Though Chancellor Allen characterized a Caremark duty-of-oversight claim as “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment,” Delaware courts appeared to be more accommodating to Caremark claims for a number of years. Among the cases in which the Delaware Court of Chancery allowed Caremark claims to proceed past the pleading stage was the derivative litigation filed against Boeing’s board alleging inadequate oversight of safety issues, which ended in 2021 with one of the largest derivative lawsuit settlements ever, per the D&O Diary.
After a mechanical failure in 2024 involving a jet’s door plug, a new derivative suit was again filed against Boeing directors and officers, alleging oversight claims premised on Caremark. Plaintiffs did not make a demand on the board, so, in a mid-August decision addressing the defendants’ motion to dismiss, the Chancery Court analyzed whether more than half of the board faced a substantial likelihood of liability on the claims, which would make, as plaintiffs argued, a demand on the board futile and therefore excused. Vice Chancellor Zurn found that they did not, and dismissed the claims.
“Caremark liability centers on a particular type of bad faith: ‘intentional dereliction of duty’ or ‘conscious disregard for one’s responsibilities’.” “Only ‘a sustained or systematic failure of the board to exercise oversight . . . will establish the lack of good faith that is a necessary condition to liability.’” The directors must know that they were not discharging their fiduciary obligations. Caremark’s scienter requirement differentiates disloyal bad faith from gross negligence that breaches the duty of care.
Plaintiffs’ allegations fell short on every front, failing to support a rational inference that the directors acted in bad faith. Rejecting plaintiffs’ theory that nearly every update the board received about Boeing’s manufacturing risks amounted to an ignored red flag, the Court observed that they sought to “recast[] the volume and depth of Boeing’s reporting from a best practice into evidence of disloyalty.”
The Court also found many of the purported red flags too disconnected from the January 2024 incident, explaining that a red flag must be “sufficiently similar” to the corporate trauma it precedes, not a general risk. And the Court rejected plaintiffs’ contention that Boeing consciously shirked regulatory compliance for profit, noting that the pleading-stage record showed the company’s production plans were based on informed management assessments of risk and feasibility.
The blog characterizes this decision as a “welcome reminder” that a “good-faith effort to implement and monitor an oversight system, appropriately documented, remains a bulwark against Caremark liability.” A well-documented board process may help avoid Caremark claims altogether if the documents produced in response to a books-and-records request dissuade plaintiffs’ counsel from filing litigation.
This HLS Blog from some of the folks at FTI Consulting addresses five fallacies about controlled companies and how they interact with investors and the capital markets.
Fallacy: Management and Board Members of Controlled Companies Are Unaffected by Public Criticism and the Threat of Shareholder Activism.
Fallacy: Signaling and Predictability Are Less Important for Controlled Companies Because There Are No Potential Repercussions.
Fallacy: Performance Alone Drives Valuation.
Fallacy: Everyone Running a Controlled Company Has the Same Views on Strategic Decisions.
Fallacy: Controlled Companies Don’t Need to Attract Capital or Sell the Stock.
Each of these is followed by an explanation, example and list of recommendations for controlled companies. For example, here is what the blog has to say on that last point above:
Explanation: Just because controlled companies don’t need investors to help them secure their votes doesn’t mean they’re insulated from capital markets or indifferent to valuation. Even in a controlled structure, companies still rely on public markets for financing, liquidity, employee compensation, and more. A depressed stock price can increase the cost of capital, reduce strategic flexibility, and have other negative impacts.
Example: In 2021, Meta began investing heavily into the metaverse, a strategy to become the next major computing platform that would allow users to participate in a persistent, immersive digital environment. Following $40 billion spent on the metaverse, Meta announced the “Year of Efficiency” in February 2023, effectively stopping its investments in the Metaverse. Despite being a controlled company, Meta publicly pivoted its capital allocation strategy in response to investor sentiment.
Recommendation for Controlled Companies: Show why the path forward is the right one for value creation. Controlled companies have underperformed widely held public companies on both five- and 10-year total shareholder return metrics. Controlled companies must communicate strategic decisions in terms of value to all shareholders if they want to build lasting confidence. This does not mean that all capital expenditures are frowned upon – it just means shareholders should understand the return on investment and how a capital expenditure fits into the company’s broader long-term strategy.
