We have generally been covering developments related to the Outbound Investment Security Program on DealLawyers.com, but, since its adoption, capital markets practitioners and investment banks have been raising issues with the fact that it wasn’t crystal clear that certain routine public capital markets offerings weren’t captured because of the way the publicly traded securities exception was worded. As this Simpson Thacher article notes, the Treasury Department updated its FAQs (interactive version) at the end of last year to clarify what types of offerings are covered by the exception. This excerpt describes the new clarifications:
– Follow-On Offering Is Excepted: The Treasury Department makes clear that a follow-on offering falls under the publicly traded security exception where the new offering of securities are of the same CUSIP as publicly traded securities or otherwise “are of the same class as the securities that are already publicly traded and, upon issuance [and] will be fungible with such publicly traded securities,” and does not afford the U.S. person rights beyond standard minority shareholder protections with respect to the issuer. The participation in such follow-on offerings by both U.S. investors and U.S. underwriters likewise qualifies under the same exception.
– Convertible Bond Offering Is Excepted: The acquisition of a contingent equity interest “that is convertible into, or provides the right to acquire, only a publicly traded security” also qualifies as an excepted transaction provided again that it does not convey rights beyond standard minority shareholder protections. The FAQ expressly offers as an example a convertible note issuance where the debt interest may be converted into publicly traded securities. The exception will apply equally where the security may be converted alternatively into cash or another form of consideration that is not covered by the OIR.
– IPO Subscription Is Excepted: The publicly traded securities exception also applies to acquisition of IPO shares by U.S. investors pursuant to a subscription agreement (or other agreement such as a standby underwriting agreement) even if entered into prior to such listing, so long as “at the time of such acquisition the equity interest is publicly traded.” This clarification will be helpful to cornerstone investors who typically sign subscription agreements prior to the occurrence of an IPO.
– Director Nomination Right Is A Standard Minority Shareholder Protection: Because the publicly traded securities exception and other passive investment exceptions apply only where the U.S. person will not be afforded rights beyond standard minority shareholder protections, exactly what rights are considered standard minority protection is crucial and has been subject to different views. The Treasury Department here makes clear that a shareholder’s “right to nominate (that is, propose for election) an entity’s directors” would be considered a standard minority shareholder protection for purposes of publicly traded securities and passive investments exceptions “if that right is generally available to similarly situated shareholders of that entity solely by virtue of their minority shareholding.” By contrast, the Treasury Department warned that the right to appoint a director does not constitute a minority shareholder protection. That is so regardless of whether such a right is accorded to similarly situated shareholders.
– Treasury Reverses Its Prior Position Regarding PRC Statute: Further to the last point on standard minority shareholder protections, the Treasury Department explains that, upon further consideration, it “has determined that proposal rights generally available to similarly situated shareholders (such as shareholders meeting a certain low ownership threshold set in PRC statute) would qualify as standard minority shareholder protections.”
The alert says these FAQs will be “welcomed by global capital markets” with a caveat:
[N]one of the new FAQs exempts U.S. underwriters in connection with a new IPO where the underwriters would acquire shares before they become publicly traded (ancillary services by underwriters that do not involve the acquisition of non-publicly traded shares are permitted). As we discussed in our earlier alert, that is not the case with the NDAA, which explicitly excepts “the temporary acquisition of an equity interest for the sole purpose of facilitating underwriting services.” Until and unless the Treasury issues new regulations, parties should continue to act in full compliance with the OIR, including restrictions on U.S. underwriters in connection with IPOs.
When Liz blogged about Nasdaq’s new ability to deny an initial listing based on the risk of price manipulation by third parties, she noted that companies and their counsel now need to assess qualitative risk factors alongside technical listing compliance when pursuing an initial listing on Nasdaq. The SEC’s notice lists a series of examples of these risk factors that Nasdaq will consider in determining whether to apply this new discretion. To help you identify which IPO candidates may be more closely scrutinized, this Sheppard Mullin blog summarizes them as follows:
Location of Company. The company’s location including considerations such as the availability of legal remedies to U.S. stockholders in that jurisdiction, laws of the foreign jurisdiction that may present challenges to regulators seeking to enforce regulations against such company and the ability of parties to conduct diligence in that jurisdiction.
Influence and Control. Whether a person or entity exercises substantial influence over the company and, if so, where that person or entity is located, availability of legal remedies to U.S. stockholders in that jurisdiction, and laws of the foreign jurisdiction that may present challenges to regulators seeking to enforce rules against the person or entity and the ability of parties to conduct diligence in that jurisdiction.
