Yesterday, the SEC announced that it has designated George R. Botic to serve as Acting Chair of the Public Company Accounting Oversight Board, effective July 23, 2025. As Meredith noted last week, PCAOB Chair Erica Williams will depart on July 22.
The SEC’s announcement notes that George Botic is a CPA and became a PCAOB Board Member on October 25, 2023. Prior to joining the Board, he served as the Director of the PCAOB’s Division of Registration and Inspections and in various other roles at the PCAOB. Earlier in his career, Mr. Botic was a Senior Manager with PricewaterhouseCoopers.
Since its inception, the PCAOB has been the proverbial political football of the securities laws. Created in the aftermath of the Enron debacle when Congress decided that self-regulation was no longer advisable for the public accounting industry, the PCAOB has spent the last 23 years standing up a formidable regulator of the audit profession, adopting standards, conducting inspections and enforcing the standards that it has created. The Board has survived a devastating scandal involving the appointment of its first Chairman, a challenge to the constitutionality of its authorizing statute and numerous changes in leadership when the political winds in Washington shifted over the course of the past two decades. For more on the history of the PCAOB, check out this gallery in the SEC Historical Society’s virtual museum and archive.
This year, the PCAOB’s challenges have been more existential. Targeted for elimination by Project 2025, the PCAOB found itself at risk of being eliminated, with the SEC to take over its responsibilities. As I mentioned last month, the legislative effort to eliminate the PCAOB ran aground due to a ruling by the Senate parliamentarian, who deemed the Republican PCAOB elimination proposal to be subject to the “Byrd Rule,” which would have subjected the proposal to an unachievable 60-vote requirement.
Having dodged that Congressional bullet, the PCAOB is not out of the woods just yet. In a WSJ article last week, outgoing PCAOB Chair Erica Williams noted: “My biggest concern is that people pull back from the PCAOB’s mission and not provide the staff with the resources that they need to continue to deliver for investors.” She indicated that is a particular concern now given that fraud risk is heightened when the economy tightens. The article further notes:
Her departure could mark the start of a series of changes at the PCAOB, potentially with regard to its budget. Atkins, while an SEC commissioner in the 2000s, criticized the PCAOB’s budget, saying salaries paid to board members were disproportionately high.
The PCAOB, whose budget is nearly $400 million this year, is funded by fees paid by public companies and broker-dealers. The SEC requested to add $100 million to its fiscal 2026 budget if it were to be required to take on the PCAOB’s work, Atkins said at a House hearing in May, adding he would likely seek additional funds.
Williams focused on the need for PCAOB resources as part of her opposition to lawmakers’ previously proposed plan for the PCAOB’s elimination. She said in May that it would take years for the SEC to reassemble skilled inspections staff under lawmakers’ previously proposed plan for the PCAOB’s elimination. The PCAOB’s inspection division is its largest unit by far, at nearly 500 employees and about 45% of the budget.
As Meredith recently noted on The Advisors’ Blog on CompensationStandards.com, we recently posted the transcript for our recent CompensationStandards.com webcast, “Proxy Season Post-Mortem: The Latest Compensation Disclosures,” during which Mark Borges, Ron Mueller and I discussed the “lessons learned” from the 2025 proxy season that companies can start carrying forward into next proxy season. The webcast covered the following topics:
– 2025 Shareholder Engagement Challenges
– 2025 Proxy Statements
– DEI and Other E&S Developments
– 2025 Proxy Statements
– Executive Compensation Disclosures
– Shareholder Proposals
– Thoughts on the (then-upcoming) SEC Roundtable
Members of the CompensationStandards.com can access the transcript of this program. If you are not a member, email info@ccrcorp.com to sign up today and get access to the full transcript – or sign up online.
On Friday, President Trump signed the GENIUS Act into law, capping off the first major legislative effort to regulate crypto assets, in this case payment stablecoins. A White House Fact Sheet notes that “[t]he GENIUS Act prioritizes consumer protection, strengthens the U.S. dollar’s reserve currency status, and bolsters our national security.” The Fact Sheet also states that “[t]he GENIUS Act will make America the undisputed leader in digital assets, bringing massive investment and innovation to our country.”
SEC Chairman Paul Atkins issued a statement marking the signing of the legislation, noting:
The GENIUS Act provides necessary guidance for a crucial element of the emerging crypto asset ecosystem. Clear payment stablecoin regulation allows companies and individuals to transact in ways that boost efficiency and lower costs. Payment stablecoins will play a significant role in the securities industry moving forward, which is why I have asked SEC staff to consider whether guidance, rulemaking, or other steps may be helpful to accommodate SEC registrants utilizing payment stablecoins, including for settlement and margining. I invite market participants to engage with the SEC staff on what is needed for our securities markets to take advantage of the GENIUS Act’s full potential.
