This excellent LinkedIn Newsletter from Persefoni’s Kristina Wyatt reminds us that climate disclosures in SEC filings aren’t totally dead. Requirements live on in the form of Items 101 (Description of Business), 103 (Legal Proceedings), 105 (Risk Factors) and 303 (MD&A) of Regulation S-K — plus the 2010 interpretive release. (History buffs should check out the newsletter’s timeline for SEC environmental and climate disclosure developments!)
Even though the 2010 guidance is the SEC’s last official statement on climate before the 2024 rule, other developments are worth noting. First, Reg. S-K has been amended since, which just means that you have to “read the 2010 climate guidance in the context of the amended items,” which didn’t change “the essential proposition” of the 2010 guidance. Second, and more importantly, she notes that the “broader landscape for climate-related disclosures has changed” — with many new standards and requirements.
Particularly, she points to ISSB’s S1 and S2, which multinational companies may be complying with currently — or required to in the near future. She says companies facing material climate risks or events can look to these standards as they apply the 2010 guidance. To do that, Kristina provides this helpful roadmap linking S1 and S2 to required SEC disclosures.
Business Description – Item 101 of Regulation S-K. A company might adjust its business strategy to mitigate climate risks or take advantage of climate-related opportunities. If those changes reflect a material change to the company’s business, the company must consider disclosure of those changes in its business description and/or MD&A. Its assessment of its strategy under the guidance of the ISSB standards can help the company formulate its plan and, in turn, its disclosure.
Moreover, as the 2010 interpretive release provides, Item 101 of Regulation S-K requires companies to discuss “The material effects that compliance with government regulations, including environmental regulations, may have upon the capital expenditures, earnings and competitive position of the registrant and its subsidiaries, including the estimated capital expenditures for environmental control facilities.” The evaluation of a company’s legal compliance obligations as part of its ISSB assessment of transition risks and strategy can help shape the company’s disclosure under Item 101 of Regulation S-K.
Legal Proceedings – Item 103 of Regulation S-K. Item 103 requires disclosure of material legal proceedings, including “administrative or judicial proceedings arising under any Federal, State, or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment.” Ordinary, routine litigation incidental to the business need not be disclosed.
However, Item 103 presumes that proceedings are not ordinary or routine if they are brought by a government entity and involve potential penalties above specified thresholds as described in Item 103. Just as the company’s disclosures related to its business under Item 101 of Regulation S-K ties to is ISSB risk and strategy disclosures, so too should the Legal Proceedings disclosures under Item 103 be aligned with the company’s disclosure of its risks and strategy under ISSB S2.
Risk Factors – Item 105 of Regulation S-K. Many companies will consider whether climate risks represent material risks that they should disclose in their Risk Factor section. They can usefully draw on the ISSB standards in evaluating their acute and chronic physical and transition risks and their strategies to mitigate those risks. This can help inform their Risk Factor disclosures, including disclosure of how climate risk affects the company.
MD&A – Item 303 of Regulation S-K. Climate events and risks should be disclosed in a company’s MD&A if they represent material events and uncertainties that are reasonably likely to cause the company’s reported financial information to not necessarily be indicative of future operating results or financial condition. This includes matters that have had a material impact on reported operations as well as those reasonably likely to have a material impact on future operations. The company’s assessment of its physical and transition risks and strategies to address those risks, conducted pursuant to ISSB S2 can help to inform its MD&A disclosure.
My husband’s biggest hobby is something most people have never heard of. It’s called “24 Hours of Lemons.” It’s endurance racing (like Le Mans) but for cars that frankly don’t look roadworthy (hence Lemons). Most teams are amateur racers and engineers, and most of the cars are somewhat cobbled together. My husband’s team’s car is an extreme example. It’s truly Frankenstein’s monster — a 45-year-old Triumph Spitfire body with a Triumph GT6 roof and a Ford Ranger engine under the hood — and the judges seem to love them for it.
