It starts with a shady character named Wayne Tracker – or, as you may know him, Rex Tillerson. Tillerson, of course, is Donald Trump’s secretary of state. Prior to joining the Trump administration, he served as CEO of the fossil fuel giant ExxonMobil for over a decade.
Decades ago, Exxon’s own scientists concluded that carbon dioxide emissions, an inevitable byproduct of burning fossil fuels, are causing climate change. Yet the company buried those findings and instead funded pseudo-scientific studies purporting to deny or downplay legitimate science.
Investigators in the New York attorney general’s office suspect this wasn’t just a colossal crime against the environment; it might also be a massive financial fraud.
First, some background. Publicly traded companies like Exxon are required to make annual reports on their financial condition to the federal Securities and Exchange Commission, or SEC. Federal law requires their CEOs to personally certify that those reports do not contain “any untrue statement of a material fact.” Just as importantly, they must also swear that the reports don’t “omit to state a material fact” relevant to the company’s financial health.
In Exxon’s case, the company allegedly failed to disclose the full truth about its climate research in its own SEC filings. In its 2015 statement, the last one certified personally by Tillerson, the company reported net property, plant and equipment – which includes its oil reserves – valued at about $252 billion. That constituted almost 75 percent of its total assets of $337 billion.
Yet if a significant portion of those oil reserves prove to be unrecoverable – either because climate-conscious governments or social movements compel fossil fuel companies to stop extraction – that means those assets would be worth a whole lot less. A large drop in the valuation of the company’s assets would lead to a massive “impairment charge,” potentially driving the company into the red.
This is a huge risk. But it’s scarcely mentioned in Exxon’s 2015 filing.
The document does mention climate change as a potential concern that may reduce demand for the company’s products, but without assigning any quantitative risk to it. Elsewhere, in a 2014 report that claimed to address shareholder concerns about climate risk, the company dismissed the possibility of deep cuts in carbon emissions as “highly unlikely.”
The potential misinformation provided to investors affects more than just hedge fund managers and other billionaires. It means that lots of teachers, firefighters and other ordinary workers have their retirement savings tied up in a company that could be seriously overvalued.
So who is Wayne Tracker? Tracker is the email alias for Tillerson created by Exxon, and the New York attorney general suspects it may have been used to conceal some of then-CEO Tillerson’s communications regarding climate change. The company was required to produce all relevant internal communications on climate risk to comply with a state subpoena, but failed to produce the bulk of the emails from the Wayne Tracker address.
The company responded with a long letter full of ideological posturing, but admitted that it failed to turn over the bulk of the emails because its “technological processes [for finding materials responsive to the subpoena] did not automatically extend to the secondary email account.”
The judge was evidently not impressed with Exxon’s arguments. He has ordered the company to turn over the “Wayne Tracker” emails by March 31, along with sworn affidavits explaining how the company identified and turned over documents in response to the subpoena, and explanations of what documents may have been lost and why.
The contents of the emails may lead to personal consequences for “Secretary Tracker” himself. If it emerges that he privately acknowledged larger climate risks to the company’s business than what was disclosed in SEC filings, he could face criminal penalties under the Sarbanes-Oxley Act. He doesn’t enjoy immunity from prosecution as a public official because his actions as CEO of Exxon-Mobil were not in relation to his position as secretary of state.
The timing of this revelation is unfortunate. If it had been public knowledge prior to Tillerson’s Senate confirmation, he may never have been confirmed in the first place. However, it’s not too late to hold him accountable for potentially misleading investors. We could yet witness the spectacle of a sitting U.S. secretary of state in the dock for fraud charges.
So much for “draining the swamp.”
Copyright 2017 U.S. News & World Report