If watching the Atkins confirmation hearing isn’t your cup of tea, the SEC is hosting a roundtable tomorrow on artificial intelligence in the financial industry. The event includes panels on the benefits, costs, and uses of AI in the financial industry, fraud, authentication, and cybersecurity, AI governance and risk management, and what’s next/future trends. The roundtable will be held at the SEC’s headquarters starting at 9:00 am Eastern and a link to watch the event will be available on the SEC’s website.
It looks like the seemingly endless back-and-forth concerning the Corporate Transparency Act’s reporting requirements may finally be coming to rest. Earlier this month, Meredith blogged about Treasury’s announcement that it would not enforce any penalties or fines against U.S. citizens or domestic companies under the CTA and would propose a rule imposing reporting obligations only on foreign companies. On Friday, FinCEN announced that an interim final rule (IFR) has been adopted implementing this revised reporting regime. Here’s an excerpt from the press release summarizing the rule:
In that interim final rule, FinCEN revises the definition of “reporting company” in its implementing regulations to mean only those entities that are formed under the law of a foreign country and that have registered to do business in any U.S. State or Tribal jurisdiction by the filing of a document with a secretary of state or similar office (formerly known as “foreign reporting companies”). FinCEN also exempts entities previously known as “domestic reporting companies” from BOI reporting requirements.
Thus, through this interim final rule, all entities created in the United States — including those previously known as “domestic reporting companies” — and their beneficial owners will be exempt from the requirement to report BOI to FinCEN. Foreign entities that meet the new definition of a “reporting company” and do not qualify for an exemption from the reporting requirements must report their BOI to FinCEN under new deadlines, detailed below. These foreign entities, however, will not be required to report any U.S. persons as beneficial owners, and U.S. persons will not be required to report BOI with respect to any such entity for which they are a beneficial owner.
If you’re unlucky enough to be a foreign reporting company, well, the U.S. appears to be looking to acquire some new territory, so you may want to ask your home jurisdiction to check out the possibility of becoming part of ‘Murica. Short of that, the announcement says that you’ll be subject to the following reporting deadlines:
– Reporting companies registered to do business in the United States before the date of publication of the IFR must file BOI reports no later than 30 days from that date.
– Reporting companies registered to do business in the United States on or after the date of publication of the IFR have 30 calendar days to file an initial BOI report after receiving notice that their registration is effective.
This Seyfarth memo summarizes the guidance contained in the two documents and identifies several specific areas of potential concern, including diverse interview slate policies, employee resource groups with membership restrictions, segregated training and programming, and mentoring or networking programs limited to members of protected classes.
It also notes that the EEOC guidance emphasized that no general business interest in diversity will justify race-motivated employment actions, and also clarified the EEOC’s position on how Title VII applies to other aspects of workplace DEI initiatives and practices. Here’s what the memo has to say about the EEOC’s positions on “reverse discrimination” and mixed motives:
Broad Application of Title VII and Rejection of the Concept of “Reverse” Discrimination: The EEOC’s technical assistance confirms the well-understood principle that Title VII’s protections “apply equally to all workers” and that “different treatment based on race, sex, or another protected characteristic can be unlawful discrimination, no matter which employees or applicants are harmed.” The EEOC rejects the concept of ‘reverse discrimination,’ stating that “there is no such thing as ‘reverse’ discrimination; there is only discrimination.”
Mixed Motive: The EEOC’s technical assistance confirms its position that the mixed-motive standard under Title VII applies fully to DEI-related employment decisions. The document states plainly: “An employment action still is unlawful even if race, sex, or another Title VII protected characteristic was just one factor among other factors contributing to the employer’s decision or action.” It explicitly rejects the argument that discrimination occurs only when protected characteristics are the “but-for” or deciding factor, making clear its position that even partial consideration of race, sex, or other protected characteristics in DEI initiatives can create Title VII liability.
The memo says that the EEOC’s guidance likely foreshadows its upcoming enforcement initiatives, and recommends that companies whose current or recent DEI practices may run afoul of this guidance should consider conducting privileged reviews of those initiatives.
Hey gang, our colleague Meaghan Nelson continues to blog up a storm over on “The Mentor Blog,” which is available to members of TheCorporateCounsel.net. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply clicking the link on the left side of the blog and entering their email address. Here are some of Meaghan’s recent entries:
You’ll love Meaghan’s stuff – she brings a unique perspective to our team and is confronting many of the same challenges a lot of our members face in juggling a career in corporate law with the responsibilities of a young family. She’s also very funny. I don’t usually pat myself on my back for my brilliant ideas (okay, that’s a lie), but I’m particularly pleased with myself for deciding to resurrect The Mentor Blog and to put Meaghan at its helm. It’s never been better!
