The U.S. Securities and Exchange Commission (“SEC”) recently announced it settled cease and desist charges and assessed a $1.5 million penalty against a mutual fund investment advisor for alleged misstatements and omissions in fund disclosures regarding the advisor’s incorporation of environmental, social, and governance (“ESG”) factors into its investment process.

The SEC alleged the adviser represented that investments in the funds it was recommending had undergone an ESG quality review, when in fact the adviser did not have ESG quality review scores for all investments held by the funds in question. This settlement marks the first enforcement action by the SEC Division of Enforcement’s newly formed Climate and ESG Task Force, whose proposals were discussed in the June 2022 Executive Liability Insights.
Days after this settlement, the SEC announced its consideration of rule proposals that were recently issued under the Investment Advisors Act of 1940 for advisers to private funds that consider ESG factors as part of one or more significant investment strategies. The proposed rules are part of an effort by the SEC to address the growth in ESG-focused investing, as well as growing concerns that claims made by advisors about their ESG practices do not meet investor expectations. These rules would have the greatest impact on registered investment companies (e.g. mutual funds, Exchange Traded Funds, closed-end funds, and Business Development Companies).
The proposed rules would require advisers employing ESG strategies to report additional information about those strategies to the SEC and provide additional disclosures to clients. As the SEC acknowledges that there are many approaches to ESG investing, the rules would require registered advisers to describe strategies to their clients, and for advisers to group the ESG strategies they employ into three brackets:
  • ESG Integration – Incorporating ESG considerations into the investment process alongside traditional factors and analysis that make up the investment strategy.
  • ESG Focused – Using one or more factors as a significant or main consideration in either selecting investments or in engaging with portfolio companies.
  • ESG Impact – Strategies that have a stated goal that seeks to achieve a specific ESG impact or impacts that generate specific ESG-related benefits.
The described rules would only apply to advisers that consider ESG factors as part of one of more “significant” investment strategies provided to clients. Advisers that do not disclose or promote ESG strategies would likely be unaffected by the rule proposals.


Jarkesy v. Sec. & Exch. Comm’n, 34 F. 4th 446 (5th Cir. May 18, 2022)

In this case, the U.S. Securities and Exchange Commission (“SEC”) utilized its in-house adjudication process to bring an enforcement action against petitioners for securities fraud under the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. 

Specifically, the SEC charged that the petitioners had misrepresented who served as the primary brokers and auditor, misrepresented the funds’ investment parameters and safeguards, and overvalued the funds’ assets for the purpose of increasing the fees that they could charge investors. The petitioners were found liable and penalties were ordered, including the disgorgement of all illegal gains. During the course of the proceedings, the petitioners raised various constitutional objections, all of which were rejected.  

The petitioners appealed the SEC’s decision, contending that the proceedings suffered from constitutional defects, and the court agreed on three separate grounds. First, the court ruled that the petitioners were deprived of their constitutional right to a jury trial because the SEC’s enforcement action is similar to traditional actions at law to which the right to a jury trial attaches. Second, the court concluded that Congress had unconstitutionally delegated legislative power to the SEC by giving it the authority to choose the forum in which to bring the action while failing to provide the SEC with an “intelligible principle” to guide its use of the delegated power. Finally, the court was persuaded by the petitioners’ argument that the SEC’s restrictions on removal of its Administrative Law Judges, and of the Commissioners that hire them, are unconstitutional. Although the court ordered that the judgment be vacated, it did not address whether the last constitutional defect alone would be a sufficient basis on which to vacate the SEC’s judgment.   


The U.S. Securities and Exchange Commission (“SEC”) recently announced an award of nearly $3.5 million to four whistleblowers who provided information and assistance in a single, covered action. 

The information provided by three of the four whistleblowers caused the SEC staff to open a new investigation, and also prompted another agency to open an investigation. The investigations led to two separate, successful actions by the SEC. The fourth whistleblower provided insights on publicly available information that allowed the staff to focus on new allegations that advanced the investigation.

Since the SEC’s first issuance of an award to a whistleblower in 2012, approximately $1.3 billion has been issued to 273 individuals under the program. 




June 2022 Noteworthy Enforcement Actions Filed




 Long Deng                        


 iFresh, Inc.              

June 2022 Noteworthy Settlements and Judgments 






John Henderson


Global Resrces Leadership, LLC


Louis Schiliro

Former COO   

United Health Products, Inc.

$666,913 Willard Jackson CEO 420 Real Estate, LLC
$1,250,976.15    Douglas Beplate Former CEO United Health Products, LLC
$33,906,548 Patrick Churchville    President ClearPath Wealth Management, LLC    
Source: U.S. Securities and Exchange Commission