Free Enterprise but not Free Speech

July 28th, 2008

Posted by: Roger Pielke, Jr.

The management of the Free Enterprise Action Fund have thrown their hat into the ring seeking to limit what can be said or claimed in the context of climate change. In this case they have asked the U.S. government’s Securities and Exchange Commission (SEC) to pass judgment on whether certain claims by companies can be considered false and misleading, and thus in violation of securities laws of the U.S. government.

The fund is run by Steven Milloy (of and Thomas Borelli, and according to Google Finance the fund seeks to achieve long-term growth “through investments and advocacy that promote the American system of free enterprise.” I’m no stockbroker, but it seems like a gussied up market index fund to me. (Isn’t any investment in the stock market promoting free enterprise? But I digress . . .) Anyway, here is the full text of their letter to the SEC:

Ms. Florence E. Harmon
Acting Secretary
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549

Re: Petition for Interpretive Guidance on Public Statements Concerning Global Warming and Other Environmental Issues

Dear Ms. Harmon,

We are writing on behalf of the Free Enterprise Action Fund (“FEAOX”), a publicly-traded mutual fund, to petition the U.S. Securities and Exchange Commission (“SEC” or “Commission”) to issue interpretive guidance pursuant to the Securities and Exchange Act of 1934 (“the Act”) that would warn registrants against making potentially false and misleading statements pertaining to global warming and other environmental issues.

We believe the Commission should take action immediately to protect investors.

I. Examples of potentially false and misleading statements made by registrants.

Below are but a few examples of the sort of potentially false and misleading statements being made by registrants. The problematic nature of these statements is discussed in Section II.

* Exelon Corp. issued a media release and placed full-page advertisements in major newspapers on July 15, 2008 stating, “The science is overwhelming — climate change is happening now and human activity is the primary cause.”

* Lehman Brothers issued a report on climate change featuring the so-called “hockey stick” graph to support the notion that humans are causing global warming.

* The General Electric Company issued a “Call for Action” to “slow, stop and even reverse the damage of greenhouse gasses.”

* Toyota Motor Corp. states in a report, “When we drive a vehicle, it consumes fossil fuels and emits CO2, a major contributor to climate change.”

* Goldman Sachs states in a 2007 report, “By now, the dynamics of global warming are widely known, and we find no reason to dispute the scientific assumptions.”

* Caterpillar said in a public statement that, “We must take action now [to reduce carbon dioxide emissions] or risk serious harm to our planet.”

All these statements are potentially false and/or misleading as recent events show.

II. Recent events that put registrants at risk of making false and misleading statements.

A number of recent developments have tended to expose the above-mentioned registrant statements (and probably many others) as false and/or misleading, including:

* The American Physical Society, the leading professional society for American physicists announced in July 2008 on one of its websites that, “There is a considerable presence within the scientific community of people who do not agree with the IPCC conclusion that anthropogenic CO2 emissions are very probably likely to be primarily responsible for the global warming that has occurred since the Industrial Revolution.”

* In May 2008, the Oregon Institute of Science and Medicine released a petition signed by more than 31,000 U.S. scientists stating, “There is no convincing scientific evidence that human release of carbon dioxide, methane or other greenhouse gases is causing, or will cause in the future, catastrophic heating of the Earth’s atmosphere and disruption of the Earth’s climate…”

* India’s National Action Plan on Climate Change issued in June 2008 states, “No firm link between the documented [climate] changes described below and warming due to anthropogenic climate change has yet been established.” Researchers belonging to the UN Intergovernmental Panel on Climate Change (IPCC) reported in the science journal Nature (May 1) that, after adjusting their climate model to reflect actual sea surface temperatures of the last 50 years, “global surface temperature may not increase over the next decade,” since natural climate variation will drive global climate.

* Climate scientists reported in the December issue of the International Journal of Climatology, published by Britain’s Royal Meteorological Society, that observed temperature changes measured over the last 30 years don’t match well with temperatures predicted by the mathematical climate models relied on by the IPCC.

