Law and the Environment

Lieberman-Warner Climate Security Act Bill Contains Climate Risk Disclosure Provision

As companies prepare for their SEC filings and issuance of annual reports the question of climate risk disclosure becomes an issue to consider. With the events and rapid developments in the courts, states, Congress, and in Bali, companies may find it of particular importance this year to review their environmental disclosures for potential additional statements about climate change and greenhouse gas regulation. Of course, this will depend on their business and the location of their facilities.

What is important to consider is the fact that three separate climate change bills filed in Congress call for the SEC to issue an interpretive release, including the Lieberman-Warner Climate Security Act, that was the first climate change bill voted out of the Environment and Public Works Committee.  This bill may be considered by the full Senate in 2008.

The text of the climate risk disclosure provision, similar to provisions in two other Senate climate change bills, is found in Section 9002 of the Climate Security Act, S. 2191, and is set forth below:

(a) Regulations- Not later than 2 years after the date of enactment of this Act, the Securities and Exchange Commission (referred to in this section as the `Commission') shall promulgate regulations in accordance with section 13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m) directing each issuer of securities under that Act, to inform, based on the current expectations and projections and knowledge of facts of the issuer, securities investors of material risks relating to--

(1) the financial exposure of the issuer because of the net global warming pollution emissions of the issuer; and

(2) the potential economic impacts of global warming on the interests of the issuer.

(b) Uniform Format for Disclosure- In carrying out subsection (a), the Commission shall enter into an agreement with the Financial Accounting Standards Board, or another appropriate organization that establishes voluntary standards, to develop a uniform format for disclosing to securities investors information on the risks described in subsection (a).

(c) Interim Interpretive Release-

(1) IN GENERAL- Not later than 1 year after the date of enactment of this Act, the Commission shall issue an interpretive release clarifying that under items 101 and 303 of Regulation S-K of the Commission under part 229 of title 17, Code of Federal Regulations (as in effect on the date of enactment of this Act)--

(A) the commitments of the United States to reduce emissions of global warming pollution under the United Nations Framework Convention on Climate Change, done at New York on May 9, 1992, are considered to be a material effect; and

(B) global warming constitutes a known trend.

(2) PERIOD OF EFFECTIVENESS- The interpretive release issued under paragraph (1) shall remain in effect until the effective date of the final regulations promulgated under subsection (a).

This provision has not become law, but the SEC is currently reviewing a petition filed by various state pension funds and other socially conscious investors and environmental groups, asking for the SEC to issue an interpretive release to provide guidance for companies and to require climate risk disclosure.  Whether this provision becomes law or the SEC independently adopts an interpretive release, the demand for climate risk disclosure in Congress and a significant part of the institutional investment community suggests that corporations that may be impacted by future greenhouse gas emission regulation should evaluate their corporate strategy regarding climate risk disclosure.

President, General Counsel, and Chief Medical Officer Fined $34.5 Million in Oxycontin Drug Case

As we continue to receive requests for clients for advice on potential civil and criminal liability for officers and directors under federal and state environmental laws, we continuously review reports of the filing of cases and the settlements or plea bargains in these cases.  Althought not prosecuted under environmental laws, the guilty plea and sentencing of Purdu Pharma provides an example of the potential liability officers of companies can face under US laws.

Purdue manufacturers Oxycontin, a trade name for a long-acting form of the painkiller oxycodone, that produces a heroin-like high if ground and swallowed or snorted.  It is also highly addictive.  Many deaths have occurred from overdoses of this drug. From 1996 to 2001, the number of deaths related to oxycodone nationwide increased fivefold while the annual number of OxyContin prescriptions increased by nearly 20 times, according to a report by the Drug Enforcement Administration.

The company and its president Michael Friedman, who retired in June, its general counsel Howard Udell, and its former chief medical officer Paul Goldenheim plead guilty in May to a misdemeanor count of misbranding the drug for claiming that OxyContin was less addictive and less subject to abuse than other pain medications.

The company and the three officers were fined in total $634.5 million.  The three officers must pay $34.5 million.

The case demonstrates the potential liablity of officers in the United States for actions they take with respect to the company's operations and activities.  While not arising under environmental laws, cases like this demonstrate that participation in civil or criminal activities of a corporation may lead to significant liability.  In this case, the officers escaped any prison sentence and were only put on probation for three years.  This decision by the federal district judge was, however, highly controversial, with victims and victims relatives decrying what they believed was a very light sentence.