UNITED STATES OF AMERICA

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

SECURITIES ACT OF 1933

Release No. 11303 / September 13, 2024

ADMINISTRATIVE PROCEEDING

File No. 3-22112

ORDER INSTITUTING CEASE-ANDDESIST PROCEEDINGS PURSUANT TO

SECTION 8A OF THE SECURITIES ACT

OF 1933, MAKING FINDINGS, AND

IMPOSING A CEASE-AND-DESIST

ORDER

In the Matter of

ZYMERGEN INC.

Respondent.

I.

The Securities and Exchange Commission (“Commission”) deems it appropriate that ceaseand-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act

of 1933 (“Securities Act”) against Zymergen Inc. (“Zymergen” or “Respondent”).

II.

In anticipation of the institution of these proceedings, Respondent has submitted an Offer

of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose

of these proceedings and any other proceedings brought by or on behalf of the Commission, or to

which the Commission is a party, and without admitting or denying the findings herein, except as

to the Commission’s jurisdiction over it and the subject matter of these proceedings, which are

admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings

Pursuant to Section 8A of the Securities Act of 1933, Making Findings, and Imposing a Cease-andDesist Order (“Order”), as set forth below.

III.

On the basis of this Order and Respondent’s Offer, the Commission finds1 that:

Summary

1.

These proceedings arise from Zymergen’s misrepresentations and omissions during

and after its initial public offering (“IPO”) in April 2021. Zymergen was a biotechnology company

focused on the manufacture of novel materials, including optical films used in electronic screens.

From at least March to August 2021, Zymergen misled investors about its lone developed product’s

market opportunity, revenue prospects, and customer pipeline.

2.

Leading up to and continuing after Zymergen’s IPO, which raised about $530

million from investors, Zymergen misleadingly touted a large market opportunity for its sole

commercially available product, an electronics film called Hyaline. Zymergen estimated that

Hyaline had a $1 billion display market in 2020, the year before the IPO. Its finance team

calculated this market opportunity by making certain assumptions about the size of Hyaline’s

possible markets as well as the pricing that customers would be willing to pay. These

assumptions were inconsistent with analysis conducted by Zymergen’s sales team responsible for

marketing and selling Hyaline. However, even after the sales team provided its separate analysis,

Zymergen failed to reassess the market opportunity it described to investors.

3.

Zymergen also misled investors about its overall revenue potential. Leading up to

the IPO, Zymergen distributed revenue projections to research analysts so those analysts could

create their own financial models that would be communicated to investors. Zymergen described

its revenue projections as conservative when, in reality, the projections lacked a reasonable basis

and were materially higher than the high-confidence projections initially prepared by

Zymergen’s own sales team.

4.

Finally, Zymergen misled investors about the strength of Hyaline’s customer

pipeline and future sales during the company’s first post-IPO earnings call held on May 24,

2021. During the call, research analysts asked for an update on the status of the customers who

were evaluating Hyaline. Zymergen responded that the progress of customer testing of Hyaline

and customer feedback were positive and in line with expectations. These statements omitted

adverse facts known to Hyaline’s sales team indicating that the late-stage customer pipeline

experienced significant technical and commercial challenges over the first half of 2021, and that

multiple significant customers were either delayed in their qualification process, had dropped out

of the pipeline, or indicated that they were likely to do so. Nor did these comments reflect the

rising concern within the company over the weeks and days preceding the earnings call about

whether any of Hyaline’s late-stage customers would purchase significant amounts of Hyaline in

2021.

5.

Through the above conduct and material misstatements, Zymergen violated

Sections 17(a)(2) and 17(a)(3) of the Securities Act.

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The findings herein are made pursuant to Respondent’s Offer of Settlement and are not

binding on any other person or entity in this or any other proceeding.

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Respondent

6.

