While most of us public company securities lawyers may not spend our day-to-day thinking about how audit firms might be subject to liability for statements in their clients’ IPO registration statements, that potential for liability certainly does impact the day-to-day of public companies and their lawyers because (I assume) it is something the higher-ups at audit firms think about. So here’s an interesting development out of the 9th Circuit, explained by this Morgan Lewis alert:
After Bloom Energy issued revisions to its 2016 and 2017 financial statements and a restatement of its 2018 and 2019 financial statements, Bloom stockholders amended an existing securities class action to add claims under Section 11 against the accounting firm that audited Bloom’s 2016 and 2017 financial statements. The case centers on the accounting for Managed Services Agreements (MSA) that Bloom used in connection with sale-leaseback arrangements . . .
In their complaint, plaintiffs alleged the accounting firm was liable under Section 11 for purportedly actionable statements and omissions in Bloom’s registration statement regarding its accounting for MSAs because the audit opinion did not identify that Bloom should have classified the MSAs as capital leases instead of operating leases. The accounting firm moved to dismiss, and the District Court granted the motion. Rather than amend their complaint, plaintiffs appealed to the Ninth Circuit.
On appeal, plaintiffs did not challenge the District Court’s dismissal of their claim that the audit opinion itself was false or misleading apart from its certification of the financial statements. . . Rather, plaintiffs argued that the accounting firm should be strictly liable under Section 11(a)(4) of the Securities Act for the misstatements in Bloom’s financial statements.
In early November, in Hunt v. PricewaterhouseCoopers LLP, the 9th Circuit rejected this argument and reiterated the negligence standard for accountant liability under Section 11:
Section 11 includes a due diligence defense, which requires that “accountants … exercise due diligence in investigating the materials provided to them using the accepted practices of their profession.” Accordingly, Section 11 imposes a negligence standard for an accountant’s liability, and in order for plaintiffs to prevail on a Section 11 claim, they must establish that an accounting firm did not have a “reasonable ground to believe” and did not believe, “at the time such part of the registration statement became effective, that the statements therein were true.”
But what about the claim that the audit opinion itself was false or misleading?
The Ninth Circuit next addressed applicability of the Supreme Court’s 2015 decision in Omnicare . . . in which the Supreme Court excluded statements of opinion from liability under Section 11 . . . Hunt was the first time the Ninth Circuit had occasion to consider applicability of Omnicare to auditors.
Without hesitation, the Ninth Circuit “extend[ed]” the holding in Omnicare to accountants and noted that doing so is consistent with Section 11’s due diligence defense. The Ninth Circuit held: “accountants may be liable for statements of fact if they did not act with due diligence; however, accountants will not be liable for statements of opinion, even if they reflect a subjective belief that admits there is a possibility of error, as long as the statement of opinion was sincerely held.”
Finally, the Ninth Circuit clarified that an “accountant’s certification of financial statements is nothing more than an opinion,” and held that, in this case, the accounting firm could not be liable for its audit opinion because that opinion “did not make any material misstatements of fact or omissions but rather was merely a statement of opinion based…upon the subjective judgment of the MSA classification.”
[Plus] Bloom’s determination of whether the accounting standards mandated that Bloom treat the MSAs as capital leases or operating leases involved significant accounting judgments, which rendered those determinations opinions, not facts. [So] Omnicare doubly applied because the accounting firm’s audit report was an opinion on top of company management’s opinion.
And thank goodness! Because the alert says:
Section 11 does not “make accountants guarantors of every statement made by the issuer; to make such a holding would turn the whole accounting world upside down” and make audits prohibitively expensive.
That was fast! Yesterday, ISS announced the annual updates to its benchmark proxy voting policies – which will apply to shareholder meetings taking place on or after February 1, 2026. As always, ISS had sought comments on potential changes. That comment period just ended a couple weeks ago, so I personally was not expecting the updates to land before Thanksgiving, and I guess this early delivery is one more thing to be thankful for if you are celebrating the holiday tomorrow.
