This White & Case alert describes two related civil insider trading actions brought by the New York AG under the state’s Martin Act — one against the executive and one against the company. As the alert explains, both actions have unusual features:
– [T]he Company is a Delaware corporation headquartered outside of New York. Nonetheless, according to the complaint filed against the CEO (the “CEO Complaint”), the NYAG asserted jurisdiction on the basis that the Company’s shares were traded on the New York Stock Exchange (“NYSE”), the CEO’s trades were executed through a New York-based investment adviser, the trading plan was governed by New York law, and New York investors — including state pension funds — purchased and sold the Company’s shares during the relevant period.
– [The CEO action] represents an unusual instance of the NYAG bringing an insider trading action against a corporate executive for trading pursuant to a Rule 10b5-1 plan [. . .] [O]n October 14, 2020, the CEO initiated discussions about entering into a Rule 10b5-1 trading plan. The plan was reviewed by the Company’s Senior Counsel on November 11 and 12. It was signed by the CEO on November 13, 2020, in the midst of what the CEO Complaint describes as an “all-hands-on-deck” manufacturing crisis and just days after the Company and AstraZeneca had agreed to slow down production.
– The NYAG found that the Company engaged in fraud because it “approved the CEO’s Trading Plan despite the CEO’s possession of material non-public information, and that [the Company] had not disclosed the information at the time of the [p]lan or sales.”
– Both the SEC and the U.S. Department of Justice (“DOJ”) examined the insider trading issue but did not bring charges [. . .] [U]nlike federal insider trading laws—which require proof of scienter, i.e., an intent to defraud—the Martin Act has been found to not require proof that the defendant acted with fraudulent intent. This lower standard of liability may explain why the NYAG was willing to bring this action after the SEC and DOJ, which operate under the more demanding federal scienter standard, declined to do so. We are not aware of a prior instance in which the NYAG has pursued a company for approving an executive’s trading plan.
The alert says that the NYAG’s pursuit of the company, based on its approval of the plan, creates additional compliance considerations for issuers.
Companies should implement robust procedures for reviewing and approving executive trading plans, which may include:
a) Requiring detailed certifications from executives that they are not in possession of MNPI at the time of plan adoption;
b) Conducting diligence beyond written certifications, including inquiries regarding recent significant operational activities, management and board presentations, and undisclosed developments that could constitute MNPI;
c) Where a company is experiencing material, nonpublic business developments — such as operational issues, regulatory challenges, or significant contractual developments — considering whether it is appropriate to delay the adoption or approval of trading plans or to implement additional safeguards, such as General Counsel and CFO approvals;
d) Consulting with legal counsel to assess potential MNPI risks based on the company’s current business circumstances; and
e) Documenting the review process and the basis for approving the plan.
As we’ve been sharing here and on The Proxy Season Blog, a handful of lawsuits have been filed by shareholder proposal proponents after companies elected to exclude a proposal without traditional no-action relief from the Corp Fin Staff. There’s also a pending lawsuit filed by ICCR and As You Sow seeking to stop the implementation of Corp Fin’s new policy and return to prior years’ practice.
While three of the proponent lawsuits against companies have settled, two remain ongoing, and the judge in one case ruled on a preliminary injunction request this week. Ann Lipton, law professor at the University of Colorado Law School, recently shared more on LinkedIn, noting that the judge denied the preliminary injunction request on the basis that As You Sow did not show a likelihood of prevailing on the merits under Rule 14a-8(i)(7)’s ordinary business exclusion.
As You Sow conceded Chubb is a Swiss entity and therefore was not properly served. Judge gave it additional time to serve, but –
As You Sow did not show entitlement to preliminary injunction to include its proposal on Chubb’s proxy.
As You Sow did not show a likelihood of prevailing on the merits, because of the ordinary business exclusion.
The excluded proposal sought “a report to assess whether pursuing claims for compensation against parties responsible for climate change could reduce losses, benefit shareholders, and help preserve affordable homeowners insurance.” Ann continues:
Though climate change is important, the proposal is about subrogation: “As acute a threat as climate change might be to Chubb’s business model, As You Sow does not articulate why that threat—and not Chubb’s subrogation practices—is the ‘focus[]’ of its proposal.”
I’d say, the reason the proposal transcends ordinary business is because the ultimate goal is to force entities that cause climate change to internalize the costs. But it’s hard to argue that that’s an issue Chubb’s shareholders should be voting on, which puts As You Sow in an awkward position.
That said, the judge said there were a lot of unanswered interpretive questions about the rule and she might revise her opinion with further briefing.
