Good morning. As our securities laws were being considered during the Great Depression and years after, corporate governance policymakers sought to ensure that stockholders had an active voice over any entrenched management, inattentive directors, or a controlling group.
The intent was that all stockholders could assert their ownership rights around key components of running the business and capital allocation.
Thus, while our proxy access process was originally designed to empower shareholders and provide them with a voice in company oversight, in recent years it has increasingly been co-opted by activist investors whose primary focus often lies, not in maximizing shareholder value, but in pushing narrow political, social, or personal agendas.
We have seen the shareholder proposal process diverted away from the critical business strategy and instead become a tool for advancing proposals that distract from companies’ missions, leading to an erosion of shareholder value and additionally costly burdens on companies that are working to navigate today’s complex business conditions and global competition.
As we examine the shareholder proposal process, we must also consider the role of proxy advisory firms on capital markets as a whole.
While these firms can offer some valuable perspective, over the past two decades, their influence on corporate governance and voting on particular shareholder proposals has grown significantly.
We must ask ourselves if these firms are fulfilling their intended purpose of serving in the best interests of shareholders or if they are distracting from the primary goal of enhancing long-term shareholder value.
Chairman Hill’s remarks went on to mention the SEC’s Staff Legal Bulletins 14L and 14M, noting how Staff Legal Bulletin 14L “shifted the focus of shareholder proposal review from the proposal’s relevance to a specific company to whether the proposed issue had broad societal impact.” The Committee issued a statement highlighting quotes from members of the Committee, as well as the witnesses that appeared before the Committee, which included: James Copland, Senior Fellow & Director of Legal Policy at the Manhattan Institute; Ferrell Keel, Partner, Jones Day; and Ron Mueller, Partner, Gibson Dunn & Crutcher LLP. Ron’s highlighted quote was as follows:
U.S. public companies of all sizes take shareholder relations seriously and welcome the opportunity to engage productively with their investors. But public companies also recognize that not all shareholders have the same priorities, and board of directors and company management have fiduciary responsibilities to act in the best interests of shareholders at large. Thus, one has to question why a single shareholder owning shares with a value of just $2,000 can initiate a process that imposes significant costs and, more importantly, diverts key company personnel, executives, and directors from other business activities, which costs and consequences are borne by all of the company’s shareholders. Moreover, the nature of shareholder proposals being submitted to companies in recent years have changed significantly from the proposals submitted in prior decades. Shareholder proposals no longer are primarily focused on corporate governance issues or on providing information or input on important business activities, but instead increasingly are crafted by special interest groups focused on narrow policy issues or specific outcomes, without regard to whether or how companies may already be addressing the issue, or to other considerations that may be more significant and consequential.
As John shared over a week ago, the SEC’s Spring 2025 Reg Flex Agenda includes a proposed rulemaking called “Shareholder Proposal Modernization.” It is unclear at this point what role Congress might play in Rule 14a-8 reforms or the SEC’s regulation of proxy advisory firms.
Speaking of shareholder proposals, as we make the transition from Summer to Autumn, you can count on proxy seasons summaries emerging like pumpkin spice lattes and early Halloween decorations. As your attention now shifts to the 2026 proxy season, we have posted several new summaries of the 2025 proxy season here on TheCorporateCounsel.net. Over the course of the past month, we have posted Gibson Dunn’s “Shareholder Proposal Developments During The 2025 Proxy Season;” Cooley’s “Proxy Season Highlights” (Part 1 and Part 2); and Sullivan & Cromwell’s “2025 Proxy Season Review” (Part 1 and Part 2). You can find all of these summaries (and more) in our “Shareholder Proposals” Practice Area here on TheCorporateCounsel.net. If you do not have access to all of the practical guidance here on TheCorporateCounsel.net, I encourage you to email info@ccrcorp.com to sign up today, or sign up online.
The SEC’s Investor Advisory Committee will hold a public meeting next Thursday, September 18, at 10 a.m. ET. (also to be webcast on the SEC website). The agenda includes two panels prompted by the SEC’s June 4 Concept Release on the definition of Foreign Private Issuer (FPI). The panels include speakers from UK regulators, CII, academia and law firms and will:
– Explore the evolving landscape of foreign private issuers in U.S. capital markets
– Evaluate potential regulatory responses to address emerging risks to investors and market integrity
The IAC will also consider the regulatory framework governing retail investors’ access to private market assets and vote on the recommendations of the Investor as Owner and Market Structure Subcommittees. Those recommendations conclude:
[I]n the Committee’s view, the optimal way for retail investors to access private market assets is through registered funds, which allow retail investors to invest in broadly diversified funds that benefit from Commission review, audited financials, professional fund management, various levels of liquidity, and the protections of the Investment Company Act.