The race they compete in annually just happened, and even though, with two kids in tow, I usually only last about an hour watching (and the car is sometimes broken for all or part of that time), I always walk away amazed by the folks that participate in this (sort of scary) sport. I realized this time that the things that amaze me are so broadly applicable that Meaghan has actually written about all of them on The Mentor Blog. Here are a few that come to mind:
– Long-Term Thinking. My husband’s team added a massive wing on the back of the car for this race. Apparently, it had its intended effect of making the car feel actually responsive and less “squirrelly,” so they felt more comfortable driving the car harder. But this is an endurance race with unreliable cars. They tried to resist the temptation to up their lap speed. The upside of a few more laps in an hour was not worth the risk of a time-consuming repair that keeps them off the track (and not doing any laps) for many hours (that said, see below).
Meaghan concluded a Mentor Blog called “What I Wish Someone Told Me” with the reminder that billing an obscene amount of hours to the detriment of all else in life can be a recipe for burnout. Sometimes you may need to remind yourself that this is your career — not just your job today — and that the deal of the day can’t keep taking precedence over your health and relationships.
– A Growth Mindset. Of the six members of my husband’s team, not one of them has a degree or professional background in automotive engineering. They have learned hundreds of new skills they didn’t have before and they did it in front of people! In some cases, track side with other teams watching. (Ahh!) They might have been afraid of failure and embarrassment, but they didn’t show it and it didn’t stop them.
My inclination to learn and perfect something privately seemed like a strength to me when I was younger. Now I try to see when it is holding me back (it’s even the reason I didn’t like going bowling until my 20s) and recognize when I’ve developed skills that can translate to other roles and contexts. I was inspired my Meaghan’s “why not try it?” approach, and I’ve been trying to channel that energy myself!
– Optimism & Resourcefulness. This was the second race where his team won the award for “Heroic Fix.” It goes to the team that successfully tackles a repair (or, in their case, three repairs) and gets back on the track after everyone thought it wasn’t possible. Some teams with devastating damage “throw in the towel.” In fact, when we leave, we spectators often see a few broken lemons on trailers in town leaving the race early. But optimistic racers (like my husband!) set aside their disappointment about being towed off the track and realizing they didn’t pack the particular part they need. They walk the paddock looking for teams that have spare parts, tools or even skills that the team with the broken car doesn’t have . . . yet! (This is a collaborative more than competitive league — and most teams are willing to share!)
I was reminded of Meaghan’s blog about setting aside the things we can’t control and focusing on what we can change — sometimes we need to give ourselves the pep talk we need and get to it!
If you don’t already, go sign up to receive The Mentor Blog in your inbox to benefit from Meaghan’s valuable and entertaining career wisdom — without all these unnecessary automotive analogies. The blog is available to members of TheCorporateCounsel.net. If you’re not already a member, sign up to take advantage of the no-risk “100-Day Promise” — during the first 100 days as an activated member, you may cancel for any reason and receive a full refund.
Finally, unrelated to the law at all, but for your viewing pleasure, here is the aforementioned “lemon.” I hope you have a great weekend and make some lemonade!
Liz shared in January (pre-Inauguration Day) what we think was the first “AI washing” case against a public company. While “AI washing” securities suits continued, it wasn’t clear whether and how this enforcement priority would shift — or continue — under the new administration. This Weil alert highlights two more recent SEC and DOJ enforcement actions that it says underscore the continued federal enforcement focus in this area.
On April 9, 2025, the U.S. Securities and Exchange Commission (SEC) and the U.S. Attorney’s Office for the Southern District of New York commenced parallel actions against Albert Saniger, the former CEO of Nate, Inc. (Nate), a privately-held technology startup, alleging that he made materially false and misleading statements to investors regarding the company’s artificial intelligence (AI) capabilities.
Then on April 22, 2025, the SEC and the U.S. Attorney’s Office for the Eastern District of Virginia announced parallel charges against Ramil Palafox, the founder of PGI Global, alleging, among other claims, that he made false statements to investors regarding the development of an AI-powered crypto auto-trading platform and other topics.
