Earlier this month, the Department of Justice announced its first-ever department-wide corporate enforcement policy, which applies to all corporate criminal cases.
The policy – formally known as the “Corporate Enforcement and Voluntary Self-Disclosure Policy” or “CEP” – is intended to promote consistency, transparency, and predictability and to incentivize voluntary self-disclosure and remediation. It supersedes all existing policies – but seems to incorporate many of their principles.
This Sullivan & Cromwell memo summarizes key changes from existing policies. As far as what the new approach means for companies, the S&C team shared these thoughts in their memo:
The new CEP now ensures that — with the exception of antitrust cases that have long been subject to the Antitrust Division’s unique leniency program — the concrete benefits of voluntary self-disclosure, cooperation, and remediation offered by the Department in corporate criminal cases are governed by a single, uniform policy. For companies facing potential criminal exposure under all other federal criminal statutes, the new policy brings a degree of predictability and consistency that did not exist under the prior regime, where the potential benefits and aggravating circumstances depended on which office or component was handling the matter. The benefits of the CEP are now available across the board, regardless of where a case lands.
The tradeoff is that the prior patchwork of component-specific policies offered companies some degree of flexibility and, in certain instances, more favorable terms. While the new Department-wide CEP makes several changes to the prior Criminal Division CEP, it hews closely to it, and companies can continue to look to precedent cases decided under prior policies to get a sense of what to expect going forward.
At PLI’s “SEC Speaks” conference last week, the Corp Fin Staff shared a status update on the disclosure review program, which had been significantly affected by last year’s record-breaking government shutdown. Here are a few key takeaways (based on our notes from the event and subject to the standard SEC disclaimers):
• The shutdown created a “pens down” situation where staff couldn’t review in-process filings – and by the time it ended, 1,000+ registration statements had accumulated, and of course more kept coming in after the government reopened. When the government reopened on November 13, it was taking about 70 days for the Staff to issue its first round of comments on initial registration statements.
• Now, time-to-first-comment is averaging around 30 days – closer to normal – with some reviews completing the first round under 30 days. In the time period from November 13 to March 19, the Staff processed initial round comments on over 600 filings – compared to just over 300 in the same period the prior year. Not only did they double the volume, they did it with a reduced headcount! People are working very hard.
• The annual review program under Sarbanes-Oxley Section 408 was paused to deal with the registration statement backlog, but it has now been restarted. The Staff will comply with the mandate, though the number of reviews will be lower than in prior years.
• Comment letter dissemination is approximately five months behind. That means that if you’re tracking comment letter trends or volume, the data will look artificially low, and you should know that it’s a function of the delay, not a reduction in comments. Staff is looking at ways to automate what is currently a manual process.
On that last point, one thing that slows down comment letter dissemination is the need to scrub personally identifiable information. If you’re submitting correspondence or exhibits, double-check for bank account numbers, addresses, and tax IDs before you file. Cleaning up on the front end helps Staff on the back end.
Be sure to tune in at 2 pm Eastern tomorrow for our webcast – “From S-1 to 10-K: Avoiding Disclosure Pitfalls” – to hear Tamara Brightwell of Wilson Sonsini, Brad Goldberg of Cooley, Keith Halverstam of Latham & Watkins and Julia Lapitskaya of Gibson Dunn share practical guidance on the most frequent disclosure and compliance challenges that newly public companies face – and offer insights into how to avoid the common missteps that can trigger SEC comments, investor scrutiny, and unnecessary risk. Our panelists will also address questions submitted by members in advance (the deadline was March 19th).
Topics include:
– Entering the Exchange Act Reporting Cycle
– Risk Factors, Forward-Looking Statements, and Earnings Communications
– Form 8-K Current Reports
– Form 10-K and Proxy Statement
– Mechanics of the First Annual Meeting
– SOX, Internal Controls, and Disclosure Controls in the First Year
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Yesterday, Corp Fin issued new SEC Forms CFI 116.26 that gives small cap ATM issuers a potentially very big break. Here’s the new guidance:
Question: A company entered into a sales agreement with a named selling agent for an at-the-market offering of an amount of securities that the company reasonably expected to offer and sell. The company had an effective Form S-3 registration statement, was eligible to offer and sell securities in reliance on General Instruction I.B.1, and filed a prospectus supplement for the offering. At the time of its next Section 10(a)(3) update, the company does not meet the $75 million public float requirement of Instruction I.B.1 but remains eligible to use Form S-3 in reliance on General Instruction I.B.6 (the “baby shelf”). Will the staff object if the company continues to offer and sell the full amount of securities covered by the prospectus supplement even if that amount would exceed the offering limits of General Instruction I.B.6?
