While securities fraud claims based on alleged “hypothetical risk factors” aren’t likely to be a high priority for the SEC in the current environment, they continue to get some traction in private securities litigation. The 9th Circuit’s decision earlier this month in Const. Laborers Pension Trust v. Funko, (9th Cir.; 2/26) provides further evidence of that – and highlights the potential for these claims to preclude companies from relying on the PSLRA’s safe harbor for forward-looking statements. Here’s an excerpt from The 10b-5 Daily’s blog about the case:
In [Funko], the plaintiffs alleged that Funko’s “risk disclosures” about its ability to manage its inventory in the future “concealed the facts that Funko had already failed to manage its inventory and that its business, financial condition, and operations were already adversely affected.” The district court found that these risk disclosures were protected by the PSLRA’s safe harbor because the plaintiffs failed to adequately plead actual knowledge of their falsity. On appeal, however, the Ninth Circuit panel appears to have created a new exception to the safe harbor.
In particular, the panel concluded that because the alleged omission related to Funko’s current failure to manage its inventory, the risk disclosure “implicitly serves as a comment on the present state of affairs, because it suggests that the circumstance posing the risk has not yet occurred.” And, as a result, the risk disclosure “does not fall under the safe harbor for forward-looking statements because its falsity lies not in the failure to predict the future, but in the implicit assertion about the present that the risk identified has not happened yet.” In other words, if a plaintiff alleges an “affirmative misrepresentation theory” then the otherwise forward-looking risk disclosure is converted into a statement of present fact and is not subject to the safe harbor.
The blog notes that the 9th Cir.’s position here is unusual, and that taken to its logical conclusion could essentially gut the PSLRA’s safe harbor, because “virtually every forward-looking statement securities fraud claim is based on the alleged omission of some ‘undisclosed fact tending to seriously undermine the accuracy of the statement.’”
It’s worth pointing out that federal courts have long had a somewhat tortured relationship with the PSLRA safe harbor for forward-looking statements. If you’re interested in learning more about how judges have sometimes twisted themselves into a knot to avoid applying the safe harbor, check out this article that I wrote for The Corporate Counsel newsletter a few years ago.
Over on The Business Law Prof Blog, Ben Edwards provides some interesting statistics on the jurisdiction of incorporations for companies that went public in 2025. Those statistics come from a slide deck prepared by Houlihan Lokey’s Robert Rosenberg for a PLI M&A conference in which both gentlemen participated. Houlihan Lokey’s data indicates that while Delaware was the jurisdiction of incorporation for over 80% of IPOs conducted in 2022-2024, its share fell to just under 62% in 2025. Nevada was the jurisdiction of incorporation for nearly 17% of IPO issuers in 2025, while Texas came in at just under 4%.
Does this mean it’s time for Delaware to panic? Ben doesn’t think so:
Although I can’t speak for the other panelists here, I think we all expect that Delaware will remain king of the hill by a substantial margin. There have been some shifts and some companies moving, but Delaware will continue to grow both in terms of overall numbers from private entity formation, public company IPOs, and public companies deciding to move to Delaware from other jurisdictions.
Delaware’s overall numbers depend on both DExits and DEntries. Companies sometimes shift their incorporation from one jurisdiction to another. As long as more are moving in than moving out, Delaware will continue to grow. Delaware has a dominant product. That isn’t likely to change anytime soon. But that doesn’t mean that there isn’t any room for other states to offer alternatives.
Traditionally, most companies confronted with an SEC enforcement action have opted to negotiate a settlement with the agency. However, this Dentons blog says that with the change in the SEC’s approach to corporate penalties and uncertainties regarding the continued viability of disgorgement in cases not involving investor harm, companies should give some thought to potentially litigating with the SEC:
Corporate penalties took a nose-dive following the change in administration, and this downward trend is generally expected to continue in 2026, with the possibility of a change in penalty policy. And expect the SEC to consider giving more credit for cooperation and remediation than before. There is also more uncertainty about the SEC’s use of the disgorgement remedy until the US Supreme Court decides later this year whether the SEC must show “pecuniary harm” to investors to obtain disgorgement.
