Four New Enforcement Themes Emerge at SEC

Last month, we highlighted some of the significant trends in enforcement at the Securities and Exchange Commission as the agency’s fiscal year drew to a close. We’ve picked up on four new enforcement themes since then that are worth monitoring. Here is a rundown.

Board Members Under Scrutiny

In the last two months, the SEC has dropped a flurry of charges against members of corporate boards of directors for an assortment of offenses. The financial cops last month announced charges against three former executives of software company Kubient Inc. tied to allegations of a scheme to fudge the company’s revenue from two stock offerings. The agency tacked on charges that the executives lied to Kubient’s auditors about the misrepresented revenue.

Later in September, the SEC announced a settlement with a former executive of household and personal care products manufacturer, Church & Dwight Co., over charges he didn’t disclose a personal relationship with a member of the company’s executive team. The commission also announced in October that it had settled charges with a former executive of Pareteum Corporation related to an alleged plan to commit fraud by overstating the telecommunications company’s revenue.

Focus on Beneficial Ownership

You’ll recall that we discussed an emphasis on sweeps in our last update on the SEC’s enforcement trends. One of those dragnets resulted in charges against nearly two dozen entities and individuals for not reporting holdings and transactions in company stock in a timely manner. Companies caught up in the sweep, which yielded nearly $4 million in penalties, included Goldman Sachs and Alphabet.

Spotlight on Domestic and Foreign Corruption

What would election season be without allegations of political corruption? The SEC announced charges last month against Ohio-based FirstEnergy Corp. and its affiliates for directing roughly $60 million in payments to an entity under the control of Larry Householder, the ex- Speaker of the Ohio House of Representatives. The commission alleged Householder supported FirstEnergy’s business interests in exchange for the payments. FirstEnergy paid a civil penalty of $100 million to settle the case.

Deere & Co. was tagged by the SEC with charges the agricultural machinery manufacturer’s Thailand-based affiliate violated the Foreign Corrupt Practices Act by paying-off Thai officials to win government contracts. Deere’s settlement with the commission included agreeing to pay disgorgement, interest and penalties totaling almost $10 million. Meanwhile, RTX Corp. settled with the SEC over charges the aerospace and defense company violated the FCPA through payments intended to help secure military contracts with the government of Qatar. Among the conditions of its settlement with the SEC, RTX will pay $124 million in disgorgement, interest and penalties for allegedly giving Qatari officials $2 million and using falsified subcontracts to hide the bribes.

Crackdown on Fraud in Emerging Industries

It appears the SEC is trying to set the right enforcement tone in some emerging industries. For instance, the commission hit the former chief executive of electric vehicle battery manufacturer Romeo Power Inc. with charges he misled investors about the availability of battery cells for its products. According to the SEC, the ex-CEO concealed in public disclosures made during the company’s merger with a SPAC that he had knowledge of a shortage of battery cells that would prevent Romeo Power from hitting its projected revenue.

In the cannabis sector, the SEC announced a settlement with WM Technology Inc. after charging the online pot marketplace with making misleading disclosures about one of its key operating metrics, monthly active users. The agency alleged two former executives were privy to evidence that user engagement with the platform was falling, but they continued to tout metrics that painted a different picture.

The SEC also delved into allegations of fraud in the carbon-credit market. Earlier this month, it charged CQC Impact Investors LLC with manipulating and misrepresenting data pertaining to the company’s carbon-credit business in marketing to institutional investors. According to the SEC, the company ultimately netted proceeds of $250 million in equity capital from the offering.

With a possible shakeup in the federal government on deck in November’s general election, corporate eyes will no doubt be on whether the results filter down to major changes in SEC leadership – and with them, another possible shift in enforcement priorities.