Animal Law Podcast 110: Will JBS Investors Get the Truth about Animals and Climate?

[00:22:17] Mariann Sullivan: Animal Law leads you into all sorts of different places. And I know nothing about securities law. And I imagine a lot of the listeners don't know a lot about it either. So you're gonna have to like spell it out. But I just think there's a lot of exciting things going on with this whole approach that allows you to do things that perhaps you couldn't do through litigation.

But let's start with some preliminary questions about what's going on here. What is JBS? I imagine most of our listeners kind of know what JBS is, but actually, it's a little bit more broad. You refer to the group, which is a larger entity than JBS itself.

[00:22:50] Laura Fox: Yeah, it's a lot more complicated than just JBS. When you hear JBS, I think you're generally referring to JBSSA, which is a Brazilian corporation, but just like many megacorporations, there's a lot of corporate shielding, restructuring, different subsidies, other sub corporations, and so we have a lot of that going on here.

So we have JBSSA, which is what you would traditionally think of when you say JBS.

[00:23:26] Mariann Sullivan: And they are the largest meat company in the world, right? I mean, they're big, even just JBSSA.

[00:23:33] Laura Fox: Yeah, maybe after I lay out the corporate structure we can go into the numbers, because the numbers are just so mind blowingly huge, and we'll just use the numbers that they themselves put forward in their SEC filings. But yeah, so we have the Dutch affiliation in the Netherlands, JVSBV. We have JVS U. S. Foods, which is pretty easy, US. And they're all going to be kind of restructuring into this, like, global corporate entity called JBSNV. And so that's sort of the global JBS that's seeking this public offering. And then you want to keep in mind some of the subsidiaries, and the major one at play here is Pilgrim's Pride, which I'm sure a lot of U. S. audience members are familiar with, as the second largest poultry producer in the world. So we have some really huge, major corporations under the JBS umbrella.

And so to go to how giant they are, so they're the number one global beef producer in terms of capacity. This is over 75, 000 head of cattle on the daily, being able to be processed by these corporations. 13. 7 million chickens daily, 142, 000 hogs on the daily. And then, you wouldn't necessarily know that they're also a fish producer, and they claim to have a daily processing capacity of over 200 tons of fish.

So these are daily numbers. It's hard to wrap your mind around how many animals are being produced by these companies. And then to square that with the idea that they're somehow operating sustainably, is pretty mind boggling.

[00:25:38] Mariann Sullivan: So before we get to that, and it is pretty mind boggling. And actually that description was mind boggling for me. And before I read your papers, I didn't even know that Pilgrim's Pride was a JBS. I suppose I should have known that, but I didn't. So what they basically want to do is bring these companies together, is that right?

And also just as a very preliminary question, just to set the scene. Can you just tell us what, and I've never heard of this before, of course, because I know nothing about securities lawyer, an F4 registration statement and preliminary prospectus, cause that's something that we're dealing with here..

And so I think that we should start off by introducing our listeners who probably have never heard of that before, what that is.

[00:26:15] Stijn van Osch: You are correct. JBS is looking to go public. That's what they're doing. That's sort of the common phrase used for it. And what that means is that they want to sell shares to investors on the stock exchange, specifically the New York Stock Exchange in the U. S. They are already public in Brazil, but not in the U. S.

Pilgrim's Pride is a public corporation. You can buy stock in Pilgrim's Pride, but it's only a subsidiary of JBS. So what JBS wants to do, it wants to take its current complicated corporate structure and basically consolidate everything underneath one Dutch firm, JBS BV/NV, depending, you know, the NV is the public entity eventually.

That will happen, it hasn't happened yet, but as part of this restructuring it, they will have one big bear corporation in the Netherlands, and underneath that you will have the Brazilian, the US, the Chinese, and all the other operations that they have. That company is filing the Form F4 that is basically the formal step you need to take to go public and be approved to sell shares on a United States stock exchange.

In this case, the New York one. You file these papers with the SEC, the Securities and Exchange Commission, and they have to approve you're selling shares to the public. As part of the process, they look at the entire, what they call the registration statement, in which a company, like in this case JBS, lays out its business, it tells investors of the risk of investing in that business, they have to show the numbers, the financials, the corporate structure, have to explain what they're doing, all those kinds of things.

And there's also some information that's filed, you know, specific with the SEC that is a separate part, it's very technical, we don't have to get into it. But basically the SEC looks at all the information and then has to make sure that this company is not a sham, that this company is not saying anything that's untrue to investors, those kinds of things.

So the SEC is there to protect the American investors, and by extension the American public, from frauds, from misleading companies, and that's why you have to go through this process. So JBS can't sell shares yet, but has taken all the steps it needs to to get there.

[00:28:35] Mariann Sullivan: These questions are probably stupid, but all right. So they want to consolidate all of these JBS companies into a Dutch company, but we're talking about the American regulated New York Stock Exchange. Are they selling shares in their company elsewhere in the world, or is this a preliminary step in order to be able to go public anywhere?

[00:28:56] Stijn van Osch: They are selling shares already. So some of the pieces of JBS, shall we say, are already publicly traded. Pilgrim's Pride is publicly traded in the United States.

[00:29:07] Mariann Sullivan: Okay.

[00:29:08] Stijn van Osch: JBS, the Brazilian company, JBS SA, is publicly traded in Brazil.

[00:29:14] Mariann Sullivan: But what about JBSNV? Are they reliant on the SEC in order to sell shares anywhere? Or is this just regulating what's happening in the U. S.?

[00:29:25] Laura Fox: Yeah, so JBSNV will be this newly traded entity on the New York Stock Exchange. So, until this moves forward, it's been given effectiveness by the SEC, JBSNV will not be listing shares on the New York Stock Exchange. American investors can still acquire shares in JBS, but they do so what's called over the counter, right?