We know that enhancing “America’s global AI dominance” is a priority for this administration, and the alert says that the “accompanying statements by DOJ and SEC officials signal that the current administration may view AI washing as a threat to achieving its broader policy initiative and accordingly, intends to pursue civil and criminal charges based on alleged false and misleading statements regarding AI capabilities, which may include fundraising by public companies, private companies, and investment advisers.” It suggests that companies (and investment advisors):
– Conduct a thorough review of their disclosures and public-facing statements regarding AI capabilities (with particular attention to statements used in fundraising activities, whether in the public or private markets);
– Ensure that such disclosures and statements are accurate and consistent; and
– Ensure they can be substantiated with supporting documentation.
We’ve posted this and other related memos in our (very robust) “Artificial Intelligence” Practice Area. For more 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.
As Liz shared last month, “Nasdaq has begun engaging with regulators, market participants and other key stakeholders, with a view of enabling 24-hour trading five days a week on the Nasdaq Stock Market” by the second half of 2026. Personally — like Liz — my main reaction was trepidation. But, if you hadn’t read through the LinkedIn newsletter she linked to, it’s worth a closer look — I’m not sure why, but I found it somewhat reassuring to consider in more detail how IR monitoring tools, processes and responsibilities will evolve.
Here are a few of the open questions and tips shared in the newsletter:
– Extended “active” hours: IR teams may need to decide how to offer consistent coverage beyond the typical workday. Even if there is no expectation of “live” spokesperson availability at 3 am, you might need a system in place to post (and monitor) updates on your IR website and social media channels when market-moving news surfaces at unconventional times.
– Communication handoffs: For companies with truly global footprints, rotating IR responsibilities across regional offices could be a solution, ensuring an IRO is always ready to clarify or contextualize price changes for global stakeholders.
– Earnings release timing: Should a company still release earnings after the “official” close if there is no final close in a seamless, extended session? Companies might look at scheduling announcements to align with windows of higher liquidity (even if it’s in the middle of the night in the US).
– Rapid-response mechanisms: IR professionals need to map out escalation protocols if unexpected global events (such as geopolitical announcements or macro shocks) trigger premarket or overnight volatility. Preparing rapid-turnaround Q&As, bullet-point summaries, or video statements could help settle investor nerves in real time.
1. Expert Speakers. We’re bringing together an impressive and dynamic group of speakers. Their varied experience — including as SEC Staff, in-house counsel and in private practice — is invaluable. (Truly! Think of the total hourly rates!)
2. Practical Content. Big changes are afoot! With a new presidential administration doing an about-face on the regulatory agenda, you need to hear all the practical action items these leading experts will be sharing. Let them help you navigate change and issue spot — ultimately saving you time and money.
They’ll cover topics like “E&S: Balancing Risk & Reward in Today’s Environment,” “Delaware Hot Topics: Navigating Case Law & Statutory Developments,” “The Proxy Process: Shareholder Proposals & Director Nominations” and “The Year of the Clawback” — and whatever regulatory (and deregulatory) developments happen between now and October that you’ll inevitably need to understand and be called to advise on!
3. Timed to Help You. The Conferences are timed and organized to give you the very latest action items that you’ll need to prepare for the flurry of year-end and proxy season activity. Why spend time & money tracking down piecemeal updates to share with your higher-ups and board – all while you’re under a deadline and have other pressing obligations, increasing the risk of mistakes – when you can get all of the key pointers at once.
4. Networking. Network face-to-face and foster meaningful connections with industry leaders, potential clients, collaborators and mentors. This year’s Conferences have even more opportunities to do so — including a special welcome event to celebrate our 50th Anniversary!
5. CLE Credit. We will apply for CLE credit for the Conferences. Most states allow credit for lawyers who attend in-person or via live video webcasts as they are airing. As we get closer, we will post a list of states for which the conferences are accredited.
6. On-demand Archives. Unlike some conferences, the on-demand archives (and transcripts!) will be available at no additional charge to attendees after the event, and you can continue to access them for 12 months. That means you can continue to refer back to the sessions as issues arise. Again, saving time and money.
7. Valuable Course Materials. In addition to live and on-demand access to these fast-paced sessions, Conference attendees get exclusive access to our Course Materials – which include unique and practical bullet points and examples from our experienced speakers on each topic we’ll be covering. Our speakers go the extra mile to provide usable takeaways. The Course Materials are an invaluable resource to refer back to as proxy season approaches.
