ESG Litigation & Enforcement Tracking
Lawmakers Encourage SEC to Finalize Greenwashing Rule
June 4, 2024 | Letter to Chair Gary Gensler
A number of lawmakers from both the House and Senate filed a letter on June 4, 2024 encouraging Securities and Exchange Commission (SEC) Chair Gary Gensler to ensure robust enforcement of existing SEC guidance on climate disclosure while the SEC’s final climate risk disclosure rule is stayed. The letter notes that recent economic data suggests that climate change poses systemic risks to the national and global economy and argues that investors need access to reliable, standardized climate risk disclosures to fully evaluate the risks associated with their investments. The letter criticizes the SEC for adding a materiality qualifier to the final rule’s emissions disclosures, which provides issuers with discretion to decide if their emission levels reach a materiality threshold and should be disclosed.
SEC Stays Climate Disclosure Regulations Following Circuit Court Decisions
April 4, 2024 | In the Matter of the Enhancement and Standardization of Climate-Related Disclosures for Investors, No. 33-11280.
March 21, 2024 | In re Securities and Exchange Commission, The Enhancement and Standardization of Climate-Related Disclosures for Investors, MCP No. 180.
The SEC has issued a stay of its climate-related disclosure rules that were promulgated on March 6, 2024. Immediately after the final rules were published, several plaintiffs filed petitions seeking review of the rules in multiple courts of appeals. In response to the petitions, the Fifth Circuit issued an administrative stay of the final rules on March 15, 2024, which was dissolved after the Judicial Panel on Multidistrict Litigation consolidated the pending petitions in the Eighth Circuit. In its order issuing the stay, the SEC made clear that it is not departing from the view that the final rules are consistent with applicable law and within its authority to regulate corporate disclosures.
Energy Company Sues SEC over Climate Disclosure Regulations
March 28, 2024 | Liberty Energy Inc. v. Securities and Exchange Commission, No. 3:24-cv-00739 (N.D. Tex.).
Liberty Energy Inc., an oilfield services firm, filed suit against the SEC challenging its authority to implement climate-related disclosure rules. The suit was filed to preserve the plaintiff’s rights while its challenge to the entire climate-related rule is pending in the Eighth Circuit after the Judicial Panel on Multidistrict Litigation consolidated Liberty Energy’s claims with similar claims by other plaintiffs in the Eighth Circuit. The complaint alleges that the SEC’s climate-related rule violates the major questions doctrine and that the SEC lacks clear authority for the rule. The complaint further alleges that the SEC’s climate-related rule violates the First Amendment because it requires disclosure of political issues.
Electric Truck Manufacturer Settles SEC Enforcement Disputing Demand for Its Electric Pickup Trucks
February 29, 2024 | In the Matter of Lordstown Motors Corp., No. 3-21875.
Lordstown Motors Corp., a former SPAC target, promoted itself to investors as developing the first-to-market full-size electric pickup truck in the commercial fleet market. The SEC enforcement action was built on the premise that Lordstown knew the first-mover advantage in the electric pickup truck space would be crucial to the company’s success, and so misrepresented the number of pre-orders for the truck and its access to key parts in the truck’s manufacturing. Lordstown claimed in investor roadshows that it had secured 27,000 pre-orders for the electric truck and that Lordstown allegedly had an agreement with General Motors that would allow Lordstown access to certain GM parts. The SEC order notes that between 40% and 71% of the pre-orders were from intermediaries that promised to influence purchases of the electric truck and did not intend to buy the electric truck themselves. The SEC order also states that Lordstown’s representations about maintaining access to certain GM parts was misleading because GM had allegedly informed Lordstown that its requests for GM parts would constrain GM’s supply chain and advised Lordstown to find a backup solution. Lordstown has agreed to pay disgorgement of $25.5 million to settle two pending class actions in Delaware and Ohio.
SEC Division of Enforcement Director Remarks on ESG: “We Are Merit Neutral”
February 23, 2024 | SEC Division of Enforcement, Remarks at Ohio State Law Journal Symposium 2024: ESG and Enforcement of the Federal Securities Laws.
Gurbir Grewal, director of the SEC Division of Enforcement, spoke on the SEC’s ESG enforcement actions, noting at the outset that the SEC is not an environmental regulator. Grewal commented that as investors become more interested in companies’ ESG considerations, companies have more incentives to exaggerate or make misleading statements about their positive ESG developments or to downplay or omit disclosures about negative ESG developments. Grewal discussed the Vale S.A. and Deutsche Bank enforcements as recent successes the SEC has had in ESG-related enforcement actions.
Deutsche Bank Agrees to Pay Penalty to SEC Related to ESG Investment Policies
September 25, 2023 | In the matter of DWS Investment Management Americas, Inc. File No. 3-21709.
Deutsche Bank’s American investment advisor subsidiary (“DWS”) has agreed to pay a $19 million fine to the SEC in connection with disclosures regarding the investment advisor’s ESG policies and proprietary “DWS ESG Engine.” The SEC alleged that DWS made materially misleading statements about its controls for incorporating ESG factors into research and investment recommendations, and that DWS did not have policies in place reasonably designed to ensure its public statements about the use of ESG factors in investment decisions were accurate. DWS allegedly lacked policies and procedures to ensure the ESG Integration Policy was consistently followed by investment professionals, that investment professionals consulted the “DSW ESG Engine,” or that investment professionals incorporated ESG issues in valuation models or investment recommendations.