Commissioner Hester Pearce also issued a statement, noting:
The signing of the GENIUS Act into law marks an important milestone in the effort to bring regulatory clarity to crypto—a necessary prerequisite for innovation in our markets to flourish and for the American public to benefit from that innovation. The new law confirms that payment stablecoins are not securities. People have voted with their dollars—privately issued stablecoins already enjoy broad use as a payments mechanism. The GENIUS Act, by putting a regulatory framework around them, aims to protect current and future users and the financial system. The GENIUS Act charges state and federal banking regulators with overseeing payment stablecoin issuers. This clear direction from Congress also should serve as a catalyst for the SEC to provide guidance on how SEC registrants can use—and accommodate their customers’ use of—payment stablecoins. I invite investors and market participants regulated by the SEC to engage with the Crypto Task Force on what the Commission needs to do, in light of the GENIUS Act, to ensure that SEC registrants interacting with payment stablecoins can serve their customers effectively, efficiently, and safely.
As this WilmerHale alert indicates, the GENIUS Act will take effect either 18 months after its passage or 120 days after final regulations are issued, whichever comes first, while the regulations implementing the GENIUS Act must be issued within one year of enactment.
The GENIUS Act is a landmark piece of legislation because it represents the first legislative attempt to implement comprehensive regulation for an aspect of the cryptocurrency market. The regulatory framework contemplated by the legislation focuses specifically on payment stablecoins, which are digital assets the value of which is always equal to one dollar. Stablecoins can be used to facilitate payments that consumers use credit cards and payment apps to accomplish today.
The Act is described as a consumer protection bill that establishes Federal safeguards to protect stablecoin holders and enhance consumer confidence in the payment stablecoin market. To achieve these ends, the Act establishes a clear Federal regulatory framework for the issuance of “payment stablecoins,” while preserving a pathway for certain State-regulated entities to issue payment stablecoins. The Act also provides restrictions on “digital asset services providers” (e.g., cryptocurrency exchanges) with respect to the offer and sale of certain payment stablecoins. Given its broad scope, both within the United States and extraterritorially, the GENIUS Act is expected to have significant impacts on the global cryptocurrency markets, market participants, and the broader financial system.
For purposes of this legislation, a “payment stablecoin” is defined as any digital asset that: (i) is, or is designed to be, used as a means of payment or settlement, and (ii) the issuer of which: (A) is obligated to convert, redeem, or repurchase for a fixed amount of monetary value, not including a digital asset denominated in a fixed amount of monetary value; and (B) represents that such issuer will maintain, or create the reasonable expectation that it will maintain, a stable value tied to a fixed amount of monetary value. This definition of “payment stablecoin” does not include a digital asset that is (i) a national currency; (ii) a deposit; or (iii) a security. Notably, the GENIUS Act clarifies that payment stablecoins are not commodities regulated by the CFTC or securities regulated by the SEC, and payment stablecoin issuers are prohibited from paying any interest on payment stablecoins.
While the GENIUS Act does not regulate non-payment stablecoins, it directs the Secretary of the Treasury to conduct a study of non-payment stablecoins and submit the report to the Senate Banking Committee and the House Financial Services Committee within one year of enactment.
The GENIUS Act contemplates a regulatory framework that involves the U.S. Treasury, primary Federal payment stablecoin regulators, and State payment stablecoin regulators. A considerable amount of the regulatory authority and responsibility with respect to payment stablecoins is vested in the Secretary of the Treasury.
With respect to the implementation timetable, Gibson Dunn’s alert notes:
Nonetheless, the industry should anticipate a lengthy rulemaking process before final regulations are fully phased in (and some rulemakings, like capital and liquidity requirements, may include transition periods before full effectiveness). It is critical for all market participants to consider the implications of the Act and potential rulemakings on their business models because there will be meaningful opportunities for market participants to participate in advocacy efforts and the rulemaking process with both Federal and State regulators and other Federal and State policymakers in shaping the substance of the final rules designed to implement the dual Federal-State stablecoin issuance framework in the United States.
Given all of this, despite the initial excitement arising from the enactment of the legislation, it may ultimately be a few years before we see a full regulated payment stablecoin infrastructure up and running.
