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Notable SEC Decisions: 2022 H1

Each year, the U.S. Securities and Exchange Commission (SEC) publishes its enforcement priorities – a reminder that, although the Division of Examinations (EXAMS) remains committed to monitoring compliance with (and penalizing violations of) all regulations, the Agency recognizes that risks to the investing public are not uniform over time. As the SEC noted in its 2022 Examination Priorities Report, the Agency has a “desire to be transparent about the heightened risks that [it] see[s].”[1]

Although we may see increases in SEC enforcement actions brought during a given year in relation to the Agency’s stated enforcement priorities, some enforcement topics are perennial. The most important among these is the SEC’s enforcement actions relating to false and misleading statements made to investors and issuers’ failures to disclose material information.

The SEC may seek to enforce such claims itself pursuant to anti-fraud provisions such as Section 10(b) of the Exchange Act of 1934[2] and SEC Rule 10b-5[3] promulgated thereunder. Criminal fraud actions are referred to the U.S. Department of Justice for prosecution.

The first half of 2022 saw a number of notable resolutions of cases relating to disclosures, including the following.

Theranos: United States v. Holmes

Likely the most notable securities resolution of 2022 to date has been the guilty verdicts passed down by the jury in the criminal fraud trial of Theranos founder Elizabeth Holmes and Chief Operating Officer Ramesh “Sunny” Balwani.[4] The indictment alleged nine counts of wire fraud[5] and two counts of conspiracy to commit wire fraud[6] – one conspiracy targeting doctors and patients, and another targeting Theranos investors.

The fraud charges regarding investors alleged that Holmes and Balwani misrepresented numerous aspects of Theranos’ operations, from whether and the extent to which the company’s technology was used by the Department of Defense and was deployed to the battlefield, to more basic operational issues, such as whether Theranos used its own equipment to conduct blood testing rather than third-party, commercially available machinery.[7] Ultimately, on January 4, 2022, the jury found both Holmes and Balwani guilty of the investor-related conspiracy and fraud charges.[8]

Originally, filed in 2018, the criminal action followed an SEC investigation, and civil suits brought by the SEC in March of that year. The SEC’s civil suits asserted claims arising under both Section 10(b) of the Exchange Act and Section 17 of the Securities Act.[9]

Announcing a civil settlement that saw Holmes stripped of her control of Theranos, barred from serving as an officer or director of a public company for 10 years, and required to pay $500,000, the SEC’s Steven Peikin (then Co-Director of the Agency’s Enforcement Division) stated:

Investors are entitled to nothing less than complete truth and candor from companies and their executives. The charges against Theranos, Holmes, and Balwani make clear that there is no exemption from the anti-fraud provisions of the federal securities laws simply because a company is non-public, development-stage, or the subject of exuberant media attention.[10]

In the Matter of NVIDIA Corp.

On May 6, 2022, the SEC announced that the Agency had settled charges against NVIDIA Corporation, a maker of graphics processing units (GPUs). Traditionally, GPUs have been used in computers to help render high-quality images and animation to a monitor, and the market for GPUs was primarily the computer gaming market. But because of GPUs’ niche mathematical calculation abilities, people who try to “mine” cryptocurrencies such as Bitcoin have found GPUs to be superior to traditional central processing units (CPUs) for this task, making GPUs such as NVIDIA’s popular among crypto-miners.

The SEC’s investigation concluded that in two consecutive quarters in 2018, NVIDIA was aware that a material portion of its GPU sales was driven by cryptocurrency mining. However, rather than disclose this to its investors, NVIDIA reported these revenues within its “gaming business” segment in its Forms 10-Q. In part because NVIDIA made statements regarding the effects of cryptocurrency demand on other segments, the SEC found this omission to be misleading:

NVIDIA’s disclosure failures deprived investors of critical information to evaluate the company’s business in a key market,” said Kristina Littman, Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit. “All issuers, including those that pursue opportunities involving emerging technology, must ensure that their disclosures are timely, complete, and accurate.[11]