I think controlled companies and the attorneys who represent them will appreciate hearing these myths called out, since they’ve probably experienced at least one of these scenarios. I’d also add another myth: That controlled companies don’t receive shareholder proposals. Even smaller controlled companies that aren’t big, well-recognized brands aren’t immune from shareholder proposals. (Though they may be more likely to decide to just put them to a vote.)
If you’re a banking analyst, I hope you studied your SAT vocab words! According to the WSJ, BofA’s CEO Brian Moynihan intentionally throws “obscure, archaic words fit for novelists or judges of bygone centuries” in his earnings call scripts. Delightful!
It’s no happenstance that Moynihan regularly jams words such as “gainsay,” “concomitant” and “fantods” into otherwise ordinary sentences when he addresses the street [. . .] Moynihan challenges himself to find a way to use certain vocabulary words on the calls, the people said. The more arcane, the better.
Moynihan has more than once used “gainsay,” or to declare something as untrue or invalid. One quarter he said the bank saw strong adviser productivity and “concomitant” growth in fee-based assets. Another quarter he said he didn’t “get fantods,” or rather that he wasn’t nervous. “A perspicacious analyst might wonder whether talk of inflation, recession and other factors would fructify in a slower spending growth,” Moynihan said in an analyst call in 2022.
While this may not be something other companies try (the article says transcript services can’t always keep up and throw in totally unrelated words!), the liberal arts major in me loves the idea of earnings calls being a reason to pull up the OED online to look up words! How wonderful in an age of so many AI slop summaries! Reading this article made me want to read more Michael Chabon books. Or The Stand by Stephen King. (I swear teachers and prep programs used to recommend that students read The Stand to study for the vocab portion of the SAT, but I can’t find any evidence of this on the internet!)
If this post seems a little silly and academic, it’s because it’s the last week of summer and that’s how I’m feeling! Like Meaghan, I am VERY READY for back-to-school this year.
Whether you’re feeling ready or not, to all with student-age children in the same boat, I wish you some lovely last days / weeks of summer, a smooth return to academics (plus sports, music, clubs, etc.), an easy carpool schedule and decent sleep for all!
Earlier this week, the Board of the Financial Accounting Foundation (FAF) named Hillary H. Salo as the next chair of the Financial Accounting Standards Board (FASB), the organization that establishes financial accounting and reporting standards for companies that follow GAAP (and is recognized by the SEC as the designated accounting standards setter for public companies). Succeeding Richard R. Jones, whose term concludes June 30, 2027, her term as chair will begin July 1, 2027, and conclude June 30, 2034. The announcement notes that Ms. Salo is a former KPMG Partner and currently serves as vice chair of the FASB and chair of the Emerging Issues Task Force.
Throughout her career, Ms. Salo has advanced high-quality financial reporting through roles as a standard setter, audit partner, regulator, and advisor. Since rejoining the FASB as technical director in 2020, she has played a central role in shaping and advancing the Board’s priorities and strengthening its engagement with stakeholders. Previously, she was an audit partner at KPMG LLP and held roles in the firm’s audit quality and professional practice and accounting advisory services groups.
Ms. Salo also served as a professional accounting fellow in the Office of the Chief Accountant at the U.S. Securities and Exchange Commission (SEC). She began her career as a FASB post-graduate technical assistant after graduating with an undergraduate degree in business administration and a master’s degree in accountancy from the University of North Carolina at Chapel Hill.
At the same time, the Board of Trustees issued a call for nominations to fill the FASB member vacancy created by Ms. Salo’s appointment and noted that it is continuing its search for a FASB member to fill the vacancy that will be created by the expiration of Marsha Hunt’s second term on June 30, 2027.
I might as well continue on the themes of digital assets and accounting because – look! – there’s more! On Tuesday, the FASB announced that it published a proposed ASU (Accounting Standards Update) that would clarify how the definition of ‘cash equivalents’ applies to stablecoins and certain other digital assets.
During the 2025 FASB agenda consultation project and through other feedback, stakeholders noted uncertainty about whether certain digital assets, including stablecoins, meet the definition of cash equivalents under current generally accepted accounting principles (GAAP). That uncertainty has led to diversity in practice.
To address that stakeholder feedback, the proposed ASU would provide illustrative examples to promote more consistent application of that definition and improve comparability among entities that elect to present qualifying digital assets as cash equivalents.