8. Exhibitors. Interact with our sponsors and exhibitors and learn how these partners can help you. Our Conferences are also held in conjunction with the annual conference of the National Association of Stock Plan Professionals (NASPP) with “equity’s largest expo hall.”
9. Early Bird Rate. Register now to lock in our “early bird” deal for in-person registration!
10. Vegas, Baby, Vegas. Love it or hate it, you have to admit that Las Vegas (and the surrounding area) has more to offer than neon lights and gambling. In fact, there seems to be something for everyone — including foodies and outdoor enthusiasts!
The Conferences are happening October 21st & 22nd at the Virgin Hotels Las Vegas and virtually! (NOTE that the Conferences are Tuesday & Wednesday this year, not Monday & Tuesday!) Register online by credit card or by emailing info@ccrcorp.com or calling 1.800.737.1271.
One of the many claims brought by the plaintiffs in the In re Plug Power Inc. Stockholder Derivative Litigationchallenged the adequacy of board reporting and monitoring systems for responding to SEC comment letters — alleging inadequate oversight under Caremark. Here’s the factual background from this Stinson blog:
The Company received five comment letters from the SEC between mid-2018 and early 2021 . . . The allegations reflect that the Audit Committee discussed SEC letters during that period, although there was scant mention of those letters in the minutes.
As the memorandum opinion notes, to state a Caremark claim, alleged facts must show either (1) “the directors utterly failed to implement any reporting or information system or controls” or (2) “having implemented such a system or controls, consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention.”
To support their information systems claim the Plaintiffs argued:
SEC comment letters generally present a distinct risk that requires its own monitoring system beyond the ambit of the Audit Committee; and
The Audit Committee discussions were not sufficiently robust.
The court ultimately found that the plaintiffs didn’t plead facts sufficient to meet the “high bar” to hold directors personally liable for a failure of oversight and dismissed the Caremark claims.
The Court noted that Delaware law does not dictate what structure a reporting system must take. Rather, under Delaware law, “how directors choose to craft a monitoring system in the context of their company and industry is a discretionary matter.” That is, the law requires courts to exercise good faith oversight, “not to employ a system to the plaintiffs’ liking.”
Turning toward the allegation that the Audit Committee discussions were not sufficiently robust, the Court noted the “absence of regular board-level discussions on the relevant topic” “alone is not enough for the [c]ourt to conclude a board of directors acted in bad faith.” Plaintiffs’ disagreement with the adequacy of the Audit Committee’s or Board’s consideration of the SEC comment letters did not mean that the Board failed to make a good-faith effort to establish a system.
As to the Plaintiff’s red flag allegations, the Court doubted receipt of an SEC comment letter alone was a red flag. Even if the comment letters constituted a red flag, it was not reasonable to conclude based on the facts alleged that the Board ignored them in bad faith. Plug Power’s system in place worked to some degree—Plug Power responded promptly to each of them and the Audit Committee received reports about them.
That said, the opinion doesn’t rule out the possibility that similar allegations could be successful under different circumstances.
It bears noting that Plaintiffs’ Caremark allegations were particularly underdeveloped. One can imagine a situation where the absence of any discussion on a central compliance risk in Board or committee minutes is sufficient to supply the inferences that Plaintiffs seek, at least where the risks are more severe and the absence of discussion far more glaring. But this case was an afterthought to the Securities Action. And the Caremark claim was an afterthought to the Brophy claims. And the Amended Complaint reflects all of this—facts shoved into the boxes of belatedly raised theories. The inferences just were not there.
Earlier this week, Chairman Atkins, Commissioner Peirce, Commissioner Uyeda and Commissioner Crenshaw all addressed the Crypto Task Force Roundtable on Tokenization. Chairman Atkins analogized the movement of securities from off-chain to on-chain systems to the transition of audio recordings from vinyl to cassette to digital — noting that regulation needs to keep up with innovation.