Zymergen Inc. was incorporated in Delaware with its principal place of business in

Emeryville, California. Zymergen was a biotechnology company focused on the manufacture of

novel materials for use in the subsequent manufacturing of other products. Zymergen’s common

stock was previously registered with the Commission under Section 12(b) of the Securities

Exchange Act of 1934 (“Exchange Act”) and traded on the NASDAQ Global Select Market under

the symbol “ZY” from April 22, 2021 until October 19, 2022. At all relevant times, Zymergen was

required to file periodic reports with the Commission pursuant to Section 13(a) of the Exchange

Act. On October 3, 2023, Zymergen filed a voluntary petition for relief under Chapter 11 of the U.S.

Bankruptcy Code. After the U.S. Bankruptcy Court for the District of Delaware confirmed

Zymergen’s Plan of Liquidation in February 2024, Zymergen’s assets and liabilities were

transferred to a Liquidating Trust.

Background

7.

Zymergen was founded in 2013 for the purpose of replacing petroleum-based

products with biobased products, chemicals, and materials. Zymergen required hundreds of

millions of dollars in capital to finance the development and manufacturing of its products. From

2013 through the fall of 2020, Zymergen raised over $800 million through private offerings. At the

time of its IPO, Zymergen had developed one commercially available product called Hyaline, a

film designed for electronics companies to use for display touch sensors in personal devices and

other applications.

8.

After the conclusion of its Series D private offering in the fall of 2020, Zymergen

was rapidly burning through cash. At that time, Zymergen planned to raise at least one more

private round of fundraising before going public. It initially planned to conduct an IPO after

Hyaline generated substantial revenue. But in late 2020 and early 2021, when Zymergen needed

capital and even though Hyaline had not yet produced any revenue for the company, Zymergen

decided to pursue an IPO on an expedited basis because it viewed the capital markets as favorable.

9.

On March 23, 2021, Zymergen filed a registration statement and prospectus on

Form S-1 to register its common stock. An amended version of the Form S-1 was declared

effective on April 21, 2021. Zymergen’s IPO closed on April 26, 2021 and raised approximately

$530 million in proceeds.

10.

On April 23, 2021, Zymergen filed a registration statement and prospectus on

Form S-8 to register certain of its common stock and stock options issued or to be issued to

certain of its directors, officers, and employees under incentive compensation plans.

11.

Zymergen’s misleading conduct and statements related to Hyaline’s market

opportunity, revenue prospects, and customer pipeline occurred and were made at the time

securities were being offered and sold pursuant to Zymergen’s Forms S-1 and S-8 registration

statements.

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Misrepresentations Concerning Hyaline’s Market Opportunity

12.

In its Form S-1, Zymergen made representations regarding the market opportunity

and risks for Hyaline. Specifically, Zymergen represented that although Hyaline had not yet

generated sales, “we estimate that the display market alone for Hyaline was over $1 billion in

2020 . . . .” Because Hyaline was the first commercially available product created by Zymergen’s

biofacturing platform, this estimate provided investors with an important datapoint to assess the

potential scale of Zymergen’s revenues.

13.

Zymergen knew or should have known its statements concerning the $1 billion

display market opportunity were materially misleading and lacked a reasonable basis. Zymergen’s

finance team developed the $1 billion figure in early January 2021 by estimating the size of

Hyaline’s display market opportunities and the prices at which those products would sell. Then

they multiplied the estimated market sizes by the estimated pricing to calculate the total Hyaline

display market opportunity. Although these finance employees consulted with Hyaline’s sales

team, the finance team had no role in the marketing or sales of Hyaline and had no firsthand

knowledge or expertise about Hyaline’s markets or appropriate pricing.

14.

Hyaline was an optical film specifically designed for the flexible electronic device

market, including foldable devices with touch screens. The $1 billion figure was misleading

because it included product markets that the sales team was not targeting and/or that were poor fits

for Hyaline’s technical characteristics. Specifically, the estimate included the rigid-touch-sensors

market and fingerprint-on-display market, which together comprised over 99 percent of the $1

billion market opportunity figure provided in the Form S-1. No member of Zymergen’s sales team

reviewed this assumption, nor did the information provided by the sales team support the inclusion

of these markets. In fact, the sales team knew that past attempts to sell Hyaline in these markets

had already failed after customers found Hyaline was either too expensive, unnecessary, or both.