So JBS SA is listed in Sao Paulo Stock Exchange, on the Frankfurt Stock Exchange, I think Hong Kong, not entirely sure, but I think so. But anyway, U. S. investors can still broker deals and buy on those exchanges over the counter. So technically all those security exchanges that have impacts on the U. S. and U. S. investors are within the purview of the SEC already in this and the Securities Exchange Act. But with registering with the SEC and listing shares on the New York exchange market, there's additional filings that you would have to do with the SEC, additional affirmative disclosures that companies need to go through.

So those are going to be like the newly imposed SEC provisions on JBSNV once their IPO is effective.

[00:30:57] Mariann Sullivan: Okay. I know I kind of went down a side road there, but since I know so, so little about this, I can't help but do that. I think that you covered my next question was going to be, who are the animals that are involved, but you kind of covered that. It's like, just gazillions and gazillions of animals.

These companies are huge. All right. So, since we're talking about securities law, and I imagine most of our listeners, like me, aren't that familiar, can you just kind of lay out the basics on what is required vis a vis truth telling when you're filing papers pursuant to U. S. federal securities laws? I mean, I assume you could just say you're supposed to tell the truth, but I imagine there's more detail to it than that.

[00:31:35] Stijn van Osch: There is. So when it comes to these IPOs, there are various different separate legal rules that apply. There is a general rule, the most commonly influenced rule, 10 B5, right? I'd have to

[00:31:50] Laura Fox: Yeah.

[00:31:51] Stijn van Osch: I think it's rule 10 B5. Yes. Thank you. That generally prohibits public companies from making misleading statements to investors.

There is a lot of nuance to that rule and how it applies, but that applies to any publicly traded company. The gist of it is they cannot make statements that are misleading or make statements that omit something that is misleading investors, with the qualification, it has to be material.

So anything that investors would consider important in making an investment decision, is sort of the letter of the law. So that's sort of a general rule. There is also a set of specific things that a company has to disclose. A big one there is called Regulation SK, under which there are a variety of items which are in the registration statement that a company has to affirmatively tell investors.

A lot of them have to do with what the company is, what the company does, and risks involved, and downsides in investing. So a company can't hide, for example, that it has, you know, a billion dollar lawsuit pending against it because if they lose a billion dollars, that would be very important.

So there's a lot of things, so they have to spell out lawsuits, they have to spell out regulatory risks, enforcement, things like that. And the SEC has to go through the registration statement and make sure that these things are disclosed. And of course, the company can't omit anything that is material that is required to disclose under these regulations, or again, make a disclosure of one of these things that is misleading, untruthful, not complete, any of those kinds of things.

So there is a lot that a company has to disclose qualified with this quote unquote materiality standard, which makes it a little fuzzy. On the one hand, a company has to disclose certain things in the format for an registration statement and anything else they say, whether in the registration statement, on a website, in a sustainability report, anything else they say to investors cannot be misleading, under rule 10B5 under that general rule of misleading investors.

So both of those are at play. They often intersect, right? Because if you say, well, you know, we may have a risk of, I don't know, enforcement over this issue, that can be both a violation of regulation SK, because if you say you may have a risk, but there's already a lawsuit pending, for example, you're not fully disclosing and you're also misleading investors under rule 10 B5.

So there's a lot of overlap between the two.

[00:34:17] Mariann Sullivan: Right. Yeah, that would make sense. Yeah.

[00:34:20] Stijn van Osch: The big difference, and that's the last thing I'll say about it, because you can dive into this forever.

[00:34:24] Mariann Sullivan: I'm sure we could get into unending amounts of weeds, but I think you're doing a great job of giving us the amount of weeds we need.

[00:34:31] Stijn van Osch: Yeah, the biggest difference is that the affirmative disclosure requirements, like in Regulation SK, are generally only enforceable by the SEC itself.

There is some complications, but the big enforcer there is the SEC. It's much more difficult to enforce those privately. Rule 10b 5, you can enforce privately. And Rule 10b 5, as I said, applies to statements, any statements made by the company to investors or to the public that investors can see.

Whereas the disclosure requirements tend to be very specific, like it has to be in a Form F 4 or if you're already a public company, in your annual reports, your 10 ks. So like, there's like specific forms and formats in which those disclosure regulations apply. Rule 10b 5, basically anything the company says.

[00:35:14] Mariann Sullivan: All right. That's really, really helpful. And I mean, I just want to say, for anybody listening, like me, when I first started reading this, it dawned on me that there are just unbelievable opportunities here for animal lawyers who have such a difficult time doing anything against these large companies because of standing issues.

But here, I mean, there are complaints that you can make and I think that's really interesting that actually for the 10b5 things, you're saying that there is some sort of public enforcement, which let's get into that later. But, even just the opportunity to ask these questions is so unusual for animal lawyers, to have anybody look at these questions, and we'll get into the issue of whether the SEC is going to look at them and how much that's actually going to happen and how much we can make that happen. But, still, even without that, there's such interesting opportunities here for animal lawyers.

Before we get to the factual allegations, but, you know, obviously, I promise everybody I'm going to get to them at some point. It always takes a long time to before you get to the actual substance. I'd just like to point to this 1 general statement that you made that I thought was very telling quote, "importantly, the duty to disclose requires adequate disclosure of known risks that have already materialized by the time of the IPO." Which, of course, is the, just in case, the IPO is the offering. I think most people probably know that, but initial public offering, that's the actual offering... " that have already materialized by the time of the IPO, and these may not be framed as hypotheticals."

As a general matter, and we'll get into the specifics later, do you think this is a lot of what JBS has been doing here, pretending kind of to live in the past that things might happen that actually are already happening?

[00:36:54] Laura Fox: Yeah, I absolutely think that that is true and that seems to be a kind of tactic that is used a lot throughout their F4 disclosures. I think that specifically relates to, and I'm sure we'll develop this more when we talk about the actual allegations, but laws that are currently in effect that will be made, to account to JBS, in the near future, over climate disclosures, over their deforestation practices.

And so, because those laws are already passed, and there's a date of effectiveness that is known, these are risks that the company should know whether or not they're going to face, and how they're going to deal with them. And so those types of analyses should be made very clear in the type of filing that we're talking about.

