Yesterday, Corp Fin issued a couple of new and revised CDIs relating to asset backed securities. Revised CDI 112.01 addresses the forms to be used for registration statements and periodic reports for issuers engaging in public utility securitizations. Here’s a marked copy of the changes. New CDI 112.02 updates guidance for public utility securitizations contained in a 2007 no-action letter and clarifies that the guidance in CDI 112.01 supersedes the guidance contained in that letter.
The new CDIs follow on the heels of a no-action letter issued to SIFMA last Friday which provides guidance to asset backed securitization participants on how to avoid running afoul of the prohibition on certain conflicted transactions set forth in Rule 192(a)(3)(iii) under the Securities Act.
Those of you who aren’t involved in securitizations are probably saying “so what?” at this point in the blog. However, Staff participants in yesterday’s “SEC Speaks” conference noted that this no-action letter illustrates a broader point about the Staff’s willingness to work with market participants after rulemaking. Apparently, the Office of Structured Finance engaged with SIFMA and discovered that market participants were working to comply with the relevant section of Rule 192, but there were ambiguities that needed to be addressed – and that’s what the no-action letter is intended to accomplish.
Tomorrow on CompensationStandards.com at 2:00 pm Eastern, join us for the webcast – “The Top Compensation Consultants Speak” – to hear Blair Jones of Semler Brossy, Ira Kay of Pay Governance and Jan Koors of Pearl Meyer discuss the latest considerations for compensation committees. The panel will cover the following topics:
– DEI Programs, Disclosures & Metrics: The Compensation Committee’s Role
– Plan Design & Goal Setting Amid Uncertainty & Volatility
– Key Changes in Investor & Proxy Advisor Policies & their Impact in 2025
– Metrics & Perks: Notable Observations from the 2025 Proxy Season So Far
– Compensation-Related Shareholder Engagement
– Did Dodd-Frank Rules Reduce or Curb CEO Pay or Change Incentive Design?
Members of CompensationStandards.com are able to attend this critical webcast at no charge. If you’re not yet a member, subscribe now. The webcast cost for non-members is $595. You can sign up by credit card online. If you need assistance, send us an email at info@ccrcorp.com – or call us at 800.737.1271.
We will apply for CLE credit in all applicable states (with the exception of SC and NE which require advance notice) for this 1-hour webcast. You must submit your state and license number prior to or during the live program. Attendees must participate in the live webcast and fully complete all the CLE credit survey links during the program. You will receive a CLE certificate from our CLE provider when your state issues approval; typically within 30 days of the webcast. All credits are pending state approval. This program will also be eligible for on-demand CLE credit when the archive is posted, typically within 48 hours of the original air date. Instructions on how to qualify for on-demand CLE credit will be posted on the archive page.
Earlier this month, SEC Chairman Paul Atkins held a town hall for agency staffers in which he addressed the magnitude of the cuts resulting from the SEC’s voluntary buyout program. Chairman Atkins said that headcount had decreased by 15% since the current fiscal year began last October. He also said that at its height last year, the SEC had a total of 5,000 employees and 2,000 contractors, and that today it is down to approximately 4,200 employees and 1,700 contractors.
Chairman Atkins didn’t specify the extent to which particular offices and divisions were impacted by staff departures, but a couple of Reuters reporters did a little digging via FOIA and came up with their own numbers. According to their reporting, the Office of the Chief Counsel took the biggest hit, with nearly one in five staffers (19.5%) departing! Investment Management (16.7%), Trading and Markets (14.7%), and Enforcement (13.0%) were also hit hard. Corp Fin did relatively better, with only 8.7% of its staff opting to head for the exit.
There may be more cuts to come, because Reuters points out that DOGE has not left the building:
The SEC has been continuing its belt-tightening efforts, with more than 20 employees taken off regular duties in recent days and reassigned to full-time contract reviews to identify further possible opportunities to cut costs, principally in IT services, according to two people with knowledge of the matter, who said this was part of the SEC’s cooperation with billionaire Elon Musk’s Department of Government Efficiency.
DOGE, which has been working to find cost cuts at various agencies including the SEC, has expanded its footprint at the agency’s Washington headquarters, moving from one to at least three dedicated rooms as activity ramps up, according to one of the people and a third person with knowledge of the matter.
How all of this is going to affect the SEC’s day-to-day operations remains to be seen. In his remarks at the town hall, Chairman Atkins indicated that at least some of the vacancies created by these departures will be filled, but even so, that’s a lot of staffing losses to absorb by one of the few agencies that actually makes taxpayers money.
