The SEC has announced the appointment of Kevin Muhlendorf as the agency’s new Inspector General, effective July 28. Muhlendorf leads the Securities Enforcement Practice at Wiley Rein LLP in Washington D.C. He previously served as Acting Inspector General for the Washington Metropolitan Area Transit Authority, and served as a Trial Attorney and Assistant Chief in the U.S. Department of Justice Fraud Section, and as Senior Counsel in the SEC’s Division of Enforcement. Acting Inspector General Katherine Reilly will return to her role as a Deputy Inspector General.
As noted on the SEC’s website, the SEC’s Office of Inspector General “seeks to prevent and detect any fraud, waste, abuse, and mismanagement at the SEC while promoting integrity, economy, efficiency, and effectiveness in Commission programs and operations.” The OIG accomplishes this mission by:
– conducting independent and objective audits, evaluations, and other reviews of SEC programs and operations;
– conducting independent and objective investigations of potential criminal, civil, and administrative violations that undermine the ability of the SEC to accomplish its statutory mission;
– preventing and detecting fraud, waste, and abuse in SEC programs and operations;
– identifying vulnerabilities in SEC systems and operations and making recommendations to improve them;
– communicating timely and useful information that facilitates management decision making and the achievement of measurable gains; and
– keeping Congress, the Chair, and the Commissioners fully and currently informed of significant issues and developments.
On Saturday, Texas Governor Greg Abbott signed into law Senate Bill 2337, which imposes new regulations on proxy advisory firms such as ISS and Glass Lewis. Liz and Meredith have been covering developments with this legislation over on the Proxy Season Blog. This new law will become effective on September 1, 2025. As described in this blog, the new Texas law will mandate certain disclosures when proxy advisory firms recommend casting a vote for “non-financial reasons” or provide conflicting advice to multiple clients. The “non-financial” reasons include a recommendation wholly or partly based on environmental, social or governance investing, diversity, equity or inclusion, social credit or sustainability scores or membership in or commitment to an organization or group that bases its assessment of a company’s value on nonfinancial factors.
I took a non-traditional route into practicing law, and as a result I missed out on the time honored tradition of being a summer associate. I must admit that I am occasionally a little jealous of the summer associates that flock to law firms at this time of year, with all of their fun planned activities and frequent lunches.
In my experience, however, most summer associates are not here for the entertainment, but are rather looking for some substantive work opportunities so they can really get a full picture of the practice of law and the firm where they are working. Over the course of the past few weeks, Meaghan Nelson has been providing some great advice to summer associates and those who are supervising their work over on The Mentor Blog. Meaghan offers summer associates ten great pieces of advice for navigating the summer associate gig, as well as advice for providing effective feedback to summer associates. Be sure to check it out before your summer associates are gone, because as well all know, the summer really flies by!
So far, 2025 has proven to be challenging in many ways for public companies on the disclosure front, as we have navigated an evolving global trade policy, volatile financial markets and decidedly mixed signals on the future direction of the economy. Now, as the June 30 quarter-end date looms for many companies, we learned over the weekend of the U.S. strike on Iranian nuclear sites and we try to process what this could mean for the financial markets and the economy as companies begin preparing their quarterly reports.
The principal concerns now that the U.S. is involved in the conflict will be focused on retaliatory measures and how they could potentially escalate the situation and wreak havoc on the world economy. Over the course of this weekend, one of the potential retaliatory measures that was frequently discussed is a blockade of the Strait of Hormuz, which is a vital shipping lane for the world’s oil supply. This CNN article notes its strategic importance:
From the perspective of the global economy, there are few places as strategically important. The waterway, located between the Persian Gulf and the Gulf of Oman, is only 21 miles wide at its narrowest point. It’s the only way to ship crude from the oil-rich Persian Gulf to the rest of the world. Iran controls its northern side.
