Tag: Exchange Act Section 13(a)
SEC charges “AI-washing” at Presto Automation
Is “-washing” the securities fraud equivalent of “-gate” for political scandals? First we had greenwashing, then diversity-washing, and now we have AI-washing—a topic that, as discussed in the SideBar below, SEC officials made a lot of noise about last year. And this recent action by the SEC certainly seems to allege just that—even though the SEC doesn’t actually use the term. In mid-January, the SEC announced “settled charges against Presto Automation Inc., a restaurant-technology company that was listed on the Nasdaq until September 2024, for making materially false and misleading statements about critical aspects of its flagship artificial intelligence (AI) product, Presto Voice. Presto Voice employs AI-assisted speech recognition technology to automate aspects of drive-thru order taking at quick-service restaurants.” However, as alleged in the Order, the AI technology used in the product was not developed by Presto—at least not until September 2022; rather, the company deployed speech recognition technology owned and operated by a third party. But, the SEC charged, Presto failed to disclose in its SEC filings that it used the third party’s AI technology, rather than its own, to power all of the Presto Voice units it deployed commercially during that time period. What’s more, once Presto did begin to use its own proprietary technology in the Presto Voice units, the SEC alleged, the company “misrepresented the capabilities of the product by claiming that it eliminated the need for human order taking.” Not the case, the SEC alleged; “substantial human involvement” was actually required. The SEC charged that Presto made materially misleading statements in violation of the Securities and Exchange Acts and failed to maintain adequate disclosure controls; however, in light of its financial condition and remedial actions, the SEC imposed only a cease-and-desist order and no civil money penalty.
SEC brings securities fraud charges against Cassava Sciences
The SEC announced last week that it had filed a complaint against Cassava Sciences, Inc., a “pharmaceutical company with one primary drug candidate, PTI-125, a potential therapeutic for the treatment of Alzheimer’s disease,” for misleading statements about the results of a Phase 2 clinical trial for the potential therapeutic. Also charged in the complaint were the company’s founder and former CEO and its former Senior Vice President of Neuroscience. The complaint highlights and analyzes a number of misleading statements and omissions—an analysis that could be instructive for companies reporting on clinical trial results. In a related Order, the SEC also charged an associate medical professor at the CUNY, who was a consultant and the co-developer of the therapeutic, with manipulating the reported clinical trial results. The company agreed to pay a civil penalty of $40 million. The former CEO and former Senior VP agreed to pay civil penalties of $175,000 and $85,000, respectively, and to officer-and-director bars of three and five years. The consultant agreed to pay a civil penalty of $50,000. They were all charged with violating the antifraud provisions of the federal securities laws; the company was also charged with violating the reporting provisions. It’s been widely reported that, after the announcement of the settlement, the stock price fell by almost 11%. PTI-125 is now reported to be in Phase 3 clinical trials.
Keurig settles SEC “greenwashing” charges
According to a 2023 survey discussed in Global Executives Say Greenwashing Remains Rife in the WSJ, executives think greenwashing is widespread: almost “three-quarters of executives said most organizations in their industry would be caught greenwashing if they were investigated thoroughly.” Moreover, almost “60% say their own organization is overstating its sustainability methods.” However, the article suggested, although some companies may be intentionally overstating their progress, for the most part, the greenwashing is more benign: companies set their sustainability goals but didn’t have a “concrete plan” to achieve them or reliable data to measure them. According to the survey, 85% of executives believe that “customers and clients are becoming more vocal about their preference for engaging with sustainable brands,” creating more impetus for sustainability initiatives. By the same token, these external influences also create more pressure for greenwashing. The article reports that the risks related to greenwashing are increasing, with the threat of potential “crackdowns.” (See this PubCo post.) Last week, the SEC charged Keurig Dr Pepper with making inaccurate statements in its Forms 10-K for fiscal 2019 and 2020 regarding the recyclability of its K-Cup beverage pods used to make coffee and other beverages in Keurig’s single-serve brewing systems. According to the Associate Director of the SEC’s Boston Regional Office, “Public companies must ensure that the reports they file with the SEC are complete and accurate….When a company speaks to an issue in its annual report, they are required to provide information necessary for investors to get the full picture on that issue so that investors can make educated investment decisions.” To settle the SEC’s charges, Keurig agreed to pay a $1.5 million civil penalty. Commissioner Hester Peirce had a few words to say in dissent.
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