SEC Charges Zymergen with Misleading IPO Investors About Market Potential, Revenue Prospects

SEC Charges Zymergen Inc. With Misleading IPO Investors About Company’s Market Potential and Sales Prospects

The Securities and Exchange Commission today announced settled charges against Zymergen Inc., an Emeryville, California-based biotechnology company, for misleading IPO investors about its overall market potential, revenue prospects, and customer pipeline for its only commercially available product, an electronics film named Hyaline. Zymergen raised approximately $530 million through its IPO in April 2021 and filed for bankruptcy in 2023. Zymergen agreed to pay a $30 million civil penalty to resolve the SEC’s charges.

According to the SEC’s order, Zymergen claimed that it had a $1 billion electronics display market opportunity for Hyaline, but the estimate was based on flawed and unreasonable assumptions that included product markets that were poor fits for Hyaline’s technical characteristics and unsupported premium pricing. The SEC’s order also finds that Zymergen provided misleading revenue forecasts to research analysts that far exceeded internal estimates. Additionally, the order finds that Zymergen misled investors during its first public earnings call by misrepresenting the status of Hyaline’s customer pipeline while omitting significant technical and commercial problems facing the product.

FTX Founder Sam Bankman-Fried Files Appeal to Overturn Fraud Conviction

Sam Bankman-Fried, the founder of the collapsed cryptocurrency exchange FTX, filed an appeal on Friday, attacking the judge who oversaw his conviction on charges that he orchestrated a sweeping fraud to steal $8 billion from customers.

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In the 102-page appeal, a lawyer for Mr. Bankman-Fried called for a new trial, pointing to several rulings by Judge Kaplan that limited the FTX founder’s ability to introduce evidence and hampered his defense.

“Sam Bankman-Fried was never presumed innocent,” wrote the lawyer, Alexandra A.E. Shapiro. “He was presumed guilty by the judge who presided over his trial.”

SEC Charges Former Financial Consultant for Providing Father and Friends Inside Information Regarding Firm’s Client

According to the SEC’s complaint, on June 7, 2022, Federico Nannini, of Coral Gables, Florida, was entrusted with material nonpublic information that his firm’s client, MasTec, was interested in acquiring IEA. The next day, Federico Nannini tipped his father, Mauro Nannini, who then purchased 34,500 shares of IEA over the next several weeks for $310,729. The SEC’s investigation also found that, on June 15, Federico Nannini tipped his close friend Alejandro Thermiotis about the planned acquisition, which prompted Thermiotis to purchase more than $1.6 million of IEA stock before the market closed on June 16. Thermiotis then tipped his and Federico Nannini’s high school friend, Francisco Tonarely, about the acquisition, which led Tonarely to purchase 321 shares of IEA on June 16.

According to the complaint, text messages revealed that Federico Nannini continued to share material nonpublic information about the status of the acquisition with Mauro Nannini and Thermiotis, which Thermiotis shared with Tonarely, and they traded on the information on multiple occasions. Subsequently, on July 25, 2022, MasTec announced its acquisition of IEA to the public, causing IEA’s stock price to rise more than 31 percent. Soon thereafter, Mauro Nannini, Thermiotis, and Tonarely sold all of their IEA securities, realizing combined illicit profits of $1.1 million.

Summer Takeaways in SEC Enforcement

To sum up, the SEC Enforcement Division’s activities over the summer months reinforce themes that we have emphasized many times before:

—In view of the SEC’s robust whistleblower program, it has never been more important for companies to take effective steps to encourage their personnel to voice concerns internally first, so that any potential misconduct can be detected and remedied before developing into a more serious problem.

—It is prudent to give special attention to areas that are the subject of heightened enforcement scrutiny, such as disclosure controls and reporting around cyber incidents; accounting and financial reporting practices; and public statements concerning a company’s use of AI in its business activities.

—Companies should consider whether there is a need to update or clarify their policies and procedures relating to the use of ephemeral methods of electronic communications, including the use of personal devices for business-related communications.

—And, as we have often advised, the best defense is a tone from the top of the organization that reinforces the importance of ethical business practices, backed by a strong compliance culture and a carefully designed and up-to-date system of controls.