Key Advisors. Whether there are concerns related to the company’s auditors, underwriters, legal counsel, brokers, or other professional service providers, including any regulatory issues involving such advisors as well as their participation in transactions where the securities were subject to patterns of problematic trading activity.
Management and Board Experience; Integrity. Whether the company’s management and board have experience with U.S. public company requirements, including regulatory and reporting requirements under Nasdaq rules as well as the rules of the SEC and whether there are concerns about the integrity of the Company’s management, board, significant stockholders and/or advisors.
Regulatory Referrals. Whether there are any FINRA, SEC or other regulatory referrals concerning the Company or its advisors.
Liquidity. Whether the company has or had a going concern audit opinion and the company’s plan to remediate such concern.
While these issuer-specific factors will undoubtedly be assessed, the list is non-exhaustive, and the Mayer Brown blog Liz shared suggests that Nasdaq may also consider “broader market patterns and past outcomes associated with similar listings when reviewing applications.”
While reading the news about Warren Buffett’s retirement — at 95 years old and after a 55-year tenure at Berkshire Hathaway — I started to wonder how many times he’s been mentioned on this site’s blogs. Would you believe it if I told you that, on the main blog alone, he’s been mentioned in at least 49 blogs (an even 50 with this one)? In honor of the end of an era, I thought I would share 10 of our best Warren Buffett blogs.
As Dave covered when it passed the House, the 2026 National Defense Authorization Act includes legislation to eliminate the exemption from Section 16 reporting available to insiders of foreign private issuers. That wasn’t the first time a repeal of the exemption was contemplated by pending legislation, but now it’s really happening. The bill was officially signed into law in December, as noted on Alan Dye’s Section16.net blog late last month. As a result, officers and directors of foreign private issuers (but not ten percent owners) will become subject to Section 16(a)’s reporting requirements (but not to Sections 16(b) and 16(c)) effective March 18, 2026. The Act directs the SEC to adopt implementing rules (effectively rescinding the existing exemption in Rule 3a12-3) before that date.
This Covington alert addresses some open questions, given the legislation’s directive:
Who is covered by these new requirements? – The NDAA specifically refers only to “officers and directors” of FPIs. Section 16(a) also applies to 10% owners. Indeed, the SEC’s current exemption applies to officers, directors and 10% owners. The SEC will have to decide whether to remove the current exemption for all insiders or just officers and directors. Extending the new requirements to 10% owners of FPIs would likely make listing in the United States even less desirable for controlling shareholders.
When will officers and directors of listed FPIs need to begin filing Forms 3, 4 and 5? – The NDAA amends Section 16 to require FPI officers and directors to file their reports within 90 days of enactment. Section 16 and the SEC’s current rules have a somewhat complicated rhythm for Section 16 reporting. Generally, there are initial holding reports on Form 3, due within 10 days of becoming an insider; transaction reports on Form 4, due two business days after the transaction; and, when applicable, an annual “catch-up”/summary report on Form 5, due after the end of the company’s fiscal year. It seems likely the SEC will interpret the timing language in the NDAA as the initial implementation date for Forms 3, but the language is ambiguous, and the SEC may provide a longer on-ramp.
Will FPI officers and directors be subject to Section 16(b) short swing profit recovery? The NDAA only makes changes to Section 16(a), which contains the reporting requirements. Section 16 has other provisions – notably subsection (b) which provides for recovery of short swing profits insiders make by trading within a six month window and subsection (c) which prohibits insiders from selling company securities short. Neither subsection distinguishes between domestic and foreign private issuers, but the longstanding SEC rule has exempted FPIs from all three subsections of Section 16. It is not yet clear whether the SEC will retain the exemption from Sections 16(b) and 16(c).
Could EDGAR Next further complicate implementation? – Last year, the SEC changed the rules for how companies and reporting persons – including Section 16 insiders – interact with the SEC’s Electronic Data, Gathering, Analysis and Retrieval (EDGAR) system, known as EDGAR Next. For filers already subject to a reporting obligation, the changes have been fully implemented, but not without some challenges. The process of signing up for “EDGAR codes” and coordinating the filing obligations of directors at multiple companies have created the most nettlesome implementation issues. Adding a new cohort of filers within a narrow window may delay compliance.
Alan’s blog also notes that it remains to be seen whether the SEC will require FPIs to comply with Reg. S-K Item 405, which requires disclosure of reporting delinquencies.
