11 Dec 2019 Cases

Compass Lexecon Client ExxonMobil Prevails in Landmark Climate Change Securities Fraud Trial

3 minute read


Court Relies on the Testimony of Compass Lexecon Senior Consultant Professor Allen Ferrell

The Attorney General of the State of New York (“NYAG”) alleged that ExxonMobil provided false and misleading statements to the market regarding its management of “economic risks posed to its business by the increasingly stringent policies and regulations that it expects governments to adopt to address climate change.” Specifically, the NYAG in this matter asserted that ExxonMobil engaged in a “longstanding fraudulent scheme” “sanctioned at the highest levels of the company,” “effect[ively] erect[ing] a Potemkin village to create the illusion that it had fully considered the risks of climate change regulation and had factored those risks into its business operations.” The NYAG further alleged that “in reality [ExxonMobil] knew that its representations were not supported by the facts and were contrary to its internal business practices.”

Compass Lexecon and Senior Consultant Professor Allen Ferrell were retained by Paul, Weiss, Rifkind, Wharton & Garrison LLP, counsel for ExxonMobil to respond to the NYAG’s allegations. A trial was held in the Supreme Court of the State of New York in October 2019. Professor Ferrell testified, among other things, that NYAG’s experts failed to present evidence that ExxonMobil’s alleged misrepresentations introduced inflation into ExxonMobil’s stock price, that none of the purported corrective disclosures identified by the NYAG’s experts caused a statistically significant decrease in ExxonMobil’s stock price, and that as a result, NYAG’s experts failed to establish that the alleged misrepresentations and purported corrective disclosures were material to the market’s assessment of ExxonMobil’s stock. Professor Ferrell also testified that the aggregate damages methodology offered by NYAG’s expert was fundamentally flawed and unreliable.

On December 10, 2019, Justice Barry R. Ostrager rejected the NYAG’s claims in their entirety finding that the NYAG failed to establish that ExxonMobil violated either the Martin Act or Executive Law § 63(12) in connection with its public disclosures regarding its accounting for climate change risks. Justice Ostrager found that "the testimony of the expert witnesses called by the [NYAG] was eviscerated on cross-examination and by ExxonMobil’s expert witnesses." Justice Ostrager’s opinion extensively discussed and repeatedly relied upon Professor Ferrell’s testimony. For example, based on Professor Ferrell’s testimony, the court determined that “there is no evidence that any misleading statements in these publications inflated the price of ExxonMobil stock.” In rejecting the NYAG’s expert’s claim that certain announcements related to investigations into ExxonMobil were corrective, the court emphasized that “as ExxonMobil's highly credentialed expert, Professor Ferrell, testified, there is something circular about claiming that a stock drop precipitated by the announcement of an investigation constitutes evidence of wrongdoing.”

Professor Ferrell and Compass Lexecon worked closely with attorneys at Paul, Weiss, Rifkind, Wharton & Garrison LLP including Theodore V. Wells, Jr., Daniel J. Toal, Justin Anderson, Nora Ahmed, and Daniel G. Winter, who successfully represented ExxonMobil. Professor Ferrell was supported by a Compass Lexecon team led by Adel Turki in Compass Lexecon’s New York office that included Michael Kwak, Nicholas Fasano, Monica Xie and Ryan Plesco. Dr. Ferrell was also assisted by Jessica Mandel and Michael Keable from Compass Lexecon’s Chicago office.

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