Commissioner Crenshaw channelled Dr. Malcolm in her remarks and focused less on how the Commission could support the push toward tokenization and more on whether it should. While proponents argue that tokenization can facilitate a move to “T+0,” she says that may not be a good thing (and not just to avoid burnout of us lowly securities lawyers). Here’s an interesting snippet from her remarks — especially for folks looking to better understand the mechanics of our markets.
But the settlement cycle, while shorter than it used to be, is a design feature, not a bug. The intentional delay built in between trade execution and settlement provides for core market functionalities and protection mechanisms.
– For example, the settlement cycle facilitates netting. Roughly speaking, netting allows counterparties to settle a day’s worth of trades on a net basis rather than trade-by-trade. The sophisticated, multilateral netting that occurs in our national clearance and settlement system drastically reduces the volume of trades requiring final settlement. On average, 98% of trade obligations are eliminated through netting. This allows the current system to handle tremendous volume. It’s a key reason why our markets withstood sustained, record-breaking trade volume in recent weeks without major failures.
– Netting also facilitates liquidity. Because the vast majority of trades are “netted” and don’t require settlement, they don’t require an exchange of money. If A sells to B, B sells to C, and C sells to A, these trades are paired off and eliminated. A, B, and C can each retain their capital, as compared to a bilateral instant settlement over a blockchain, where each would have given up its cash for at least some period of time.
– Another important consideration is that instant settlement would generally disfavor retail investors, many of whom currently rely on the ability to submit payment after placing orders.
– We must also remember that critical compliance activities take place during the settlement cycle. These include checks designed to identify and prevent fraud and cybercrime. When red flags go up, the ability to pause a transaction and investigate is essential for investor protection and broader concerns like national security and counterterrorism.
For these and other reasons, it is not at all clear that shortening the existing settlement cycle is desirable or feasible. Regulators and major market participants, here and abroad, have persuasively argued otherwise.
Issues with same-day settlement have been debated before. The SEC sought comment on the path toward same-day settlement during the proposal phase of the shift to T+1, and Commissioner Peirce had laid out a few similar issues for specific comment, including whether the move would unnecessarily increase trading costs or affect market structure in ways that decrease liquidity.
It’s time again for the five-year benchmark survey run by the Commerce Department’s Bureau of Economic Analysis (BEA). This can sneak up on you because you may be required to respond even if you don’t routinely file BEA survey responses and regardless of whether the BEA contacts you. Here are some “quick facts” on the survey from this Fried Frank alert:
– The BE-10 responses are due by May 30, 2025, or by June 30, 2025 for filers with 50 or more foreign affiliates. The reporting period for the BE-10 is the company’s 2024 fiscal year.
– Reporting firms include any U.S. person that held, directly or indirectly, at least 10% of the voting interest in a foreign affiliate at the end of the U.S. company’s 2024 fiscal year.
– Requested information includes details on each of the U.S. person’s foreign affiliate’s ownership, industry classification, total sales, employment figures, exports, imports, and certain financial information
On Friday, the Trump Administration released a new Executive Order targeting “overcriminalization” in Federal regulations. Here’s more from the fact sheet.
– The Order discourages criminal enforcement of regulatory offenses, prioritizing prosecutions only for those who knowingly violate regulations and cause significant harm.
– Strict liability offenses, which don’t require proof of bad intent, are generally disfavored.
– The Order requires each agency, in consultation with the Attorney General, to provide to the Office of Management and Budget (OMB) a list of all enforceable criminal regulatory offenses, the range of potential criminal penalties, and applicable state of mind required for liability. Agencies must post these reports publicly and update them annually.
– Criminal enforcement of offenses not publicly posted is strongly discouraged, and the Attorney General must consider the amount of public notice provided regarding an offense before pursuing investigations or charges.
– The Order instructs agencies to explore adopting a guilty-intent standard for criminal regulatory offenses and cite the authorizing statute.
– Agencies must publish guidance on referring violations for criminal enforcement, factoring in harm, defendant’s gain, and awareness of unlawfulness.
– The Order does not apply to immigration law enforcement or national security functions.
This memo from litigation boutique, Dynamis, says this policy shift might benefit individuals and businesses in heavily regulated industries like crypto and securities.