ISS provided a 19-page summary to recap the main changes for all policies globally. Additionally, this 35-page document takes a deeper dive into what’s changed for the Americas region – including the US – and the rationale for those changes. It also includes redlines that show the year-over-year updates.
All in all, there weren’t too many corporate governance-related updates for US companies – and all of the updates were on topics that were part of the comment period, so no surprises. But check out Meredith’s blog today on CompensationStandards.com for takeaways on compensation-related policy updates, which were more extensive. Based on ISS’s summary, here are the main takeaways on the governance front, which track with what ISS had proposed during the recent comment period:
– Problematic Capital Structures – Unequal Voting Rights: Eliminates inconsistencies in the treatment of capital structures with unequal voting rights by considering them problematic regardless of whether superior voting shares are classified as “common” or “preferred.”
– E&S-related Shareholder Proposals: Adopts a fully case-by-case approach for proposals on diversity, political contributions, human rights, and climate change, reflecting varied proposal scope, shifting investor sentiment, regulatory changes, and evolving company practices. On a global basis, ISS has also reinforced the use of a common set of evaluation factors and specifically notes consideration of whether a proposal may substantively affect shareholder rights or interests.
For more color on the ISS policy updates – and themes to expect during the 2026 proxy season – make sure to mark your calendar for our January 8th webcast – “ISS Policy Updates and Key Issues for 2026.” This is one of our most-loved programs each year. It features Marc Goldstein, Managing Director & Head of U.S. Research at ISS, Davis Polk’s Ning Chiu, and Jasper Street Partners’ Rob Main. Members can attend the webcast at no charge. If your membership is expiring at the end of the year, make sure to renew it in time to catch this important program! And if you aren’t yet a member, sign up today by emailing info@ccrcorp.com or calling 800.737.1271.
Yesterday, the SEC announced that its Investor Advisory Committee will hold a virtual public meeting next Thursday, December 4th at 10 am ET. The agenda includes three hot topics:
1. Panel discussion on regulatory changes in corporate governance – exploring the evolving corporate governance landscape, including key changes to the shareholder proposal process, the use of mandatory arbitration clauses, investor corporate engagement, and modifications to the proxy voting system. James Andrus is moderating a discussion with Leza Bieber of Freshfields, Brad Goldberg of Cooley, shareholder advocate Jim McRitchie, and Vice Chair of ValueEdge Advisors and prominent corporate governance commentator Nell Minow.
2. Panel discussion on tokenization of equities – discussing the development of tokens representing ownership of an asset, and how tokenization can improve how public equities are currently issued, traded and settled – including market structure issues like settlement and short-selling.
3. Potential recommendation from the Committee on the Disclosure of Artificial Intelligence’s Impact on Issuer Operations – considering a draft recommendation urging the SEC to require companies to disclose how they define artificial intelligence, board oversight mechanisms, and other matters, which came out of the Committee’s March 6, 2025 panel discussion on this topic.
Ready or not, the holidays are upon us. I’m very grateful for all of you, as well as my family, friends and all of the same stuff that you’ll find on gratitude lists around the country. As your intrepid blogger during this holiday week, I am also counting my lucky stars for this Bloomberg article, which quotes Peter Atwater calling the marriage between crypto treasury companies and SPACs a “financial turducken.” I think that term might take off almost as much as the “K-shaped economy” that Peter also defined.
We’ve written about this trend a couple of times already, so I won’t belabor the explanation. As we’ve noted, SPACs have made a bit of a comeback this year – and the article gives the latest stats:
More than 110 SPACs raised $23.3 billion in the first 10 months of 2025, a far cry from the roughly $162 billion pooled across 613 in 2021, but easily outpacing the activity in the last two years combined, according to SPAC Research. The stream of deals has maintained a solid clip, with 59 SPAC mergers inked this year through October.