Given this uncertainty, litigating instead of just settling should be carefully considered as an option in the defense toolkit. Litigation, or even the credible threat of litigation, can often yield better results, especially when regulators are seeking unreasonable monetary and non-monetary sanctions.
The blog also speculates on likely corporate enforcement targets, and says that companies with foreign ties, those with prior regulatory issues, and companies that are promoting new products (whether AI-related or not) may find themselves on the SEC’s radar.
Executive search firm CristKolder recently published its 2025 C-Suite Volatility Report, which focuses on C-Suite changes & demographics among Fortune 500 and S&P 500 companies. Here are some of the highlights:
– 78 CEO positions in this cohort of companies turned over last year, with the consumer sector leading the way at 24.4%, while the energy sector experienced the most stability with a turnover rate of just 9.0%.
– 120 CFO positions turned over, with nearly 20% of companies experiencing a change in CFOs last year. The services sector led the way with a 20.8% turnover rate, while the financial sector experienced only 7.5% CFO turnover.
– Only 16.5% of new CEOs and 12% of new CFOs were recruited externally last year. That’s much lower than the historical averages of 23% and 39%, respectively.
– The percentage of female CEOs and CFOs continues to trend upward, with female CEOs increasing to 9.1% and CFOs to 16.5%. The number of companies with female CEOs has nearly doubled in the past decade.
– CEOs and CFOs are also becoming more ethnically and racially diverse, with 14.6% of CEOs and 14.9% of CFOs being from diverse backgrounds.
The report is full of other interesting demographic tidbits, including the fact that more CEOs and CFOs come from public universities than private ones. That gives me an excuse to point out that two institutions to which I’ve paid considerable amounts in tuition topped the CEO leader board among public universities. The University of Virginia (where I went to law school) & Miami University (OH) (our youngest son’s alma mater) both accounted for 9 CEOs. They shared the top spot with Meredith’s alma mater, The University of Michigan.
Speaking of C-Suite turnover, a recent Weil memo addressing key corporate governance, engagement, disclosure and annual meeting topics highlights the importance of the board’s role in CEO succession planning:
With CEO turnover reaching record levels, boards face heightened pressure to reinforce succession planning processes and build deeper leadership pipelines. A November 2025 report by The Conference Board, Egon Zehnder, ESGAUGE and Semler Brossy notes that CEO succession announcements by S&P 500 companies over the last year increased to 13% as of October 2025 (up from 10% in 2024). This trend reflects broader market volatility, activist pressure, and shifting investor expectations around leadership stability.
In this environment, effective succession planning requires boards to evaluate a wider slate of candidates, prepare for both long-term and emergency transitions, and identify the mix of skills and strategic priorities that will reassure investors that strong leadership is both in place and actively being developed. Robust planning not only supports continuity but also mitigates the risk of disruption to strategy, operations, and overall performance.
Other areas addressed in the memo include risk oversight, board composition, human capital and executive and board compensation, and the shifting shareholder engagement landscape.
In order to fund their roughly eleventy squijillion dollars in projected AI-related capex over the next several years, prominent hyperscalers like Alphabet, Amazon, Alphabet, Meta, Microsoft, and Oracle have turned to the debt markets in a big way. According to this recent Reuters article, those companies have raised over $120 billion in corporate bonds last year. Not surprisingly, investor demand for these securities is very high, but Reuters points out that even by investment grade issuer standards, the covenants in some of these recent deals have been remarkably light:
Investment-grade borrowers with strong credit profiles typically include fewer covenants in debt agreements than their junk-rated counterparts. Yet most include basic investor guardrails, especially a standard change-in-control covenant protecting investors in the event of M&A or another change in ownership. Alphabet’s bonds do not carry these protections, noted Anthony Canales, head of global research at New York-based Covenant Review.
The five major AI hyperscalers – Amazon, Alphabet, Meta, Microsoft, and Oracle – issued $121 billion in U.S. corporate bonds last year, according to a January report by BofA Securities.
Alphabet and Amazon did not respond to requests for comment, while Oracle, Meta and Microsoft declined to comment.