The subcommittees also address ways to improve the suitability of these investments and suggestions for basic investor protection guardrails that could accompany any expansion of direct access to private market assets.
Earlier this week, the non-profit public interest law firm Investor Choice Advocates Network (ICAN) announced that it has filed a lawsuit challenging the SEC’s accredited investor test on behalf of two plaintiffs — one individual investor and one venture capital fund. This is the latest of ICAN’s many efforts to reform the accredited investor definition.
The lawsuit argues that the accredited investor standard is “unconstitutional and unlawful” on the basis that it:
– Divides Americans into two classes — the wealthy, who get access to opportunity, and everyone else, who are shut out.
– Silences free speech and association — by blocking entrepreneurs from sharing opportunities and preventing investors from supporting causes they believe in.
– Violates federal law — by imposing wealth barriers Congress never authorized, based on arbitrary thresholds the SEC has never justified.
Perhaps a better title for this blog could be “accredited investor ROMO,” if I could use that to mean “Risk Of Missing Out.” As many have pointed out, the fact that more companies are staying private for longer means that more Americans miss out on investing during those high-growth years.
But change may already be in the works. The SEC’s Spring Reg Flex Agenda contemplates “Updating the Exempt Offering Pathways,” which includes simplifying “investor access to private businesses.” And the recommendations the Investor Advisory Committee will vote on next week support an “expanded focus on investor sophistication (rather than income or wealth) when determining accredited investor status.”
State-level securities laws — AKA “blue sky” laws — have been adopted by all 50 states plus Washington DC, Guam, Puerto Rico and the US Virgin Islands. As noted in this Wilmer Hale alert, these laws both regulate securities “left unregulated” by federal authorities (e.g., “securities only offered and sold within one state or offered by state or local governments”) and give states overlapping enforcement authority to prevent and punish securities fraud. The alert describes how state enforcement activity has — and is likely to continue to — “respond to perceived federal enforcement gaps” — i.e., possibly to act on crypto in ways the federal government is not.
Not surprising, perhaps, but here’s the key. Several states (the alert has a map) have adopted the more expansive “risk capital” test as either an alternative or complement to the Howey and Reves tests used to determine whether federal securities laws apply to a given financial instrument.
One of the most prominent applications of this test comes from the 1961 case Silver Hills Country Club v. Sobieski, decided by the Supreme Court of California. In Silver Hills, Justice Roger Traynor applied the risk capital test to conclude that memberships sold to develop a country club constituted securities—the memberships involved an investment of money in an enterprise for profit, which subjects the investor’s money to the risks of the enterprise, and the investor has no managerial control over the enterprise.
Some states have adopted this test by common law, and others by statute/regulation. For example:
The Supreme Court of Oregon has also adopted the risk capital test [and] a federal district court in Oregon has applied Oregon law to determine that a security exists under Oregon state law—but not federal law—where an individual bought into a franchising scheme.
Oregon is notable because it “provides a modern example of state attorneys general applying the broader risk capital test to treat newer instruments as securities” – i.e., its enforcement action against Coinbase. Oregon’s attorney general has shared his position in no uncertain terms: “[S]tates must fill the enforcement vacuum being left by federal regulators who are giving up under the new administration and abandoning these important cases.”
What does this mean for crypto and corporate issuers? That this may not be a one-off, and “the current polarized political environment” may “exacerbate the impact of the Howey/risk capital distinction.”
Given the Trump Administration’s pro-crypto and wider deregulatory policy agenda, Democratic state attorneys general and securities regulators may use state securities enforcement powers to act as a counterweight and/or to advance their own political priorities. Financial industry firms, exchanges, issuers and others should consider the potential impact of the Howey/risk capital distinction as they face what may be a more fractured securities regulatory environment in coming years.
Yesterday, the SEC announced that current Gibson Dunn partner Jim Moloney has been named the new Director of the Division of Corporation Finance.
Mr. Moloney previously served at the SEC for six years prior to joining Gibson Dunn & Crutcher, where he has worked the past 25 years, ascending from corporate associate to equity partner. He has served as a longstanding co-chair of the firm’s securities regulation and corporate governance practice. He has advised a wide base of clients on corporate governance matters, disclosure rules, mergers & acquisitions, tender offers, proxy contests, and going-private transactions among other areas.