– Cryptocurrency and Financial Technology: Companies dealing in cryptocurrency often find themselves navigating unclear or rapidly evolving regulations issued by agencies like the Treasury Department (Financial Crimes Enforcement Network), the Securities and Exchange Commission (SEC), and others. For example, there are regulations on money transmission (18 USC 1960), anti-money-laundering (AML) requirements, and securities registration that may apply to crypto transactions – violation of some of these rules can lead to criminal charges if deemed “willful.”
A crypto startup may unknowingly violate a financial regulation (perhaps by failing to implement an AML program), and regulators could refer the case for criminal prosecution. The new Executive Order signals that if a company in the crypto/fintech space unintentionally falls afoul of a vague rule, it should not be reflexively treated as criminal. Only serious, knowing violations (for example, a company deliberately flouting known rules concerning anti-money laundering) would merit criminal prosecution under the order’s policy.
– Securities and Corporate Regulation: The securities industry has long been subject to dual enforcement: regulatory agencies (like the SEC) handle most violations civilly, but the Justice Department can prosecute egregious securities law violations criminally (such as willful fraud, insider trading, etc.). There are numerous SEC regulations governing filings, disclosures, broker-dealer practices, and more. Many of these regulations carry potential criminal penalties if someone “willfully” violates them (often under statutes like the Securities Exchange Act) . . . The line between a civil enforcement action and a criminal case in securities is murky, and often comes down to intent and magnitude of harm.
The Executive Order reinforces that line by instructing that criminal prosecution is “most appropriate” for those who knew what the rules forbade and deliberately chose to violate them, causing substantial harm. Minor or technical violations, such as violations of disclosure rules that often arise in criminal microcap cases, would be less likely to be referred as criminal matters under the new policy. This doesn’t decriminalize securities laws, but it does aim to reserve the “criminal” label for the clearest bad actors, not every compliance violation.
So we might see fewer SEC referrals to the DOJ for potential criminal prosecutions, but that doesn’t mean individuals will be off the hook. As Liz noted back in February, during his previous tenure as a Commissioner, now Chairman Atkins focused on individual accountability over corporate penalties.
Health and wellness news has been abuzz about centenarians, but another kind of centenarian is of particular interest to this audience — auditors that have been retained by one public company for over 100 years. This Ideagen blog says the number of 100+ tenured auditors has nearly doubled since 2016 — even as some notable companies have switched long-tenured auditors due to EU regulations. That’s right — the percentage of long-tenured auditors also depends on geography — with the US (and, as John previously pointed out, particularly Ohio for some reason) being a “blue zone” for this purpose. Here’s a reminder from the blog:
Europe and the United States have differed on their approach towards the prospect of mandatory auditor rotations. During the early 2010’s the PCAOB investigated requiring mandatory auditor rotations for public companies in an attempt to improve auditor independence. This proposal was debated and ultimately nixed in 2014 after hundreds of comment letters were received from corporate board members addressing concerns about the potential for inexperienced auditors, especially in specialized sectors, and lower audit quality.
The European Union has taken a vastly different approach to the United States. In 2016, new regulations were introduced in the EU requiring companies to rotate their auditor every 10-24 years and conduct an audit tender process every 10 years.
The blog cites independence concerns and a desire to increase competition among auditors as reasons to mandate firm rotation, but it also notes that the data confirms notably larger average audit fees as a result of mandatory rotation due to significant ramp-up costs.
In the US, audit firm tenure continues to correlate with company size:
– Large accelerated filers have the longest average audit tenure of 19.4 years
– Accelerated filers have an average audit tenure of 9.5 years
– Non-accelerated filers have the lowest average audit tenure of 6 years
For folks new to this space, keep in mind that while there’s no mandatory audit firm rotation in the US, SEC rules require the lead and concurring partners to rotate off of their public company client engagements after five years and—upon rotation—to be subject to a five-year “time out” period before being permitted to return to that engagement in those roles. Other audit partners on the engagement are subject to a seven-year rotation requirement and a two-year “time out” period. Check out our “Auditor Engagement” Handbook for more!