* A British judge ruled in October 2007 that Al Gore’s film, “An Inconvenient Truth,” contained so many factual errors that a disclaimer was required to be shown to students before they viewed the film.

* A panel of the National Academy of Sciences concluded in 2006 that the “hockey stick” graph is not proof that human activity is linked to global warming.

III. Conclusion

Based on the foregoing, we request that the Commission immediately inform and remind registrants that:

1. False and/or misleading statements on material matters may violate the anti-fraud provision of the federal securities laws.

2. Statements by registrants on global warming and other environmental issues could be considered material.

3. There is considerable ongoing debate about the science of global warming and its impacts and;

4. Statements to the effect that “the science is conclusive,” “the debate is over,” and that “human activities are definitely causing harmful global warming” should be avoided.

If you have any questions, please contact the undersigned at 301-258-2852.



Steven J. Milloy, MHS, JD, LLM
Thomas J. Borelli, PhD
Managing Partners
Portfolio Managers, Free Enterprise Action Fund

Call me a skeptic — go ahead, it is OK — but I don’t think this complaint has any chance of succeeding, as the example statements that they have cited are either opinions or puffery. Are these examples really the best that they could come up with?

What is (again) most troubling about this sort of behavior is the recourse to legal methods to limit what can or cannot be claimed about climate change in political debate. And yes, I am viewing the actions of the Free Enterprise Action Fund management as a political act with little relevance to the actual performance of their portfolio of investments. Of course, I see that efforts at moral suasion aren’t faring so well so perhaps the thinking — on both sides of this political debate — is that if you can’t win the debate on the merits, then silencing your opponents via the force of law is the next best thing. A pity, if so.

6 Responses to “Free Enterprise but not Free Speech”

  1. Sylvain Says:

    I must admit that with this letter Steven Milloy is way off.

    Even though I don’t agree with most of these statement, I could care less that these companies are making them.

    Many of these statement are made to appeal to a growing number of people believing in GW, and thus saying if you are green so are we.

    Which doesn’t prevent any of these companies to continue to manufacture product that are just as pollutant that they were before. They say a lot but actually do little, but for some people it makes them feel good to believe that they are serious about it.

    It is sad that the natural reaction of people is to try to silence those that they don’t agree with instead of finding better argument to convince others.

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  3. lucia Says:

    I fervently hope this action goes nowhere! I don’t like these attempts to stifle free speech on either side of the debate over climate policy or science.

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  5. Jonathan Gilligan Says:

    Milloy has tried this before, arguing that Ben & Jerry’s ice cream was violating truth in advertising laws by proclaiming that the paper for their ice cream cartons was manufactured without the use of dioxins. Milloy’s argument was that to tout the dioxin-free paper process without mentioning that the ice-cream itself contained lots of dioxin (ingested by cows from the environment) was false advertising.

    That suit went nowhere, just as Roger predicts this one will.

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  7. George Tobin Says:

    A more interesting issue is whether there can be a derivative action if warming does not accrue as advertised, let’s say a 2-decade non-warming such that expected political, social and economic changes do not take place and thus cause a product line premised on such changes to fail.

    Is it possible to be liable for inducing a greater state of certainty in catastrophic AGW than warranted in order to sell stock? Did the issuing company claim to have done research or otherwise obtain info that made them more certain? Did internal memos indicate the issuers had in fact read the works of one R. Pielke and still did not acknowledge the possibility of a more complex, lukewarmist climate outcome in their materials? Tech firms with volatile stock prices have had to pay out for weaker claims than that…

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  9. Russell Seitz Says:

    How deeply shocking the management of the Free Enterprise Action Fund should make a false and misleading statement in a letter to the SEC!

    Since when did any members of the NAS participate in the panel Wegman ran through the NRC’s contract admin shop,yet alone author its conclusions?

    Widows and orphans deserve fiduciary due diligence , not junk science from Junk Science.

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  11. Mark Bahner Says:

    I think if I worked at the SEC, my first reaction would be, “Did you guys put this stuff together while you were billing the customers of your mutual fund as fund managers?”

    If they were billing the customers of the mutual fund as fund managers when they were putting this stuff together, I don’t see the link.