[00:37:58] Mariann Sullivan: Yeah, everything that you pointed out here. Did you want to add something, Stijn?

[00:38:02] Stijn van Osch: I was going to say, generally companies don't like to disclose bad things and a lot of these disclosures, if you read a lot of annual reports and Form F4s, a lot of them are framed as like, "well, this may happen. This might happen," even though, in many cases, risks like regulations, climate change impacts are occurring, and really aren't hypothetical anymore. But it is almost standard practice to frame anything that you can as a may or might so as to not scare off investors.

[00:38:38] Mariann Sullivan: Events are definitely overtaking them, particularly when it comes to climate, of course. All right. And we're not going to focus just on climate because really your number 1 issue, the issue 1st, of course, is the animal welfare issue, which is, you know, makes sense since that's the area that you have the expertise in.

So the factual allegations are divided. And dealing with the animal welfare issue, we all know, I mean, this seems like a kind of global question, that animal welfare is important. I mean, we all have devoted our lives to thinking that animal welfare actually matters, but it's not as obvious that it matters to investors, and that's what we're talking about here.

So, what is your general argument about why, assuming they're telling lies about animal welfare, and we all know that, you know, obviously they are, because otherwise, they'd be out of business, why should the SEC believe that this is something investors need to know, as opposed to, you know, animal activists?

[00:39:30] Laura Fox: Yeah, that's a great question, right? So one of the threshold questions is, are these representations material to investor decisions? So what we've spelled out in our letter to the SEC is that investor groups and individual investors see animal welfare and a company's treatment of animals as material to the financial solvency of that company. We see large investment groups making those statements and we see reputational damage coming to companies who are exposed for inhumane treatment or making misrepresentations about animal welfare. And so ultimately investors know that how a company, how you're treating an animal will impact your bottom line and so therefore is material to investors in those companies.

[00:40:35] Stijn van Osch: Yeah, there is research to back this up. So the investors, they're not wrong. There is some really good research, if people are interested and want to look into this further, done by FAIRR, F-A-I-R-R, the FAIRR Initiative.

[00:40:48] Mariann Sullivan: Who really, you know, they were amongst, I mean, they might have been the leaders in this whole movement.

[00:40:52] Stijn van Osch: They have done a lot in the animal and investment space. And they have some great, very detailed reports that I definitely cannot recite by heart, but I've seen them, that sort of explain how companies with poor animal welfare records, how that impacts their financial bottom line.

For example, if there are investigations or scandals about animal mistreatment, you lose consumer confidence, you lose sales. Right? That's just one example. So part of this piece of the puzzle is just the loss of reputation and consumer confidence, which impacts the business.

And you know, that's one of the reasons why it's a material. It's because if you treat your animals poorly, people will know and people will stop buying your stuff.

[00:41:36] Mariann Sullivan: Yeah. I mean, I think it's good to take a moment to congratulate this whole movement that has made that argument even possible, even though sometimes we think, you know, why don't consumers pay more attention? But, you know, let's take a step back and realize that it's a ticking time bomb for them.

The way they treat animals and when these reports come out, and it's all due to the work of activists in this movement. And so I just want to take a moment to recognize that. And another thing, I guess I got from your papers that I thought what was interesting was that it's not just the risk that consumers will find out and stop buying the products, it's the risk that other investors will notice that some consumers are not buying. Investors will start seeing the risk and that creates a much bigger risk. It kind of multiplies the risk if investors start noticing that this is a risk, then you've got a huge risk because they start pulling out as well. It's an exponential thing.

[00:42:26] Stijn van Osch: Yeah, it all builds on each other, but the ultimate effect is animal welfare, I think at this point, there is really good arguments and pretty well established that it impacts companies, especially a company like, you know, a company that sells meat from farmed animals, that it will impact their business, their bottom line, and that therefore it's material and should be part of these disclosures.

[00:42:48] Mariann Sullivan: There was something in your argument about morality, which is nice to see in an SEC, I like the word morality, but if there were, I mean, I know this is the case. But if there were no business risks, can you still argue that violations of fundamental morality are material?

I mean, I guess they would never be able to say there's no business risk because you could always say, well, if people find out, I don't know. But, I'm just wondering where the balance is between that, between how much an argument that this is immoral actually matters.

[00:43:18] Laura Fox: Yeah, it depends on which commissioner at the SEC you ask.

[00:43:24] Mariann Sullivan: Oh, God.

[00:43:24] Laura Fox: So the standard for materiality is if it at all influences your investment decisions. So that, in a nutshell, could be just moral claims about how we treat our animals does impact my investment decision as an investor. And so if you're making misleading false statements about something that I find to care about that I want to invest in, that should be sufficient to check that material box because I can say that this has influenced my investment decisions.

However, the conservatives in the commission are starting to read into the materiality standard a financial materiality is how they would define the term, which has never been the standard, but that's how they want to start reading the standard. And so when you are positioning an argument before the SEC, you want to make sure that not only are you alleging that things are influencing investor behavior, but they're gonna have a financial impact on the business.

And so that's when you say, you know, not only are these rooted in moral concerns, but they also relate to a company's reputation and financial performance.

[00:44:50] Stijn van Osch: Yeah.

[00:44:51] Mariann Sullivan: I thought that question was beside the point, but now I'm really glad I asked it because that's a really interesting kind of split in the way they're thinking about it. And it is a little hard to separate it. Like, if something's really, really immoral, isn't there a chance it's gonna affect your bottom line?

That people will notice that at some point? It's really difficult to draw that line. Did you want to add something, Stijn?

[00:45:10] Stijn van Osch: Yeah, the meaning of materiality is a long standing issue of sort of dispute, you know, courts, very often it ends up being some kind of business materiality under the U. S. laws. I will note in Europe, you're starting to see the development of disclosure standards that are more based on, you know, companies have to disclose information just because people think it is important information, even if it may not have a huge business impact, like, you know, business climate impact.

