Just over a year after the U.S. Securities and Exchange Commission (“SEC”) announced the launch of a Task Force to “proactively identify” environmental, social, and governance (“ESG”) related “misconduct” by publicly-listed companies, investment advisers, funds, and other market participants, the Task Force initiated the first action to implement what could mean future action for companies across the industry. In the complaint it filed late last month, the SEC said Brazilian mining company Vale SA was on the hook for making “false and misleading claims about the safety of the dams. its “before the fatal collapse of its Brumadinho dam in 2019” caused immeasurable environmental and social damage, and led to the loss of more than $ 4 billion in market capitalization in the Vale.
According to the SEC complaint, filed in U.S. District Court for the Eastern District of New York on April 28, Vale engaged in securities fraud by “improperly obtaining stability declarations for the dam through intentional use of unreliable laboratory data; hiding material information from its dam safety auditors; disregard of accepted best practices and minimum safety standards; removal of auditors and threatening companies [its] ability to obtain dam strength declarations; and make false and misleading statements to investors. ”
Vale said it “is aware that the dam does not meet internationally recognized safety standards,” the SEC stated, however, the continuation reports faced by the public and other filing public “deceptively assuring investors that the company follows the ‘strictest international practices’ in valuation. dam safety and that 100 per cent of its dams have been proven to be in sound condition.”
“Instead of facing the high reputation and economic costs that come from the unacceptable safety risks posed by its Brumadinho dam, Vale is engaging in a pattern of fraudulent practices designed to wear down the applicable regulatory requirements related to dam safety, ”the SEC stated. Specifically, from February 2016 to October 2018, the regulator states that Vale “knowingly or unknowingly obtained eight fraudulent and fraudulent declarations of stability related to corrupt practices. audit of the Brumadinho dam. ” While “Vale’s fraud and deception caused immeasurable human suffering, it also caused great harm to investors,” the SEC argued, noting that investors relied on Vale’s statements in “a lot of material. issues, [namely]the strength of [its] dams; the nature of [its] safety practices after [a prior] dam disaster; and the actual risk of devastating financial consequences if any of its high -risk dams, such as the Brumadinho dam, collapse. ”
With the foregoing in mind, the SEC argues that by “knowingly or inadvertently participating[ing] of deceitful conduct and the making of material lies and deception [ESG] statements to investors, ”Vale was involved in violations of Section 10 (b) of the Exchange Act, Section 17 (a) of the Securities Act, and Section 13 (a) of the Exchange Act. As such, the regulator is seeking a permanent order to restrain Vale – and “all persons who actively concert or participate in it” – from violating the federal securities laws alleged in the complaint, and is also seeking monetary penalties, as well as a disgorgement. of all “ill-gotten gains” related to such alleged securities fraud.
Certainly not a case in point in the retail industry, the SEC’s newly initiated ESG enforcement action deserves attention for companies across the industry, including fashion/luxury, which have long been plagued by allegations. of unreliable reporting and fraudulent audits related to brands around the world. -stretching supply chains. In addition to the risks that come with brands making sustainability and climate adoption possible that they cannot backup, the SEC case “shows that the statements made in ESG reports should now be considered ripe for litigation – whether public enforcement actions or private securities litigation – as a classic. source of disclosures, ”according to Mintz’s Jacob H. Hupart.“ In particular, the SEC complaint also presents allegations of corporate governance failures and problems in the auditing process related to ESG reports and other disclosures, ”he said, noting that“ the presence of these allegations can act to strengthen the SEC’s focus on corporate governance. and evidence of the proposed mandatory climate disclosure. ”
Jones Day attorneys Marjorie Duffy, Linda Hesse, Henry Klehm III, Samir Kaushik, Sarah Levine, and Joan McKown said they “hope the SEC will use this approach more regularly in the future,” meaning companies should consider taking “additional steps to make and audit their ESG-related statements and disclosures to ensure the accuracy and verification of such statements made by these reports, on their websites, and in connection with their representations about the products of marketing materials and to regulators.
The case is SEC v. Vale SA, 1: 22-cv-02405 (EDNY).