On The Proxy Season Blog this week, Liz has been sharing thoughts and helpful tips this week on the “minor quandary” (credit to Gibson Dunn for that characterization) that companies are facing for beneficial ownership reporting in their proxy statements in the wake of updated ownership reports filed late last week by Vanguard entities related to Vanguard’s internal realignment. They reported that Vanguard Group had zeroed out its holdings, but some of those holdings were likely reallocated to Vanguard Portfolio Management, which hasn’t yet had to make Schedule 13G filings for ownership of companies between 5% and 10%. For companies working on their proxy statement beneficial ownership table, Liz explained:
Instruction 3 to Item 403 permits companies to rely on a recent Schedule 13D/G for the table, but it also puts an obligation on companies to update the table if they know or have reason to believe that the information is inaccurate – or that a statement or amendment should have been filed and was not.
While we’re not yet at the point where these filings should have been made, some companies do have reason to believe that omitting a Vanguard entity completely would be inaccurate. Hence, the “minor quandary.” Luckily, the Gibson Dunn blog has suggestions. First, it notes:
Vanguard has voluntarily provided an Illustrative Beneficial Ownership report to assist market participants with understanding how beneficial ownership of portfolio company securities might have been attributed to VCM and VPM had the internal realignment occurred on or immediately prior to December 31, 2025. However, VGI states that this information is derived from VGI’s publicly available data as of December 31, 2025, including VGI’s Form 13F filings, and notes that the information does not replace or modify any official beneficial ownership information previously filed with the SEC. Moreover, in Corporation Finance Interpretation 229.02 under Regulation S-K, the SEC Staff advised companies not to rely on Schedule 13F filings when reporting beneficial ownership under Item 403(a) of Regulation S-K.
So, for companies that haven’t yet finalized their proxy statements:
[W]e believe one reasonable approach would be to (1) report the beneficial ownership indicated in the prior (not the most recent) Schedule 13G filed by VGI, particularly if the most recent VGI beneficial ownership filing occurred after the date that the company uses for its beneficial ownership table, and (2) state in a footnote to the beneficial ownership table that shares previously beneficially owned by VGI may now be owned by subsidiaries or divisions of VGI.
They also suggest:
– Based on language in the most recent VGI Schedule 13G filings, that footnote disclosure could read as follows: “The Vanguard Group subsequently reported that due to an internal realignment it no longer has, or is deemed to have, beneficial ownership over Company securities beneficially owned by various Vanguard subsidiaries and/or business divisions.”
– In order to track other language in the VGI Schedule 13G filings reiterating that other VGI subsidiaries or divisions may now own company shares, the footnote might also state: “The Vanguard Group also reported that certain subsidiaries or business divisions that formerly had, or were deemed to have, beneficial ownership with The Vanguard Group, will report beneficial ownership separately (on a disaggregated basis).”
– More generally, companies should carefully review the language that precedes their beneficial ownership table to make sure that it has an appropriate “knowledge” qualification, and that it accurately describes the date(s) as of which beneficial ownership is being reported.
Check out the full blog for more. For example, it also explains why companies that had already finalized their definitive proxy statements prior to Vanguard’s recent 13G filings generally do not need to update their beneficial ownership disclosures.
CalPERS has posted new “April 2026” versions of its proxy voting guidelines and executive compensation analysis framework, as previewed at a recent Investment Committee meeting. According to the Investment Committee presentation, one key change is to add a new policy to “hold director nominees accountable at companies that have abused Rule 14a-8 surrounding shareowner proposal submission (no-action process).” The policy indicates that CalPERS staff will consider each scenario on a case-by-case basis and may vote “against” any or all of the following:
The policy also notes that staff may decide to run “vote no” campaigns on a case-by-case basis.
They also added a short policy on AI oversight.
Artificial Intelligence (AI) Board Oversight. We may withhold votes from director nominees where there is evidence of failed and/or insufficient oversight of AI-related risks.
T. Rowe Price also recently announced updated proxy voting guidelines for 2026. And they posted, for the first time, a pre-annual-meeting-season review that addresses the policy updates and shares T. Rowe’s perspectives on other key proxy-season topics.
Regarding the updated proxy voting guidelines, the season preview notes that T. Rowe has updated its overboarding policy to add more flexibility, citing prior instances in which an override was needed.
TRPA’s current policy guidelines state that we may vote against directors that exhibit such a high number of board commitments that it causes concerns about the director’s effectiveness. Traditionally in the Americas region, concerns about overboarding arise with:
(1) Any director who serves on more than five public company boards; or
(2) Any director who is CEO of a publicly traded company and serves on more than one additional public board.
However, in recent years there have been several instances that necessitated an override of this policy. The most common overrides include cases when a company’s subsidiary is also publicly traded and either shares the board with the subsidiary or has significant overlap between the two boards—or one of the companies included in the count is a non‑operating company, such as a special purpose acquisition company. As a result, for 2026 a director at a company in the Americas will be considered overcommitted if he or she:
(1) Serves on more than six public company boards; or
(2) Serves as a CEO of a publicly traded company and serves on more than two additional public boards.
