View this article online: https://www.claimsjournal.com/news/midwest/2004/05/20/42448.htm
Two of Ohio’s public employee retirement systems will seek lead plaintiff status in a class action lawsuit against Exxon-Mobil, which reportedly misled investors by failing to properly account for the value of its oil reserves, Ohio Attorney General Jim Petro said.
Preliminary damage estimates to the Ohio Public Employees Retirement System (OPERS) and the State Teachers Retirement System of Ohio (STRS Ohio) range between $40 and $120 million, while damages to the class could be billions of dollars.
“By failing to properly state the value of its oil reserves, Exxon underpaid Mobil shareholders because Exxon grossly overstated its value,” Petro said. “This disregard for generally acceptable accounting principles seems to be pervasive in business today, and my office will hold any company that tries to mislead investors accountable for its actions.”
The actions which led to the lawsuit occurred before Exxon and Mobil merged in 1999.
The claims against Exxon stem from the oil company’s reported decision not to reduce the value of its oil fields due to a huge drop in oil prices in the late 1990s. When oil prices dropped by more than 60 percent in 1997 and 1998, 10 of the 11 largest international oil companies—all but Exxon—reported this price drop as an impairment; as they were required to do by the Statement of Financial Accounting Standards No. 121 (“SFAS 121”) issued in 1995 by the Financial Accounting Standards Board.
The drop in crude prices during the late 1990s affected all petroleum companies including Exxon, which did not report any impairment at any time during the price slump. Exxon was the only large petroleum company to reportedly take such a position. In fact, the six oil companies who followed the proper accounting standards reported, on the average, a $7.2 billion impairment to reflect the fact that their oil reserves had lost value.
Because of Exxon’s failure to properly report the impairment during merger negotiations, Exxon’s value per share was overstated. As a result, when Mobil’s investors received the new Exxon-Mobil shares, they reportedly received far less value than they should have.
In addition to reportedly misleading investors, Exxon violated federal securities laws and regulations that forbid making false or misleading statements in connection with a proxy statement or prospectus.
In a filing with the Securities and Exchange Commission, Exxon reportedly boasted of its efficient operations and fiscal discipline as the reason no impairments were necessary.
“Obtaining lead plaintiff status will allow Ohio to have a strong say in the direction this litigation takes,” Petro said. “Should the Court appoint OPERS and STRS Ohio as the leads, all members of this class action will benefit from our aggressive stance against fraud and abuse.”
The class action complaint and the motion to appoint the Ohio retirement systems as lead plaintiff were filed in the U.S. District Court for the District of New Jersey.