Oracle’s $25 billion note offering on February 2, and Meta’s $30 billion bond offering in October, similarly lacked change-in-control and other basic covenants, Canales noted.
The article cautions that smaller players may be in for a rude awakening if they think they’ll get similar terms for their own offerings. As with everything else that’s AI-related, size matters in the debt markets too.
In a speech delivered yesterday at the Texas A&M Corporate Law Symposium, SEC Chairman Paul Atkins provided some details about the kind of disclosure reforms he wants the agency to pursue. I’m going to take these one-by-one and try to summarize the key points Chairman Atkins raised during his remarks. But he had quite a bit to say, and you should definitely read his speech in its entirety. Anyway, let’s get started.
Executive Comp Disclosure. Chairman Atkins said that the three principles driving the SEC’s efforts to reform executive comp disclosures were rationalizing, simplifying and modernizing the rules governing those disclosure requirements. In terms of rationalizing the rules, he said that materiality should be the SEC’s “north star,” and stated that the current requirement to provide detailed compensation information for up to seven people isn’t consistent with that objective. He said that he agreed with commenters who said that the number of executives for whom compensation info is required should be reconsidered, and that the level of disclosure should be calibrated with its cost.
Chairman Atkins singled out the PvP disclosure rules when discussing the need to simplify compensation disclosures. He said that SEC disclosure requirements should be “intelligible by a reasonable investor and practical for a company to comply [with], without the need for a cottage industry of ultra specialized consultants,” and that the current PvP disclosure rules flunked this test.
With respect to the need to modernize comp disclosures, the Chairman called out the current treatment of executive security arrangements as a “perk.” He pointed out that we live in a different world than the one 20 years ago when the SEC decided that executive security arrangements were not “integrally and directly related to job requirements,” and that the SEC’s rules needed to keep up with modern business realities.
Regulation S-K. Chairman Atkins called out “disclose or comply” line items that indirectly compel companies to toe the line on specific governance practices by forcing them into awkward disclosures if they don’t. He cited some of Item 407’s requirements, such as the need for a company without a nominating or compensation committee to explain why that structure is appropriate, as examples of this kind of “shaming disclosure.”
Chairman Atkins characterized these requirements as an “attempt to indirectly regulate, or set expectations for, matters of corporate governance.” He said that absent a Congressional mandate, it wasn’t the SEC’s role to enforce evolving “best practice” governance standards through disclosure requirements.
Chairman Atkins also cited provisions of Reg S-K that forced companies to comply with impractical disclosure requirements, such as the need to track down beneficial ownership information for NEOs who departed during the prior year in order to complete the current year’s beneficial ownership table in the proxy statement required by Item 403. He also cited the broad definition of “immediate family members” used in Item 404’s related party transactions disclosure requirements as imposing potentially impractical obligations on public companies.
Risk Factors. The final disclosure reform topic that Chairman Atkins addressed was the need to curb the relentless expansion of risk factor disclosures. He suggested that the solution depends on whether one views risk factor disclosure as primarily a tool to communicate what management believes are the material risks facing the business to investors, or a means to establish litigation defenses.
If the former, Chairman Atkins suggested that one approach might be for the SEC or the company itself to “maintain a set of risks, which could be published separately outside of the annual report, that broadly apply to most companies across most industries,” which would serve as a sort of “general terms and conditions” for investments. If the latter, then he suggested the solution might lie in adopting a safe harbor “stating that failure to disclose impacts from publicized events that are reasonably likely to affect most companies” won’t create liability under the securities laws.
My guess is that we shouldn’t read the Chairman’s comments on these topics in isolation. For example, the principles of rationalizing, simplifying & modernizing disclosure requirements likely have application to the SEC’s review of Reg S-K line items beyond Item 402. Similarly, Item 407 isn’t the only S-K line item that involves potential “shaming disclosures” (Items 405 and 408 come to mind). Some of those line items may also get a close look from the SEC, although they may have policy justifications that don’t involve pushing governance “best practices.”