Our longstanding approach has been to consider the nominees’ potential contribution including skills, experience and demographic background when deciding how to vote on director appointments. To better reflect our actual practice, we have implemented a new board composition guideline for all regions this year.
While not highlighted in the report, the 2026 guidelines also reflect changes to the board diversity policy. The 2025 guidelines included this:
Board diversity policy. Our experience leads us to observe that boards lacking in diversity represent a sub-optimal composition and a potential risk to the company’s competitiveness over time. We recognize diversity can be defined across a number of dimensions. However, if a board is to be considered meaningfully diverse, in our view some diversity across gender, ethnic, or nationality lines must be present. For companies in the Americas, we generally oppose the re-elections of Governance Committee members if we find no evidence of board diversity.
The 2026 guidelines now include:
Board composition policy. Our experience leads us to observe that boards, without a suitable mix of viewpoints to assess the challenges and opportunities the company faces, represent a potential risk to its competitiveness over time. We consider the nominees’ potential contribution, including skills, experience, and demographic background, and how they may broaden the range of perspectives reflected in the boardroom discussion. For companies in the Americas, we generally oppose the re-elections of Governance Committee members if we find the board composition does not reflect consideration of these factors.
Note: I’m not seeing any updates (yet) from T. Rowe Price Investment Management.
The Council of Institutional Investors (CII) is also out with its updated policies on corporate governance, released in mid-March. The one substantive addition is tucked away under “Accountability to Shareowners.” The addition is shown below in bold:
1.4 Accountability to Shareowners: Corporate governance structures and practices should protect and enhance a company’s accountability to its shareowners, and ensure that they are treated equally. An action should not be taken if its purpose is to reduce accountability to shareowners. When a jurisdiction meaningfully weakens protections for a company’s shareholders, the board should conduct a review and disclose the specific standard that was weakened, an analysis of options to preserve protections such as through private ordering, and the board’s rationale for its decision.
I assume this was motivated by some moves by Texas, including imposing ownership thresholds for derivative suits. I also assume CII didn’t have in mind the actions to limit proxy advisory activities, but if it does, that might eventually be applicable in quite a lot of states.
Yesterday’s blog theme was bad news, and today we turn to less news. As we all anxiously await a proposal from the SEC addressing quarterly reporting, our northern neighbors have announced a voluntary pilot for semi-annual reporting that would exempt certain issuers from filing first- and third-quarter financial reports, including MD&A. This Torys alert explains the program in detail.
To be eligible for the reduced reporting, issuers must satisfy these conditions at the end of each three- and nine-month interim period:
– The issuer has been a reporting issuer in at least one jurisdiction of Canada for at least 12 months.
– The issuer is a “venture issuer”.
– The issuer has securities listed and posted for trading on the TSXV or the CSE.
– The issuer has revenue, as shown on its most recently filed annual audited financial statements, of no more than C$10 million.
– The issuer has filed all required periodic and timely disclosure documents with the regulator or securities regulatory authority in each jurisdiction in which it is a reporting issuer.
– During the preceding 12 months, the issuer (i) has not been the subject of penalties or sanctions (including a restriction on the use of any type of prospectus or exemption) imposed by a court relating to securities legislation or by a securities regulator (other than late filing fees); (ii) was not subject to a cease trade or similar order not revoked within 30 days of its issuance; and (iii) did not cease relying on the exemption provided by the Blanket Order.
– The issuer has issued and filed a news release specifying the initial interim period for which it does not intend to file an interim financial report and related MD&A in reliance on the Blanket Order, containing certain prescribed disclosure.
This part is key:
The SAR Pilot does not alter the disclosure required in connection with a prospectus offering or prospectus-level disclosure requirements in an information circular, takeover bid circular or an issuer bid circular. An issuer must cease relying on the exemptions in the Blanket Order if it has filed a base shelf prospectus and may not distribute securities under an existing shelf prospectus supplement.
I’m curious to see if an SEC proposal will be similarly limited in terms of eligible participants and offering disclosure requirements. I don’t know enough about the Canadian securities regime to know what these limitations will mean for semi-annual reporting adoption rates in Canada. But if U.S. registrants won’t be able to take advantage of semi-annual reporting when they need to raise capital (or even just have a shelf registration statement on file?), that’s going to really limit uptake since the smaller issuers (that might otherwise be the most likely adopters) frequently need to do just that. That said, if rulemaking changes the requirements for financial statements in registered offerings, wow. We’re in for an interesting few years as everyone wraps their heads around that and market practice evolves.
