Top 5 SEC Enforcement Developments for November 2024

Each month, we publish a roundup of the most important SEC enforcement developments for busy in-house lawyers and compliance professionals. This month, SEC Chair Gary Gensler announced his imminent departure in January 2025 and President-Elect Trump nominated Paul Atkins, a former SEC Commissioner, to replace Gensler.  This month also included a number of enforcement actions of note. We examine:

• Charges for allegedly misleading disclosures of ESG investment factors;
• Fines for negligently failing to disclose impact of sales incentives;
• Settlements over alleged FCPA violations involving attempts to influence members of Japanese Parliament;
• FCPA charges for alleged international bribery schemes; and
• Allegations of deficient suspicious activity reports.

1. Invesco Advisers Pays $17.5 Million Civil Penalty to Resolve Claims of Allegedly Misleading Statements Involving ESG Investment Funds

On November 8, 2024, the SEC charged Invesco Advisors, Inc. (“Invesco”) with making allegedly misleading statements about the percentage of assets under management (AUM) that included environmental, social, and governance (ESG) factors in investment decisions. 

According to the SEC order, between April 2020 and July 2022, Invesco included materially misleading statements that ESG factors were integrated into 70 to 94 percent of AUM. However, the order found that the percentages Invesco shared included Invesco’s passive exchange-traded funds (ETFs) and were misleading because many of the ETFs did not consider ESG factors in investment decisions. By their passive nature, they could not take those factors into consideration. As an example, the order noted that Invesco’s percentages included Invesco QQQ, a passive ETF that tracks the Nasdaq 100, not an ESG-related index. The SEC’s order also noted that Invesco had no comprehensive set of written policies and procedures concerning how Invesco measured ESG integration.

The SEC charged Invesco with willful violation of the Investment Advisers Act of 1940.  Without admitting or denying the SEC’s findings, Invesco agreed to cease and desist and pay a $17.5 million civil penalty. This civil penalty illustrates that, despite the disbanding of the SEC’s ESG task force, the SEC has not abandoned “green-washing” cases, and has continued to emphasize the importance of a written policy to ensure consistency in ESG representations. While we do not expect ESG cases to continue to be a top priority of a newly led Commission, we expect the SEC will continue to pursue cases where disclosures are contrary to a company’s actual practices, including ESG-related representations.

2. Elanco, an Eli Lilly Spin-off, Pays $15 Million to SEC to Settle Claims of Allegedly Misleading Disclosures for Sales Incentives

On November 12, 2024, the SEC announced charges against Elanco Animal Health Inc. (“Elanco”) for allegedly misleading investors about its revenue growth and user demand without disclosing reliance on certain sales incentives necessary for achieving that revenue. The sales incentives allegedly caused distributors to purchase goods in excess of actual demand. Elanco formed in 2018 as a spin-off of Eli Lilly and Company. Without admitting or denying the SEC’s findings, Elanco agreed to pay $15 million to settle the charges against it, which included violations of negligence-based fraud provisions of Sections 17(a)(2) and (3) of the Securities Act and Section 13(a) of the Exchange Act, which require issuers to file accurate periodic reports.

The SEC’s order alleges that from Q1 2019 to Q1 2020, Elanco relied on a quarter-end incentives program to meet its quarterly revenue and growth targets. Elanco offered customers rebates and extended payment terms to entice distributors to make end-of-quarter purchases. The SEC alleged that Elanco employees raised concerns about the sales incentive program and worried that it could threaten future revenue. The SEC further alleged that Elanco’s public statements, which did not mention the incentives program, were materially misleading as they failed to warn investors of the impact that the sales incentives could have on its future revenue. In its Q1 2020 earnings release, Elanco announced that its revenue had fallen 10 percent from a year prior. The SEC alleged that Elanco failed to disclose that the termination of the sales incentive program was a materially significant contributing factor to the decrease in its revenue.

Without admitting to or denying the SEC’s findings, Elanco consented to the entry of an order that it cease and desist from committing or causing any violations and any future violations of the federal securities laws and to pay a $15 million penalty.

3. Gambling Company Settles FCPA Charges for Alleged Scheme to Influence Politicians, Including Members of Japanese Parliament

On November 18, 2024, the SEC announced that BIT Mining Ltd. (“BIT”) had agreed to pay $4 million to resolve charges that it violated the Foreign Corrupt Practices Act (FCPA). According to the SEC, BIT engaged in a widespread bribery scheme from 2017 to 2019 to influence foreign officials, including members of the Japanese parliament. BIT, formerly known as 500.com Limited (“500.com”) had previously sold American Depository Shares (ADSs) registered with the SEC and traded on the New York Stock Exchange under the symbol “WBAI.” Since 2021, the ADSs were registered and traded under the symbol “BTCM.”