Answer: Under these circumstances, the staff will not object if the company continues offering and selling the full amount of securities covered by the prospectus supplement that was filed prior to the Section 10(a)(3) update. [March 19, 2026]
Traditionally, each Section 10(a)(3) update drew a bright line around questions concerning Form S-3 eligibility, and if an issuer no longer met the $75 million public float test, any existing ATM program would be subject to the baby shelf limitations in Instruction 1.B.6. Now, an issuer that finds itself in this position can continue to issue the full amount of the shares covered by the ATM pro supp even after the date of the Section 10(a)(3) update.
The relief granted by this CDI is relatively modest in the grand scheme of things (after all, we’re talking about ATM programs), but in taking a position that the Section 10(a)(3) update is no longer a bright line in all situations, the Staff may have crossed the Rubicon here. It will be interesting to see where that journey takes it.
Last month, Meredith blogged about Nasdaq’s proposal to offer “Fast Entry” to its Nasdaq 100 Index for mega-cap IPOs. This excerpt from a recent WSJ article summarizes how the proposal would work:
Consider a company whose total market capitalization is large enough to rank among the 40 biggest in the Nasdaq 100. Under the rule proposal, if that company does an IPO for less than 10% of its shares outstanding, it would enter the index at a weight of five times the market value of its freely tradable shares.
Say what?
If a company with a total market capitalization of $1 trillion floated only 5% of its stock in an initial offering, that would be $50 billion in freely tradable shares. Under Nasdaq’s proposal, the basis for weighting the company in the Nasdaq 100 index would be five times greater, or $250 billion.
In current market conditions, this company with $50 billion in freely tradable shares—multiplied by a factor of five—would immediately hurdle into the top third of all stocks in the index.
Nasdaq’s proposal – which is in the consultation phase – is made in contemplation of some mega-IPOs that are likely to come down the pike this year, including SpaceX (which has reportedly conditioned its willingness to list on Nasdaq on adoption of the proposal), Open AI, and Anthropic. However, the proposal’s going over like a lead balloon with some institutional investors. Here’s another excerpt from the WSJ article:
The likely result, several asset managers tell me, is that with the company looming five times larger in the benchmark, index funds and other big investors would be under pressure to buy more of the stock, giving an artificial boost to its performance.
If Nasdaq adopts the proposed rule, “you’re creating false demand that’s going to affect the stock price because of the lack of liquidity,” says Ken Mertz, chief investment officer at Emerald Advisers, an asset-management firm in Leola, Pa. “Higher demand would create greater volatility and potential harm to market efficiency. And it would bring more speculation into the marketplace.”
Other commentators are more blunt in their criticism. For example, Michael Burry, of “The Big Short” fame, says that George Noble’s Substack piece on the proposal is a must read. Mr. Noble kicks off his critique with a statement that “This is the most SHAMELESS structural manipulation of a major index I’ve ever seen. . . ” Spoiler Alert: He doesn’t get more positive on the proposal from there.
We’ve recently passed the 13,000-query mark in our “Q&A Forum.” Of course, as Broc would always point out when he wrote one of these Q&A milestone blogs, the “real” number is much higher since many queries have others piggy-backed upon them. Over the years, we’ve collectively developed quite a resource. Combined with the “Q&A Forums” on our other sites, there have been well over 35,000 individual questions answered – including over 11,000 that Alan Dye has answered over on Section16.net.
As always, we welcome – in fact, we actively encourage – your input into any query you see that you think you can shed some light on for other members of our community. There is no need to identify yourself if you are inclined to remain anonymous when you post a reply (or a question). And of course, remember the disclaimer that you need to conduct your own analysis & that any answers don’t constitute legal advice. Also, please keep in mind that the Q&A Forum is not an outsourced research service – we all have day jobs and aren’t in a position do research projects!