About 20 million barrels of oil, about one-fifth of daily global production, flow through the strait every day, according to the US Energy Information Administration (EIA), which called the channel a “critical oil chokepoint.”
A spike in oil prices as a result of a blockade of the Strait of Hormuz could serve to ignite inflationary pressures in the global economy already impacted by the evolving U.S. global trade policy, which could ultimately cause a negative impact on an already fragile U.S. economic outlook. As we discussed in the May-June 2025 issue of The Corporate Counsel, companies will need to carefully monitor and address (to the extent material) these risks and uncertainties. Key disclosure considerations include:
– Disclosure of known trends and uncertainties in the MD&A disclosure, including the impact of the unfolding trade policy changes, ongoing market volatility, inflationary pressures and potentially weakening economic conditions on a company’s results of operations and liquidity;
– Disclosure of geopolitical and economic risks in a company’s risk factors, to the extent not already covered by existing risk factor disclosure, while considering the need to avoid hypothetical risk factor disclosure;
– The impact of the uncertainty on the company’s earnings guidance or expectations, and whether it may be necessary for the company to pre-release earnings information closer to the end of the quarter or consider suspending guidance for the near term in light of all of the uncertainty;
– The need to address certain significant events in a Current Report on Form 8-K, including layoffs and other exit activities as well as impairments; and
– For companies facing significant business headwinds due to global trade and economic conditions, the need to consider whether the company can continue as a going concern in the near term.
As with the trade policy shock that took place during the last fiscal quarter, the geopolitical and economic implications of the U.S. strike in Iran will continue to unfold over the next days and weeks as quarterly disclosures are being prepared, so companies and their Disclosure Committees should closely monitor the developments and their potential disclosure implications.
On Friday, the Staff of the Division of Corporation Finance revised two and withdrew one of the Regulation S-K Compliance and Disclosure Interpretations addressing disclosure of environmental proceedings pursuant to Item 103 of Regulation S-K. These changes to the CDIs appear to stem from the updates to Item 103 that occurred in August 2020 in Release No. 33-10825, Modernization of Regulation S-K Items 101, 103, and 105. Those changes were intended to “update these rules to account for developments since their adoption or last revision, to improve disclosure for investors, and to simplify compliance for registrants.” The SEC reorganized Item 103 to incorporate the instructions into the text of the rule and to modify the quantitative thresholds for environmental proceedings.
In the updated CDIs, the Staff withdrew Question 105.02, which previously indicated that language in former Instruction 5 to Item 103 regarding administrative or judicial proceeding arising under “local provisions” was interpreted to include environmental actions brought by a foreign government. The Staff revised Question 105.01 to update the prior reference to a deleted instruction and to eliminate a reference to the Staff’s former view and instead only reference the Staff’s current view, which remained unchanged. In Question 105.03, the Staff revised the references to an instruction that was eliminated in the 2020 rulemaking to instead refer to the relevant text of the rule.
As we have covered over the past few months, the future of the PCAOB remains in hands of Congress as a proposal was advanced to eliminate the PCAOB and fold its auditor oversight operations into the SEC. As Dan Goelzer noted earlier this month, a group of forty-six academics and former regulatory officials wrote to the Senate Banking and Budget committees to explain why the proposal to abolish the PCAOB in the 2025 budget resolution violates the Senate’s “Byrd Rule.” Dan notes: “That rule requires that the budget impact of reconciliation provisions must be more than merely incidental to the non-budgetary consequences. Eliminating the PCAOB would have little effect on the federal budget but major policy implications for auditor oversight and investor protection.” The letter from the academics and former regulatory officals states:
We believe this proposal violates several of the Byrd Rule criteria for inclusion in a reconciliation bill for the following reasons:
1. The PCAOB is a nonprofit organization and is not funded through the federal budget.
2. The proposal would not result in a significant reduction to the federal deficit, because, per Sec. 50002 and the Congressional Budget Office (CBO), it would replace the PCAOB by establishing a new program inside the SEC that would require similar funding to carry out operations.