However these issues shake out, it suggests FPIs should use the time between now and March 18 to:
– Identify and train the employee(s) who will be responsible for Section 16(a) compliance
– Identify the insiders who will become subject to Section 16(a)
– Educate insiders about their new filing obligations
– Obtain EDGAR codes for any insiders who do not already have them
– Establish procedures for pre-clearing transactions and monitoring equity compensation awards to assure compliance with Form 4 filing requirements after March 18
– Prepare Forms 3 for all insiders and file them no later than March 18
In mid-December, the SEC’s Office of the Investor Advocate delivered its Report on Activities for the Fiscal Year 2025 to Congress. As highlighted in the announcement, the report provides an update on the office’s investor research activities, discusses the office’s engagements with investors, and describes its ongoing advocacy efforts.
I was interested to see this tidbit with data on accredited investors in the portion addressing the efforts of the Office of Investor Research:
We find that 12.6% of individuals in the U.S. population qualify as accredited investors. Individuals primarily qualify based on their reported net worth (capturing 9.7% of the population), followed by personal income (capturing 2.8% of the population) and household income (capturing 2.8% of the population). Least common is qualifying based on specialized expertise (capturing 1.7% of the population). The majority of accredited investors (75%) satisfy only a single criterion, while the remaining 25% satisfy two or more.
4.3% of those who qualify report owning private market securities described in the question as “private funds or offerings” and further specifying that these types of assets typically require investors to meet certain criteria.
That last statistic surprised me, so I looked up the working paper from June 2025 referred to in the report. I was even more surprised to see the data on non-accredited investor participation — I would have expected the gap in private market participation between accredited and non-accredited investors to be much wider.
Overall, 1.3% of respondents reported owning private market securities through ownership of interests in private funds or securities acquired in a private offering. Respondents who meet the accredited investor qualifications are more likely to report owning private market securities (4.3%) than non-accredited investors (1.1%). About one percent of those who did not qualify as an accredited investor report owning private market securities (Table 6).
The report gives words of caution, though.
We next examined how accredited investor qualification aligned with ownership of different types of financial assets. Respondents were asked to report which investment types they owned, using a list of different investment categories . . . This question included an option for private market securities described in the question as “private funds or offerings,” and further specifying that investing in these types of assets typically require investors to meet certain criteria . . . it does not perfectly align with the regulatory definitions. However, the question was worded to allow people to answer even when they unsure of which category their investments fall into . . .
As we were unaware of prior survey questions eliciting private market securities ownership, we randomly assigned respondents to report ownership in two ways. The first was “‘Private fund’ or ‘private offering,’ which typically requires certain income, wealth, or knowledge levels to participate.” The second was “‘Private fund’ or ‘private offering,’ which typically requires you to be an ‘accredited investor.’” Ultimately, we did not find any statistically significant differences in reported levels of ownership between these two statements, so we combined them for aggregated analysis . . .
Certain nonaccredited investors with knowledge or experience in financial and business matters may participate in Rule 506(b) private offerings, meaning that ownership may be possible. [FN 19: In addition, non-accredited investors may purchase securities in other securities offerings that are exempt from the registration requirements of the Securities Act of 1933. See, e.g., Rule 504 of Regulation D, Regulation A, and Regulation Crowdfunding.] Alternatively, such affirmative responses could reflect measurement error, including uncertainty by respondents over what constitutes a “private fund or offering,” or individuals who previously purchased private market securities no longer qualifying as an accredited investor after, for example, income loss. With cross-sectional data, we cannot determine the reasons for this mismatch.
Commissioner Caroline Crenshaw’s extended term ended over the weekend, on January 3rd. Commissioner Crenshaw has dedicated over a decade of her career to the agency. On Friday, Chairman Atkins and Commissioners Peirce and Uyeda issued a statement on her departure, thanking her for her service.
Over those years, she has been a steadfast advocate for the agency’s mission – demonstrating clarity of purpose and generosity of spirit. Commissioner Crenshaw has listened carefully, engaged substantively, and approached every day with the purpose of safeguarding investors and strengthening our markets. Those qualities are hardly surprising when you consider Commissioner Crenshaw’s broader record of service beyond the agency. As a major in the U.S. Army Reserve JAG Corps, she brings to her work a spirit of duty and a sense of discipline that reflects the very best of what this country asks of those who serve it.