This is just clarifying guidance for entities that hold these digital assets; the proposal does not change the definition of ‘cash equivalents.’
That said, the relevance of this proposed ASU isn’t limited to organizations that hold digital assets. It also proposes expanding the disclosure requirements for cash equivalents more generally. Those requirements are not limited to digital assets, and they apply to all entities that present assets as cash equivalents, regardless of whether they are digital assets.
The SEC’s EDGAR Business Office distributed some helpful reminders on Friday:
Don’t Forget Annual Confirmation!
Ensure your annual confirmation is completed on time on the EDGAR Filer Management website. Annual confirmation is due at the end of the quarter selected by the filer as an ongoing confirmation deadline.
Protect Your PII
Before you hit submit, make sure you double-check the filer information, filings, and attachments to ensure you’re not inadvertently including sensitive personally identifiable information (PII) in your EDGAR submissions.
Have Questions? How Do I Guides Have Answers
Review user-friendly How Do I Guides that provide information about EDGAR, including how to request access, prepare and submit filings, and more.
EDGAR News & Announcements
Keep up with the latest EDGAR-related announcements, including important system changes. Sign up to receive email updates. Check for any EDGAR system status issues posted at the top of the announcements webpage.
Insiders and those who help manage their EDGAR filings should particularly note the reminder about the annual confirmation, which, as discussed in more detail in the December 2025 issue of Section 16 Updates, is a new housekeeping item under EDGAR Next, because some of the timing issues are not intuitive and failure to comply would eventually result in the insider having to submit a new Form ID.
In addition to receiving timely updates via the Section16.net members-only blog, Section16.net members have access to an ongoing Q&A Forum (with over 11,000 entries!) and online versions of Romeo & Dye’s Section 16 Treatise and Reporting Guide and Alan Dye’s Section 16 Forms and Filings Handbook. Website membership also gives you access to the annual webcast on Section 16 developments. Not a member? We can fix that. Contact us today at info@ccrcorp.com or call 800.737.1271 to sign up for a no-risk trial.
After announcing and canceling an open meeting last week to consider whether to issue a release proposing new rules to create a tailored offering regime for certain investment contracts involving crypto assets, the SEC announced yesterday that it approved, without an open meeting, a rule proposal titled ‘Regulation Crypto Assets.’ Here’s the 402-page rule release and the 3-page fact sheet. Commissioners Peirce and Uyeda issued statements in support of the proposal, as did Chairman Atkins, who provided a succinct explanation of the proposed rules in his statement:
Today’s proposal would create a fit-for-purpose framework—consistent with the Commission’s recent interpretation—for non-security crypto assets that are subject to an investment contract. Specifically, the proposed rules include tailored offering exemptions, as well as a safe harbor that would provide clarity for issuers, investors and other market participants as to when the related investment contract ceases to exist. Of course, the proposed rules include certain conditions that preserve core investor protections.
The proposed rules include two offering exemptions tailored for innovations in the crypto asset markets: a “startup exemption,” which would allow for offerings up to $5 million during a four-year period, and a “fundraising exemption” allowing for offerings of up to $75 million each year.
Each proposed exemption includes principles-based disclosure requirements tailored to the unique aspects of crypto assets. The proposed fundraising exemption also requires disclosures regarding an issuer’s financial condition, including financial statements that must be audited at certain capital raising thresholds.
Additionally, the proposed rules include an “investment contract safe harbor.” Under this safe harbor, if the issuer certifies to the Commission that it has ceased or terminated all essential managerial efforts that it promised to undertake under the investment contract and satisfies certain other conditions, then the Commission would no longer deem the non-security crypto asset to be subject to an investment contract and, therefore, no longer subject to the authority of the Commission.
The proposal also would preempt state registration and qualification requirements for offers and sales of covered investment contracts pursuant to one of the exemptions contemplated by Regulation Crypto Assets and for certain secondary market transactions. The fact sheet and press release also make clear that proposed Regulation Crypto Assets builds on and complements the SEC’s interpretive guidance issued earlier this year regarding what digital assets are, and are not, securities. Comments should be submitted on or before October 20, 2026.