Unless you have spent the past four days on the bottom of the ocean or hiding under a rock (both of which sound like pretty good options to me right now), you have no doubt encountered the Coldplay Jumbotron meme on social media or through breathless coverage on mainstream media. The ubiquity of this meme and the inevitable social media commentary is such that I do not need to delve into the sordid details on this esteemed blog. Suffice it to say, a private moment became very public, very quickly, and pretty much everyone on the Internet has a thought about it. Of course I am no exception, so I offer a few reflections on the situation here:
1. This situation is just the latest example of why no one should have any expectation of privacy in any public place. Every single person around you has in their possession sophisticated recording equipment and a platform to reach pretty much most people around the world, not to mention the extraordinary surveillance infrastructure that now exists everywhere that we go (including, apparently, arena kiss cams). It boggles one’s mind as to how anyone would still think in 2025 that their every move is not being surveilled and tracked in multiple ways from a variety of different perspectives. This surveillance environment is now just a part of daily life, because we ceded our anonymity and privacy to the convenience of technology.
2. I can still recall a time not so long ago when the players in this sort of drama may have gotten away without a scratch, simply because their identifies would not have been known to the world. But we now live in a culture where individuals are identified by the social media horde within minutes using facial recognition and the vast quantity of personal information available on the Internet, and no one has any qualms about calling others out to the world. Sometimes this can be a good thing, and sometimes this can have unfortunate consequences. Unfortunately, we lack any sort of moderating influence in these situations.
3. The level of misinformation about everything, including Coldplay Jumbotron dramas, is incredibly high and only getting worse. As this meme cut a path through social media and mainstream media like Haley’s Comet, all manner of misinformation was reported, ranging from a faked statement from an individual involved to the misidentification of persons depicted in the video. If you are a company or individual involved in a situation like this, it is really hard to “control the narrative” in the face of an avalanche of misinformation.
4. A key takeaway from this unfortunate series of events is that private companies need good governance just as much as public companies do. A public relations nightmare involving a CEO or other senior executive is just one of the many things that a board of directors needs to consider and be prepared for, whether or not the board is accountable to private or public shareholders. Having a clear code of conduct and an emergency succession plan are two things that both private and public companies should have in place for these types of events.
Let’s hope that this was our big meme event for the Summer of 2025 and we don’t need to be revisiting these points anytime soon.
In late May, Dave shared that the Committee of Sponsoring Organizations of the Treadway Commission (COSO), in collaboration with the National Association of Corporate Directors (NACD), had released a 72-page public exposure draft of a Corporate Governance Framework for public comment and some FAQs about the framework and the process. Just this week, COSO announced that the draft “has been withdrawn from public comment as COSO takes time to evaluate the extensive feedback received to date and engage further with stakeholders.” The press release cites “a shifting regulatory and economic landscape for U.S. businesses” and “the recent passage of a wide-ranging federal law that introduces significant changes to corporate reporting and planning requirements,” saying “COSO and NACD recognize the importance of ensuring that any revised draft framework aligns with the existing requirements and evolving expectations placed on public companies.”
Comments were initially requested by July 11, but it looks like the deadline was previously extended to September 12. Now, COSO suggests that stakeholders who have already prepared comment letters submit them by July 23 by email. The website says that comments will be made public after the comment period ends, and that COSO looks forward to reintroducing a refined draft at a future date.
This National Law Review article highlights recent SEC enforcement developments — focused on new cases the SEC brought, instead of old cases it dismissed. It reports that, in the second quarter, every case filed in district court alleged fraud, which may suggest that enforcement was focused on egregious conduct, and less on technical violations. It also says, “it is no surprise that the SEC now files all of its fraud cases in district court (where a jury is available) and not in its administrative forum (where cases are decided by administrative law judges),” after the Supreme Court held in Jarkesy that, “when the SEC seeks civil penalties for securities fraud, the defendant is entitled to a jury trial.”
At the DOJ, one of the more recent areas of focus is import-related fraud, especially U.S. tariffs and duties evasions. Per this Troutman Pepper alert, targeted conduct includes:
– Undervaluing imported goods to reduce duties owed;
– Falsifying country-of-origin information, including deceptive labeling or transshipment to conceal origin;
– Misusing free trade agreement preferences (e.g., under the U.S.-Mexico-Canada Agreement) without meeting eligibility requirements;
– Improperly classifying products to secure a lower duty rate or avoid tariffs entirely; and
– Structuring transactions to sidestep tariffs, such as Section 301 duties on Chinese-origin goods or Section 232 tariffs on steel, aluminum, automobiles, and automotive parts.
