Yesterday, Corp Fin Staff updated its frequently asked questions on the application of the securities laws to certain crypto assets and crypto asset transactions and the Interpretive Release issued by the Commission in March. Questions 1.4, 1.5 and 1.6 were newly added.
Question 1.4: Addresses when the participants in a functional crypto system’s broad-based governance system are considered a “group of persons or entities” for the purpose of the definition of “central party.”
Question 1.5: Addresses what it means for a central party to “oversee participation” for purposes of the Interpretive Release’s description of a functional crypto system.
Question 1.6: Discusses the relationship between a “functional” crypto system and a “decentralized” crypto system.
Yesterday, in remarks at Practicing Law Institute’s 58th Annual Institute on Securities Regulation, Commissioner Uyeda shared his views on the SEC’s Corporate Penalty Statement, which provides a framework for evaluating whether to impose corporate civil penalties in connection with enforcement actions, and looked back at how the statement has fared in the 20 years since it was issued. Commissioner Uyeda supports the principles behind the statement, which he says still point in the right direction (particularly that the Commission should consider the degree to which any penalty would compensate or further harm injured shareholders). But he identifies ways in which the world today differs from the world in which the statement was written, and how applying the statement may not always further the Commission’s goals or the principles for which it stood. For example:
[T]he broader use of dual-class stock corporate structures, where a founder or controlling shareholder may direct the company with a majority of the votes while owning a smaller fraction of the equity. When such a company pays a civil penalty, the cost tends to be borne by economic ownership, not by voting power. The public shareholders who had little or no influence on how the company was run may end up shouldering most of the civil penalties, while the controlling shareholder, who might arguably be closer to the misconduct at issue, may be impacted significantly less. Whatever one thinks of dual-class structures, that is a reason to look first to the individuals responsible for the violations. As corporate structures evolve, Commission staff should be thinking about which shareholders will be impacted the most by a civil penalty. Are there ways of using Fair Fund authority to recompense non-controlling shareholders in such situations?
[T]he interaction of the civil penalty with the SEC’s whistleblower program. The whistleblower program, created in 2010, pays awards of 10 to 30 percent of monetary sanctions collected in actions over $1 million, so the issuance of a penalty and its size now have consequences beyond deterrence. While the potential for a whistleblower award does not and should not factor into whether a corporate penalty is imposed, a greater focus on individual wrongdoers, who may lack the resources to pay, could result in smaller awards, or even possibly no award if the amount falls below the $1 million threshold, for the whistleblowers who made those cases possible. Given the public interest in encouraging reports of wrongdoing and malfeasance, are there other ways to ensure whistleblowers are meaningfully rewarded that do not depend on imposing large civil penalties borne by victimized shareholders?
He pointed to these developments to suggest that the statement should be revisited to address situations that were not originally contemplated. He also stressed the importance of holding the individuals responsible for the noncompliance personally accountable using the tools the Commission has for this purpose – including D&O bars, suspensions and clawbacks – even though pursuing individuals can be a harder path for Commission Staff.
The Commission should not be reluctant to pursue individuals and use these tools where warranted. Individual remedies can be harder to obtain. They take longer to investigate, they are litigated more often, and individuals with their livelihood at stake fight harder than corporations deciding whether to settle. Individuals are also often covered by insurance, indemnification, and expense advance provisions to fund their defense. Those are reasons to staff and support individual cases properly, not reasons to accept a corporate settlement in their place. When the choice is between a large corporate penalty and holding the responsible officers and employees accountable, the 2006 framework and common sense point in the same direction [. . .]
A civil penalty paid out of the corporate treasury is too often borne by shareholders and rarely is it felt by the executives and other company insiders who caused it. Personal consequences are different. An officer who knows that misconduct could end a career in public company leadership weighs a decision differently from one who expects the company—and by extension the shareholders—to write a check to cover their misdeeds.
In September, Liz shared that the PCAOB adopted amendments to certain provisions of QC 1000, A Firm’s System of Quality Control, after convening an open meeting in June on this topic. At the time, Liz noted that the amendments remained subject to SEC approval. The SEC has now granted that approval in an order issued yesterday.
QC 1000 was approved by the SEC back in September 2024, and the effective date of the new standard was postponed last August to December 15, 2026. These latest amendments (which Liz summarized when they were adopted by the PCAOB) did not change that effective date. The order states that the amendments will also be effective on December 15, 2026.
Under the Amendments, the first period for firms’ evaluation of their QC systems will cover the period beginning on the effective date of QC 1000 (i.e., December 15, 2026) and ending on the firm’s selected evaluation date, subject to a five-month minimum period of operation before a firm is first required to evaluate its QC system. Subsequent evaluation periods will cover the 12-month period ending on the firm’s selected evaluation date.