Of course, the real point of this blog is to share this important turducken history, in case you need something to talk about tomorrow with your friends & family:
The turducken, if you’ve managed to avoid its company thus far, is exactly what it sounds like–a chicken stuffed into a duck stuffed into a turkey, all deboned and layered with various types of stuffing. It looks like a regular turkey, but, when cut, magically reveals its true soul (the duck), as well as its soul’s soul (the chicken). It would fit nicely next to a Midwestern dessert salad, but is also the kind of main course you’d expect from a Thanksgiving feast thrown by the psychedelic machine minds at Google Deep Dream. In short, it is a truly mysterious food, melding the nostalgic with the futuristic, the traditional with the impossible.
The carnivore-baiting chimera has been a gold-plated staple of New Orleans cuisine since 1980, when Chef Paul Prudhomme began serving up a Cajun-inflected version in his restaurant, K-Paul’s Louisiana Kitchen. Prudhomme trademarked the name in 1986, and we’ve been calling it that ever since.
I blogged a few weeks ago about how the Enforcement Division is getting “back to basics” under SEC Chair Paul Atkins (and new Enforcement Division Director, Military Judge Meg Ryan, who was sworn in shortly before the government shutdown). A new report from Cornerstone Research and the NYU Pollack Center for Law & Business puts a finer point on the trend line. Here’s an excerpt from Cornerstone’s press release:
The U.S. Securities and Exchange Commission (SEC) brought 30% fewer enforcement actions against public companies and subsidiaries in FY 2025 than in FY 2024—a decline that coincided with the change in SEC administration.
While a decline aligns with previous years in which there was an SEC administration change, FY 2025 stood out for its composition: outgoing Chair Gary Gensler oversaw 52 actions (93%), while only four were initiated under the new SEC administration—the highest and lowest respective totals for outgoing and incoming chairs during a transition year since at least FY 2013.
Here are a few other takeaways:
– Monetary settlements are 45% lower than FY 2024: Total monetary settlements of $808 million in FY 2025 are the lowest since FY 2012 and the second lowest in SEED. This is also less than half of the FY 2016-FY 2024 average total monetary settlement of $1.9 billion.
– Chair Atkins to Focus on Issuer Reporting and Disclosure: Three of the four actions initiated against public companies and subsidiaries after Chair Gensler’s departure involved Issuer Reporting and Disclosure allegations. This is expected to continue into FY 2026. In his May 2025 remarks, Chair Atkins signaled his administration would “return” to the “core mission that Congress set” for the SEC—prioritizing “protecting investors; furthering capital formation; and safeguarding fair, orderly, and efficient markets.”
– Final Off-Channel Communications Sweep Under Chair Gensler: The SEC initiated nine actions in January 2025 as part of Chair Gensler’s off-channel communications sweep—an area that Chair Atkins indicated interest in addressing in remarks made in October 2025.
– Cooperation and Admissions of Guilt Continued Under Chair Gensler: The SEC noted cooperation by 73% of public company and subsidiary defendants that settled in FY 2025, higher than the FY 2016–FY 2024 average of 65%—reflecting the SEC’s continued emphasis on cooperation under Chair Gensler.
– Record-Low Disgorgement and Prejudgment Interest: The total amount of disgorgement and prejudgment interest ($108 million) was the lowest in any fiscal year in SEED — more than $300 million below the next-lowest total in FY 2012.
– Civil Penalties Continued in Administrative Proceedings: FY 2025 civil penalties for administrative proceedings accounted for the highest percentage of the total monetary settlement for any fiscal year in SEED.
Last week, the Ninth Circuit Court of Appeals granted part of an appeal by the US Chamber of Commerce and other trade organizations, arising out of their challenge to California’s climate disclosure laws. Here’s more detail from PracticalESG.com:
On Tuesday, the Ninth Circuit issued an order temporarily staying California’s SB-261 requiring biennial climate risk reporting by companies “doing business” in the state. Prior to the court’s ruling, companies were to publish their initial SB-261 report by January 1, 2026. This blog from Gunderson Dettmer gives background and explains what happens now:
“The motion was denied for SB-253 (GHG emissions reporting). SB-261 enforcement is now paused while the Ninth Circuit considers whether to reverse the district court’s August decision.
