Paxton Suit Against Blackrock, Vanguard Is All Hat and No Cattle

A conspiracy without any documented conspiring and zero outcome would make for a rather dull true-crime novel or documentary. But it’s the entire basis of Texas Attorney General Ken Paxton’s lawsuit against three of the nation’s largest asset managers.

Late last year, Paxton and 10 other Republican state attorneys general filed a complaint alleging that BlackRock, State Street, and Vanguard invested in nine separate coal companies to restrict production, thereby losing money for their investors.

The foundation of the lawsuit is the allegation that the asset managers conspired with each other to align their investments and therefore coerced the coal companies to reduce output. How this vast conspiracy was hatched is left to one’s imagination, as the lawsuit fails to offer a single allegation that the investment firms ever communicated among themselves about coal, coal investments, or any other strategic decisions relating to these shareholder positions.

Even more telling, the complaint fails to cite a single instance of an investment firm telling a coal company to reduce output.

The asset managers seemed to be wildly ineffective in their alleged goal of reducing output, because coal production actually rose during this time.

One of the named coal companies increased production by 74% from 2020 to 2021—the timeframe for this alleged conspiracy. Another coal company increased production by 29%. Coal production in the US increased overall due largely to interruptions in global energy sources because of the Ukraine war.

The state attorneys general cherry-picked data to support the theory that coal production has decreased by using statistics since 2008. While it’s true that coal production has declined since 2008, it’s not the result of a two-year conspiracy. The challenges for coal production come from Obama-era environmental regulations, subsidized renewables, and less expensive natural gas.

The most convoluted allegation is that the investment firms tried to constrict coal production. The attorneys general argue that the investors used their equity position to coerce self-destructive behavior by the coal companies.

And yet, the individual investment firms owned only between 1% and 15% of each of the coal companies. The nine named coal companies comprised less than 50% of the coal production market in the US.

Paxton’s argument, then, is that minority shareholders, with control of a minority portion of the coal-production market, somehow wielded enough power to reduce production.

And how did the investment firms use their minority positions to coerce this anticompetitive behavior? The complaint alleges that they voted their proxies during shareholder meetings to remove management and directors who objected to the sinister plot.

Again, the facts dispute the allegations. One of the investment firms, Vanguard, never voted against a director or for a proposed removal of management. The other two firms, BlackRock and State Street, consistently voted their minority shares differently from one another. The expected correlation between coal output and proxy votes by the investment firms doesn’t exist.

The most embarrassing hole in this legal theory is that during the time of the alleged conspiracy, no director or member of management was removed as a result of a proxy vote.

US antitrust laws were always intended to protect consumers by promoting robust competition. Paxton’s case here turns antitrust law on its head, as he distorts the facts to target these investment firms.

If he were to be successful in this case, the overall effect would be disastrous for fossil fuel producers in Texas and elsewhere. This novel antitrust theory, coupled with a flimsy factual basis, creates greater disincentives for investment in coal companies and other fossil fuel producers.

The logical conclusion, if you believe Paxton’s claims, is that the coal companies are co-conspirators in manipulating the energy market as a result of yielding to the phantom pressure of the three asset managers. The likely outcome of Paxton’s frivolous complaint is that the plaintiff’s bar will bring private antitrust actions against coal companies and other fossil fuel producers in Texas.

Using “lawfare” to pursue political opponents is wrong. The case brought by the 11 Republican state attorneys general, devoid of factual evidence, is an example of lawfare that targets perceived Environmental, Social, and Governance proponents—conservatives’ boogeymen at the moment. But in truth this witch-hunt could have the perverse effect of discouraging investment in American energy, which could stifle production, actually achieving what Paxton is accusing these firms of doing.

The case is State of Texas et al v. BlackRock Inc. et al, 24-cv-00437, US District Court, Eastern District of Texas (Tyler).

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Ken Buck is a former US Congressman from Colorado who served on the House Judiciary Committee and was the ranking Republican on the Antitrust Subcommittee.

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