During his tenure at the SEC from 1994 to 2000, Mr. Moloney was an attorney-advisor and later a special counsel in the Office of Mergers & Acquisitions in the Division of Corporation Finance. Notably, Mr. Moloney was the primary author of the proposing and adopting releases for Regulation M-A, a comprehensive set of rules governing mergers & acquisitions, tender offers and proxy solicitations.
I would note a lesser-appreciated accomplishment from Jim’s biography — that he got his J.D. cum laude from Pepperdine University. I’m convinced this is another reason he is well-suited to tackle the Commission’s ambitious agenda. If you can study amidst those Malibu ocean views, you can do anything.
His appointment will be effective next month, and Acting Director Cicely LaMothe will return to her role as a Deputy Director of Corp Fin. We’re updating our “List of Corp Fin Directors” for the news! Unfortunately, it also looks like we’ll need to update our list of advisory board members for TheCorporateCounsel.net and DealLawyers.com. Jim’s been a valued member of both for many years, but we’re guessing that his new position with the SEC won’t allow him to continue in that capacity. We’re grateful for all the contributions Jim’s made to our sites over the years and wish him every success in his new role!
Yesterday, the SEC announced an open meeting to be held at 10:00 am Eastern on Wednesday, September 17th. The agenda includes:
ITEM 2:Acceleration of Effectiveness of Registration Statements of Issuers with Certain Mandatory Arbitration Provisions – The Commission will consider whether to issue a policy statement addressing the presence of a provision requiring arbitration of investor claims arising under the Federal securities laws and its impact on decisions whether to accelerate the effectiveness of a registration statement.
ITEM 3:Amendments to the Commission’s Rules of Practice – The Commission will consider whether to amend its Rules of Practice relating to procedures governing Commission review of staff actions made pursuant to delegated authority in connection with the determination of the effectiveness of a registration statement or the qualification of a Regulation A offering.
On Item 2, MoFo’s Ryan Adams on LinkedIn said, “Wow, this is a big deal! Could this be the end of the SEC’s prohibition on mandatory arbitration provisions in the governing documents of those looking to go public? Sure seems like it…” If so, it would mean the death of a decades-old policy position that these clauses are contrary to public policy & potentially inconsistent with the anti-waiver provisions of the Securities Act & Exchange Act.
There has been speculation before that the SEC could change its stance on mandatory arbitration provisions (on this site, back as far as 2007 and during the first Trump administration). But this latest development goes far beyond speculation!
Yesterday, in a keynote address at the Inaugural OECD Roundtable on Global Financial Markets, which facilitates discussion of recent developments in financial markets to promote the development of consensus-based policies, Chairman Atkins shared views (subject to the SEC’s standard disclaimer) with roundtable attendees — including senior officials from ministries of finance, central banks, financial regulators and other relevant bodies. His speech touched on a number of high-priority topics for the Commission:
Accommodations for Foreign Issuers. Noting that the FPI concept release was one of his first actions this year, Chairman Atkins highlighted that the release seeks public feedback on whether “foreign companies listed in the United States should be subject to additional conditions—such as a minimum foreign trading volume or listing on a major foreign exchange—for them to receive accommodations not available to U.S. companies.”
To be clear, the SEC welcomes foreign companies that seek to access the U.S. capital markets. The concept release is not a signal that the SEC intends to disincentivize such firms from listing on U.S. exchanges. Rather, our goal is to better understand the impact on U.S. investors and the U.S. market resulting from significant changes to the population of foreign companies listed in the United States over the last two decades. Among the notable changes are the makeup of foreign companies reporting to the SEC and the trend of incorporating in a jurisdiction, such as the Cayman Islands, that differs from where the company is headquartered, operates, and is subject to a governance framework that implicates shareholder interests.
In light of these changes, does the SEC’s original rationale for extending special accommodations to all foreign companies without qualification still make sense or should our rules be updated? . . . While the official comment period closed this past Monday, the SEC of course will consider input it receives after the due date in evaluating whether to propose rule changes. I look forward to reviewing the public feedback on this topic.
Accounting Standards. Chairman Atkins expressed concern that the expansion of the IFRS Foundation’s remit in recent years (Trustees are now responsible for securing funding for both the International Accounting Standards Board (IASB) and the International Sustainability Standards Board (ISSB)) has the potential to divert its focus from its long-standing core responsibilities.
[T]he IASB must promote high-quality accounting standards that are focused solely on driving reliable financial reporting and are not used as a backdoor to achieve political or social agendas. Reliable financial reporting is critical to supporting capital allocation decisions. We all have a strong interest in the IASB’s being fully funded and operational, and I encourage the IFRS Foundation to meet its goal for “stable funding” that prioritizes the IASB and its focus on standards for financial accounting, rather than specious and speculative issues.