The case is scheduled for oral argument on January 9, 2026 — after the January 1 compliance date — though this date could change or the court could decide on the briefs. During today’s CARB workshop, staff indicated they are reviewing the order, and it remains unclear whether updated SB-261 guidance will be issued.”
The emergency application to the US Supreme Court Zach wrote about Tuesday has been withdrawn, although the industry groups that filed the original application stated they may “renew[] their request for relief if necessary at a later stage of the litigation.”
Members of PracticalESG.com can learn more about California’s climate disclosure laws here.
The case is Chamber of Commerce of the United States of America v. California Air Resources Board. As noted above, the court issued its order at the same time that CARB was holding a public workshop about implementation of the laws. This King & Spalding memo summarizes takeaways from the workshop and says:
It is possible CARB may issue an advisory following the Court’s injunction. In the meantime, while some companies may decide to report on or before January 1, 2026, at least by posting a link on their website, many other companies are likely to wait for further developments from the appellate Court or CARB. Notably, the Ninth Circuit did not stay a second California disclosure law, SB 253, that requires certain companies to disclose Scope 1 and 2 greenhouse gas emissions. Since the Ninth Circuit declined to also stay SB 253, companies should continue to plan for compliance with that law by August 10, 2026 (based on recent guidance from CARB).
We’re continuing to track the ins & outs of these developments – and share practical guidance about what companies should be doing – on PracticalESG.com. If you aren’t already a member of that site, email info@ccrcorp.com, call 800-737-1271, or start your membership online today.
On the heels of the federal antitrust probe that Dave wrote about earlier this month, the Florida Attorney General also has now announced an enforcement action against ISS and Glass Lewis – alleging violation of state consumer protection and antitrust laws. Here’s more detail about the complaint, as summarized by the AG’s announcement:
The lawsuit outlines how ISS and Glass Lewis—who together control almost the entire proxy-advisory industry—assured investors, pension funds, and Florida’s more than one million retirement participants that their recommendations were objective and evidence-based. Instead, the firms allegedly injected controversial environmental, social, and governance (ESG) demands into nearly every voting recommendation they delivered, pressuring companies to adopt race- and gender-based quota policies, ideological climate mandates, and other directives that expose businesses to legal and financial risk. The complaint alleges that the two firms did not simply arrive at these positions independently—they acted in lockstep, standardized their products, and denied consumers any meaningful alternative in a market they dominate.
The lawsuit asserts that Florida’s consumers, businesses, and retirees were misled about the nature and purpose of these recommendations, many of which are untethered from traditional financial analysis. The complaint also alleges that ISS and Glass Lewis made material omissions, pushing corporate actions that could violate federal law while claiming that their guidance supported good governance and regulatory compliance.
The Florida Attorney General had announced an investigation into ISS and Glass Lewis earlier this year, and this litigation adds to the challenges that ISS and Glass Lewis have filed in Texas against a state law that would make it difficult for them to provide “non-financial” recommendations. Earlier this year, the proxy advisors won a court battle against the SEC’s attempt at regulating them on the basis of their recommendations being a “solicitation.” But when it comes to that traditional business model, it currently looks like they might be losing the war.
In this program, you will hear directly from Staff in the SEC’s Division of Corporation Finance about important takeaways from the Statement, the Staff’s procedural expectations for this year, and common questions. There are a few important things to know about this webcast that are different from our typical programming:
1. It’s free for anyone who wants to attend, even if you aren’t currently a member of this site. We want to do what we can to get the word out about the Staff’s approach so that the season is as smooth as possible for everyone (especially given the Staff’s workload after the shutdown).
2. It’s happening from 11:00 am – 12:00 pm Eastern.
3. Since this is a pop-up webcast, we aren’t offering CLE credit for this one. Members of this site can get lots of live and on-demand credits through our other programs, though! As you can see on our home page, we have several good upcoming programs in December – including a program with former high-level Corp Fin Staff on December 11th, which will include practical guidance for companies to navigate this Rule 14a-8 process and other important SEC and Corp Fin initiatives.