One of the things that’s differentiated the AI boom from the dotcom extravaganza of the 1990s is the fact that most of what’s been going on in AI has been taking place in large, well-established public companies like NVIDIA. So far, we haven’t seen startup AI players try to tap the public capital markets through IPOs, but CoreWeave’s recent Form S-1 filing suggests that may be about to change.
CoreWeave is a cloud-computing company based in Livingston, New Jersey, that specializes in providing cloud-based graphics processing unit (GPU) infrastructure to artificial intelligence developers (okay, so I lifted that verbatim from Wikipedia – it’s a lot less fizzy than what’s in the S-1 and I can almost understand it). Anyway, the company is one of the fastest growing AI cloud infrastructure providers, and over the past three years, its revenue has risen from less than $16 million to nearly $2 billion. CoreWeave’s losses have grown even more impressively over that period, rising from $31 million in 2022 to $937 million in 2024 – which, with apologies to Gilbert & Sullivan, makes it the very model of a modern IPO candidate.
Staggering losses aside, this IPO filing is a lot less silly than what we’re accustomed to seeing from the previous generation of Unicorns. There’s no goofy mission statement or founder’s letter or unintentionally hilarious (see 2nd blog) related party transactions disclosure. Instead, as befits something new under the sun, the prospectus kicks off with four pages of “Selected Definitions” designed to acquaint investors with the jargon-rich world of AI cloud computing and includes nearly 60 pages of “Risk Factors.” While most of what’s in the Risk Factors section is pretty much what you’d expect, this one on negative publicity caught my eye because of the way they hit the whole “hypothetical risk factor” issue head on in the language I’ve highlighted below:
If negative publicity arises with respect to us, our employees, our third-party suppliers, service providers, or our partners, our business, operating results, financial condition, and future prospects could be adversely affected, regardless of whether the negative publicity is true.
Negative publicity about our company or our platform, solutions, or services, even if inaccurate or untrue, could adversely affect our reputation and the confidence in our platform, solutions, or services, which could harm our business, operating results, financial condition, and future prospects. Harm to our reputation can also arise from many other sources, including employee misconduct, which we have experienced in the past, and misconduct by our partners, consultants, suppliers, and outsourced service providers. Additionally, negative publicity with respect to our partners or service providers could also affect our business, operating results, financial condition, and future prospects to the extent that we rely on these partners or if our customers or prospective customers associate our company with these partners.
Another thing about the offering that’s worth noting – it doesn’t look like multi-class structures are going the way of the Dodo anytime soon. CoreWeave has Class A, Class B, and Class C shares, and another high-profile IPO filing from last week, StubHub, has Class A & Class B shares. Finally, these filings include a bit of good news for embattled Delaware – both of these companies are incorporated there.
Woodruff Sawyer recently blogged about how the burgeoning use of AI technology is influencing the market for property & casualty, cyber and D&O insurance. Here’s what the blog has to say about AI’s implications for D&O coverage:
AI’s impact on D&O insurance is multifaceted. The rapid growth and hype around AI have led to inflated valuations for some AI companies, raising concerns about potential securities class actions if these companies fail to deliver on their promises. New laws and regulatory scrutiny around AI—like what has been seen with privacy regulations—could lead to fines and penalties, further increasing D&O risk.
Given these dynamics, companies should reassess their D&O coverage, particularly the limits and scope of coverage for derivative claims. These claims, often filed when directors are accused of failing in their oversight roles and causing significant financial harm to the company, can result in substantial settlements. In most states, including Delaware, companies cannot indemnify directors for settlement in derivative cases—if adequate D&O coverage is not in place, the directors would be responsible for paying the settlement out of pocket.
The blog says that D&O underwriters will scrutinize the board’s oversight of AI risk and whether the company uses AI in a thoughtful manner. AI disclosures will also be front and center in the underwriting process, due to concerns about companies’ “AI-washing” to pump their stock market valuation.
Interested in more on AI risk management and compliance issues? Check out our free AI Counsel Blog, where we highlight useful resources and share guidance on best practices for front-line risk management and compliance professionals who are dealing with the challenges of artificial intelligence, cyber, and other emerging technologies. Be sure to click on the “subscribe now” button to ensure that you receive our latest blogs in your inbox!
Earlier this month, the American Bar Association issued a statement on actions by the Trump administration that the ABA believes have undermined the rule of law and the legal profession. Here are the concluding paragraphs of that statement:
We reject efforts to undermine the courts and the profession. We will not stay silent in the face of efforts to remake the legal profession into something that rewards those who agree with the government and punishes those who do not. Words and actions matter. And the intimidating words and actions we have heard must end. They are designed to cow our country’s judges, our country’s courts and our legal profession. Consistent with the chief justice’s report, these efforts cannot be sanctioned or normalized.