Like, it's one of those things that we're also fighting over in the U. S. right now. Climate, pollution, externalities, costs that are imposed on the environment, for companies, are typically a positive thing because they don't pay for the pollution, so they typically don't have to disclose how much they pollute because they don't pay for it. And the more they pollute, the more money they can make, so actually it's a good thing.

And in Europe now we see, and we have the U S climate rule and we may touch on that later. Um, and in Europe, there's now rules that go into effect in a few years that talk about companies having to disclose their impacts on the environment, regardless of whether or not that has a negative business impact, just because people think it's important to know these things.

So it's certainly, this is an ongoing, sort of, philosophical trend in securities law and regulating companies, is what should they disclose and why are we requiring them to disclose it? Is it because it's important to the business or is it because we think it is important that companies disclose these things? And the U. S. and the eU. are little bit diverging on this, but hopefully the trend is towards more disclosure on climate and environmental issues. So

[00:46:58] Mariann Sullivan: Yeah. Well, I'm glad that the trend isn't that way because that's like an amazingly cynical point. The more you can offload your costs, your externalities, not only is it better for you because you don't have to pay for them, but then it ends up being better for you because you don't have to disclose them.

[00:47:14] Stijn van Osch: Uh huh. Yeah. It's, it's, you know, you could say, look, we expanded our production, we have even more cattle out there burping out methane and farting out methane, but we don't, you know, we don't care about that because the fact that we have more cows is only a good thing.

So we're not going to talk about the methane, because that's not our concern. Our concern, what we're telling investors, is look at all the cows that we have and all the money we're making off of these cows. So that's the traditional, classical, more conservative sort of way of thinking about these things.

And with the new climate rule that the SEC put out, and Europe, thinking about these things is starting to change. So, hopefully that continues.

[00:47:54] Mariann Sullivan: All right, let's get to the, I mean, I know they're very intertwined, the climate and the animal welfare issue, but let's talk about what it is that they're claiming and what it is that's true and what you see as the material differences between those things. Can you just kind of summarize that?

I mean, you know, taking into account that our listeners know a lot about what happens to animals and they don't have to hear about it in excruciating detail, but so really focusing on what do they claim?

[00:48:20] Laura Fox: Yeah, so there's kind of three buckets of information that they're claiming that we, the Humane Society and the Center for Biological Diversity, allege are deceptive or misleading. So the first relates to animal welfare misrepresentations, and the next climate misrepresentations, and then the next deforestation practice misrepresentation.

So should we start with animal welfare?

[00:48:44] Mariann Sullivan: Yeah, let's start with animal welfare.

[00:48:46] Laura Fox: Okay, so here are some of the claims that JBS makes related to its animal welfare. They quote, are committed to meeting or exceeding government and industry standards for humane animal handling. They expect all their animals to be handled in a safe and humane manner throughout their supply chain, and they're committed to providing livestock and poultry under its care with comfortable and safe housing that meet those animals' needs.

So, why do we think those are misleading? Well, let's start with one of the lower,

[00:49:27] Mariann Sullivan: we live in reality?

[00:49:28] Laura Fox: Right, one of the lower hanging fruits was this idea that they meet or exceed government humane handling standards, when all you have to do is go over to USDA Food Safety Inspection Service's website and look up the litany of humane methods of handling and Poultry Product Production Act violations at their slaughter facilities.

And so that's one of the things that's outlined in the complaint, they don't at all meet those very minimal standards of humane handling.

[00:50:04] Mariann Sullivan: That's the standard, a pretty sad one, but apparently they, I mean, and it only applies to slaughter, but apparently they don't even meet that. So, you've got USDA evidence on your side.

[00:50:16] Laura Fox: Yeah, a rare time where USDA actions come favorably on our side.

[00:50:22] Mariann Sullivan: So if they were like, let's say they were as good as everybody else. I mean, what you're saying is that they're actually worse than other meat companies. I mean, all of those statements would be untrue of any meat company in the United States. Like, the comfortable housing or whatever it was.

Do they have to be worse than everybody else? Or is it just like what they're saying is just, it's not true even if the rest of them are bad too?

[00:50:45] Laura Fox: Right, exactly. So they're going to be judged on what representations they make, and whether or not they are fully truthful, or whether they are just half truths, or there's some omitted material information that would create a fuller picture for those that are reading these statements.

Another thing that we outlined related to their animal welfare claims is so they make these claims about providing care and comfortable and safe housing, but then paradoxically, they claim that those types of things, whether an animal is in pain or experiencing distress, is difficult to achieve, if not impossible to measure. And so, on the one hand, they claim, you know, they're committed to providing comfortable and safe care to the animals, but on the other hand, they claim the animals comfort and safety is impossible to measure. and so how could it be both true?

Um, so just those alone make it misleading.

[00:51:48] Mariann Sullivan: Similarly to the other thing, I mean, it's just like they're living in the past. You know, back in the 90s, the industry used to be able to get away with this totally behaviorist kind of talk about animal welfare. Like, who knows what they're experiencing? We're well past that.

I mean, there's lots of people who know and all you have to do is look and then you know too. I mean, so it seems like a lot of what they're doing is trying to return to the really abysmal days before anybody was paying attention to this at all. And, you know, that train has left the station.

And they've actually, you point out too, they've actually gone backwards on disclosures regarding animal welfare. That their disclosures used to say with more clarity, was it? And now they're trying to fudge more things.

[00:52:33] Laura Fox: Not really more clarity, I would say, but they did have one sentence in one of, I think, maybe their original, F4. So an F4 is filed, the SEC staff will submit comments. This happens kind of behind the scenes. And then based on the comments that the company gets from the SEC, amendments will be filed.

So like a new F4. So they've done now three iterations of their F4. And they've taken out a, a disclosure of that there is a trend of consumers preference to higher welfare products, and that they risk potential financial reputational, negative impacts to that consumer demand. They acknowledge that that's a risk originally, but now they have scrubbed that from their disclosures.