Thus, Hyaline’s customer pipeline maintained by the sales team did not list any customer that was

testing the product for either the rigid-touch-sensors market or the fingerprint-on-display market as

of the end of 2020. Despite this information, Zymergen included these markets in the $1 billion

figure provided to investors.

15.

The $1 billion figure was also misleading because it relied on product pricing

assumptions that were unreasonable and at odds with the company’s own internal sales analyses.

When developing the $1 billion display market opportunity figure included in the Form S-1,

Zymergen’s finance team assumed pricing that was three to five times higher than the pricing for

similar products at that time. For example, the finance team assumed that Hyaline could be sold at

a price of $100 per square meter in the two aforementioned markets—rigid-touch-sensors and

fingerprint-on-display—even though the sales team knew that in those markets the dominant films

were priced at approximately $20 per square meter. The price assumed by the finance team was a

premium price that the sales team believed customers might pay for Hyaline in smaller specialty

markets, such as the flexible and foldable films markets where there were not low-priced, strong

incumbent films.

16.

Beginning in mid-January and through mid-February 2021, the sales team

separately prepared internal analyses that calculated the display market opportunity for Hyaline.

These analyses used product prices that reflected actual pricing realities and excluded the two

markets (rigid-touch-sensor and fingerprint-on-display) that were deemed not likely to be a good

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fit for Hyaline. According to the sales team’s analyses, the total display market opportunity for

Hyaline in 2021 was approximately $42 million to $100 million—or approximately 5 to 10 percent

of the $1 billion market opportunity for 2020 presented in the Form S-1.

17.

Despite the material differences between the finance and sales teams’ market

opportunity analyses, Zymergen failed to implement a reasonable process to reconcile the two

figures. Likewise, between the time Zymergen initially developed its estimates in early January

2021 and the publication of the Form S-1 in March 2021, Zymergen failed to assess whether the $1

billion market opportunity estimate remained accurate.

Misleading Revenue Projections

18.

In February 2021, Zymergen held meetings with research analysts who regularly

published reports to investors on publicly-traded companies. Zymergen’s goal in these meetings

was to educate the analysts on Zymergen’s business. Zymergen expected the analysts would report

on Zymergen after the IPO and that they would also speak with and provide information to

investors during Zymergen’s roadshow.

19.

Zymergen’s financial model and its projections for revenue, profits, and cash flow

for 2022 and 2023 were important benchmarks that investors used to value Zymergen’s stock.

20.

To enable the analysts to build their own models, Zymergen provided them with an

internal financial model that included revenue projections for Zymergen’s products for 2021

through 2025. Zymergen also met with analysts to describe the model, provide context for the

projections, and answer questions. Because Zymergen was a pre-revenue company, its internal

financial estimates were important to analysts in building their own models. When analysts

subsequently shared their models with investors, those investors knew that the analysts’ models

were built using information that Zymergen provided to the analysts but could not provide to

investors directly.

21.

To create Zymergen’s internal financial model, Zymergen’s finance team requested

that the sales team provide its highest-confidence revenue projections based on a detailed,

customer-by-customer analysis and assessment of potential market share. In response, the sales

team provided projections indicating that revenues for 2021, 2022, and 2023 were approximately

60–70% lower than management’s prior projections in September 2020.

22.

In response to the sales team’s projections, Zymergen’s finance team reduced by

approximately half the 2021 estimate provided but requested that the sales team target revenue

projections that were significantly higher than the highest-confidence projections by the sales team

for 2022 and 2023. These revised figures were more in-line with the prior projections from the fall

of 2020. After receiving these targets, the sales team complied with the finance team’s request and

significantly increased (in some instances, more than doubled) its previous highest-confidence

projections for 2022 through 2025, increasing total revenues for those years by approximately

$740 million. The finance team subsequently increased these figures even further before providing

the final numbers to analysts.