This enforcement action against NVIDIA is in keeping with the SEC’s growing focus on the emerging “crypto-asset” class. In its 2022 Examination Priorities Report, the SEC identified Emerging Technologies and Crypto-Assets as a priority this year, noting:

Examination of market participants engaged with crypto-assets will continue to review the custody arrangements for such assets and will assess the offer, sale, recommendation, advice, and trading of crypto-assets.[12]

Beginning in 2019, the SEC identified “digital assets” as a section of the market in need of attention:

The digital asset market has grown rapidly and may present risks to retail investors. The number of digital asset market participants, including broker-dealers, trading platforms, and investment advisers, also continues to increase. Given the significant growth and risks presented in this market, OCIE will continue to monitor the offer and sale, trading, and management of digital assets, and where the products are securities, examine for regulatory compliance. In particular, through high level inquiries, OCIE will take steps to identify market participants offering, selling, trading, and managing these products or considering or actively seeking to offer these products and then assess the extent of their activities. For firms actively engaged in the digital asset market, OCIE will conduct examinations focused on, among other things, portfolio management of digital assets, trading, safety of client funds and assets, pricing of client portfolios, compliance, and internal controls.[13]

The SEC reiterated this concern in 2020:

The digital assets market has grown rapidly and presents various risks, including for retail investors who may not adequately understand the differences between these assets and more traditional products. Due to these risks, OCIE will continue to identify and examine SEC-registered market participants engaged in this space. Examinations will assess the following: (1) investment suitability, (2) portfolio management and trading practices, (3) safety of client funds and assets, (4) pricing and valuation, (5) effectiveness of compliance programs and controls, and (6) supervision of employee outside business activities.[14]

and again in 2021:

The digital asset market continues to evolve, and so too does the adoption of distributed ledger technology in financial services and market infrastructure. Examinations of market participants engaged with digital assets will continue to assess the following: (1) whether investments are in the best interests of investors; (2) portfolio management and trading practices; (3) safety of client funds and assets; (4) pricing and valuation; (5) effectiveness of compliance programs and controls; and (6) supervision of representatives’ outside business activities.[15]

We expect the SEC to continue to expand its enforcement of disclosure requirements regarding companies’ exposure to the risks that involvement in the digital asset markets involves, thanks to the Agency’s recent increase in staff responsible for overseeing crypto-asset markets.  As SEC Chain Gensler stated in May:

The Division of Enforcement’s Crypto Assets and Cyber Unit has successfully brought dozens of cases against those seeking to take advantage of investors in crypto markets. By nearly doubling the size of this key unit, the SEC will be better equipped to police wrongdoing in the crypto markets while continuing to identify disclosure and controls issues with respect to cybersecurity.[16]

The SEC’s oversight includes (among other aspects of digital assets):

  • Crypto asset offerings;
  • Crypto asset exchanges;
  • Crypto asset lending and staking products;
  • Decentralized finance (“DeFi”) platforms;
  • Non-fungible tokens (“NFTs”); and
  • Stablecoins.[17]

Noto v. 22nd Century Group, Inc., 35 F.4th 95 (2d Cir. 2022)

Another notable decision this year relates in a different manner to the SEC and company disclosures. On May 24, 2022, the Second Circuit Court of Appeals issued its ruling in Noto v. 22nd Century Group, Inc., an action brought by investors in a publicly traded company alleging various theories of liability, including securities fraud in violation of SEC Rule 10b-5.

Defendant 22nd Century Group, a micro-cap company, styles itself as “a leading plant biotechnology company focused on technologies that alter the level of nicotine in tobacco plants and the level of cannabinoids in hemp/cannabis plants through genetic engineering, gene-editing, and modern plant breeding.”[18] After a former CEO of the company disclosed that commissioned promotional articles were presented as independent analysis and the company disclosed a pending investigation by the SEC into the company’s accounting, leading to share price declines, investors brought a putative class action.[19]

One of the issues presented in this case was whether 22nd Century Group was required to disclose the pending SEC investigation. The district court disposed of this claim in a cursory manner, stating:

