Top 5 SEC Enforcement Developments for September 2024

Each month, we publish a roundup of the most important SEC enforcement developments for busy in‑house lawyers and compliance professionals. This month included the SEC’s fiscal year end and a large number of enforcement actions of note, and we examine:

• An ESG disclosure settlement relating to the recyclability of K-Cups just before the agency’s apparent disbandment of its ESG Task Force;
• Civil penalties and disgorgement for FCPA violations related to payments by an overseas subsidiary of a public company;
• Civil penalties for political corruption;
• The SEC’s first “Pig Butchering” crypto scam cases; and
• A Reg FD settlement stemming from posts on a CEO’s social media account.

1. An ESG Disclosure Settlement Followed by the Apparent Dissolution of the SEC’s ESG Task Force

On September 10, 2024, Keurig Dr Pepper Inc. (KDP) agreed, on a neither admit nor deny basis, to pay a $1.5 million civil penalty for allegedly misrepresenting the recyclability of its single use K-Cups. As described in the SEC’s cease-and-desist order, KDP claimed in its Form 10-K annual reports that its testing with recycling facilities “validate[d] that [K-Cup pods] can be effectively recycled.” The SEC took issue with KDP’s alleged failure to mention that two of the largest U.S. recycling companies expressed significant concerns about the feasibility of recycling K-Cups and that they did not intend to accept the K-Cups for recycling. Moreover, a sustainability report by a KDP subsidiary indicated that “environmental concerns” were a major consideration for its customers when deciding whether to purchase Keurig products. The SEC found that KDP violated Section 13(a) of the Exchange Act and Rule 13a-1 thereunder by making inaccurate SEC filings.

The settlement drew a detailed dissent from SEC Commissioner Hester Peirce, who pointed out that the SEC rarely brings standalone Section 13(a) and Rule 13a-1 charges and accused the SEC of engaging in a “pedantic parsing” of KDP’s 10-K statements. Peirce noted that KDP said that the K-cups “could” be “effectively recycled,” not that they “would” be. This was true, she explained: the K-cups were made of recyclable plastic. Peirce stated that KDP’s statement was not rendered false by the fact that two recycling companies did not intend to accept K-cups for curbside recycling. She states that “[t]he Commission both misreads Keurig’s statement and overreacts to its own misreading.” She analogized charging KDP for its statements with charging a car company for stating, based on speed tests, that its sports car can accelerate from 0 to 60 mph in 2.9 seconds, even though many conservative drivers do not operate the car in this way. “[N]ext time you get pulled over for speeding,” Peirce says, “you will have an excuse: ‘I am doing it to keep my car company’s 10-K from being misleading.’”

Two days after the settlement was announced, media reports surfaced that the SEC reportedly dissolved its Climate and ESG Enforcement Task Force. Formed in 2021, the Task Force was a key part of the SEC’s push to increase transparency around ESG matters. The Task Force was planning on implementing several ESG regulations, including those that require companies to report details about workforce management and board diversity. However, in the face of industry resistance and challenges in the courts, the SEC has opted to dissolve the Task Force, and it is unclear whether major ESG regulations that are still pending will be finalized before a new president is inaugurated in January 2025.

2. FCPA Charges Stemming from Alleged Bribes Paid by a Subsidiary;

On September 10, 2024, the SEC brought and settled administrative charges against Deere & Co. (“Deere”) for violating the Foreign Corrupt Practices Act (FCPA) for supposed bribes made by its subsidiary, Wirtgen Thailand.

The SEC claimed that Wirtgen Thailand made bribes to Thai officials with the Royal Thai Air Force, Department of Highways, and Department of Rural Roads to secure multiple lucrative government contracts. According to the SEC, the improper payments took different forms, including cash, “sham” consulting fees, foreign travel, meals, and entertainment. The payments allegedly occurred when Deere had not yet fully integrated Wirtgen Thailand into its compliance program and control environment. Deere recorded the payments in its books and records as legitimate expenses. Deere consented to an order finding that it violated the FCPA’s recordkeeping and internal accounting controls provisions on a neither admit nor deny basis, agreed to disgorge around $5.5 million representing Wirtgen Thailand’s alleged ill-gotten gains plus prejudgment interest, and agreed to pay a $4.5 million civil penalty.

