Zach pointed out last week that SEC’s $1.5 million fine against Keurig was interesting in that the materiality of the company’s statement about pod recycling was questionable and not addressed by the action. Yesterday, Meredith drilled a bit deeper into that on TheCorporateCounsel, pointing out that Commissioner Peirce said “the Commission both misreads Keurig’s statement and overreacts to its own misreading” and that the order doesn’t claim Keurig’s statements were material. The charges were brought only under Section 13(a) and Rule 13a-1, which require the filing of “complete and accurate” annual reports. Included in Peirce’s dissent is this:
“[T]he Order nowhere states that [the statements] were material. The closest the Order comes to addressing materiality is a statement that ‘sales of pods comprised a significant percentage of net sales of Keurig’s coffee systems business segment’ in 2019, which appears in the same paragraph with the statement that ‘[c]onsumer research conducted by Keurig Green Mountain in 2016 indicated that, for certain consumers, environmental concerns were a significant factor, among others, considered when deciding whether to purchase a Keurig brewing system.’… That some consumers thought, among other factors, about environmental factors does not mean that the recyclability of pods was material to investors.
Rarely does the Commission bring standalone Section 13(a) and Rule 13a-1 charges. Telling to me is the absence of other charges—such as charges under Exchange Act Section 10(b) and Rule 10b-5, Securities Act Section 17(a), or even under Exchange Act Rule 12b-20, which requires issuers to add to their statements or reports such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made, not misleading. I do not believe that Keurig’s recyclability statements support such charges because I do not think that they are false or misleading, which means there is no basis for Section 13(a) and Rule 13a-1 charges either.”
Sustainability leaders, staff and advisors: Take this as a warning shot across the bow – at least for the time being. While you may want sustainability disclosures integrated into your company’s SEC reporting, the Keurig case highlights regulatory risk even if you consider sustainability information to be voluntary and not directly financially material (i.e., double materiality). Statements in the 10-K must still pass the “complete and accurate” test, which is less flexible than what you can do in unregulated disclosures.
Our members can learn more about materiality and disclosures here.
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