Brazilian Mining Company Settles with SEC over Misrepresentations in ESG-Related Disclosures
March 28, 2023 | Securities and Exchange Commission v. Vale S.A., No. 1:22-cv-02405 (E.D.N.Y. 2022).
Vale S.A., a publicly traded Brazilian mining company, agreed to pay $55.9 million to the SEC to settle charges related to disclosures of the safety of Vale’s dams. The settlement includes $25 million in disgorgement of alleged ill-gotten profits. The allegedly false disclosures were issued before the January 2019 collapse of Vale’s Brumadinho dam, which killed 270 people. The SEC alleged that Vale knew that the Brumadinho dam, which was built to contain potentially toxic byproducts from iron ore mining, did not meet internationally recognized standards. However, Vale’s annual sustainability report stated that Vale adhered to the “strictest international practices” in dam safety. The SEC’s investigation was conducted by the Climate and ESG Task Force in the Division of Enforcement, which was formed in March 2021 to identify material gaps or misstatements in ESG disclosures.
November 22, 2022
The SEC charged Goldman Sachs Asset Management for failing to follow certain policies and procedures for investments marketed as ESG investments. To settle the charges, GSAM agreed to a cease-and-desist order, a censure, and a $4 million penalty.
September 23, 2022
The SEC charged Compass Minerals International Inc. for misleading investors about costs for a technology upgrade at the world’s largest underground salt mine, near Ontario, Canada, as well as failing to properly analyze the financial risks of contamination at one of its former facilities in Brazil. To settle the charges, Compass Minerals was ordered to pay $12 million and agreed to cease and desist from further violations.
May 23, 2022
The SEC charged BNY Mellon Investment Adviser Inc. for misstatements and omissions in ESG quality reviews for certain investments. To settle the charges, BNY Mellon Investment Adviser agreed to a cease-and-desist order, a censure, and a $1.5 million penalty.
April 28, 2022
The SEC charged Vale S.A., a Brazilian mining company and iron ore producer, for making false and misleading claims in its sustainability reports and other ESG disclosures regarding the safety of its Brumadinho dam, which collapsed in 2019 and killed 270 people.
Nikola Corporation to Pay $125 Million to Resolve Fraud Charges
December 21, 2021
The SEC charged Trevor Milton, founder of Nikola Corporation, for making false and misleading statements about Nikola’s products, technological accomplishments, and commercial achievements. Nikola was founded with the goals of manufacturing trucks that run on alternative fuels with low or zero emissions and building an alternative fuel station infrastructure to support such vehicles. Nikola agreed to a cease-and-desist order, certain voluntary undertakings, and a $125 million penalty. The SEC’s order also established a Fair Fund to return penalty proceeds to victim investors.
SEC Charges Founder of Nikola Corp. With Fraud
July 29, 2021
The SEC charged Trevor Milton, founder of Nikola Corporation, for making false and misleading statements about Nikola’s products, technological accomplishments, and commercial prospects. Nikola was founded with the goals of manufacturing trucks that run on alternative fuels with low or zero emissions and building an alternative fuel station infrastructure to support such vehicles. Milton falsely claimed, inter alia, that Nikola had developed a successful semi-truck prototype, an electric pickup truck prototype, and a “game-changing” battery technology, had billions of dollars of orders at a price point 20-30% below that of diesel vehicles, and was producing hydrogen at a cost four times lower than the prevailing market rates. In December 2021, Nikola agreed to a cease-and-desist order, to certain voluntary undertakings, and a $125 million penalty. The SEC’s order also established a Fair Fund to return penalty proceeds to victim investors.
March 19, 2021
The SEC brought an emergency enforcement action to stop offering fraud and misappropriation of investor assets by Tra Jay Scarlett through his companies Chatfield PCS Ltd. and GO ECO Manufacturing Inc. The SEC alleged that Scarlett and Chatfield made false and misleading statements to investors, raising at least $3.2 million, by falsely marketing that GO ECO was an environmentally friendly protein-drink bottling and manufacturing company when, in fact, GO ECO had no active business operations. On March 30, 2022, the SEC obtained a final judgment that ordered the defendants to pay over $5 million in penalties, disgorgement, and prejudgment interest.
Fiat Chrysler Agrees to Pay $9.5 Million Penalty for Disclosure Violations
September 28, 2020
The SEC found that Fiat Chrysler violated reporting provisions of federal securities laws by making misleading disclosures about an internal audit of its emissions control systems confirming that its vehicles are compliant with all environmental regulations. Fiat Chrysler did not sufficiently disclose the limited scope of its internal audit, which did not address several issues raised by EPA and did not constitute a comprehensive review of its compliance with U.S. emissions regulations. Fiat Chrysler agreed to cease and desist and to pay a $9.5 million penalty. The SEC also created a Fair Fund to distribute the penalty to harmed investors and issued an order in November 2021 approving a proposed plan of distribution.