This count fails on Plaintiffs’ SEC investigation theory, too, because Defendants had no duty to disclose that information. See Cortina, 2016 WL 7480415, at *5, *8; In re Lions Gate Ent. Corp. Sec. Litig., 165 F. Supp. 3d 1, 10-15 (S.D.N.Y. 2016). Also relevant to the Court’s analysis on this theory is the fact that Defendants disclosed and remediated (and disclosed the remediation of) the underlying accounting concern.[20]

On appeal, the Second Circuit saw the situation differently, finding that the company “had a duty to disclose the SEC investigation in light of the specific statements they made about the Company’s accounting weaknesses.”[21] The Second Circuit found that, given the posture of the litigation being at the motion to dismiss stage, plaintiffs had adequately alleged a cause of action because, according to the complaint:

throughout 2016 to 2018, the Company’s 10-Ks and 10-Qs reported material weaknesses in its internal financial controls, until one 2018 10-Q reported that the Company had completed the implementation and testing of a remediation plan targeted at eliminating those weaknesses.[22]

The court concluded that “[b]y not disclosing that the SEC was investigating the Company’s specific accounting weakness, defendants’ statements about that weakness were not accurate and complete.”[23]

Notably, the potential for liability arose from the combination of (1) the company’s prior statements regarding its resolution of weakness in financial controls, and (2) its knowledge of an ongoing investigation, including having the Chief Financial Officer (a signatory to the financial statements) travel to Washington, D.C. to meeting with the Agency.

Consequently, issuers must take care to review their disclosures regarding financial controls and pending investigations in light of prior statements in order to ensure that investors are adequately apprised of the company’s relationship with regulators.

[1] Div. of Examinations, 2022 Examination Priorities, U.S. Secs. & Exch’g Comm’n (Mar. 30, 2022) at 2.

[2] See 15 U.S.C.A. § 78j (Manipulative and deceptive devices).

[3] See 17 CFR § 240.10b-5 (Employment of manipulative and deceptive devices).

[4] United States v. Holmes, Dkt. No. 18-CR-0258 (N.D. Cal.).

[5] Violations of 18 U.S.C.A. § 1343.

[6] Violations of 18 U.S.C.A. § 1349.

[7] See Theranos Founder and Former Chief Operating Officer Charged In Alleged Wire Fraud Schemes, Dept. of Justice, available at

[8] See U.S. v. Elizabeth Holmes, et al., Dept. of Justice, available at Balwani was also convicted of other conspiracy and fraud charges.

[9] See Secs. & Exchg. Comm’n v. Holmes, Dkt. No. 18-cv-01602 (N.D. Cal.); Secs. & Exchg. Comm’n v. Balwani, Dkt. No. 18-cv-1603 (N.D. Cal.).

[10] Theranos, CEO Holmes, and Former President Balwani Charged With Massive Fraud, Dep’t of Justice available at

[11] SEC Charges NVIDIA Corporation with Inadequate Disclosures about Impact of Cryptomining, Secs. & Exchg. Comm’n (May 6, 2022) available at

[12] 2022 Examination Priorities at 16.

[13] Div. of Examinations, 2019 Examination Priorities, U.S. Secs. & Exch’g Comm’n (Dec. 20, 2018) at 16.

[14] Div. of Examinations, 2020 Examination Priorities, U.S. Secs. & Exch’g Comm’n (Jan. 7, 2020) at 14.

[15] Div. of Examinations, 2021 Examination Priorities, U.S. Secs. & Exch’g Comm’n (Mar. 3, 2021) at 26.

[16] SEC Nearly Doubles Size of Enforcement’s Crypto Assets and Cyber Unit, U.S. Secs. & Exch’g Comm’n (May 3, 2022) available at

[17] Id.


[19] Noto v. 22nd Century Grp., Inc., No. 19-CV-1285 (JLS), 2021 WL 131050, at *2 (W.D.N.Y. Jan. 14, 2021), aff'd in part, vacated in part, remanded, 35 F.4th 95 (2d Cir. 2022).

[20] Id.

[21] Noto v. 22nd Century Grp., Inc., 35 F.4th 95, 105 (2d Cir. 2022).

[22] Id.

[23] Id. at 106.