Earlier this year, we blogged about the DOJ’s decision to prioritize tariff evasion in its white collar enforcement program. This Sidley memo says that the DOJ has been true to its word, with enforcement initiatives demonstrating its willingness to pursue trade and tariff-evasion misconduct through the False Claims Act (FCA), wire fraud, money laundering, and smuggling statutes, as well as under the Foreign Corrupt Practices Act when dealing with corrupt interactions with foreign customs officials. This excerpt summarizes the DOJ’s recent enforcement activities:
Recent DOJ actions underscore an increasingly active enforcement pipeline focused on customs- and tariff-evasion schemes, including matters involving customs brokers and other intermediaries. In 2024 and 2025, notable civil and criminal trade and customs fraud cases range from a large FCA settlement with a corporation to a criminal indictment of multiple individuals and companies alleged to have used fraudulent documents, shell companies, bribes to public officials, and kickbacks to Mexican drug cartels to smuggle billions of dollars’ worth of goods from the United States into Mexico, defrauding Mexico out of hundreds of millions of dollars’ worth of duties owed.
The memo also notes that the DOJ has relaunched its trade fraud task force, increased whistleblower incentives, and has used its data analytics capabilities to identify potential cases.
Today’s first blog mentioned the DOJ’s use of the False Claims Act to target tariff evasion. With its draconian penalties and the ability of private plaintiffs to assert qui tam claims on the government’s behalf, the False Claims Act has long been a formidable weapon in the DOJ’s arsenal. However, recent federal court decisions have called into question the constitutionality of the statute’s qui tam provisions.
Last year, in Zafirov v. Florida Medical Associates (MD. Fla. 10/24), Judge Kathryn Mizelle held that the FCA’s qui tam mechanism allowing violated the Appointments Clause because it allowed private plaintiffs to exercise executive power on behalf of the United States without being properly appointed. This recent Polsinelli memo says that a concurring opinion in a recent 5th Cir. decision endorsed Judge Mizelle’s conclusion:
Notably, in a concurring opinion, Judge James C. Ho. . . urged the court to revisit “serious constitutional problems” with the qui tam provisions. The Fifth Circuit previously affirmed the constitutionality of the FCA’s qui tam structure in Riley v. St. Luke’s Episcopal Hosp. Nonetheless, Judge Ho called on the Fifth Circuit to reconsider Riley. Judge Ho reiterated Judge Mizelle’s reasoning in Zafirov and emphasized that relators exercise executive authority on behalf of the U.S. without appointment or accountability to the President, raising separation-of-powers concerns under Article II.
Judge Ho’s opinion echoed Justice Thomas’s dissent and Justice Kavanaugh’s concurrence (joined by Justice Barrett) in United States ex rel. Polansky v. Executive Health Res., Inc., which questioned whether allowing private relators to litigate on behalf of the country is consistent with the Constitution’s separation of powers.
The memo notes that if these views continue to gain traction among federal courts, the implications for government contractors would be significant, because the vast majority of FCA recoveries arise from qui tam actions. That outcome would be music to the ears of the US Chamber of Commerce, which has filed amicus briefs challenging the constitutionality of qui tam actions under the US and state constitutions in several recent cases.
Wilson Sonsini recently published a memo highlighting five key things you need to keep in mind when preparing your Form 10-K. Here’s an excerpt from the memo’s discussion of the need to refresh risk factor disclosures:
Risk factor updates should align with changes in other sections of the Form 10-K, including the Business section, MD&A, cybersecurity disclosures, and financial statement notes. If the company experienced an extraordinary event during the year, such as a merger, acquisition, significant divestiture, or other change in the business, it should consider whether updates to risk factors are needed to reflect the current state of the business. Hypothetical language in risk factors should be reviewed and updated to reflect actual developments and events, where applicable.
Other topics addressed in the memo include the need to refresh your MD&A disclosures, consider the implications of Staff comment letters, confirm your filer status, review your exhibit index, and carefully review your CEO and CFO certifications.
Yesterday, the SEC issued a Litigation Release announcing that it had filed a joint stipulation dismissing its high-profile cybersecurity disclosure enforcement action against SolarWinds and its CISO. The enforcement action followed a massive Russian cyberattack against the company and challenged alleged “hypothetical risk factor” disclosures and other statements that purported to describe the company’s cybersecurity practices and policies.
The case was notable for, among other things, the SEC’s unusual decision to bring charges against SolarWinds’ CISO and its argument that the company’s cybersecurity weaknesses represented internal accounting controls failures. The SEC took a big hit last year when a federal judge dismissed all of its claims against the company and its CISO with respect to statements made prior to the attack, and all but one claim relating to post-attack disclosures.