[00:53:30] Mariann Sullivan: That's kind of, I know you guys are embedded in this, but that's kind of hilarious. Like, the thing they changed was whether consumers have expectations,

[00:53:40] Stijn van Osch: It is kind of strange.

[00:53:41] Mariann Sullivan: If, as if, like, like, that could have changed in this amount

[00:53:44] Stijn van Osch: Yeah, it's, right, that's our point. There is nothing that would have changed in how consumers look at these things between, when was it, like September of last year and March of this year.

[00:53:53] Mariann Sullivan: Right? Not changes, like, we've instituted these, these reforms in the way we treat our animals, just like, no, consumers actually don't expect that. We, we were wrong.

I'm sorry, I interrupted you, Laura. Do you want to finish your thought?

[00:54:06] Laura Fox: Yeah, I was just gonna say, I mean, so now when you look at what type of disclosures are made related to the treatment of animals, the care of animals, animal welfare, there are only three references to welfare in the thousand page disclosure filing, and those predominantly are related to compliance with animal welfare standards, or having higher welfare containers or something like that.

But, there is such a gap in any representations about their animal welfare practices and what risks those pose to investors and to consumers.

[00:54:49] Stijn van Osch: I think that is one of those examples of the sort of more traditional thinking and those externalities. Treating your animals poorly, unless there is a big scandal around it, but in general, like, just treating your animals poorly just makes you more money as a farming company. And so the traditional thinking is, as long as we make more money, why would we need to disclose these kinds of things? It's not business, you know, and so then you get into the question of, is it something they have to disclose under these risk factors?

We argue it definitely is. Animal welfare, nowadays, especially, is something that people care about and you should disclose your risks fully. But it's another example of the past way of thinking about pure business risks and does this impact my bottom line, which cruel confinement doesn't impact your bottom line.

In fact, it was done because it makes companies more profitable. But now, we're in a different era. One thing I would add is that it also shows you the difference in standards, so you got the disclosures in the F4 on one side, and they barely talk about animal welfare there. And then you have all their like great statements about animal welfare that Laura mentioned, that they put on their website and in their sustainability report and sort of to the public.

And your Rule 10b 5 does apply to those, right? They can't be misleading people, even if they're not talking about animal welfare in that F4 at all, so there's a bit of that contrast, and here's what we have to disclose under the SEC rules on the one hand.

First of all, nothing about animal welfare. Here's what we want to tell people publicly, and we're going to spin this whole great tale about how we're meeting or exceeding standards.

[00:56:27] Mariann Sullivan: And if they didn't think it was important to consumers, like, why would they be saying it?

[00:56:32] Stijn van Osch: Exactly why would you put that out there prominently on your website and in your sustainability report? But the moment that they become a public company, they fall under the rule 10b5 and arguably they already do because they already sell some of those foreign shares. Right. Um, but especially if they do an IPO, like everything they're saying falls under rule 10b5 in SEC jurisdiction.

So like the moment that they do this IPO, they would be misleading the public about their animal welfare, just based on that. There's a little callback to what we talked about earlier, the differences in the rules, and these trends here.

[00:57:02] Mariann Sullivan: And 1 thing I also wanted to go back to before we pass it. I mean, you talked about the USDA reports showing the truth about their record on slaughter, but you also, I mean, obviously the USDA doesn't look at what happens to animals on the farm because we don't have any laws protecting animals on the farm.

So you were also able to use the whole history of undercover work that's been done by the movement, including HSUS's, you know, groundbreaking work in this area.

And I just want to take a moment to like, you know, revisit the fact that this movement sometimes feels like it's not accomplishing anything. And when you see it all put together here in order to make arguments years later, you know, it really makes people feel good that maybe we have gotten somewhere.

I always like to think one day it's just all going to change, like on a dime.

[00:57:46] Laura Fox: I hope you're right.

[00:57:47] Mariann Sullivan: This huge body of evidence that we have built up is going to dawn on people that this matters. All right, I'll stop my hopefulness because it's ridiculous.

I also wanted to visit another thing because, did we talk about scienter?

I don't think we did. And it isn't required for all your claims, but it is required for some, and so, I'm just curious, what is it required for? Is it the 10b5 requirements? And what do you have to prove and how do you prove it? Do you just have to prove that they knew what they were doing to these animals?

Or do you have to prove that they lied about it? Or do you have to prove that they knew it created risk? And how do you prove that? I know I said that question in a complicated way, but I'm just wondering how much of a problem is scienter here?

[00:58:32] Laura Fox: The scienter standard's pretty low, it can be bet on circumstantial evidence, and you just have to show that the company knew facts or had access to information that suggested that their representations were not accurate. Or, I mean, almost like a negligent standard that they failed to check information, or monitor information, such that they were negligent in knowing facts they should have known. So, we spell out in the complaint how the knowledge aspects met, but it's fairly a low bar.

[00:59:10] Mariann Sullivan: Oh, that's really good news because, I mean, these are their companies, like, presumably they knew what they were doing in them. that doesn't seem like that hard to prove.

[00:59:19] Stijn van Osch: Right, it's again one of those things where, So 10b 5 is often enforced in private litigation, and it depends a little on the judge you pick and how, not that you pick, the judge you get, the judge that's picked for you, on how strictly they interpret scienter. We're complaining to the SEC, and the SEC has broad enforcement powers, and has a whole bunch of other things that they can look at.

So it's a little easier if the SEC chooses to take action, to just say these companies like should have known, and in the case of things they have to disclose, like under Regulation SK, there isn't even a scienter requirement. They just need to disclose what they're required to disclose.

So, the context here, the forum, the fact that we're complaining to the SEC and the SEC would hopefully take enforcement action also makes it easier for them to act than a private litigant would.

[01:00:07] Mariann Sullivan: All right, so, yeah, and I want to get into, like, your choices about private versus SEC enforcement. But first, those are my questions about the animal welfare allegations. If you want to add anything, please do, but I'd also like to talk about obviously the climate disclosures and lack of disclosures.

Was there anything you want to add about animal welfare that I didn't cover?