In December 2023, FASB finalized ASU 2023-07, which made changes to segment disclosure requirements. Calendar year companies became required to follow the new guidance beginning with their Form 10-K filed in 2025. The CAQ’s summary of its SEC Review Committee’s March 2025 meeting with the Corp Fin staff indicates that compliance with ASU 2023-07 is high on the staff’s review agenda. It also offers some guidance to registrants on drafting these disclosures:
The staff also commented on the implementation of ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, noting that they are reviewing disclosures for compliance and will comment where appropriate. The staff reminds registrants that they are not precluded from disclosing additional measures of segment profitability used by Chief Operating Decision Maker (CODM) in assessing performance and allocating resources in accordance with ASC 280-10-50-28A through 28C. However, any additional reported measures of segment profit or loss that are not calculated using measurement principles consistent with the corresponding measure presented in a registrant’s consolidated financial statements prepared in accordance with U.S. GAAP should be identified as non-GAAP measures and must comply with the SEC’s non-GAAP regulations, rules and guidance.
Although Item 10(e) of Regulation S-K includes a general prohibition against the inclusion of non-GAAP measures in the financial statement footnotes, the staff will not object to additional measures of segment profitability disclosed in accordance with ASC 280-10-50-28A through 28C being included in the notes to the financial statements, provided they otherwise comply with the non-GAAP rules.
The staff also indicated that reviewers are keeping an eye on disclosures about generative AI activities and comparing those disclosures to what companies are saying outside of SEC filings.
Traditionally, accredited investor status for individuals has been based on wealth or income. Last week, a bipartisan group of lawmakers introduced legislation that would provide an alternative path to accredited investor status. The bill, which is titled “The Equal Opportunity for All Investors Act of 2025,” would allow individuals to become accredited investors by passing a test that the SEC would be required to come up with within a year of its passage. The legislation would require that test to be “designed with an appropriate level of difficulty such that an individual with financial sophistication would be unlikely to fail.”
If this sounds familiar, it may be because the same bill was introduced during the last session of Congress. The legislation was passed by the House but died in the Senate. However, with capital formation a priority for the Trump administration and the SEC signaling a desire to make it easier for retail investors to purchase securities in exempt offerings, it may have a better shot in the current session of Congress.
Stanford’s Rock Center for Corporate Governance recently issued a report about how the adoption of AI tools will influence how boards of directors do their jobs and what is expected of them. The report says that AI will have a transformative effect on corporate boardrooms:
First, artificial intelligence offers to increase the volume, type, and quality of information available to management and boards. By making this information readily available, it reduces the information asymmetry between management and directors. Board members are much less likely to be “in the dark” about the operating and governance realities of their companies as technology makes it easier for them to search and synthesize public and private information made available to them through AI board tools.
Second, AI increases the burden on both parties to review, synthesize, and analyze information prior to board meetings. Managers and directors can expect to spend substantially more time on meeting preparation, because the quantity of available knowledge is substantially greater. Elementary information that was previously reviewed during meetings will be expected to be analyzed and digested prior to the meeting.
Third, artificial intelligence will allow for the supplementation—and in some cases, replacement—of information provided by third-party advisors and consultants. Furthermore, AI will increase the breadth of analysis available to the board, coupling the retrospective review of mostly historical data (prevalent today) with more powerful tools for predictive and trend analysis. These tools will allow boards to be more proactive and less reactive.
The report cautions that as a result of the dramatic improvements in the information provided to directors through AI, “expectations for a director’s diligence in reviewing and preparing this information will be exponentially higher, and the quality of questions, challenges, and insights will also be expected to be correspondingly higher.”
We’ll always cover SEC compliance and board governance issues associated with AI developments here, but if you’re looking for guidance on risk management and compliance issues associated with AI and other emerging technologies, be sure to check out and subscribe to our free AI Counsel Blog.
Earlier this month, Liz blogged about President Trump’s memo calling for agencies to repeal facially unlawful regulations without notice and comment, where that can be done consistent with the “good cause” exception in the Administrative Procedure Act. This Pillsbury memo says that if agencies follow the President’s direction, we’re likely to see quite a thicket of litigation:
If agencies implement the memo’s direction and repeal regulations without public input, litigation is virtually assured. Advocacy groups have already announced plans to challenge the approach. Critics argue that the administration may be overreaching—particularly by attempting to apply decisions like Loper Bright retroactively, citing the Supreme Court’s express statement that its holding is prospective.
Litigation may not proceed uniformly, given the lack of consensus among federal courts on how to evaluate good-cause claims:
– The D.C. and Second Circuits apply de novo review, independently determining whether the statutory criteria are satisfied.
– The Fifth, Eighth and Eleventh Circuits apply arbitrary and capricious review, deferring to agency reasoning if it appears reasonable and supported by the record.
– The First, Third, Fourth, Sixth, Seventh, Ninth and Tenth Circuits have not adopted a clear or consistent standard, often applying mixed or fact-specific approaches.
The memo says that the disparate standards of review increases the risk of inconsistent outcomes in these lawsuits, but it also observes that if challenges to the same regulatory repeal are filed in multiple circuits, the Judicial Panel on Multidistrict Litigation may consolidate them and potentially assign them to the D.C. Circuit where de novo review would apply.
