing this during closing arguments. That effectively robbed the company of a court ruling that the corporation did not defraud or mislead anybody, despite four years of sifting through a mountain of company material. The state’s case was inept and insufficient, abusing a powerful and obscure New York law to malign an American company for political purposes.
The only remaining issue is the Martin Act because after years of costly litigation New York now admits it has no evidence that ExxonMobil defrauded anyone nor cost its investors’ money. Yet the state wants the company to pay $1.6 billion simply because the Martin Act lets it punish supposed bookkeeping errors (about costs of future regulations) even though investors were not harmed and nobody was misled.
Bad laws like the Martin Act prompt bad lawsuits. Politicians act outrageously to grab headlines — claiming for years the case was about supposed climate change fraud and then quietly dismissing those claims at the last possible moment. We should be asking whether this warrants an investigation of prosecutorial misconduct.
The abuse isn’t over. Piggybacking on the New York lawsuit, in late October, the attorney general of Massachusetts, Maura Healey, sued ExxonMobil with a similar claim, alleging that “ExxonMobil is deceiving Massachusetts investors about the risks to its business from climate change.” Once again, there is not even a pretense that fossil fuels companies have caused climate change or have defrauded anyone, but simply a wild guess that future acts by regulators will cause losses to the company and, therefore, to its shareholders.
Although New York’s trial against ExxonMobil has concluded (except for the ruling), other militant attorney generals like Massachusetts’ want to keep the company in court endlessly, relying on an imposing mountain of documents that failed to reveal anything fraudulent. More than anything else, an unscrupulous law in New York is being used to harass companies. States’ attorneys general should focus on more serious priorities.
Former Congressman Ernest Istook, an attorney, is now a political science professor.