ICYMI: Corp Fin Director Jim Moloney issued a statement that accompanied the SEC’s announcement of an Interpretive Release clarifying the application of the securities laws to digital assets. Focusing on when an investment contract comes to an end, the statement was called “The Last Chapter in the Book of Howey.”
In the Interpretive Release, the Commission clarifies when, in its view, a non-security crypto asset would no longer be subject to an investment contract. In short, the investment contract terminates either upon: (1) the fulfillment of the representations or promises of essential managerial efforts, or (2) the failure to satisfy those representations or promises. In both of those situations, the investor is no longer expecting to profit based on the essential managerial efforts of others, a key element of Howey. I highly recommend that those who want to know more read the Interpretive Release in full to appreciate the examples and understand the Commission’s views of the considerations that go into a determination of whether and when either of these two situations may occur in the crypto asset context.
Jim notes that the application of this guidance could extend beyond crypto:
While the Interpretive Release is published in the context of modern-day crypto assets, the framework for assessing when an investment contract terminates can easily apply to that flourishing Floridian orange grove or other non-crypto assets. Howey could have fulfilled his representations and promises as indicated at the outset. For example, the maintenance contract could have been limited to watering and caring for the orange trees for so long as they were fruit-bearing. Alternatively, the investment contract could have terminated when Howey failed to satisfy his promises. For example, if a disastrous hurricane or disease completely destroyed the groves, Howey could have publicly and unequivocally told his investors that he was abandoning his intention to water and care for the trees, ending the investment contract. Beyond the orange grove example, more creative storytellers than I will no doubt start to imagine how this guidance could apply in other contexts.
If you joined PLI’s SEC Speaks, you probably heard Corp Fin Deputy Director Sebastian Gomez Abero refer to Jim’s statement as “a ‘Little Golden Book’ of Howey, including how an investment contract is formed and how it ceases to exist.” Well, the Corp Fin Staff has now taken the kids’ book theme a step further and made a Little Golden Book-inspired video with some of the content of that statement that gives the “TL;DR.”
While Sebastian suggested not reading Jim’s statement to your kids at night, the YouTube video might be quite digestible to kids – even in elementary school. Maybe our kids will finally understand what we’re saying when they ask what we do for work?
Corp Fin Staff has said on the record, “don’t expect a quiet summer,” and promised that a series of “blockbusters” (major rulemaking proposals!) are forthcoming. For us, that means both gearing up for our 2026 Proxy Disclosure and Executive Compensation Conferences and staying flexible because, as previous attendees know, we will pull out all the stops to cover the latest developments. With our conferences happening in October, they’ll be well-timed to bring you up to speed in advance of next proxy season on rulemaking proposals plus the steady stream of high-impact staff-level guidance we’ve been seeing from Corp Fin.
Do yourself a favor and register for our 2026 conferences now. It’ll be reassuring to know that you’ve already carved out time in October to hear from the “think tank” we’re bringing together in Orlando and participate in discussions that could shape final rules. In addition to peace of mind and the opportunity to weigh in, registering this week will save you money. Our super early birdrate is ending on Friday. This is the best rate we’ll be offering for both in-person and virtual attendance. Register online at our conference page or contact us at info@CCRcorp.com or 1-800-737-1271 by Friday, April 3rd, to lock in the best price.
Over on the Small Cap Institute website, Adam Epstein encouraged companies not to “engage in linguistic games to try and camouflage bad financial news.” He lists several ways companies try to do this. Do you recognize any from your past earnings releases?
– Serial, italicized, headline subtitles that refocus attention away from key financial results
– Overemphasis upon non-GAAP results, and even discussing them to the exclusion of GAAP results
– Introducing completely new reporting metrics – just for the quarter – to highlight data that might distract investors from the poor results
– Long-winded CEO quote setting forth how “unbelievably excited” they are about some of the “extremely transformative” things the company is working on that make them “incredibly optimistic”
– Changing the comparative reporting periods to opportunistically highlight sequential results, since the year-over-year comparisons are bad
– Lengthy, bullet-pointed lists of “business highlights” that are predominantly comprised of immaterial information
– Introduction of new initiatives that investors don’t hear much about thereafter
Adam says investors don’t buy these tactics. And, if anything, they actually hurt investor perception of the company. Not surprisingly, some of these are really similar to some “pet peeves” listed in our “Checklist: Earnings Releases – 54 Pet Peeves.”
I loved that checklist so much it inspired me to do a deep dive on press releases, which we’ve turned into “Checklist: Legal Review of Earnings & Other Press Releases” that attempts to summarize the factors that in-house or outside counsel should consider when preparing or reviewing a press release. This is a resource I really wish I had as an associate, since I feel like I learned these lessons piecemeal, sometimes on my own and sometimes through more formal training. Check it out when you have a moment, and please feel free to share any feedback. I hope it helps guide some junior attorneys or that senior attorneys find it helpful for training.