[01:00:28] Stijn van Osch: Not specifically about JBS, but in the broader context of securities and animal welfare, you know, HSUS, this is all part of our, of course, HSUS's broader strategy to use the law in any which way we can to advance animal welfare, in this case, farmed animal welfare.

This is not HSUS's first SEC complaint, there have been many in the past. Some of Laura's, and shareholder actions, things like that. So this is definitely an area that can be fertile ground for action. HSUS and others are working in this space and using securities law to try and get these issues on the agenda, before agencies, out in the public.

And so I just wanted to note that.

[01:01:13] Mariann Sullivan: Yeah. This isn't a one off.

[01:01:15] Stijn van Osch: This isn't a one off, this is part of a broader effort.

[01:01:18] Mariann Sullivan: Good to know. So it's about time I got caught up to speed on it. All right, so let's talk about their net zero claims. You know, what they're claiming, what you're arguing,

[01:01:26] Laura Fox: Yeah, so, regarding what they represented over now years long campaign, is that they are committed to achieve net zero. So that's on balance, emitting no greenhouse gases, by 2040.

[01:01:45] Mariann Sullivan: Can I just stop you for a second? Because net zero, I feel has been one of those terms that's gotten fudged in some circumstances, and are they claiming net zero at that point or emitting no greenhouse gases? Because the whole question of our offsets has like, kind of been used to, I think, muddy the waters there.

Or is it not entirely clear what they're claiming?

[01:02:07] Laura Fox: Right, so, I mean, the representation is net zero. And they're on the hook for all reasonable interpretations of what that representation is. So unless they clearly defined it, which I don't think that they have, I don't think that they have, that's net zero. That's, in our minds, emitting no greenhouse gases.

And then they, you know, go further and make statements that, it's not only our operations, but our supply chain, so they're kind of taking on a broader scope of emissions when they're claiming net zero.

[01:02:40] Mariann Sullivan: Wow. They're really out there on a limb, aren't they?

[01:02:42] Stijn van Osch: They, there is an offset piece. So my understanding is their plan is underdefined, but from what I understand, there's two pieces. They said, we're going to reduce emissions by a certain percentage and the rest we're going to offset. So there is an offset element to it, as far as I understand from what I've read in what they have said, which of course, offsets are are mostly nonsense, but it is impossible, as you mentioned, to get rid of all the emissions.

[01:03:11] Mariann Sullivan: Yeah. I mean, we know that, but like, have they done anything? Are they headed on any kind of a positive track or is this all just nonsense?

[01:03:19] Stijn van Osch: Oh, have at it, Laura.

[01:03:21] Laura Fox: Yeah, it's hard to know. That claim, so, even if they make sort of disclosures later or in other places about whether or not they're going to meet this through offsets, they've made a bold representation on their website that just said net zero by 2040, right?

And you're not responsible to go digging around.

So they were challenged before the Better Business Bureau, with the National Advertising Division over these claims, the Better Business Bureau and its appeal board found that these were misleading statements. And now they're being sued by the Attorney General's office in New York over these claims.

[01:03:59] Mariann Sullivan: Right, yeah, I really wanted to pick out how, because a lot of us have heard of that litigation and I was wondering how it related to your arguments here.

[01:04:08] Laura Fox: Yeah. And then, you know, to look at their latest amendment to their F4, they're claiming that they're in the process of setting science based targets in their effort to reduce carbon emissions across their shared value chain. I would expect that before I had made my net zero commitment, I would have done the analysis to know whether this was achievable.

But now they're in the process, doing science based targets through the science based target initiative, so they claim, but to what extent they've done anything, it's...

[01:04:47] Mariann Sullivan: What does that even mean, they're in the process? I'm in the process of making a million dollars because I made 20 last week. I, you know, what the hell does that mean, we're in the process? I mean, it could mean something, but there's certainly no way to know.

[01:05:02] Stijn van Osch: No one knows. And that's part of the reason why the Better Business Bureau found that their plans were misleading. It's because they do not have any concrete, achievable, clear plans to get to net zero 2040. And that's also what the New York attorney general is now claiming.

[01:05:21] Mariann Sullivan: Okay. And we'll leave that up to her. I really wanted to focus on the animal welfare claims because that's what we're all about. But this is also obviously hugely important. And there are 2 really specific, I know you put these in different categories, but 2 really specific statutes that you're pointing out that they're not dealing with how they're going to comply with these statutes.

Can you tell us what that is? Because that seems really easy to pin down. I mean, if there are statutes that require them to do something and they're not doing it, that doesn't seem like a difficult argument to make. Is it?

[01:05:52] Laura Fox: Yeah, the first one is just directly related to what we're talking about. It's California's Voluntary Carbon Market Disclosures Act. And so that means that by January 2025, any company that makes a net zero claim, makes a claim about reducing emissions, anything kind of related to their climate impacts, they're going to have to publish on their website the ways in which they've evaluated that claim and they're going to achieve that claim.

While that's passed, there's a clear deadline to meet it and yet nowhere in the registration statement is this mentioned, and it's unclear with in the process of doing the science based evaluation of this net zero claim, are they on track to be able to publish that math on the website by January 2025?

They should know this already. So this sort of goes back to the, if they're known risks, you can't just posit these in hypotheticals. You know or you don't know at this point, and that needs to be made clear to investors.

[01:07:06] Mariann Sullivan: Good for California. God, that seems like a real, you just have to give us some evidence for these claims. What a radical law.

[01:07:13] Stijn van Osch: Yeah. California is at the forefront of many of these things nowadays. If they don't have anything, they just have to say, Oh, we don't have any math. In which case somebody like the New York attorney general can say, See?

[01:07:25] Mariann Sullivan: Yeah,

[01:07:26] Stijn van Osch: They don't have anything. So it's really the minimum you'd expect from companies.

[01:07:33] Mariann Sullivan: Seriously, it's it's like, not even an onerous requirement. It's just tell us why you think what you're saying is true.

[01:07:39] Stijn van Osch: Yes, exactly.

