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Did ExxonMobil use sham accounting to justify oil sands project?

The Attorney General of New York has accused ExxonMobil of providing what may be "materially false and misleading statements" to investors, and he's not the only prosecutor with its site set on the oil giant. Massachusetts' Attorney General is involved in a federal case against the company, and the Securities and Exchange Commission is investigating.

The issue is how the company evaluates the potential cost of climate change when it accounts for the total costs of a project. If it underestimates that cost, it could be misleading investors about its future profitability of the company. False and misleading statements are a violation of both state and federal laws.

New York's AG goes further than accusing ExxonMobil of underestimating the cost of climate change, however. He suspects the company may be using a sham number altogether. Based on current information, he suspects the company puts a so-called proxy cost formula into the estimates it shows to investors but actually doesn't apply that formula at all.

If it were actually applying the proxy cost as it claims to shareholders, the AG say, "at least one substantial oil sands project may have projected a financial loss, rather than a profit."

Like Tillerson, the oil giant may not have spoken in one voice

The case is before the media because ExxonMobil has refused to turn over more documents to the New York AG. It has already handed over some 2 million documents as part of the investigations and, on May 23 an appellate court in New York ordered the company to turn over yet more records.

One surprising discovery in the documents so far was about Rex Tillerson, the company's former CEO who is now Secretary of State. As CEO of Exxon, he apparently used the alias "Wayne Tracker" when discussing climate change issues.

Just as Tillerson was accused of using Wayne Tracker to mask his true knowledge of climate change, ExxonMobil is accused of using one voice for investors and another to evaluate its contracts. The SEC's investigation is probing how the company values its reserves of oil and gas, considering the current low prices and the potential for legal restrictions on carbon emissions.

ExxonMobil is only under investigation at the moment, but that can be the most advantageous time for a company to bring in a seasoned professional who has dealt with regulatory investigations. In-house counsel and public relations professionals may not have the experience and resources for a major investigation, but the government certainly does.

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