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While much of the DExit debate has focused on differences in the way director and controlling shareholder actions will be evaluated under the legal standards of different states, investor relations concerns also need to be top of mind for companies considering reincorporation. A recent FTI memo discusses some of the non-legal considerations associated with DExit proposals. This excerpt highlights factors companies should consider during the evaluation stage for a possible move from Delaware:
– Candidly Assess Current Relationship With Shareholders. Requesting shareholder approval to reincorporate does not happen in a vacuum. History matters. When shareholders are voting, they will be assessing more than just the merit of the proposal. They will be assessing the history of engagement with the Company, the Company’s current shareholder rights profile, the Board’s rapport with shareholders at large, and, if applicable, any response to previous shareholder dissent. Shareholders need to trust the Board in order to support such a proposal, and trust is established well before the filing of a preliminary proxy.
– Start Early. Companies should thoroughly assess the merit of reincorporation, including to which jurisdictions, alongside legal counsel. Shareholders will want to see that the Board took the appropriate steps to determine this was in the best interest of shareholders, and this process was not rushed. Further, reincorporation requires the filing of a preliminary proxy and a deliberate campaign-like approach to secure shareholder support (more on that below), which underscore the importance of starting early.
– Avoid Surprises (for your shareholders and for you).
Engage Shareholders Early. Companies should have regular dialogue with their top investors on governance matters, establishing a relationship with them before requesting their support on a proposal like reincorporation. In these engagements, companies can discuss the topic of reincorporation at a high level with their top shareholders and seek their views on the topic.
Conduct a Voting Outlook. Prior to requesting shareholder approval to reincorporate, a Company should have a rough idea of which shareholders are generally supportive, unsupportive, or “on the fence” when it comes to reincorporation proposals. Analysis can inform a likely vote outcome and can identify what levers the company has available to increase the likelihood of shareholder support.
– Monitor the Landscape. The legal frameworks that may make reincorporation more or less appealing can change over time. We expect shareholders’ views will also evolve. Boards considering reincorporating should closely monitor these developments.
The memo also includes recommendations to boards and management teams that have gone beyond the evaluation stage and are seeking shareholder approval of a reincorporation proposal. Among other things, FTI stresses the importance of a cohesive campaign to secure shareholder support, the need for a compelling company-specific rationale behind reincorporating that goes beyond “less litigation,” and the extent to which reincorporation may be perceived to put shareholder rights at risk.
When I taught my law school classes, I would always touch on the “Race to the Bottom” among states competing for corporate franchise dollars and mention that New Jersey had the early lead in the competition in which Delaware ultimately prevailed. Exxon – f/k/a Standard Oil of New Jersey – was always my example of a company that chose The Garden State early on and that has remained there for more than a century. However, Exxon’s not likely to be a New Jersey corporation much longer, since it recently filed a preliminary proxy statement with the SEC asking shareholder to approve a move to Texas.
Exxon also filed soliciting materials containing the following talking points to explain the redomiciliation proposal to its shareholders:
Key message: Texas, as you likely are aware, is ExxonMobil’s home. After careful evaluation, our Board has determined that aligning our legal domicile with our operational home – Texas – benefits both shareholders and the Company, all while preserving shareholder rights.
– ExxonMobil is a Texas corporation in all but name, with most senior corporate executives and all corporate functions based in the state for the last 35 years. Our global headquarters are in Texas; approximately 30% of our global employees are based in Texas. Of the company’s U.S. employees, approximately 75% work in Texas and our U.S.-based research facilities are in Texas.
– We work in a long-cycle, complex industry where legal stability and certainty are critical. We believe Texas legislators, judges, and juries that are more familiar with our business are more likely to provide legal certainty.
– Texas has been deliberate in offering businesses a predictable and common-sense regulatory environment designed to support innovation, job creation, and economic growth, strengthening shareholder value over the long-term.
– The move would in no way alter our commitment to protecting shareholder rights. The Board compared shareholders’ rights under New Jersey and Texas law and believes the economic and voting rights of shareholders are comparable, and stronger in some areas. Importantly, the Company is not adopting any elective provisions of the Texas corporate statute that could be viewed as weakening shareholder rights as compared to New Jersey law.
I’ve got a couple of thoughts about Exxon’s proposed move. First, these talking points seem to check all of the investor relations boxes that FTI recommended in the memo I just blogged about. Second, like Sal Tessio, I understand that this is “just business,” and Exxon wants New Jersey to know that it’s always liked it.
