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Thursday, November 21, 2019

Taxpayers fund 'rambling' testimony as judge looks skeptical of New York's case against Exxon

Attorneys & Judges

By Dan Fisher | Nov 1, 2019

Bartov
Bartov

NEW YORK (Legal Newsline) - New York taxpayers might want a refund on their $500,000 investment in a $1,050-an-hour expert after the judge hearing the state’s closely watched climate lawsuit against ExxonMobil repeatedly interrupted his testimony with skeptical questions about his methodology and assumptions.

To be fair, the state handed a tough assignment to Eli Bartov, an accounting professor at New York University. Bartov had to explain to Judge Barry Ostrager, a veteran securities litigator before he joined the bench, why ExxonMobil shareholders lost billions of dollars because of internal accounting estimates of future global warming costs that were invisible to investors at the time. 

Based on the judge’s questions, Bartov may have failed.

Bartov, who also works as an expert witness for plaintiff lawyers in securities lawsuits, testified ExxonMobil shares fell after “disclosures” in leaked news reports about climate investigations by then-New York Attorney General Eric Schneiderman, his then-California counterpart Kamala Harris and finally the Securities and Exchange Commission in 2015 and 2016. 

Bartov found ExxonMobil’s share price declined significantly after news of the California and SEC probes – neither of which resulted in any legal action against the company – and said all three probes informed investors that ExxonMobil had failed to properly account for climate risk affecting its long-lived assets.

ExxonMobil denies it engaged in any accounting improprieties. It says its stock fell because of the obvious bad news it was facing multiple government investigations, not to mention a 50% decline in crude oil prices between 2014 and 2016, the time period Bartov studied.

As Bartov explained his findings, Judge Ostrager interrupted him.

“What would be the significance of this information if the court finds that the New York Attorney General action is meritless?” asked Ostrager.

Bartov said he judged information as it is available to investors at the time, not based on whether it turns out to be accurate later. The judge asked again. Bartov said it was “very significant” because it shows how investors reacted to “the alleged misrepresentation given the information they have at the time.”

“Time out,” the judge said. “So are you telling me that if the New York AG brought a meritless claim against ExxonMobil, that the New York Attorney General has misled investors to this level of significance?”

Bartov said it was entirely possible ExxonMobil’s stock will go up if New York’s claims are found to be meritless.

“That would mean that the Attorney General misled these investors?” the judge asked.

Bartov responded with a discussion of what happened with Enron, the Houston company that failed amid a massive accounting fraud in 2001. Later, under cross-examination by ExxonMobil attorney Justin Anderson, he repeatedly referred to Enron when he meant ExxonMobil. 

“Don't tell us about Enron,” the judge snapped.

Delving into Bartov’s analysis of ExxonMobil’s stock price, Anderson asked why it wasn’t a simple response to bad news about AG investigations.

“Where they drag the CEO of the company in to testify, or they drag the controller in to testify, where they drag them in for multi-days at a time, where they drag in employees from their duties to come in and testify for four years. That's not a good thing; is it, Dr. Bartov?” Anderson asked. 

“I'm just going to object to some of the characterizations there” said Kevin Wallace, a lawyer in the New York AG’s office.

“I'm sorry?” the judge said.

“I'm objecting to the characterizations as to dragging people in,” Wallace said.

“Yeah, that's overruled,” the judge said. “You left out disclosure of a company's entire proprietary information in a courtroom.”

Later, Anderson asked Bartov why ExxonMobil stock reacted to news of the California investigation in January 2016 but not a virtually identical report about Schneiderman’s probe several months before. Bartov said that was because the earlier article ran in the New York Times science section. Anderson put up an image of the November 2015 article on the front page of the Times.

“It is not your testimony that the New York Times has a science section on the front page of the newspaper; is it?” Anderson asked.

“Maybe I miss -- maybe I didn't remember,” Bartov said.

Much of the jousting was over an ExxonMobil liquified natural gas facility on the Gulf of Mexico that the company wrote down for a $280 million after-tax loss in 2017. Bartov said ExxonMobil would have written it down in 2015 had it applied future GHG costs then. He got into an extended debate with Anderson over the so-called “trigger event,” or a change significant to trigger a more searching analysis into whether an asset’s value should be written down. 

ExxonMobil says there was no trigger event in 2015 and Bartov, over several minutes of barely comprehensible discussion, maintained there was. 

At one point Bartov interrupted Anderson to say “If you don't let me finish –“

“I don't want you to finish,” Anderson said.

“Let him answer the question, as rambling as it might be,” Judge Ostrager said.

At the conclusion of his cross-examination, Anderson asked Bartov if “this could all be costing over half-a-million dollars to the people of the state of New York for your testimony?” 

“May be,” Bartov said, then turned to the judge. “Can I ask him how much money he's making or no?”

“No,” the judge said.

“Not enough for this,” Anderson quipped.

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