In its order, the SEC alleged that 500.com had engaged in a bribery scheme with a number of Japanese politicians following the legalization of gambling in Japan. 500.com allegedly engaged in the scheme for the purposes of securing a position as one of the first foreign casinos eligible to operate in Japan. According to the SEC, in furthering its influence campaign, 500.com paid bribes disguised as lecture fees or sham consulting agreements, and funded luxury travel and provided cash bribes to officials. The SEC’s order noted that 500.com failed to follow its own procurement policy when it paid expenses to several companies as consultants without supporting documentation.

The SEC took 500.com’s cooperation and remedial efforts into account, noting the company abandoned its lottery-related business in July 2021 and executives responsible for the misconduct are no longer employed by the company. The SEC also highlighted the company’s cooperation in providing regular updates to the Commission, sharing facts from its internal investigation, and providing English translations of key documents. BIT also entered into a deferred-prosecution agreement with the U.S. Department of Justice acknowledging its responsibility for criminal conduct.

4. SEC Brings FCPA and Other Fraud Charges Against Senior Executives for Alleged Bribes Involving a Multinational Energy Conglomerate

On November 20, 2024, the SEC charged Gautam Adani, Sagar Adani, and Cyril Cabanes—executives of Adani Green Energy Ltd. (“Adani Green”) and Azure Power Global Ltd. (“Azure Power”), respectively—for conduct arising out of an alleged bribery scheme. Both Adani Green and Azure Power are subsidiaries of the multinational conglomerate Adani Group, founded by Gautam Adani. Adani Group’s core businesses involve global shipping and energy production.

In the Adani Green action, the SEC alleged Gautam Adani and Sagar Adani engaged in a bribery scheme with promises to pay hundreds of millions of dollars to Indian government officials to secure multibillion-dollar renewable energy projects. At the same time, Adani Green allegedly raised more than $175 million from U.S. investors. Its offering materials included, among other things, statements that Adani Green had robust anti-corruption and anti-bribery compliance programs. In its complaint, the SEC alleges that such statements were “materially false and misleading” by suggesting that Adani Green had an effective anti-bribery program. The SEC charged Gautam Adani and Sagar Adani with violation of the antifraud provisions of the federal securities laws.  The complaint seeks permanent injunctions, civil penalties, and officer and director bars.  

In the action against Cyril Cabanes involving Azure Power, a publicly listed company, the SEC alleged that Cabanes violated the FCPA, in his capacity as director of Azure Power, by facilitating the Adani bribery scheme and authorizing bribes to officials.

The SEC charged Cabanes with violating the FCPA and is seeking a permanent injunction, civil penalty, and an officer and director bar.  Both complaints were filed in the U.S. District Court for the Eastern District of New York. In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York unsealed criminal charges against Gautam Adani, Sagar Adani, and Cabanes.

5. Three Broker-Dealers Agree to Settle SEC Claims for Filing Allegedly Deficient Suspicious Activity Reports

On November 22, 2024, the SEC announced that three broker-dealers—Webull Financial LLC (“Webull”), Lightspeed Financial Services Group LLC (“Lightspeed”), and Paulson Investment Company, LLC (“Paulson”)—agreed to settle charges that suspicious activity reports (SARs) filed with law enforcement failed to include required information. 

The Bank Secrecy Act (BSA) and the implementing regulations promulgated by the Financial Crimes Enforcement Network (“FinCEN”) require broker-dealers to file SARs when they detect suspicious transactions. Broker-dealers must report suspicious transactions that involve funds derived from illegal activity, that are designed to avoid any requirement of the BSA, that have no apparent lawful purpose, or that involve use of the broker-dealer to facilitate criminal activity. SARs must include “a clear, complete, and concise description of the activity, including what was unusual or irregular that caused suspicion” and “any other information necessary to explain the nature and circumstances of the suspicious activity.” The SEC’s recent orders emphasized that the SAR narratives must include the who, what, when, where, and why of the suspicious activity being reported, and must include “a summary of the ‘red flags’ and suspicious patterns of activity that initiated the SAR.”

For example, the SEC determined that Webull filed SARs that failed to include, among other things, information about the time frame of suspicious trades; details about the trades, such as the securities involved; dates and times of sales; and why the trading was suspicious. Likewise, Lightspeed allegedly submitted deficient SARs that, among other things, failed to include details about the form of suspicious sales; details about customer financials; or any subsequent actions taken by Lightspeed. Finally, the SEC found that Paulson filed a series of SARs that, for example, failed to include details about a suspicious margin trading request, including why the request was suspicious and any actions taken by Paulson.  In each instance, the SEC found that the broker-dealer had failed to abide by its written policies and procedures concerning the BSA or anti-money laundering (AML) laws.

The SEC found that the broker-dealers violated Section 17(a) of the Exchange Act and Rule 17a-8. Without admitting or denying the SEC’s findings, each broker-dealer agreed to be censured, cease and desist from violating the relevant provisions, and pay civil penalties totaling $275,000. Webull and Paulson agreed to undertakings that included a review of their AML policies with outside compliance consultants.

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.