[01:07:40] Mariann Sullivan: And just to complete the circle, there's this European Union deforestation regulation, which they also haven't disclosed how they're going to deal with that.

Is that right?

[01:07:48] Stijn van Osch: That's right. Yes, so there is a regulation in the EU that will prohibit, it's passed, it's on the books, that will prohibit the import of products, it's a specified list of products, one of them is beef, others are like soy, cocoa, palm oil, those kinds of things, without a certificate that it's deforestation free, basically is the gist of it. Deforestation has been a major, major issue in beef production in Brazil, which for the most part is JBS. For decades, they clear cut Amazon rainforest to grow feed for animals and for land to grow the animals, for ranches.

They clear cut, they burn in patches, it, you know, destroys the Amazon, destroys wildlife habitat. It's all around a terrible practice. And there's been increasing pressure, from consumers, from advocates, and now from governments responding to that pressure to eliminate deforestation in the supply chain of these kinds of products, including beef.

JBS has claimed that it is addressing deforestation, that it has reduced deforestation. But if you look into it, it is still happening left and right. And JBS is just looking the other way when their suppliers are cutting down another acre of rainforest here and there.

But they're going to have to comply and, with third party certification, show that the beef they're selling to the EU, and other products, but we'll take beef as the big example. That that is deforestation free. And it seems very unlikely that they will be able to do that given their practices.

And they only disclose this risk at a very high level. They're sort of saying, well, this law exists, we may have to do some work to comply with it, it might impact our business. They know by now what the deforestation is like in their supply chain and how much they've done about it, which according to all the external evidence that we know of is not much.

So they should be disclosing that risk much more clearly to investors because it could lead, you know, the penalties for this law are huge. You can be banned from selling in the EU.

[01:10:09] Mariann Sullivan: Yeah, that's pretty huge. Aside from that, even, I think, as you were talking about it, it's occurred to me that I think deforestation of the Amazon, and we're talking about a Brazilian company here, so obviously, that is like one of the few things that has really reached public consciousness as a huge problem. So it could go, like, they actually have to, because of this law, disclose more about what's going on there. I mean, it goes beyond the EU. I mean, that's the kind of thing that, I mean, people like to think it's because of tofu, but let's face it, if there's one thing that people know about, it's that the Amazon is disappearing, and are nervous about.

So, I think the implications of that could be even bigger than getting banned from selling in the EU, which would be fairly big.

[01:10:52] Stijn van Osch: I think so. Yes, that's again, the business impact, is sales, right? But of course, it's going to have a way bigger, softer impact on reputation.

[01:11:01] Mariann Sullivan: And that will have a business impact as well.

[01:11:03] Stijn van Osch: Exactly. So all of these things are reasons why they should just be very clearly disclosing how they're planning to comply with this law, which they're not.

They're just saying, ah, we'll see.

[01:11:12] Mariann Sullivan: All right, I think, if there's anything else about the complaint itself that you want to add, but I would like to talk also about potential relief and what happens next. So, what is the relief here?

[01:11:22] Laura Fox: Before we move on, I guess one thing that kind of keeps me scratching my head is, they make either no claims in regards to how it's going to comply with California's law. They make very broad hypothetical statements about what's going to happen with EU, but what they're not hypothetical about and unclear about is their bullish plans of expansion, that they will be increasing production over the next four or five years, by, you know, 6 percent or so, right? Which we talked about the numbers. That's huge. That's huge. So to square emissions reduction and deforestation free production with expanded production is hard to understand, how they're going to match their investors expectations on increasing production and also meet their commitments to eliminate emissions, and source deforestation free beef.

[01:12:30] Mariann Sullivan: But it really is crazy. Like, this is about investors and they're promising they're going to grow by 6 percent and they have absolutely no explanation about how they could possibly do that without further destroying the planet. It really is, The whole thing is kind of crazy. It does make you feel like sometimes it's like the oil industry.

You just feel like they're all trying to get the last bit they can out of this planet before things go down. And I don't know where they're going with their billions after the planet goes down, but they obviously have some kind of plan, but it really feels like the oil industry, like, let's just really try to squeeze the last bit we can out of this industry.

Anyway, it kind of brings up the question, do they have any obligation to talk about the development of alternative meats as potential competition? To us, it seems like a huge big deal. To us, it seems like you're going to be replaced people. Do they have any obligation to mention that to their investors?

[01:13:25] Stijn van Osch: They do. And they do, in the sense that they disclose. They do talk about, in a hypothetical general way as these things are typically done, but they do mention that changes in consumer preference and the rise of meat alternatives could impact the market for meat and could impact their bottom line because people shift, demand shifts.

Interesting side note, JBS has also acquired plant based meat companies, and I believe a lab meat company, too. So they are very well aware of this shift, and are moving in that space themselves, too. Which, raises a lot of questions of corporate consolidation of the food industry, but suffice to say that that is a trend that JBS is aware of that can impact their business that they do talk about at a high level in their F4 and that they're part of.

[01:14:17] Mariann Sullivan: Yeah. Well, I mean, you certainly want them to be part of it in the sense that...

[01:14:21] Stijn van Osch: yeah, well, you don't want them to also grow by 6 percent all their animal meat output, but...

[01:14:28] Mariann Sullivan: I would rather see nice people make the money, but I'd rather see all the animals alive.

[01:14:34] Stijn van Osch: Exactly, like if they would announce we're getting rid of all of our livestock and instead we're only making plant based meat, that would be a great announcement.

[01:14:41] Mariann Sullivan: I'd be on board. All right. So, if that's it for the substance, can we move on to like, what kind of relief do you get? What happens next? I mean, you filed what's called, it's called a complaint, right? And you file this complaint. I assume they respond? What's the process here?

[01:14:57] Laura Fox: No. Oh, man. SEC complaints kind of go into a black box or a hole.

[01:15:04] Mariann Sullivan: I was afraid that was going to be the answer.