3. SEC Nets a $100 Million Civil Penalty in Connection with an Alleged Political Corruption Scheme

In other developments involving allegedly improper payments and transfers, on September 12, 2024, the SEC settled administrative charges against FirstEnergy Corporation (“FirstEnergy” or the “Company”) and filed a complaint  in federal court against its former CEO, Charles E. Jones, for engaging in what the SEC characterized as a multi-year political corruption scheme involving payments totaling $60 million directly and indirectly to the former Speaker of the Ohio House of Representatives, Larry Householder. According to the SEC, First Energy made the payments to incentivize the former Speaker to champion legislation benefiting FirstEnergy and its affiliates businesses. For example, the SEC alleged that Householder was able to successfully gather support to pass nuclear legislation that would directly benefit FirstEnergy’s nuclear affiliate. In 2020, Householder was arrested for accepting bribes.

The SEC alleged that FirstEnergy and Jones then materially misrepresented to investors FirstEnergy’s role in the scheme. The SEC also found that FirstEnergy failed to disclose additional related party payments to former executives of the Company. FirstEnergy settled to, and Jones will litigate in federal court, charges that they knowingly or recklessly violated the antifraud provisions of the federal securities laws, among numerous other charges. FirstEnergy consented to the settlement on a neither admit nor deny basis and agreed to pay a $100 million civil penalty to settle the charges.

4. SEC’s First Charges for “Pig Butchering” Crypto Scams

On September 17, 2024, the SEC filed federal court complaints against multiple entities and individuals in the agency’s first-ever enforcement actions targeting “Pig Butchering” scams. The SEC alleged that the defendants created two fake crypto trading platforms called “NanoBit” and “CoinW6.” The defendants then solicited investors through WhatsApp groups and other social media platforms, and stole their money when they invested in NanoBit or CoinW6.

These relationship investment scams, dubbed “Pig Butchering,” have gained significant media attention in recent years, even featuring a detailed segment on Last Week Tonight with John Oliver. An estimated 40,000 victims fall victim to “Pig Butchering” each year, with more than $3.5 billion in losses per year. Pig Butchering follows the same general pattern. The fraudsters target retail investors through social media, gain their trust, establish personal and/or romantic connections, and then solicit investments in fake crypto platforms. Often, the fake crypto platforms continue to show earnings, making the victim believe that their money is safe and growing. Once the victim tries to take their money out of the platform, however, they will be unable to do so unless they pay certain fees and taxes—a disguised last attempt to steal more from the victim.

In the NanoBit scam, the SEC alleged that the defendants impersonated financial professionals in WhatsApp groups and touted fake initial coin offerings, ultimately siphoning over $2 million to accounts in Hong Kong. The defendants convinced their victims that their entity, NanobitUS Securities, was an SEC-registered broker—a false claim. The CoinW6 scheme involved fraudsters contacting their victims through LinkedIn and Instagram, and pursuing romantic relationships with the victims over WhatsApp. The defendants then solicited investments from their victims with promises of up to a 3% daily return on fictitious “staking, mining, and yield farming products.” Then, when investors tried to withdraw funds, they were met with demands for additional payments or were blackmailed using compromising communications.

5. Social Media Posts Catch the SEC’s Attention and Result in a Regulation FD Settlement

On September 26, 2024, DraftKings Inc. settled administrative charges with the SEC for allegedly violating Regulation Fair Disclosure (“Reg FD”) by selectively disclosing material, nonpublic information (“MNPI”) through the CEO’s personal social media accounts, including on X and LinkedIn. Reg FD prohibits public companies from selectively disclosing MNPI. According to the SEC, on July 27, 2023, the DraftKings’ PR firm posted on the DraftKings CEO’s personal X account: “There’s massive potential growth in new markets-but we’re still seeing really strong growth in existing states.” The post elaborated that “[o]ur 2018-2019 state vintage grew over 80% on the revenue basis year-over-year in Q1.” Additionally, the statement explained that “[w]ith those numbers, we expect robust growth even without new states opening.”  The PR firm made a similar post on the CEO’s personal LinkedIn account. The SEC alleged that this was a selective disclosure because it appeared only on the personal social media accounts, and not on any official source of DraftKings information. Though DraftKings promptly asked the PR firm to take down the posts, these posts came before DraftKings had disclosed its second quarter 2023 financial results seven days later. DraftKings agreed to pay a $200,000 civil penalty and undertake mandatory Reg FD training, among other relief.

For more details on each enforcement action, or to discuss how these developments may impact your compliance program, please reach out to our team. Stay tuned for next month’s roundup, where we’ll continue to bring you the latest in SEC enforcement news and insights.