As for the ever-expanding length of risk factor disclosures, I’m not sure there’s a comprehensive fix to this problem. The SEC can only protect companies from liability under the securities laws, and unfortunately, that’s not the only source of potential disclosure-related claims public companies might face.
Chairman Atkins also gave a shoutout to Texas for its recent legislative efforts at corporate reform, and for its enactment of SB 29 in particular. Among other things, that statute allows Texas corporations to include jury waivers and exclusive forum provisions in their charter documents.
It looks like Jim Moloney wasn’t kidding around when he said in his recent statement that we should expect “a steady stream” of staff guidance in the coming months. Yesterday, Corp Fin issued 10 new Reg A CDIs and withdrew one existing CDI and issued five new Regulation Crowdfunding CDIs. Here are links to the CDIs, along with a brief description of the topics addressed in each of them:
Securities Act Rules CDIs Section 182. Rules 251 to 263
Withdrawn Question 182.05 – Addresses eligibility of voluntary filers to use Reg A. (Withdrawn CDI predates amendments permitting reporting companies to use Reg A).
New Question 182.24 – Permits any issuer in a Reg A offering to submit draft offering statements for non-public review by the staff of the Commission regardless of whether it has previously sold securities under Reg A or in an effective registration statement.
New Question 182.25 – Permits an issuer to convert from a Tier 1 to a Tier 2 offering via a post-qualification amendment.
New Question 182.26 – Addresses when a reporting issuer must include interim financial information from its Exchange Act reports in its Form 1-A for periods more recent than those required to be presented.
New Question 182.27 – Addresses updating the amount of securities offered on the cover page of an offering circular when filing a post-qualification amendment to account for the actual amount an issuer can sell pursuant to Rule 251(a) on a going forward basis.
New Question 182.28 – Addresses advertising of Reg A offering on TV or radio, or through online ads featuring audio or visual components.
New Question 182.29 – Addresses when “testing the waters” materials are not required to be filed as exhibits.
New Question 182.31 – Addresses when securities underlying convertible, exercisable or exchangeable securities to be issued in a Reg A offering must be qualified and included in the aggregate offering price of at the same time as the overlying securities.
New Question 182.32 – Addresses when offers and sales must be suspended during the waiting period for a post-qualification amendment.
New Question 182.33 – Clarifies that exhibits may not be filed as attachments to offering circulars and addresses the procedure for filing exhibits.
Regulation Crowdfunding CDIs Rule 100 and Rule 201
New Question 100.03 – Addresses when a Reg Crowdfunding issuer may move its offering from one intermediary’s platform to another’s platform prior to making any sales.
New Question 100.04 – Clarifies that Rule 100(b)(2) will not disqualify former Exchange Act reporting company from relying on Regulation Crowdfunding.
New Question 100.05 – Addresses how the start of the 12-month period in Rule 100(a)(1) for purposes of calculating the maximum aggregate amount of securities that can be offered is determined.
New Question 100.06 – Addresses how the “annual” period is calculated for “annual income” in Rule 100(a)(2).
New Question 201.03 – Addresses annual updating requirements for Reg Crowdfunding offerings.
Check out our latest “Timely Takes” Podcast featuring Cleary’s J.T. Ho & his monthly update on securities & governance developments. In this installment, J.T. reviews:
– New Voting Guidelines from Vanguard & BlackRock
– Evolving Proxy Advisor Landscape
– Rule 14a-8 No Action Process Update
– AI Disclosure Trends & Considerations
– Section 16(a) Reporting for FPIs
As a bonus, J.T. also discussed the SEC’s decision to solicit comments on a potential overhaul of Regulation S-K.
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 and/or Meredith at john@thecorporatecounsel.net or mervine@ccrcorp.com.