[01:15:06] Laura Fox: Yeah, so unlike, you know, if we file a similar complaint with another agency, a lot of times they'll bring us in and ask questions, they'll bring a company in and they'll let us know that they're doing this. SEC kind of takes the complaint and then we don't really know what's going on with it so much, but it doesn't mean they don't do anything with it.

[01:15:28] Mariann Sullivan: Do they have an obligation to do anything? Or is it totally up to them?

[01:15:33] Laura Fox: I mean, it's discretionary, right? It's a request for kind of enforcement, and investigation, right? So that's discretionary upon what the agency decides to do with its resources. But right now we're in a posture where there's lots of scrutiny over this IPO. We're not the only ones that have filed a complaint with the SEC.

We have US senators who have sent a letter. We have UK Parliament that got involved, other organizations like Rainforest Alliance Network and Mighty Earth, right? There's lots of scrutiny over this IPO. And it's bipartisan. The latest letter was sent by, I think, a representative out of Wyoming.

And a lot of it has to do with previous bribery scandals and how this is bad for the U. S. market and all that. Which, yes, endorse. But, this complaint that the Humane Society and CBD submitted, really wanted to focus on the misrepresentations in the animal welfare, climate, and deforestation space.

And the request that we're seeking is just the SEC take a closer look at the filings and deny what would be issued is a notice of effectiveness. And once that is issued on the registration statement, that then green lights jBS to go through the process of listing on the New York Stock Exchange.

So they need this effectiveness in order to move forward with selling their stock. So the SEC doesn't have to give it and should not if they feel like the registration statement is incomplete, has misleading information, or is otherwise deficient. And so what's happening now, likely, is JBS just submitted, I think, a month ago, another amendment.

They're going to be receiving comments from SEC staff about the representations made. I would suspect many of those comments might raise some of the issues that we raise in the complaint, and then we'll see another amendment likely. And then from there we might be able to gauge what the staff is really thinking about, as far as the contents that we submitted in this complaint.

[01:17:54] Mariann Sullivan: So it's sort of a cross between a legal effort and almost a political effort to try to create influence, both within the agency and outside the agency where lots of other people are involved in this effort too.

[01:18:06] Laura Fox: I'll just kind of, this might be on listeners mind and I don't want to like not address it because it's another one of those latest banger of a decisions at the SCOTUS level, right? So, that involves the SEC, this is the Jarchezi case. So SEC v. Jarchezi, which found that when the SEC seeks civil penalties against a defendant for securities fraud, that they have to do so in federal court because there's a right to a jury, under the 7th amendment. So I say this to say that all of this stuff is targeted to the IPO and whether or not the SEC should issue effectiveness or not.

But it also alleges direct violations of securities law, right? That they have misrepresented things in violation of Rule 10b 5 and those the SEC could independently go after JBS for those violations, and seek civil penalties for violations.

They're not going to do so before they're ALJs, they'll have to go to federal court if they want to seek civil penalties, but they could do something else. They could enjoin these misrepresentations, right? And that could be done in an administrative process, most likely. I just wanted to acknowledge that there was a recent SEC SCOTUS opinion.

I don't think that's going to have any impact on how the SEC reacts to this complaint or responds or what action it's going to take. And if they do decide to take a step and take enforcement action against the company for violating Securities laws, there's different avenues they can take in addition to going to federal court.

[01:20:03] Mariann Sullivan: But, the fundamental point is that they don't have to just have the company fix their IPO. They could actually, if they really feel that there was fraud here, they could go after them for fraud, but the Supreme Court has just complicated the way in which they can do that.

All right. There's a lot going on here. You guys have made it very clear, I have to say. One thing I wanted to ask you, Laura, before we go is, I noticed there were students working on this because you're, of course, at Vermont Law School, and also a number of organizations were involved.

Can you just explain a little bit how the workload gets split up, either of you, in that context and, and maybe just give a shout out to who else was involved? What other organizations were involved because I know this is a joint effort and I'm kind of interested in what role the law school played and the students were able to play.

[01:20:47] Laura Fox: Yes. I so appreciate this question cause this was such a wonderful opportunity for students to be a part of. So, you know, I'm sure you mentioned in the introduction, I'm the director of the Farmed Animal Advocacy Clinic at Vermont Law and Graduate School. And so this is a chance for students to engage in real world matters on behalf of real world clients. And so we were so fortunate to have the Humane Society of the United States partner with us on this and allow students to work on, you know, the factual research, the legal research, strategizing, even press release drafting, and the students just got this incredible, unique experience to be exposed to the universe of farmed animal production and the major companies at play, right?

And learn so much factually about the industry, but also learn about securities law as a tool for animal advocates. We had students like Christy Fox and Grayson Harberry do a lot of the research for this complaint. And then it was a matter of collaboration and tweaking things between the Humane Society, the Center for Biological Diversity joined on, and so it was a group effort that we were just so fortunate to be a part of.

[01:22:07] Stijn van Osch: Big shout out to Hannah at CBD.

[01:22:11] Mariann Sullivan: So Stijn, you were able to work with students as well? Is that, was that part of what you were doing?

[01:22:15] Stijn van Osch: I didn't work with the students directly. Laura is the conduit. Yeah, so

[01:22:22] Mariann Sullivan: That sounds great.

[01:22:23] Stijn van Osch: It was a great collaborative effort. You know, we got a lot of information from the students and then we sort of work with Laura, with the students, if there's questions, and sort of mold it all into what we finally put on the page.

So it was a, you know, a lot of people involved, great collaborative effort, and it was a really great group to be a part of. So I'm very thankful to have been a part of it.

[01:22:46] Mariann Sullivan: It's very exciting. It's obviously not clear what will come of it, but I think 1 of the things we were able to talk about before is that so many efforts of this movement gone in the past, at that moment in time was very unclear whether anything would ever come of it, but it does seem like things are coming around and there's more attention being paid.

And I'm excited about it. I want to keep on top of it. So, thanks so much for joining us today on the Animal Law Podcast.

[01:23:09] Laura Fox: Thank you so much.

[01:23:10] Stijn van Osch: Thank you for having us.