It suggests companies renew their focus on import compliance by:
– Auditing import records and customs filings for potential misstatements or misclassifications;
– Reviewing supplier declarations and country-of-origin certifications, especially for goods sourced from high-risk jurisdictions;
– Ensuring trade compliance policies and training are updated and applied consistently across the business; and
– Conducting internal investigations where potential red flags exist and preparing for voluntary disclosure where appropriate.
The clock is ticking to take advantage of our “Early Bird” rate – a 20% discount on the single in-person attendee fee – for our “Proxy Disclosure & 22nd Annual Executive Compensation Conferences.” That rate expires on July 25th, which is one week from today! You can sign up online or reach out to our team to register by emailing info@ccrcorp.com or calling 1.800.737.1271.
This year, the Conferences are on Tuesday & Wednesday, October 21 & 22, at The Virgin Hotels in Las Vegas. Check out our timely and topical agenda and terrific group of speakers. We also have even more opportunities to network this year. If you plan to attend in person, be sure to arrive early enough on Monday to attend the Welcome Party + CCRcorp’s 50th Anniversary Celebration, which will take place from 4:00 pm to 7:00 pm PT on October 20. We hope to see you there in person, but as always, we have a virtual option for those of you who are unable to travel to Las Vegas for the event.
Dave recently shared an academic paper arguing that AI is not just analyzing MD&As — but actually shaping how they’re written. The author, Professor Keren Bar-Hava of the Hebrew University of Jerusalem, just released a new paper summarized in this CLS Blue Sky Blog, suggesting two empirical tools to measure how companies tailor their MD&As to algorithms and when AI-induced disclosure pressure has caused tone to cross the line from optimism to manipulation.
The first tool, the AI Orientation Score, ranges from 0 to 5 and assesses how machine-optimized a disclosure is based on measurable language, keyword usage, structured formatting, impersonal tone, and tonal consistency. A higher score suggests that the MD&A was likely crafted with machine readers in mind.
The second tool, the AI Manipulation Exposure Index (AI-MEX), also scored from 0 to 5, captures rhetorical red flags that may signal tone manipulation. These include upbeat language despite poor financials, absence of key performance indicators, vague aspirational claims, and excessive repetition of positive terms.
Professor Bar-Hava applied these tools to analyze 80 MD&As from 20 large S&P 100 firms between 2021 and 2024 (using both ChatGPT and Gemini, which arrived at nearly identical conclusions) and found that:
AI Orientation Scores rose steadily, indicating growing use of algorithm-friendly narrative techniques in MD&A disclosures.
AI-MEX scores were significantly higher for firms with weak fundamentals, such as negative net income or deteriorating cash flow.
By 2024, over 60 percent of companies scored high on both indices, signaling a dual strategy of structural optimization and tone management.
She concludes that these trends are . . . not great (my words, not hers). She worries that they will erode investor trust and confidence in this important narrative disclosure that is often the “only section where strategy, performance, and uncertainty are discussed together in plain language.” She suggests that anyone on the reviewing end of MD&A start to incorporate these diagnostic tools to help understand when the narrative doesn’t align with the numbers and holding companies “accountable for how tone, metrics, and structure align.”
How should public companies and their lawyers be receiving and responding to this?
First, be aware that AI is one of the several audiences of your disclosures, and that your disclosures may be screened or assessed by an algorithm. On RealTransparentDisclosure.com, Broc recently shared some great practice pointers for drafting with that in mind. (The last one in particular jumped out at me: “Recognize that today’s disclosures train tomorrow’s AI models. The tone and style choices you make now can set future industry expectations—so lead wisely.”)
Second (and this aligns with Broc’s point no. 4), ensure you’re still presenting an accurate, fair and balanced picture of company performance. Investors may start considering to what extent you’ve machine-optimized disclosure and when and whether it starts to border on manipulation (or even misrepresentation) by applying these or other analysis tools. To that end, companies may also want to start considering how their disclosures score on AI Orientation and AI-MEX.
I’d also argue that outside counsel (through human review) may be well-positioned to help clients avoid high AI-MEX scores by looking at all the disclosures holistically and asking questions where disclosures (including tone) appear inconsistent. That can be a hard task for the preparer who has been living and breathing the numbers and disclosures for a few weeks, while a more outside observer well-versed on the company and its industry reading a full draft for the first time might immediately pick up on language that comes off as overly optimistic or inconsistent.
It goes without saying that “the company and its management are responsible for the accuracy and adequacy of their disclosures notwithstanding. . . any action or absence of action” by company or investor AI. (See what I did there?)