There are clear choices facing our profession. We can choose to remain silent and allow these acts to continue or we can stand for the rule of law and the values we hold dear. We call upon the entire profession, including lawyers who serve in elected positions, to speak out against intimidation. We acknowledge that there are risks to standing up and addressing these important issues. But if the ABA and lawyers do not speak, who will speak for the organized bar? Who will speak for the judiciary? Who will protect our system of justice? If we don’t speak now, when will we speak?
The American Bar Association has chosen to stand and speak. Now is the time for all of us to speak with one voice. We invite you to stand with us.
I’m in the twilight of my career and no longer face the pressures associated with practicing in a law firm or corporate law department, so my taking a stand on this issue is pretty far from courageous. Still, for what it’s worth, I believe the administration’s actions are inconsistent with the Constitution and the laws of the United States that I took an oath to support when I became a lawyer, and I’m adding my name to those much braver members of the profession who have already endorsed the ABA’s statement.
Yesterday, Corp Fin issued a “Staff Statement on Meme Coins” in which it said that it did not view so-called “meme coins” as securities for purposes of the federal securities laws. The Statement defined meme coins as “a type of crypto asset inspired by internet memes, characters, current events, or trends for which the promoter seeks to attract an enthusiastic online community to purchase the meme coin and engage in its trading.” It went on to analogize meme coins to collectibles, because they are usually purchased for “entertainment, social interaction, and cultural purposes, and their value is driven primarily by market demand and speculation.”
The Statement then analyzed the legal status of meme coins under the federal securities laws and concluded that they were not “securities” under the Howey Test . This excerpt summarizes the basis for that conclusion:
The offer and sale of meme coins does not involve an investment in an enterprise nor is it undertaken with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. First, meme coin purchasers are not making an investment in an enterprise. That is, their funds are not pooled together to be deployed by promoters or other third parties for developing the coin or a related enterprise. Second, any expectation of profits that meme coin purchasers have is not derived from the efforts of others. That is, the value of meme coins is derived from speculative trading and the collective sentiment of the market, like a collectible. Moreover, the promoters of meme coins are not undertaking (or indicating an intention to undertake) managerial and entrepreneurial efforts from which purchasers could reasonably expect profit.
The Staff cautioned that meme coins that don’t fit the description outlined in the statement may be securities and will be evaluated based on the economic realities of a particular transaction.
The problem of director notetaking during board meetings is a persistent one, and the bad news is that, as Ralph Ward highlighted in a recent issue of The Boardroom Insider, it’s becoming even more challenging to address as AI tools find their way into the boardroom. This excerpt provides some examples:
In a thoughtful client alert, Robins, Kaplan partner Anne Lockner cites the true-life story of an online board meeting with a member who was logged in, but not actually participating. Instead, he had an online AI assistant sit in to prepare a summary for later review (and later circulation to all participants). While there’s “nothing to prevent participants from taking their own notes, using AI to summarize would be hard to stop,” she says. Still, this situation creates multiple legal nightmares, such as whether the director is actually “attending,” fiduciary duty, and confidentiality of the notes.
Another note-taking tech headache – what if the director is indeed present and participating, but using one of the many transcription tools to take his own minutes/notes of the meeting? While most online meeting platforms give the moderator power to record the session or not (and to prevent participants doing so), using such a capture widget on your own computer (or even on your smart phone) to transcribe would be simple. Of course, this creates an alternate version of the meeting minutes. If preserved, it would be fair game for any legal discovery demand down the road, and could tell a very different tale from that of the approved minutes.
It’s enough to send a shiver down your spine, isn’t it? Anyway, I think every lawyer who has ever counseled a board has a horror story about director notes. Mine involves a director who wrote a speech opposing a proposed merger that he planned to deliver at the board meeting held to consider it. He ultimately supported the deal, so the speech went undelivered, but he kept it, and it ended up in the plaintiff’s hands. The plaintiff’s lawyer had a very good time with the speech during the director’s 11 hour deposition – the director, well, not so much.
In addition to their typically higher profile, public companies may also have heightened security concerns for their executives since they are often required by Regulation FD to disclose their executives’ involvement in certain public events, so it’s common for high-profile public companies to engage and pay for personal security services for their CEOs and other senior executives. Some public companies also require their executives to use company aircraft for personal travel due to security concerns.
The December 2024 shooting of the CEO of UnitedHealthcare has caused public companies to reassess — and sometimes enhance — their security arrangements and other measures they take to protect the safety of their executives. We’ve recently posted a new “Checklist: Executive Security” that addresses the following topics — all of which boards and management teams should be aware of as they consider changes to executive security programs:
– Recent trends in personal security spending by public companies
– Additional steps companies are now considering to minimize risks to their management teams
– Board fiduciary duty considerations
– SEC disclosure requirements
– Institutional investor and proxy advisor positions
– Tax and benefit implications of personal security arrangements