As John noted last week – and as reflected in the memos posted in our “Shareholder Proposals” Practice Area – there are a number of open issues to consider when it comes to how this year’s shareholder proposal process will play out. For example, as mentioned in this Cooley memo, companies should remember the possibility of floor proposals. We’ll be continuing to track insights and dynamics as practices develop.
After the Staff issued its November 17th statement on how it would handle the Rule 14a-8 process this year, one of the questions people were asking was, “Will the Rule 14a-8(j) notices be posted on the SEC’s website?” The answer to that question appears to be “yes” – at the very least, for pending no-action requests that had been submitted before the new approach was announced.
On November 17th – which was the same day Corp Fin issued its statement about the Rule 14a-8 process for the 2026 proxy season – a company furnished a supplemental notice about a pending no-action request that it had submitted prior to the statement being issued. The supplemental notice followed the instructions for the new process. The company requested a response from the Staff – so in accordance with the Staff’s statement, the company included an unqualified representation about having a reasonable basis to exclude the proposal at issue. In this case, the company’s position was that the proposal could be excluded on procedural grounds.
On November 19th, Corp Fin posted its response. You can see the company’s supplemental notice on page 18. Corp Fin’s response says in part:
You represent that the Company has a reasonable basis to exclude the Proposal. Based solely on that representation, we will not object if the Company excludes the Proposal from its proxy materials.
Copies of all of the correspondence on which this response is based will be made available on our website.
This is something we’ll know more about soon, but for now it’s reasonable to expect the notices to be posted, even if a company isn’t requesting a response. In addition to submitting the Rule 14a-8(j) notice to the Commission, remember that you also have to send it to the proponent. We’d expect that any no-action requests submitted this season under Rule 14a-8(i)(1) would also be posted in the typical way.
We’ve been talking a lot about Rule 14a-8 shareholder proposals for obvious reasons – but there are also a host of other disclosures to think through for your upcoming proxy statement, which are relevant even if your company doesn’t regularly receive shareholder proposals.
Thankfully, we don’t have to worry about new rule requirements for upcoming proxy statements and Form 10-Ks – no disclosure rules have changed since last year. But as this 31-page Mayer Brown memo observes, shifting SEC priorities and other policy dynamics may affect your disclosures. Compared to this time last year, everything feels different. The memo gives thoughts on how to handle that:
Against the backdrop of heightened macro volatility in 2025, including introduced and threatened tariffs, rapid developments and emerging risks in artificial intelligence (“AI”), and broader political and geopolitical instability, companies should review and recalibrate their approach to disclosures for the upcoming annual report and proxy season with renewed discipline. As we discuss in further detail below, companies should reassess and refine their Form 10‑K disclosures with an emphasis on specificity, materiality, and cross‑document consistency.
In Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), companies should address known trends and uncertainties that are reasonably likely to materially affect liquidity, capital resources, supply chains, pricing, customer demand, or segment performance, making clear the timing, magnitude, and drivers of impacts (e.g., tariff exposure by product or geography, mitigation strategies, and sensitivities). Risk factor drafting should avoid boilerplate and describe company‑specific risks, including tariff‑related trade restrictions and retaliatory measures, regulatory shifts in AI (such as use of generative AI tools and evolving compliance expectations for AI governance), cybersecurity threats, and policy unpredictability affecting environmental, social and governance (“ESG”) matters and diversity, equity and inclusion (“DEI”) initiatives. Companies should also consider whether any of these developments warrants updates to its cautionary language related to forward-looking statements.
Much like in 2025, we expect that a number of high-profile issues will receive attention from investors, companies and other stakeholders during the 2026 proxy season. These issues, including ESG matters and climate-based disclosure, among others, reflect the changing political landscape and highlight the differences between the current SEC administration’s priorities and those of the prior administration.
The memo takes a close look at how these issues (and others) affect various sections in the proxy statement and Form 10-K. It also points out that you should pay extra attention to Item 405 disclosures this year, since the Edgar Next transition may have caused some folks to miss Section 16 deadlines.