Earlier this year, the SEC and SolarWinds reached a tentative settlement of the case, but yesterday’s announcement apparently takes that off the table. Here’s what the Litigation Release had to say:
The U.S. Securities and Exchange Commission today filed a joint stipulation with Defendants SolarWinds Corporation and its Chief Information Security Officer, Timothy G. Brown, to dismiss, with prejudice, the Commission’s ongoing civil enforcement action. As stated in the joint stipulation, the Commission’s decision to seek dismissal is “in the exercise of its discretion” and “does not necessarily reflect the Commission’s position on any other case.”
The dismissal of the SolarWinds enforcement action coincides with the release of a Cornerstone Research Report finding that SEC enforcement proceedings against public companies declined significantly during the 2025 fiscal year. Check out Kevin LaCroix’s blog on “The D&O Diary” for more information on that report.
A recent Wilson Sonsini memo offers advice for boards and management on best practices for shareholder engagement and dealing with shareholder activism. Here’s an excerpt from the memo’s discussion of how to conduct a meeting with investors:
The company’s representatives should conduct the meeting and drive the discussion. Shareholders want to engage directly with the decisionmakers, so top management or a board member should be the company’s primary speakers. Throughout the meeting, the company will want to show that its participants have a strong command of the issues facing the company.
Although not mandatory, executives generally engage most in discussions related to their functional areas. For example, the CEO would concentrate on questions and discussion related to strategy and “big picture” items, the CFO would focus on financials, and the General Counsel would focus on governance. Throughout the meeting, it is important for the company’s participants to demonstrate competence, alignment, and engagement.
Approach the meeting as a discussion and not a negotiation. This means listening actively and soliciting feedback, and not being dismissive, defensive, or confrontational. It is natural for there to be issues on which the company and the shareholder disagree, but the company’s focus in the meeting should not be on trying to change the shareholder’s mind. Rather, the goal is to clearly and unemotionally communicate the company’s position, reasoning, and value creation strategy while also building credibility with shareholders.
Other engagement-related topics addressed by the memo include when to engage with shareholders, whether to engage with known activists, how to prepare for a meeting with shareholders, what legal issues to keep in mind, and what to do after engagement.
Trendsetters: The number of all S&P 500 companies scoring 90 percent or above for political disclosure and accountability was 112, an increase over last year’s 103, and comprising more than 22 percent of all S&P 500 companies evaluated. The number of Trendsetters now has increased fourfold from the 28 companies that received scores of 90 percent or higher in 2015. Among the 318 companies belonging to the so-called core S&P 500, those constant in the Index since 2015, there are 92 Trendsetters this year.
Top-Tier Milestones: 205 companies in the overall S&P 500 placed in the first Index tier (scoring from 80 percent to 100 percent). This is more than double the 76 top-tier companies in 2015. It is one company fewer than last year. Among core S&P 500 companies, 164 companies – over half of all core S&P 500 companies – placed in this year’s top tier. Four fewer core companies scored in the top tier in 2024.
Shrinking Bottom Tier: The number of S&P 500 companies scoring lowest for disclosure and accountability – in the bottom 20 percent – has continued to decline. From 204 bottom-tiercompanies in 2015 it has dropped to 88 this year.
CPA-Zicklin found that 328 members of the S&P 500 had general board oversight of their political spending, up from 319 last year, and that 291 S&P 500 companies have board committee review of direct political contributions and expenditures, up from 282 last year and 168 in 2015.
Companies have had a lot to say about tariffs this year, and with good reason. The president’s “Liberation Day” announcement shook financial markets and left many companies scrambling to determine what this dramatic change in US global trade policy would mean for them – and how to communicate that information to investors. So, it may come as a surprise to learn that, according to FactSet, companies are talking a lot less about tariffs in their 3rd quarter earnings calls than they did in their 1st and 2nd quarter calls:
Given concerns in the market about tariffs, did more S&P 500 companies comment on tariffs during their earnings conference calls for the third quarter compared to the second quarter?
The answer is no. FactSet Document Search (which allows users to search for key words or phrases across multiple document types) was used to answer this question. Through Document Search, FactSet searched for the term “tariff” or “tariffs” in the conference call transcripts of all the S&P 500 companies that conducted earnings conference calls from September 15 through November 14.
Overall, the term “tariff” or “tariffs” was cited on 238 earnings calls conducted by S&P 500 companies during this period. This number reflects a quarter-over-quarter decline of 33% compared to Q2 2025, when the term “tariff” or “tariffs” was cited on 357 earnings calls (from June 15 through September 14). This is also the second straight quarter where the number of earnings calls citing the term “tariff” or “tariffs” has decreased.
For reference purposes, FactSet says that 452 S&P 500 companies mentioned tariffs in the Q1 earnings calls.
To a certain extent, this decline likely reflects the fact that many companies have been pretty transparent with their prior disclosures about the impact of tariffs and simply don’t have much more to add. On the other hand, they’re still saying quite a bit about this topic compared to prior years. According to FactSet, the mentions in Q3 earnings calls are still the fourth highest on record.