If you’re finding it as hard to keep track of all the legal and business issues created by the ongoing tariff saga as I am, you may find this Cooley blog very helpful. It offers up a “Tariff & Trade War Playbook” listing 25 things that in-house counsel should do to help their companies navigate the current environment. While it’s targeted at in-house lawyers, there’s a lot here for outside counsel to consider as well. This excerpt has some tips on stakeholder engagement:
– Develop talking points to support consistent messaging to key stakeholders on the company’s actions and responses, including employees, customers, suppliers and regulators.
– Consider whether tariff impacts should be discussed, along with other material business and financial matters, in the CEO letter included in the annual report accompanying the company’s proxy statement.
– Consider treatment of potential questions from the floor at the company’s annual shareholders meeting (and prepare Q&A ahead of time).
– Ensure communications with stakeholders, including at the annual shareholders meeting, are Regulation FD-compliant.
Other areas covered by the blog include board and management crisis governance, risk management and compliance, business strategy and operations, compensation, and public company disclosure and trading implications.
When new SEC Chairman Paul Atkins showed up for his first day of work, he had a letter on his desk from half a dozen Democratic senators asking about whether the SEC would investigate “actions by President Trump, donors, and other potential insiders that may constitute market manipulation, insider trading, or other violations of federal securities laws in connection with President Trump’s tariff actions and announcements.” The letter also asked for information about how recent SEC staff cuts have affected the agency’s ability to “monitor and respond to large-scale market events, such as the crash following President Trump’s tariff actions?”
Chairman Atkins is extremely unlikely to seek my advice on a response, but if he asked for my thoughts about the insider trading question, I’d probably tell him something like “Forget it Jake, it’s Chinatown.” On the other hand, I’d tell him that I think the question about the impact of the agency’s staff cuts is one that a lot of people are asking, albeit not in such an overtly politicized way.
For example, the folks at the Shadow SEC recently issued “Shadow SEC Statement No. 2,” in which they warned – in all caps no less – THE CRISIS DEEPENS AS SEC STAFF AND BUDGET CUTS ARE DIRECTED. Here’s what they had to say about the impact of SEC staff cuts on capital formation:
All registration statements must be reviewed and implicitly approved by the SEC’s staff. The difference between an experienced and able staff of reviewers and others with less experience and/or ability can be significant, and the registration process goes much more smoothly when the reviewer is the former. We do not suggest that all registration statements will simply come to a halt after large staff cuts, but the process can be greatly extended and delayed depending on the size of the cuts. This implies that public corporations will be less able to rely on the registration process and may turn to other sources of capital, including bank debt.
Similarly, because of the broad wording of the federal securities laws, and the rapid rate of innovation in financial products, counsel may often need to seek a “no action” letter from the staff. But if the staff is significantly depleted, it may not be able to respond in a reasonable period (in part, because staffers with experience in the area may have departed). One cannot assume that the staff will have the same level of expertise if its size is substantially reduced. Indeed, the sad truth is that ability and mobility go together, and those most likely to leave will be those whom private firms most want to attract.
Pontificating about the review process while apparently failing to appreciate that not all registration statements are reviewed isn’t a great credibility enhancer, and the final sentence of the last quoted paragraph strikes me as a gratuitous shot at the staff. Putting that stuff aside though, the potential impact of staff cuts on the review process and the SEC’s ability to provide guidance are fair points to raise – particularly since these are areas where current commissioners have promised improvement.
The AI boom has resulted in efforts by many companies to promote their use of AI tools in their businesses. However, overenthusiastic promotional efforts can cross the line into outright misrepresentations and have led to a rise in “AI washing” claims by private plaintiffs. A recent Hunton Andrews Kurth blog reviews two securities class action lawsuits targeting corporate directors and officers and raising allegations of AI washing and discusses the importance of comprehensive D&O coverage to protect corporate fiduciaries against these claims. The memo recommends the following actions to maximize the level of protection under D&O policies:
Policy Review: Ensuring that AI-related losses are covered and not excluded under exclusions like cyber or technology exclusions.
Regulatory Coverage: Confirming that policies provide coverage not only for shareholder claims but also regulator claims and government investigations.
Coordinating Coverages: Evaluating liability coverages, especially D&O and cyber insurance, holistically to avoid or eliminate gaps in coverage.
AI-Specific Policies: Considering the purchase of AI-focused endorsements or standalone policies for additional protection.
Executive Protection: Verifying adequate coverage and limits, including “Side A” only or difference-in-condition coverage, to protect individual officers and directors, particularly if corporate indemnification is unavailable.
New “Chief AI Officer” Positions: Chief information security officers (CISOs) remain critical in monitoring cyber-related risks but are not the only emerging positions to fit into existing insurance programs. Although not a traditional C-suite position, more and more companies are creating “chief AI officer” positions to manage the multi-faceted and evolving use of AI technologies. Ensuring that these positions are included within the scope of D&O and management liability coverage is essential to affording protection against AI-related claims.