Foley & Lardner’s Patrick Daugherty recently shared his article “10 FAQ About Crypto for Corporate Directors” with us. This resource covers a lot of the basics about digital assets and serves as a good starting point for helping you to educate private and public company directors about crypto. This excerpt addresses the differences between the traditional financial system and decentralized finance typically associated with crypto assets:
Traditional finance (sometimes called “TradFi”) differs from decentralized finance (“DeFi”) with respect to control. TradFi is controlled by banks and governments. DeFi is controlled by code. US dollar deposits, stocks and bonds are traditionally custodied in and by banks, broker-dealers and clearing agencies and are bought, transferred and sold using exchanges and those other TradFi institutions. The assets are controlled by centralized entities and identifiable human beings. Most crypto assets, in contrast, can be held and transferred without an intermediary. They can be transferred using personal computers and the internet from one person’s “wallet” to another’s wallet.
Metamask and Ledger are two well-known wallet providers. This is “peer-to-peer” transfer. That said, there are centralized crypto exchanges, such as Coinbase and Crypto.com, that can be used to transfer and custody crypto assets. And there are decentralized exchanges, such as Uniswap, where crypto assets are bought and sold peer-to-peer, with no human involvement other than the buyer and the seller. The Cube Exchange is a hybrid exchange, combining centralized ordermatching with decentralized custody and settlement.
Topics addressed in the FAQs include, among others, “what is crypto?” “Is crypto lawful?” “What do Miners do? What is Proof of Work? Proof of Stake?” “What are ‘utility tokens’?” and “What is a ‘stablecoin,’ and how does it compare to crypto assets like BTC and ETH?”
Public company boards are accustomed to scrutiny from a variety of sources, including regulators, investors, analysts, reporters, influences, and whistleblowers. This Skadden memo says that “watchdogs” that don’t have a stake in the company but demand board action on their hot-button issues should be added to that list, and that boards should take their demands seriously:
Boards may wonder whether they are obligated to respond to watchdogs or other third parties raising concerns about critical company issues. The board must exercise judgment in each instance about whether and how to respond. As a practical matter, however, the board should at least consider a watchdog’s demands and document its response and reasoning. Doing nothing can be risky for several reasons:
– Watchdogs may identify real issues that, if addressed, could benefit the company.
– If ignored, these demands could later be cited as “red flags” in litigation or regulatory investigations, suggesting the board failed in its oversight duties.
– Plaintiffs’ lawyers and regulators often use hindsight to argue that ignored warnings were clear signs of deeper problems.
The memo provides guidance to boards on how to evaluate and respond to watchdogs, and says that in order to appropriately fulfill their oversight responsibilities, boards “should respond as they would to similar issues raised by whistleblowers, shareholders or government agencies.”
Yesterday, the SEC announced that Corp Fin’s Deputy Director, Cicely LaMothe, had retired from the agency after 24 years of service. Ms. LaMothe served as Acting Director of Corp Fin prior to Jim Moloney’s appointment to the position of Director in September of this. Here’s what Director Moloney had to say about her tenure at the SEC in announcing her departure:
“Cicely has gone above and beyond the call of duty over the past twenty-four years to serve the public in her many critical roles in the Division of Corporation Finance,” said Jim Moloney, Director of the Division of Corporation Finance. “Throughout her tenure she has contributed her passion, commitment, and accounting expertise to support our mission – to ensure investors have the information they need to make informed decisions. She will be sorely missed, and we wish her all the best on her next chapter.”
Cicely LaMothe held a variety of senior positions at the SEC since joining the agency in 2002. In addition to her time as Acting Director of Corp Fin, these included service as Program Director of the Disclosure Review Program, Associate Director of the Office of Assessment and Continuous Improvement, and Associate Director of Disclosure Operations before being named Deputy Director for Disclosure Operations in 2022. We join Director Moloney in wishing her all the best going forward.
Like clockwork, a couple hours after I posted yesterday’s blog guessing about the SEC’s operating status over the upcoming 5-day weekend for federal workers, the SEC posted a formal announcement that EDGAR will be closed this Wednesday through Friday, resuming normal operations on Monday, December 29th. That means:
– EDGAR filing websites will not be operational.
– Filings will not be accepted in EDGAR.
– EDGAR Filer Support will be closed.
– Filings required to be made on December 24, December 25, or December 26, 2025 will be considered timely if filed on December 29, 2025, EDGAR’s next operational business day. Filers should plan their filings accordingly.
To put an even finer point on it, this is saying that the 24th – 26th are not “business days” for purposes of calculating filing deadlines. Effectively, the executive order gives you a couple of extra days to file.