3. The PCAOB was created by a provision of the Sarbanes-Oxley Act of 2002, which was enacted through regular order, not through budget reconciliation. If this provision of the Act is to be overturned, that should also be accomplished through regular order rather than through budget reconciliation.
4. The non-budgetary consequences of Sec. 50002 are substantial and very large relative to any budgetary consequences, which are merely incidental.
5. The proposal relates to a specific organization and could be considered “targeting.” Targeting violates the Byrd Rule.
As this Thomson Reuters article notes, last Thursday the Senate parliamentarian deemed the Republican PCAOB elimination proposal to be subject to the Byrd Rule. The article notes:
The June 19, 2025, ruling by the Senate parliamentarian means the provision would be subject to a 60-vote requirement, which would almost certainly be unworkable for a bill that faces a precarious road to passage even through the simple majority allowed under the reconciliation process.
With this development, it appears that the PCAOB will likely continue to operate in its current form, at least for now.
Ideagen/Audit Analytics recently released its annual study of financial restatements. The study provides data on restatements from 2005 through 2024, and the topics addressed include the number of Big R & Little r restatements, the average length of the restatement period, the impact of restatements on previously reported income, and a breakdown of restatements by industry. This excerpt discusses the filer status of companies that restated results:
Non-accelerated filers continue to disclose the most restatements of any filer status. In 2021, the number of non accelerated filer restatements increased by 451% to a total of 1,136 restatements, primarily due to SPAC restatements. This was the largest amount seen for any filer status group over the 20-year period. Although restatements have generally returned to pre-2021 levels, non-accelerated filer restatements still constituted the largest percentage of all restatements during 2024 at 45%.
Despite still having of the largest percentage, non-accelerated filers achieved the lowest percentage of total restatements since 2019 and the second lowest figure over the 20-year period. In 2024, 100 restatements came from these smaller companies, down from 243 restatements for non-accelerated filers in 2023.
Accelerated filers have seen the lowest restatement rates for the past 12 years, constituting between 5% and 31% of restatements annually. After reaching a historic low of 5% in 2021, the percentage of restatements filed by accelerated filers increased to 20% in 2024, aligned with the overall average for accelerated filers across the period. The total number of accelerated filer restatements reached an all-time low of 44 in 2024, decreasing from 63 restatements in 2023.
The percentage and total number of restatements filed by large accelerated filers have continued to exceed those of accelerated filers since 2012. In 2019, 35% of restatements were filed by large accelerated filers, the most seen over the 20-year period. In 2024, the percentage of large accelerated filer restatements increased significantly from 20% in 2023 to 35%, despite only a slight increase in the total number of restatements from 75 to 78.
The study found that total restatements increased by approximately 10%, from 434 in 2023 to 479 in 2024, and that the majority of the increase is attributable to restatements by former BF Borgers clients, who were associated with 41 restatements disclosed last year.
Over the past few years, we’ve blogged about the DOJ’s enforcement push targeting violations of the Clayton Act’s prohibition on interlocking directorates. That push has resulted in a few handfuls of director resignations, but a new study from a group of Stanford & Boston University law professors suggests that antitrust regulators have a lot of work left to do when it comes to director interlocks. In fact, their study claims that the level of non-compliance with Section 8 of the Clayton Act is simply shocking:
We show that large numbers of companies are directly violating that law, and that the problem goes well beyond simply breaking the law. Using a new dataset that enables us to provide the first analysis of board members on both public and private companies—rather than just public companies—we find 2,309 instances of individuals sitting on the boards of two companies that are direct competitors. The extent of interlocks is so great that for those companies about which we have data on at least five board members, 8.1% had an individual interlock.
The study says that interlocks are particularly common in the IT and life sciences industries, and claims that over 18% of pharma & biotech companies have at least one director who sits on the board of a direct competitor, while over 10% of IT software companies find themselves in the same position.