Last week, FASB announced the issuance of a proposed Accounting Standards Update (ASU) to make some tweaks to the accounting for equity method investments. This PwC viewpoint explains the proposed changes as follows:
A single significant influence threshold: Under existing guidance, the assessment can differ for investments in corporations compared with partnerships and similar entities [. . .] The proposal would eliminate those differing scope thresholds and use “significant influence” as the single principle for determining whether an investment is subject to the equity method. As a result, some investments in partnerships and similar entities that are currently accounted for under the equity method may no longer qualify for the equity method if the investor does not have significant influence. The FASB also proposed several targeted changes to the significant influence guidance in ASC 323 to:
– Remove the presumption that an investor does not have significant influence when it owns less than 20% of an investee’s voting stock
– Expand the existing board representation indicator to include representation on a functionally equivalent governing body
– Specify that a noncontrolling general partner or its functional equivalent (such as a managing member in a limited liability company) has significant influence
An investor would continue to presume significant influence when the 20% ownership threshold is met; however, an ownership interest below 20% would no longer create a presumption that significant influence does not exist. Rather, the other relevant factors in the existing guidance would need to be considered.
Complex allocation structures: The proposal also aims to clarify how an equity method investor determines its share of an investee’s earnings when the investee has a complex allocation structure, which is often done using an approach referred to as “hypothetical liquidation at book value.” The proposed ASU would move guidance on this topic in ASC 970-323, Real Estate—General—Investments—Equity Method and Joint Ventures, which is not specific to the real estate industry or to a particular transaction into ASC 323 so it is more easily accessible for financial statement preparers.
Other proposed amendments: The proposal would also make consequential amendments to ASC 810, Consolidation, related to (1) allocating income to noncontrolling interests that involve complex allocation structures and (2) the application of proportionate consolidation in certain industries.
Comments are due January 11, 2027. The proposed ASU is available at www.fasb.org with instructions on how to submit comments.
Earlier this month, State Street announced the results of its 2026 Digital Assets Study, which surveyed 300 institutional investors between July 20 and August 19 to understand institutional adoption, investment priorities and operational readiness for digital assets. It found that “institutional investors are becoming increasingly confident in the long-term future of digital assets.” Here are some stats and quotes from the summary that stood out to me:
– 51% expect digital assets to become mainstream within five years, if they have not already, up from 42% in 2025 and 11% in 2024.
– Just 3% believe digital assets will never become mainstream.
– More than one-third (35%) of respondents already manage or distribute digital assets, while another 28% have the provider relationships and infrastructure in place to do so if client demand arises.
– Cost reduction and efficiency were identified as the largest expected benefit of digital assets by 53% of respondents. Faster settlement was the most frequently cited advantage (67%), followed by new client acquisition (58%) and increased liquidity (53%).
– Nearly one in five respondents believe a fully on-chain market structure will never replace today’s hybrid model of traditional and digital infrastructure.
The DOJ has been focused on encouraging corporate self-reporting and holding the real “bad guys” accountable in the last few years. Over on Radical Compliance, Matt Kelly recently wrote about a technology company charged with violations of U.S. sanctions laws through its Russian subsidiary, where the timing of the self-reporting didn’t do the company any favors.
The sanctions violations finally came to the attention of Extreme’s legal and compliance team in April 2022 thanks to a whistleblower complaint. (Yay for internal reporting!) The company then conducted what the Justice Department readily admits was a “good-faith investigation,” complete with outside counsel and a presentation to Extreme’s board in summer 2022 [. . .] The issue stayed dormant until October 2022, when a news media outlet contacted Extreme to say it was working on a story about the Moscow office selling goods to Russian military contractors.
The news reporters “cited new facts previously unknown to the company’s counsel regarding the possibility of willful misconduct by the company’s Russia-based employees,” the Justice Department said. That prompted Extreme to reopen its original investigation and submit a self-disclosure to the Justice Department just days before the news report was published.
Now we get to the key point. Since Extreme made its self-disclosure in anticipation of the media disclosing the matter anyway, that decision did not qualify as a voluntary self-disclosure under the Justice Department’s Corporate Enforcement Policy.
This is all known as a “near miss” under the latest incarnation of the Corporate Enforcement Policy, unveiled last March. A company’s self-disclosure doesn’t qualify as voluntary if that company makes its disclosure under “imminent threat” of some other party disclosing the same violation — like, say, a media outlet about to blast news of your sanctions violations across the interwebs.
