[co-author: Carlos Juarez]*
In September 2024, the Securities and Exchange Commission charged a consumer products company (the “Company”) with having made inaccurate claims regarding the recyclability of its single-use coffee pods. The SEC found that the company violated Section 13(a) of the Securities Exchange Act of 1934 and Rule 13a-1, which require companies to file accurate reports.
According to the SEC, the Company failed to disclose that two of the largest recycling companies in the US had raised significant concerns about the commercial feasibility of recycling the Company’s coffee pods. At the time, these recycling companies had informed the Company that they did not intend to accept the pods for curbside recycling. However, in its annual reports, the Company claimed that testing with recycling facilities validated the recyclability of the coffee pods. Sale of these coffee pods represented a considerable portion of the Company’s coffee systems business in 2019, a segment in which consumer research revealed that environmental concerns were a key factor influencing customer purchasing decisions.
In a statement, Commissioner Peirce dissented, arguing that the Company’s claims about the recyclability of its coffee pods were accurate and should not be considered misleading simply because some recycling companies declined to process them. Commissioner Peirce expressed concern that the SEC’s action may deter firms from making certain claims in their reports. She also noted that the action creates an excessive burden by requiring overly detailed caveats to avoid potential second-guessing. Commissioner Peirce questioned the Commission’s approach of imposing penalties without proving that the disclosures were materially misleading or relevant to investor decisions.
To settle the charges, the Company agreed to a cease-and-desist order and a $1.5 million civil penalty. Read the SEC’s full press release and order.
*Summer Associate
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