The Trump administration plainly has the proxy advisor industry in its crosshairs, but what exactly might it do to squeeze the industry beyond issuing the executive orders the president is reported to be contemplating? Over on The Business Law Prof Blog, Prof. Ann Lipton has some thoughts on that topic.
Ann notes that the SEC could classify proxy advice as investment advice and try to make proxy advisors jump through additional regulatory hoops under the Investment Advisors Act, but she points out that the courts haven’t supported recent efforts by the SEC to add burdensome regulatory obligations under that statute. However, she says that there are other options available:
The SEC (and the Department of Labor, which regulates private pension funds) could come at this from the client side. Institutional investors rely on proxy advisers to satisfy their own fiduciary obligations to vote their shares in their beneficiaries’ best interest, and they are able to do that because of prior guidance by both the SEC and the DoL permitting it.
During Trump I, there were some attempts to burden institutional investors’ ability to rely on proxy voting advice. For one, the SEC withdrew some letters it had issued about how to deal with investment advisers who have conflicts of interest, though, as I blogged at the time, the import of that action was unclear.
Later, the Department of Labor proposed to, essentially, overburden pension plan voting policies to the point of making votes virtually impossible to cast cost effectively – unless the plan developed a blanket policy in favor of voting with management (which, of course, gives away the game about what’s really motivating these attacks on shareholder voting).
That proposal was substantially watered down, but the outlines demonstrate what’s within the realm of the possible today. Both agencies could withdraw prior guidance and interpretations that permit reliance on proxy advisors, or, at the very least, make reliance on proxy voting advice very difficult from an administrative point of view.
I know that the prospect of ISS and Glass Lewis crying tears of unfathomable sadness won’t break the hearts of many of our readers, but everyone should keep in mind my Sideshow Bob quote from earlier this week. The more the pendulum swings in one direction now, the more it’s going to swing in the other when there’s a change in regimes.
Cooley recently published its inaugural “Post IPO Governance Report,” which analyzes more than 225 US IPOs from 2017 through 2021 in order to explore how their governance structures evolved during the first years after an IPO. The report looks at governance structures, voting matters, board and leadership changes, and governance and compensation practices. Here’s an excerpt from the report’s discussion of classified board practices:
Classified boards are a defining feature of recent IPO governance, with approximately 88% of the IPO Companies adopting a classified board structure at the time of IPO. While this structure is prevalent across industries, notable variation exists. For example, classified boards are nearly universal among life sciences companies (97%), while about one-fifth of services and retail companies went public with a single class of directors.
Classified boards were more common among noncontrolled companies (91%) than controlled companies (83%), suggesting the structure is viewed as a stabilizing mechanism in the absence of a controlling shareholder. Controlling founders or sponsors, meanwhile, may rely on it less to safeguard control.
Prevalence was also higher among PE- and VC-backed companies (95% and 90%, respectively), reflecting lower sensitivity among these financial sponsors to governance features, such as classified boards, that are often viewed less favorably by institutional investors and proxy advisors.
The report says that classified boards remain the dominant structure for the post-IPO companies, but notes that approximately 10% of the companies that went public with a classified board during the relevant period have opted to declassify. It also says that declassification generally resulted from institutional investor or proxy advisor pressure and is more common among larger companies and those in retail and other consumer-facing industries. Of the 15 companies that have declassified their boards, 12 did so through a management proposal, while the remainder declassified through sunset provisions built into charter documents.
Although institutional investors have become somewhat less hostile toward the concept of dual class capital structures among newly public companies, they usually want to see some sort of sunset provisions baked into corporate charters that will cause the dual class structure to fall away after a period of time.
According to this white paper from Minerva Analytics, most companies with dual class share structures (DCSS) include some kind of sunset provision in their charter, but those usually don’t include the kind of sunset terms that investors prefer. This excerpt summarizes Minerva’s findings:
Of the 259 US companies in Minerva’s coverage with capital structures with DCSS, almost four-fifths have at least one sunset provision in their governing documents – reflecting the growing incentive to transition to the one share, one vote structure. Only 24 companies have adopted time-based sunset provisions, of which six are compliant with the CII recommendation that sunset provisions are triggered within seven years. The remaining 28 companies’ provisions trigger in eight to 50 years.
Dilution-based sunset provisions have been adopted by 120 companies. Time- and dilution-based provisions are generally considered the most effective types of sunset provisions. This is because they provide clear and enforceable triggers that cannot be avoided to protect controlling shareholders. This means that once these provisions are triggered, they ensure automatic conversion to a single class of shares with one vote per share and is particularly the case for time-based provisions.
The white paper says that more than 40% of US technology IPOs retain dual class structures, while just 7% of Russell 3000 companies have them.