To be clear, Extreme Networks did everything else right, such as cooperating with the Justice Department’s investigation and improving its sanctions compliance program. But without the voluntary self-disclosure prong, the best Extreme (or any other company) could hope for is a non-prosecution agreement rather than a declination. Which is exactly what Extreme received.
To quote directly from the Justice Department’s press release on the case:
While Extreme Networks’ disclosure to the National Security Division was not timely because it occurred under imminent threat of disclosure by a news publication, Extreme Networks nonetheless fully cooperated with the department’s investigation and timely and appropriately remediated the misconduct. As a result, its disclosure qualified as a near-miss Voluntary Self-Disclosure under the policy.
Matt says, “Now the compliance community knows what a near-miss situation looks like.”
Earlier this week, I highlighted that October is Cybersecurity Awareness Month and I noted how CrowdStrike’s 2026 Global Threat Report described the growing threat from AI systems, but I failed to mention the threat much closer to home: Cybersecurity threats targeting law firms.
As this Reuters article notes, CrowdStrike highlights ever-increasing security breaches at law firms, which are prime targets given their propensity to be sitting on lots of highly sensitive confidential information while publishing everyone’s email address on a public website. The article notes:
CrowdStrike’s report said threats are coming from entities including profit-motivated “e-crime” groups and nation-state adversaries. The report said China-linked groups likely will remain the greatest intelligence collection threat to the legal sector.
The new report said it found for the first time an entity targeting legal industry-specific software. The hackers in that instance, the report said, exploited a vulnerability in software that law firms use for timekeeping and billing.
In another episode in November, cyber criminals hired a Russian national to walk into a US law firm while posing as an internal IT employee.
Many major law firms targeted in recent cyber attacks said they were victims of a “social engineering” event. Such attacks can involve manipulating people into revealing sensitive information or granting access to secure systems.
A not-so-comforting sentiment was shared with Reuters by CrowdStrike’s senior vice president for counter adversary operations:
“What we’re seeing across the broader threat landscape, more and more threat actors are using agentic technology to democratize hacking,” said Adam Meyers, CrowdStrike’s senior vice president for counter adversary operations. “It’s going to get a lot worse before it gets better.”
If you, like me, are a law firm denizen, let this CrowdStrike report and all of the hoopla around Cybersecurity Awareness Month serve as a wake-up call. We all receive constant warnings from our IT departments about the risk of cyber attacks, but admittedly we get numb to those warnings over time. It is really up to each individual to exercise vigilance and common sense when you receive a random email or a suspicious call. There is a lot at stake, so it really makes sense to be overly cautious when it comes to cybersecurity, particularly as the methods are constantly being advanced with the presence of AI. In short, don’t fall for it!
It is finally my turn to chime in the 2026 Proxy Disclosure & 23rd Annual Executive Compensation Conferences, which took place in Orlando earlier this month. You will be pleased to know that the video archives and transcripts for the Conferences are now available! If you registered for the conferences through our sites, you can access the video archives and transcripts via the access links on the 2026 Conference Archives page. Members of TheCorporateCounsel.net, CompensationStandards.com, Section16.com and DealLawyers.com who registered for the conferences can use their existing logins to access the Proxy Disclosure Archives and the Executive Compensation Archives.
If you are not a member, do not know your password, or are experiencing issues accessing the 2026 Conference archives, please reach out to our Member Services team by calling 800-737-1271 or send an email to info@ccrcorp.com.
We covered a lot of ground at the Conferences. I would like to thank Christina Thomas from the SEC for giving us so much insight into the SEC’s agenda, and to all of the SEC All Stars who provided great insights across two days of conferences. Thanks as well go out to the great team at CCRcorp, as well as all of our sponsors, speakers, and attendees! We could not have done it without you.
What were some of my key takeaways from the 2026 Proxy Disclosure & 23rd Annual Executive Compensation Conferences, you may ask? Here are the top five:
1. The SEC’s reform proposals (if adopted) will require some thoughtful analysis. I will often trot out the old proverb “you can lead a horse to water but you can’t make it drink,” and I think it is well-suited for the SEC’s package of reform proposals. Time and time again throughout the Conferences, our speakers noted a number of considerations that companies will need to focus on before implementing the SEC’s reforms if they are adopted as proposed. This notion particularly applies in the context of the SEC’s semiannual reporting proposal, where there is skepticism that public companies will rush headlong into the optional semiannual reporting scheme, recognizing that it will be necessary to carefully consider investor reactions, financing needs, peer practices, insider trading considerations and other factors before changing the interval for periodic reporting. Similarly, if the SEC adopts the filer status reforms as proposed, companies will need to evaluate whether it makes sense to avail themselves of all of the exemptions and accommodations that would then be available to non-accelerated filers.