Notably, he says, “If the IASB does not receive full, stable funding, then one of the underlying premises for the SEC’s elimination of the reconciliation requirement for foreign companies in 2007 may no longer be valid, and we may need to engage in a retrospective review of that decision.”
Financial Materiality. Citing the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the double materiality regulatory approach they apply, Chairman Atkins expressed concern about the impact of these laws on U.S. companies with EU operations and that the costs of compliance “are potentially passed on to American investors and customers.”
Agentic Finance. Chairman Atkins imagines agentic finance in our future — “a system whereby autonomous AI agents execute trades, allocate capital, and manage risk at speeds no human can match, with securities law compliance embedded in its code.” He noted the potential benefits of “faster markets, lower costs, and broader access to strategies once reserved for Wall Street’s largest firms” and shared his view that the “government’s responsibility here is to ensure that commonsense guardrails are in place while eliminating the regulatory obstructions that stifle innovation.”
Last week, the SEC announced the creation of a Division of Enforcement task force focused on identifying and combating cross-border fraud harming U.S. investors. The press release says the task force will focus on investigating:
– U.S. federal securities law violations related to foreign-based companies (e.g., “pump-and-dump” and “ramp-and-dump” schemes)
– Violations related to companies from foreign jurisdictions where governmental control and other factors pose unique investor risks (e.g., China)
– Gatekeepers that help these companies access the U.S. capital markets (e.g., auditors and underwriters)
Cross-border fraud isn’t solely an area of focus for the Division of Enforcement. Chairman Atkins states: “I have also directed the staff in other SEC divisions and offices, including the Divisions of Corporation Finance, Examinations, Economic and Risk Analysis, and Trading and Markets as well as the Office of International Affairs, to consider and recommend other actions that would better protect U.S. investors, including new disclosure guidance and any necessary rule changes.”
This Quinn Emanuel alert says, “This isn’t just bureaucratic noise. It’s the first big enforcement signal from Chairman Paul Atkins since he took over in April. After months of staying tight-lipped on enforcement priorities, Atkins is now making it clear: old-school fraud is back in the SEC’s sights, and the agency’s going global.”
This O’Melveny Public Company Advisory Group publication reports on the results of the firm’s review of risk factor disclosures from large companies’ latest Form 10-Ks to identify common trends in reported risks across industries. Not surprisingly, risks related to AI, tariffs and the change in the presidential administration were trending up, while pandemic risk factors were trending down, and DEI risk disclosures were evolving. Here’s more info:
Artificial Intelligence. AI risks were mentioned in 86% of all Forms 10-K filed by large companies in 2025. Many large companies included a “standalone AI risk factor” that consolidated AI-related risks. AI was also referenced in these 10 other risk factors:
– Cyber threat – Actors using AI to commit cyber crimes
– Human Capital – Retaining a sufficiently skilled workforce
– Regulatory – Complying with expanding governmental oversight of AI
– Competitive – Keeping pace with technological advancements of competitors
– Use & Misuse – Misuse of AI by employees, contractors, and bad actors
– Execution – Launching new tools without vulnerabilities, bugs, or defects
– Strategic – Responding to rapid changes in technology and customer preferences
– IP – AI use leading to infringement claims by or against the company
– R&D – Recovering investments in new technologies
– Reputation – Bad publicity or liability arising from company’s use of AI
Tariffs. Tariff risks were mentioned in the Risk Factors section of 85% of all Forms 10-K filed by large companies in 2025. Those risk factors addressed:
– Tariffs and trade policies impacting availability and pricing for commodities and raw materials
– Tariffs as a factor contributing to volatility in the political and economic environment
– Tariffs and other trade restrictions causing supply chain interruptions
– Tariffs causing fluctuations in customer demand, making forecasting difficult
– Tariffs causing reduction in consumer spending
Presidential Administration Change.15% of all Forms 10-K filed by large companies in 2025 discussed risks related to the change in presidential administration. In addition to tariffs, those included:
– Risks to the company (including FCA liability) if their sustainability or other practices are deemed to be in contradiction to the Trump Administration’s “anti-ESG” policies
– Impact of the Administration’s efforts to reduce the federal workforce, in particular for companies that require federal agency approvals
– Impact of the Trump Administration’s efforts to roll back government spending, in particular for companies that rely on government contracts and subsidies
DEI. The percentage of large companies including references to DEI in risk factors declined from 2024, even while 7% of large companies added a new risk factor mentioning DEI. Where maintained or added, the risk factors often addressed the difficulty of balancing competing pressures from investors, regulators, consumers and the federal government.