I’d be very surprised if the results of this study escaped the FTC & DOJ’s attention, so public and private companies would be smart to raise the consciousness of their boards about this issue and address any problems that are identified. Regulators haven’t typically sought to impose fines or penalties for interlocks violations, but they do force directors off of the board, which is disruptive and can cause reputational damage.
If you’re looking for some thoughts on how to prevent Clayton Act violations, check out this Forbes article by Woodruff Sawyer’s Priya Cherian Huskins.
Efforts by the Trump administration, anti-DEI activists, and private plaintiffs to target companies that continue to maintain DEI programs are receiving a lot of attention, but if companies think that the only risk they face is failing to unwind these programs as quickly as possible, a recent Bloomberg Law article says they need to think again. According to SMU Law Prof. Carliss Chatman, companies that roll back these programs may put themselves in legal jeopardy for that decision as well.
As she explains in the article, the issue arises under a Reconstruction Era civil rights statute, 42 USC §1981, which prohibits racial discrimination in making and enforcing contracts:
Section 1981 was enacted after the Civil War to guarantee all persons in the US the same right to make and enforce contracts “as is enjoyed by white citizens.” While the statute is often overlooked in corporate compliance discussions, it remains a potent tool for challenging race-based interference with commercial relationships.
Recent DEI pullbacks—especially those terminating or reducing contracts with Black vendors—may expose companies to Section 1981 litigation. Even in the wake of the Supreme Court decision Comcast Corp. v. NAAAOM, which imposed a but-for causation standard, companies are vulnerable if plaintiffs can show that race was a motivating factor in the decision to alter or end a contractual relationship.
This risk isn’t hypothetical. As companies such as Target and McDonald’s face public scrutiny for reversing course on supplier diversity, Black-owned businesses are left with fewer procurement opportunities and diminished access to markets that briefly opened during the post-George Floyd DEI wave.
If those opportunities didn’t evaporate because of objective performance metrics, but due to external political pressure or discomfort with racial equity branding, that may be enough to support a Section 1981 claim.
The article also points out that, if companies have previously highlighted their DEI policies as being a material component of their business strategy, sudden changes to those policies may trigger disclosure obligations under Regulation S-K and expose those companies to disclosure-based shareholder claims.
It’s been a tough year for business leaders, with each week seemingly bringing another unpleasant surprise for them to deal with. Since that’s the case, maybe it’s not surprising some of the responses to a recent survey of over 500 C-Suite executives by PwC and The Conference Board suggest that directors are increasingly getting on the nerves of corporate executives. For example:
– A whopping 93% of executives say they want someone on their board replaced (highest ever), but only 50% have confidence in their board’s ability to remove underperforming directors.
– Only 32% of executives think their board has the right expertise, with international, AI, and environmental/sustainability expertise topping the list of executives’ “want to haves” for their boards.
– 32% of executives think that their boards overstep the boundaries of their role. That’s double the percentage who thought so last year.
On the other hand, the survey also found that the percentage of C-Suite executives who rate their boards’ performance as excellent or good has increased from 29% in 2021 to 35% last year. However, that rating varies widely depending upon a particular executive’s role.
In that regard, 94% of CEOs and 72% of CFOs rate their boards’ performance as excellent or good, but that positive assessment plummets when you move down the ranks. Only 23% of CAOs, 32% of CHROs, 21% of CIOs and 23% of GCs give their boards an excellent or good rating. This excerpt from the survey suggests some reasons that might account for the differences in assessments of the board’s performance between various members of the C-Suite:
Not all executives have full visibility into board dynamics or deliberations, with perceptions shaped by select touchpoints or outcomes rather than the full scope of board responsibilities. Executives who interact with the board frequently tend to have a stronger grasp of its role and responsibilities. Those with more limited access to board discussions may have different expectations, often believing directors should have greater expertise in their functional areas. This could create a gap in perceived effectiveness among all executives.