2. Rescission of Rule 14a-8 could complicate things for public companies. In the “be careful watch you wish for” category, the SEC’s proposal to rescind Rule 14a-8 generated a great deal of discussion among the speakers at our Conferences, and they described a post-Rule 14a-8 landscape that could be much more complicated for public companies. Our speakers noted that shareholders will likely shift to other avenues for advancing their proposals, which could lead to more contested situations and less predictability as to outcomes. The possibility of state law changes and private ordering could result in a lack of uniformity as to how shareholder proposals are addressed in company proxy statements (if at all), making things more complicated for companies and shareholders alike.
3. Prediction markets have grabbed our attention. The explosion in popularity of prediction markets has brought about concerns as to how company employees can use confidential information to their trading advantage, and insider trading policies and codes of conduct are being updated to address these concerns.
4. Everyone is waiting for the SEC’s executive compensation disclosure reforms. I kicked off our SEC All-Stars panel at the 23rd Annual Executive Compensation Conference with a trip down memory lane, describing my odyssey with executive compensation disclosure and highlighting some of the areas where the rules just don’t work today. Christina Thomas indicated that they Commission is considering major changes to the rules, now just some trimming around the edges. While we were hopeful that we would have a concrete rule proposal to discuss at the Conferences, it appears that perhaps election year politics may have gotten in the way. In any event, everyone is anxiously awaiting the arrival of the SEC’s reform proposal, which will likely be out “soon.”
5. The shareholder engagement landscape has really changed. Over the course of this year, I have been writing a lot about the significant shift in the shareholder engagement landscape, and our speakers did a great job exploring these changes and what it means for public companies. From the chilling effect of the SEC’s early 2025 beneficial ownership reporting guidance to artificial intelligence to standing voting instruction programs, there was a great deal to cover on this front, and companies should be very aware of these significant changes going into the 2027 proxy season.
It was great to see everyone who attended the Conferences in person this year, and I look forward to doing it all over again next year in New Orleans on September 21 & 22, 2027. I hope you get a chance to check out the video archives and transcripts of this year’s Conferences, and be sure to look out for my more detailed coverage in the November-December 2026 issue of The Corporate Executive.
It is great to be writing this blog on Halloween (or Halloween eve), because it gives me a platform to wax nostalgic about a holiday that I love. A couple years ago, I wrote my Ode to Halloween, offering my top Halloween takeaways (or traumas, as the case may be) that stick with me to this day. Given that we have that rare pleasure of a Saturday Halloween tomorrow, I thought that this would be a great time to sing the praises of everyone’s strange secular holiday celebrating costumes and candy. Here are a few of my observations for the holiday this year:
1. Halloween is about community. When you think about it, most of our other big holidays are all about spending time with family, while Halloween traditions are uniquely focused on going out into the community. Not only are we compelled to go out into the community, but we actually have to knock on our neighbors’ doors and beg for food! I think back to when my kids were little and we lived in a neighborhood, and Halloween was the one time of year when I got to actually meet neighbors that I had never met, or speak with neighbors that I knew, but rarely got an opportunity to speak with. It was also always great to see the creativity of my neighbors, as they littered their yards with extreme Halloween decorations and smoke machines! In a world where we are perpetually turning inward or facing a screen, Halloween is a great time to get out there and see people in real life.
2. Halloween is about sharing. The tradition of trick-or-treating is a great demonstration of a dying art (in my opinion): hospitality. I perceive the practice of trick-or-treating as a sort of Kabuki theater representation of the notion that it is right to be hospitable to a stranger that has come to your home, even if that person is dressed as Dracula, Spiderman or a Minion. Obviously, not everyone buys into this concept, so you inevitably have the dark porches and the occasional unattended bowl of candy, but it is really nice to think that so many still do welcome the onslaught! Overall, I think it is a nice lesson to teach to our kids that there is still a place in this world for hospitality (within reason, of course).
3. Halloween is about veiled threats. Underpinning the whole trick-or-treat tradition is the notion that if you do not give me treat, I am going to inflict some sort of property damage on your residence. At first glance, that seems like an odd thing to tell our kids to do, given that most people would not seem to want to encourage their children to go out into the world and make Mafia-style extortion threats to their neighbors. But, it is all in good fun, and thankfully the property damage part of the holiday does not seem to be as much of thing in these modern times. All that said, I do appreciate a good veiled threat once in a while to keep everybody in line, so in my opinion “trick or treat” is something we should stick with!