23.

Zymergen described these projections as “conservative” to analysts and suggested

in the meetings that it had with the analysts that there were multiple ways the company could

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exceed the projections. Zymergen did not disclose to analysts that the revenue projections for 2022

through 2025 were materially higher (sometimes double or more) than the highest-confidence

projections originally provided by the sales team. Analysts subsequently published and provided

models to investors that substantially mirrored the higher projections provided by the company. In

light of the unreasonable process used to develop these projections, Zymergen knew or should

have known that the financial model and revenue numbers that it provided to analysts and

characterized as “conservative” were misleading.

Misrepresentations During Zymergen’s First Quarter 2021 Earnings Call

24.

On May 24, 2021, Zymergen held its first earnings call as a public company.

During the call, research analysts asked about the current status of Zymergen’s customer pipeline

and requested an “update on the number of customers evaluating” Hyaline and “where your

customers are in evaluation process.” Among other things, the company responded by noting that

“customer market feedback during the product qualification process has been positive,” and

customer qualification was “progressing in line with expectations.” Zymergen also stated that it

“continue[d] to strengthen the pipeline” of customers.

25.

These statements were materially misleading. Leading up to the earnings call, the

company’s internal reports and communications reflected growing concern and materially adverse

information regarding the sales pipeline, customer qualification process, and overall revenue

prospects and market for Hyaline. For example, internal documents prior to the earnings call

indicated that several of the company’s key customers were delaying purchases of Hyaline and/or

dropping out of the pipeline altogether due to technical issues that arose in the qualification

process. At least three major customers dropped out of the short-term revenue pipeline due to

technical issues and delays in qualification, and another large customer indicated that it was

purchasing a competitor’s product instead of Hyaline. Additionally, the company’s internal

customer tracking documents indicated that the then-current display market for Hyaline was very

small and that the company’s projections for Hyaline revenue continued to decline significantly.

26.

Zymergen’s disclosure review process leading up to the earnings call did not

reasonably reflect or address this adverse information available to the company. Nor did the

company’s public statements appropriately reflect the steady stream of negative information. As a

result, the company’s statements during the May 24, 2021 earnings call misled investors and

created a misleading, positive impression of the state of Hyaline’s customer pipeline and overall

prospects.

Subsequent Developments

27.

On August 3, 2021, Zymergen issued a press release and Form 8-K disclosing

adverse facts concerning Hyaline’s deteriorating pipeline and technical issues with the product.

The disclosures noted that “the Company no longer expects product revenue in 2021, and expects

product revenue to be immaterial in 2022.” Zymergen also announced that its former CEO had

separated from the company and resigned from the Board of Directors. On this news, Zymergen’s

stock price declined approximately 76%.

28.

On November 3, 2021, Zymergen announced the discontinuation of all but one of

its products, including Hyaline.

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29.

On July 24, 2022, Zymergen signed an agreement to be acquired by a competing

biotechnology company at terms that valued Zymergen at approximately $300 million, which was

about 10 percent of the company’s valuation at the time of the IPO. That acquisition was

completed on October 19, 2022.

30.

On October 3, 2023, Zymergen filed a voluntary petition for relief under Chapter 11

of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware, Case No. 2311661 (Bankr. D. Del.) (the “Delaware Bankruptcy”).

Violations

31.