There was some speculation online that the cancellation of the open meeting last week had to do with the status of the CLARITY Act. Chairman Atkins and Commissioner Uyeda both addressed the potential for (and welcomed!) crypto legislation in their statements:
Chairman Atkins: “Given the progress made in Congress to date on market structure legislation, let me be clear up front: legislation remains indispensable to enacting “future-proofed” rules of the road that are durable enough to protect the work we are undertaking today from being unwound by a future rogue regulator. The SEC has and will continue to support Congress in delivering the CLARITY Act to President Trump’s desk.”
Commissioner Uyeda: “Notably, with respect to any legislative developments, nothing in the proposal precludes the Commission from taking into account such developments in formulating or responding to future crypto policies. To the contrary, legislative CLARITY would be beneficial to market participants and regulatory agencies.”
Both also recognized and thanked (in addition to the Corp Fin and DERA staff) Commissioner Peirce for her leadership on crypto issues. I have to imagine it’s satisfying that this proposal was approved before she departs the SEC this fall. We all know how disappointing it feels when a big M&A deal or IPO you’ve spent countless hours on dies – or you switch jobs or go on parental leave when a deal has stalled, and you know you won’t be able to see it through to completion (if it ever closes).
Yesterday, Chairman Atkins issued a statement, on behalf of the Commission, soliciting candidates to serve on the board of the PCAOB. The statement notes:
The Act requires that PCAOB Board members be “appointed from among prominent individuals of integrity and reputation who have a demonstrated commitment to the interests of investors and the public, and an understanding of the responsibilities for and nature of the financial disclosures required of issuers under the securities laws and the obligations of accountants with respect to the preparation and issuance of audit reports with respect to such disclosures.”
Only individuals who have never been a certified public accountant are eligible to serve in this seat, which is for a term ending on October 24, 2031. I strongly encourage applications from candidates interested in furthering the public interest through the efficient stewardship of PCAOB resources. Board members play an important role in serving the public interest by helping to protect the integrity of public markets in a manner that minimizes unnecessary costs for the public companies, brokers, and dealers who ultimately fund the PCAOB’s budget.
The statement notes that the PCAOB Board member selection process is administered by the SEC’s Office of the Chief Accountant. Submissions should be emailed to the SEC and the deadline for submissions is September 8, 2026.
Check out John’s latest “Timely Takes” Podcast featuring Cleary’s J.T. Ho sharing his monthly update on securities & governance developments. This month, their 24-minute podcast addresses the following topics:
SEC Proposes Regulation E-Delivery
SEC Releases 2026 Rulemaking Agenda
Recent SEC Guidance
Activism Trends at the 2026 Midpoint
Nasdaq 3rd Annual Global Governance Pulse Survey
As always, if you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share in a podcast, we’d love to hear from you. You can email me at mervine@ccrcorp.com and/or John at john@thecorporatecounsel.net.
On Friday, the SEC posted notices and orders to solicit comments and approve, on an accelerated basis, proposed rule change filings (as amended) by NYSE and NYSE American regarding the exchanges’ stock price continued listing standards. The rule changes by NYSE and NYSE American would codify and increase the closing price at which they will take immediate delisting action.
Currently, regardless of where an issuer stands in its six-month price criteria cure period, NYSE will promptly initiate suspension and delisting procedures if a stock trades below $0.10 per share. Due to recent increases in trading of companies that have a very low trading price per share and concerns over manipulative trading activity, NYSE’s proposal would amend Section 802.01C of the Listed Company Manual to specify that if a closing price per share is less than $0.25 on any trading day, the exchange will immediately suspend trading and commence delisting proceedings. This change will not be effective until July 1, 2027, to allow listed companies time to implement reverse splits before the rule change takes effect. The amendments would also specify that NYSE’s general authority to suspend trading in the event of any condition that “makes further dealings on the Exchange unwarranted” includes the authority to suspend trading or delist a security where it believes the trading price has experienced a “precipitous decline and is at an abnormally low level from which it is unlikely to recover,” even when the closing price has not fallen below $0.25.
In the NYSE American order, the exchange proposes to amend Section 1003 of the NYSE American Company Guide to reflect similar changes. Both of these rule changes are part of a broader effort by both NYSE and Nasdaq to tighten listing standards. Some significant changes have impacted NYSE American specifically this year, with this order following a March approval of a proposal, after amendment, that made multiple NYSE American initial listing standards more rigorous.
