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NEW YORK (Reuters) - A near century-old statute that gives New York state prosecutors unusually broad authority to prosecute securities fraud could prove a powerful weapon as Attorney General Eric Schneiderman probes Exxon Mobil Corp (XOM.N) over whether the oil firm mislead the public and shareholders about the perils of climate change.
The 1921 Martin Act, a wide-reaching state law, was dusted off in the early 2000s by former New York Attorney General Eliot Spitzer who used it to aggressively go after Wall Street firms.
Since then, it has been used to prosecute large-scale Ponzi schemes, major investment banks accused of misleading investors and other cases.
Now, Schneiderman is wielding the statute in his probe of Exxon, the world's largest publicly traded oil company, according to a source familiar with the matter. The source said other state laws could be used as well.
Schneiderman subpoenaed Exxon on Wednesday, demanding extensive financial records, emails and other documents to probe the company's knowledge and disclosures about climate change going back to the 1970s.
In response to the probe, Exxon has said it has worked on climate science in a transparent way for nearly 40 years and has regularly disclosed the business risks of climate change to investors for years.
The investigation comes on top of reports last month by Inside Climate News and the Los Angeles Times that the company's own scientists had raised concerns about global warming decades ago that the company executives contradicted.
Under the Martin Act, the state must prove that a company deceived the public by misrepresenting or omitting a material fact in the offering of securities.
Lawyers say the act is unique in that no proof of intent to deceive is required to bring a claim, and prosecutors do not even need to show that anyone was in fact defrauded. The act allows for criminal as well as civil charges.
New York State's highest court ruled in 1926 that it covers "all deceitful practices contrary to the plain rules of common honesty."
The act "is one of the broadest anti-fraud statutes ever devised, at least in a democratic society," wrote Eric Dinallo, a chief prosecutor under former Attorney General Spitzer, in the New York University Journal of Legislation and Public Policy.
It has been used to extract large monetary penalties from finical institutions, said Jim McGuire, a litigation partner at the Dechert law firm in New York.
"The Martin Act is a nearly empty vessel into which the AG can pour virtually any content that he wants," McGuire said.
Exxon did not comment on Friday when asked about the Martin Act.
U.S. congressman have called for the U.S. Department of Justice and the Securities and Exchange Commission to investigate the claims against Exxon as well, saying the company's alleged failure to disclose scientific findings was similar to tobacco companies that concealed the harms of smoking.
Democratic California representatives Ted Lieu and Mark DeSaulnier, along with other lawmakers, asked the U.S. Department of Justice and Securities and Exchange Commission to investigate Exxon. In interviews they said they hoped other state attorneys general would follow New York's lead.
"My view is that this should be even more serious than tobacco, if it's the whole world that's being harmed," said Lieu.
Lieu also circulated a letter to lawmakers citing an investigation by the Union of Concerned Scientists, a U.S. non-profit organization, that said other oil companies also had spread misinformation about global warming.
Both the SEC and the U.S. Attorney General's office in California declined to comment on whether they were pursuing investigations of their own over Exxon's climate statements.
Unlike the Martin Act in New York, prosecutors would have to overcome a "far higher bar" to bring a federal case, said McGuire, who previously served as chief counsel to former New York Governor George Pataki.
Federal securities fraud under SEC rules require a showing of scienter, a legal term for intent or knowledge of wrongdoing.
Daniel Riesel, a white-collar defense attorney at Sive, Paget & Riesel said that the tobacco cases actually highlighted the challenges in bringing federal enforcement actions against companies over climate change claims.
"The tobacco companies knew they were selling a product that was killing people and they failed to disclose that," said Riesel who specializes in environmental matters.
"Here it's not as stark. You'd have to be able to show that Exxon had knowledge – knowledge that couldn't be questioned - that their activity was going to contribute to global warming in a way that would materially hurt the company," he said.
Oil and gas lawyers in Houston - the world's energy capital - said they did not expect Schneiderman's probe to widen much, if at all, to other companies or states.
While Exxon and other major oil companies may have business in New York state, scores of other independent U.S. exploration and production companies have no operations there and probably could not be targeted because of jurisdictional questions, the lawyers said.
Reporting by Mica Rosenberg; Additional reporting by Terry Wade in Houston and Joel Schectman and Sarah N. Lynch in Washington; Editing by Noeleen Walder and Lisa Shumaker