As a result of the conduct described above, Zymergen violated Section 17(a)(2) of

the Securities Act, which proscribes, in the offer or sale of a security, obtaining “money or property

by means of any untrue statement of a material fact or any omission to state a material fact

necessary in order to make the statements made, in light of the circumstances under which they

were made, not misleading.” In addition, Zymergen also violated Section 17(a)(3) of the Securities

Act, which proscribes, in the offer or sale of a security, engaging “in any transaction, practice, or

course of business which operates or would operate as a fraud or deceit upon the purchaser.” A

violation of these provisions does not require scienter and may rest on a finding of negligence. See

Aaron v. SEC, 446 U.S. 680, 685 & 701-02 (1980).

Zymergen’s Cooperation

32.

In determining to accept the Offer, the Commission considered cooperation

afforded the Commission staff by Respondent.

Undertakings

33.

Zymergen (including its post-bankruptcy successor or representative, officers,

directors, and employees, and third-party consultants within Zymergen’s control, provided that

the Liquidating Trustee of the ZYM Liquidating Trust shall have no personal liability for the

Undertakings set forth in this Order, including with respect to the undertakings set forth in this

paragraph 33), shall, until the termination of the ZYM Liquidating Trust, subject to the

availability of funds in the ZYM Liquidating Trust to do so, continue to cooperate fully with the

Commission with respect to this action and to any related judicial proceeding, administrative

proceeding, or investigation commenced by the Commission or to which the Commission is a

party, subject to compliance with applicable law. Zymergen agrees that such cooperation shall

include, but is not limited to:

a.

Production of Information: at the Commission’s request, upon reasonable notice,

and without subpoena, Zymergen shall truthfully and completely disclose all information

in its possession reasonably requested by the Commission staff in connection with this

action or any related investigation, litigation, or other proceeding commenced by the

Commission or to which the Commission is a party.

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b.

Production of Documents: at the Commission’s request, upon reasonable notice,

and without subpoena, Zymergen shall provide any document, record or other tangible

evidence in its possession reasonably requested by the Commission staff in connection

with this action or any related investigation, litigation, or other proceeding commenced

by the Commission or to which the Commission is a party.

c.

Production of Cooperative Personnel: at the Commission’s request, upon

reasonable notice, and without subpoena, Zymergen shall secure the attendance and

truthful statements, deposition, or testimony of any Zymergen officer, director, or

employee or third-party consultant within Zymergen’s control, excluding any person who

is a party to any related litigated judicial or administrative proceeding, at any meeting,

interview, testimony, deposition, trial, or other legal proceeding commenced by the

Commission or to which the Commission is a party. At the Commission’s request,

Zymergen shall also use its best efforts to secure the attendance and truthful statements,

deposition, or testimony of any former Zymergen officer, director, or employee,

excluding any person who is a party to any related litigated judicial or administrative

proceeding, at any meeting, interview, testimony, deposition, trial, or other legal

proceeding commenced by the Commission or to which the Commission is a party.

The foregoing obligations are subject to Zymergen’s reservation of rights: (i) to

claim that documents or information requested is subject to attorney-client privilege,

attorney work-product protection, or other applicable protection; and (ii) to seek entry of

a confidentiality order as to: sensitive business documents or information; sensitive

personnel documents or information; or confidential information pertaining to parties

other than Zymergen; and

d.

Service and Personal Jurisdiction Consents: Zymergen further agrees that, with

respect to this action and any related judicial proceeding, administrative proceeding, or

investigation commenced by the Commission or to which the Commission is a party, it

will: (i) accept service by email, mail, or facsimile transmission of notices, requests, or

subpoenas issued by the Commission for documents or testimony at depositions,

hearings, or trials, or in connection with any related investigation by the Commission

staff (“Commission Service”); (ii) appoint Zymergen’s counsel as agent to receive

Commission Service; (iii) with respect to Commission Service, waive the territorial limits

upon service contained in Rule 45 for the Federal Rules of Civil Procedure and any

applicable local rules, provided that the party requesting the testimony reimburses

Zymergen’s travel, lodging, and subsistence expenses at the then-prevailing U.S.

Government per diem rates; and (iv) consent to personal jurisdiction over Zymergen in

any United States District Court for purposes of enforcing any Commission Service.

