Cydney Posner at Cooley wrote about a new enforcement action by SEC against Zymergen, a biotech company started in 2013 seeking to “replac[e] petroleum-based products with biobased products, chemicals, and materials.” In 2021, the company issued an IPO and raised over $500 million. However, the SEC has now charged that
“the company misrepresented the market opportunity for Hyaline [its only commercially available product] and, in various analysts’ meetings, provided misleading revenue projections… in making claims about its market opportunity, the company failed to have a reasonable basis for those claims, used an unreasonable process in developing its revenue projections, and failed to employ an internal disclosure review process for those claims and other public statements that took into account internal contrary or adverse information known to the company.”
In short, the company “misled investors with what amounted to unsupported hype” not based on a reasonable estimation process. Cydney provides juicy details you can read in her analysis.
I now wonder if similar claims will be brought against climate tech companies pursuing IPOs. With myriad very public controversies in the past 24 months about offset project estimation failures and verification problems, it seems the stage is set for SEC to question whether climate tech companies rely on “unsupported hype” of carbon uptake, additionality or technology scaling/efficacy in IPO or other SEC filings. Actually, the issue is relevant regardless of whether a climate tech company is subject to SEC jurisdiction. Private investors and offset buyers should take a page from SEC to ensure offset project success metrics have a reasonable basis that follows internal controls and applies consistent internal data and assumptions.
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