That being said, I’m a little melancholy about the decision, because it represents the closing of a very long and storied chapter in American corporate history. In that regard, check out Article FIFTH of Exxon Mobil’s current certificate of incorporation, which continues to list all of its founding shareholders, including John D. Rockefeller and the other trustees of The Standard Oil Trust.
Many companies are reluctant to disclose early-stage governmental investigations, and they frequently have good reasons for thar reluctance. However, a recent California federal judge’s decision in Cai v. Visa, (ND Cal.; 12/25) highlights the potential benefits of a decision to disclose governmental investigations at an early stage in the process.
The case involved allegations that the company misled investors by concealing anticompetitive practices in its debit card business and downplaying the risk of an antitrust enforcement action by the DOJ. The plaintiffs alleged that media reports about a potential lawsuit by the DOJ and the lawsuit’s subsequent filing allegedly caused a stock price drop. The Court granted the defendants motion to dismiss on the basis that the plaintiffs failed to plausibly plead loss causation. In reaching this conclusion, the Court pointed to the fact that the company had disclosed the antitrust investigation years prior to the lawsuit, and that the stock rebounded quickly after the lawsuit was announced.
The court granted the defendants’ motion to dismiss, finding that the plaintiffs failed to adequately plead loss causation, because they did not plausibly connect the alleged misstatements to the stock price decline, particularly since the antitrust investigation had been disclosed years earlier and the stock price rebounded quickly after the drop.
Holland & Knight’s blog on the case says that the company’s decision to disclose the investigation early on provides a couple of key takeaways from the decision for other public companies:
– Early, Robust Risk Disclosures Can Provide Meaningful Defensive Value. Visa’s decision to disclose the DOJ investigation years before a complaint was filed proved strategically beneficial, illustrating that early warnings – when material and appropriately framed – may blunt later loss‑causation theories.
– Voluntary Disclosure of Informal Regulatory Inquiries May Be Advantageous. Cai shows that early disclosure of government investigations can help defeat later securities fraud allegations by preventing plaintiffs from claiming that subsequent developments revealed any “new” corrective truth.
Yesterday, the SEC announced the issuance of an Interpretive Release clarifying the application of the securities laws to digital assets. The CFTC joined in the issuance of the Release. Here’s the 68-page Release and here’s the three-page fact sheet.
The SEC’s press release says that the interpretation provides a coherent token taxonomy for a wide range of digital assets, addresses how digital assets that aren’t securities may be deemed to become subject to an investment contract under Howey (and when that status may terminate), and clarifies how the securities laws apply to “airdrops, protocol mining, protocol staking, and the wrapping of a non-security crypto asset.”
The Fact Sheet gets into some of the specifics. Here’s what it has to say about what digital assets are, and are not, securities under the interpretation:
– Digital Commodities – NOT Securities – Crypto assets that are intrinsically linked to and derive their value from the programmatic operation of a crypto system that is “functional,” as well as supply and demand dynamics, rather than from the expectation of profits from the essential managerial efforts of others.
– Digital Collectibles – NOT Securities – Crypto assets that are designed to be collected and/or used and may represent or convey rights to artwork, music, videos, trading cards, in-game items, or digital representations or references to internet memes, characters, current events, or trends, among other things.
– Digital Tools – NOT Securities – Crypto assets that perform a practical function, such as a membership, ticket, credential, title instrument, or identity badge.
– Stablecoins – GENIUS Act Stablecoins NOT Securities – Defined in the GENIUS Act as “payment stablecoin issued by a permitted payment stablecoin issuer.”
– Digital Securities (or “tokenized securities”) – Securities – Financial instruments enumerated in the definition of “security” that is formatted as or represented by a crypto asset, where the record of ownership is maintained in whole or in part on or through one or more crypto networks.
The interpretation clarifies that when a non-security digital asset is sold with representations of managerial efforts that create a reasonable expectation of profit, it becomes an investment contract under the Howey test. It also discusses the kinds of representations that can give rise to this characterization and when the investment contract may be deemed to end because of the fulfillment or failure of those representations.
The interpretation also says that “protocol mining,” “protocol staking,” and “wrapping” of non-security crypto assets don’t involve the offer and sale of a security, and that dissemination of digital assets via “airdrops” don’t involve an “investment of money” under Howey.