Corp Fin Director Jim Moloney is a SoCal guy, so it’s not surprising that, in a recent statement, he delivered a series of Hollywood-style teasers for the SEC’s regulatory agenda. Here’s how he teed up his discussion of the agency’s “coming attractions”:
Steven Spielberg is directing a movie called Disclosure Day, coming this summer to a theater near you. As I keep telling my team, the changes you will see emerge from the Securities and Exchange Commission by way of the Division of Corporation Finance (the “Division”) will be the equivalent of a series of blockbuster movies, reminiscent of Spielberg’s greatest hits. He may have already taken the perfect title for one of our movies, but you can expect our very own “disclosure day” releases. And while Spielberg and I have very different plots in mind for our productions, I promise you that our releases will be just as thrilling. It’s time to leave some of these burdensome regulations on the cutting room floor.
Director Moloney then got down to specifics, which included Spielberg references aplenty! Here are some of the highlights:
– Crypto: Director Moloney recalled Commissioner Uyeda’s remarks comparing what the crypto industry has been dealing with from a regulatory standpoint to Jaws – “a dangerous sea with the ever-lurking threat of regulation by enforcement.” He said that Corp Fin is preparing to address that through interpretive guidance providing a taxonomy for crypto assets and a framework for determining when those assets are securities.
For those crypto assets that involve investment contracts, Corp Fin is also “working on a proposal that will seek to provide a rational regulatory structure for the offer and sale of those securities.” Hearing all this after the Gensler years, I bet the crypto bros feel like they’re living a true “Cinderella Story” that will help warm their hearts while they endure yet another bitterly cold crypto winter.
– Reg S-K: Director Moloney kicked off his comments on S-K reform by noting how shocked securities lawyers of another era would be if they were transported here, like E.T., and discovered how SEC disclosure documents have been transformed: “The overall length of proxy statements and periodic filings – not to mention compliance costs – have skyrocketed over the past decades, creating massive documents that would be alien to those who created our disclosure regime.” If that remark doesn’t resonate with securities lawyers enough to have a chorus of them chiming in with “I’m Spartacus!” I’ll eat my hat.
Getting down to brass tacks, Director Moloney went on to say that the SEC is looking for “targeted, concrete recommendations to reduce immaterial disclosure and encourage companies to focus on information that is material to investors.” This is a once in a lifetime opportunity, gang – so get your pencils out!
– Semi-Annual Reporting. Director Moloney supplied another Hollywood analogy for past efforts at revamping quarterly disclosure requirements, comparing them to Spielberg’s 2004 film “The Terminal.” That film recounts the story of a man trapped indefinitely at JFK airport by politics & bureaucracy. He went on to say that the SEC means business this time and observed that “It’s time to leave the airport at last and travel forward with a formal rulemaking.”
– Foreign Private Issuers. Director Moloney said that Corp Fin was scrambling to adopt rules surrounding the new Section 16(a) reporting obligations imposed on directors and officers of foreign private issuers, and also discussed the Commission’s review of input received on its concept release on FPIs. He said that Corp Fin was wrapping up its review of comments received on the release and was preparing a recommendation to the Commission on a rule proposal.
In his discussion of FPI rulemaking, Director Moloney said that as in Indiana Jones, “distant foreign lands offer unexpected changes, excitement, and adventure.” My guess is that some of these current & potential changes in the rules may make the FPIs on the receiving end of them feel as dislocated as the newcomers to America in Jim Jarmusch’s “Stranger than Paradise.”
Director Moloney went on to say that we “shouldn’t expect a quiet summer ahead,” and that in addition to this series of rulemaking blockbusters, we should expect “a steady stream” of staff guidance in the coming months “that will continue to help companies, their advisors, investors, and other market participants more efficiently navigate our rules.”
He closed out his statement by noting Corp Fin’s disclosure review program and the status of efforts by the staff to claw their way out of the backlog created by the government shutdown, and discussing the results (so far) of Corp Fin’s decision to back away from refereeing the shareholder proposal process. I could discuss these parts of his statement in more detail, but this blog is long enough and when you get to Jim Jarmusch, you know you’re running out of movie references.
Suffice it to say that the SEC has a ton on its plate – and it looks like a lot of this is going to end up on all of our plates over the course of the next several months. Gosh, if only there was a conference in the fall that brought together the top securities lawyers in the country to share their insights about all the regulatory developments that are going to unfold over the course of the next few quarters. . . Oh, wait a minute – I just remembered, there is one!