In determining whether to accept the Offer, the Commission has considered these

undertakings.

IV.

In view of the foregoing, the Commission deems it appropriate to impose the sanctions

agreed to in Zymergen’s Offer.

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Accordingly, it is hereby ORDERED that:

A.

Pursuant to Section 8A of the Securities Act, Respondent Zymergen cease and desist

from committing or causing any violations and any future violations of Sections 17(a)(2) and

17(a)(3) of the Securities Act.

B.

Respondent shall comply with the undertakings enumerated in Section III above.

C.

Respondent shall pay a civil money penalty of $30,000,000 to the Securities and

Exchange Commission, which amount shall be allowed as a Class 3 General Unsecured Claim

under Respondent’s First Amended Joint Chapter 11 Plan of Liquidation dated February 1, 2024

(the “Plan”) and treated as set forth in the Order Approving the Stipulation Between the ZYM

Liquidating Trust and U.S. Securities and Exchange Commission issued by the U.S. Bankruptcy

Court for the District of Delaware and dated June 10, 2024 (D.I. 512-1) (the “Stipulation”). Payment

shall be made in the following installments: Respondent, through the ZYM Liquidating Trust (the

“Liquidating Trust”), shall pay $5,000,000 to the Commission promptly upon Bankruptcy Court

approval of the Offer, as set forth in the Stipulation; and the Liquidating Trust shall also make

subsequent distributions under the Plan to the Commission as set forth in the Stipulation up to

$30,000,000. Upon the termination of the Liquidating Trust and following the distribution of the

remaining Liquidating Trust Assets in accordance with Section 10.2 of the Liquidating Trust

Agreement, the Commission will forgo any further distributions on unpaid penalties and the

Commission Claim (as defined in the Stipulation).

D.

Payment must be made in one of the following ways:

(1)

Respondent may transmit payment electronically to the Commission, which

will provide detailed ACH transfer/Fedwire instructions upon request;

(2)

Respondent may make direct payment from a bank account via Pay.gov

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or

(3)

Respondent may pay by certified check, bank cashier’s check, or United

States postal money order, made payable to the Securities and Exchange

Commission and hand-delivered or mailed to:

Enterprise Services Center

Accounts Receivable Branch

HQ Bldg., Room 181, AMZ-341

6500 South MacArthur Boulevard

Oklahoma City, OK 73169

Payments by check or money order must be accompanied by a cover letter identifying

Zymergen as a Respondent in these proceedings, and the file number of these proceedings; a copy

of the cover letter and check or money order must be sent to Jason H. Lee, Associate Regional

Director, Division of Enforcement, Securities and Exchange Commission, 44 Montgomery Street,

Suite 2800, San Francisco, CA 94104.

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E.

Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, a Fair Fund is created

for the penalties referenced in paragraphs C–D above. Amounts ordered to be paid as civil money

penalties pursuant to this Order shall be treated as penalties paid to the government for all

purposes, including all tax purposes. To preserve the deterrent effect of the civil penalty,

Respondent agrees that in any Related Investor Action, it shall not argue that it is entitled to, nor

shall it benefit by, offset or reduction of any award of compensatory damages by the amount of any

part of Respondent’s payment of a civil penalty in this action (“Penalty Offset”). If the court in any

Related Investor Action grants such a Penalty Offset, Respondent agrees that it shall, within 30

days after entry of a final order granting the Penalty Offset, notify the Commission’s counsel in

this action and pay the amount of the Penalty Offset to the Securities and Exchange Commission.

Such a payment shall not be deemed an additional civil penalty and shall not be deemed to change

the amount of the civil penalty imposed in this proceeding. For purposes of this paragraph, a

“Related Investor Action” means a private damages action brought against Respondent by or on

behalf of one or more investors based on substantially the same facts as alleged in the Order

instituted by the Commission in this proceeding.

By the Commission.

Vanessa A. Countryman

Secretary

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