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Exxon's expert witness knocks NY's 'circular' trial claims

Erik Larson, Bloomberg News on

Published in Business News

NEW YORK -- Exxon Mobil Corp.'s expert witness -- a Harvard Law School professor -- challenged New York's claim in a securities-fraud trial that investors lost as much as $1.6 billion when an alleged climate-change cover-up was exposed, calling the argument "a tad circular."

Allen Ferrell, who's also a senior consultant at Compass Lexecon, said it was somewhat convenient for an authority to cite its own investigation as the cause of a company's losses.

"You don't shoot the arrow and then draw a bulls-eye around it," Ferrell, expected to be the last witness in the three-week trial, said under questioning from Exxon's lawyer, Daniel Toal.

New York Attorney General Letitia James alleges Exxon intentionally misled investors about the way it planned for the expected future impact of climate change on its business. According to the complaint, investors lost between $476 million and $1.6 billion when the alleged scheme was exposed.

The complaint points to three news events that allegedly resulted in Exxon's stock dropping, including New York's June 2017 claim that it uncovered evidence of a "sham." The other news events used by New York to calculate the alleged losses relate to climate probes in 2016 by the California attorney general and the U.S. Securities and Exchange Commission.

"The evidence will show that when the deception uncovered by the state's investigation and related investigations was revealed, Exxon Mobil's stock price fell, injuring investors who must now be made whole," the New York attorney general said in a pre-trial memorandum.

Exxon says there weren't any losses because there was no deception.

New York claims former Exxon Chief Executive Officer Rex Tillerson spearheaded a plan to dupe investors into thinking it was applying a high "proxy cost" for carbon to its investment decisions, while secretly using a lower figure to evaluate projects including those in the oil sands in Alberta. Tillerson last week testified the allegations were false.

Ferrell's testimony aimed to undermine two expert witnesses who've already testified for the state: Eli Bartov, an accounting professor at New York University, and Peter Boukouzis, an assistant professor of business management at the University of Saint Katherine in San Marcos, California.

 

Bartov previously testified that Exxon had inflated its stock by lying to concerned investors starting in 2014, while Boukouzis testified about the resulting stock drop.

Ferrell said Bartov's study of Exxon's share-price movements hadn't controlled for fluctuations in the energy industry, and that Boukouzis wrongfully cited two news-related stock movements that don't qualify as statistically significant.

Closing arguments are set for Thursday. New York Justice Barry Ostrager will decide the case without a jury.

The case is People of the State of New York v. Exxon Mobil, 452044/2018, New York State Supreme Court (Manhattan).

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