4. Halloween is about the freedom of anonymity. The costume part of Halloween is unique among our major holidays. It is the one time of year (unless you are frequently invited to costume parties) to express one’s individuality and to enjoy the freedom of anonymity afforded by wearing a mask. The resulting anonymity can reduce our inhibitions and free us up to be more social, which usually is not a bad thing! My only warning is to choose your costume carefully – it isn’t worth offending someone when the whole point of the holiday is to have fun.
5. Halloween is about pumpkins. This year I was thinking of changing my name to David S. Pumpkins, because for the first time in my life I grew a bumper crop of pumpkins. Actually, I had nothing to do with growing the pumpkins, because they actually grew as “volunteers” from seeds in my compost pile. But after years of carefully planting pumpkin seeds in my garden and waiting all summer to be rewarded with one tiny misshapen pumpkin, this year I harvested a dozen beautiful pumpkins from a random vine that came to life entirely on its own. I will still mark that one down in the “Win” column.
In remarks to the Committee, SEC Chairman Paul Atkins focused on barriers that can arise during the IPO process, in particular the gun jumping regulations. He noted:
Among the most restrictive regulations are the gun-jumping prohibitions and exceptions contained in the Securities Act. Not only are these rules often confusing and difficult to navigate, but they can also chill issuers’ and underwriters’ communications with investors. Accordingly, I have directed the Commission staff to explore potential solutions, such as: first, re-evaluating limitations on the content of communications and the types of persons to whom communications can be made; second, providing brighter lines as to when communications constitute “offers” subject to the Securities Act’s gun-jumping restrictions; and third, reducing “foot fault” violations by issuers, including through cure provisions that are straightforward to apply. Time does fly, but I should note that the Commission has not completed a comprehensive review of its communication rules since 2005 when I served as a Commissioner. So, it is high time that the SEC modernized its approach in this area.
On the topic of Regulation Crowdfunding, Chairman Atkins indicated that he “asked Commission staff to evaluate which aspects of Regulation Crowdfunding can be amended to reduce compliance burdens and improve the rules’ attractiveness for issuers and investors.”
Commissioner Uyeda also provided remarks to the Committee, and he also focused on communications issues around IPOs. He noted:
This morning’s agenda addresses two areas where that friction can show up: the rules governing how companies communicate with investors before and during an IPO, and the thin or often times non-existent research coverage that many smaller companies face once they are public. These two areas are connected. A smaller company that cannot readily tell its story before the offering and that attracts little or no professional analyst coverage after it, may reasonably conclude that going public is simply not worth the cost. I welcome the Committee’s views on what steps might be taken to encourage more thoughtful and value-adding research on smaller companies. We made some choices a long time ago, such as the Global Research Analyst Settlement, which were intended to be short-term remedies and not intended to last twenty years or longer, and only applied to 12 firms. Since the settlement was announced, the SEC has adopted Regulation AC and FINRA has adopted rules to further improve these professional research coverage requirements.
On the topic of Regulation Crowdfunding, Commissioner Uyeda stated:
I was pleased with the changes made under former Chairman Jay Clayton, which were further fine-tuned based on negative feedback with respect to parts of the original rules. We should continually conduct a retrospective review of the effectiveness of these rules and whether they should be updated. But let me be clear: the anti-fraud provisions already apply to any statement made with respect to crowdfunded offerings. The SEC, criminal authorities, and state securities regulators can enforce the anti-fraud rules. The question, therefore, is how extensive of a prescriptive and prophylactic regime ought to be required given the relatively low-dollar amounts being raised.
Proportionate requirements for small offerings. CfPA recommends a streamlined tier for offerings up to $350,000, with self-certified financial statements and simpler forms. The approach would retain executive accountability and material disclosures while addressing fixed compliance costs that can make small raises impractical.
Greater capacity for larger and follow-on rounds. CfPA recommends increasing the Reg CF offering limit from $5 million to $20 million in a 12-month period, with compatible treatment under Section 12(g) of the Securities Exchange Act. The proposal would retain meaningful disclosure, investor limits and intermediary safeguards while giving growing businesses another option for continued retail participation.
Simpler investor limits and issuer communications. CfPA recommends a Regulation A-style approach to investor limits and clearer rules for issuer communications. The presentation calls for guidance on the factual business information that may accompany offering terms in notices, together with targeted amendments to Rule 204.
Information investors can find and use. CfPA recommends clearer disclosure of ownership rights, investment structures, fees and tax obligations before investment, together with simpler annual-report filing and reminders afterward. The goal is to make both investment terms and ongoing reporting responsibilities easier to understand.
