This Paul Weiss client alert highlights a recent decision by a federal district court in Colorado, Cupat v. Palantir Technologies, Inc. (D. Colo.; 4/25), that dismisses a Section 11 claim arising out of a direct listing after applying the strict tracing requirement from SCOTUS’s Slack decision. The Slack decision required that a plaintiff plead and prove that it purchased shares traceable to the registration statement it claims was materially misleading when making a Section 11 claim.
[The court] noted that the Supreme Court “did not assess whether any specific allegations were sufficient to plead traceability, nor what evidence is sufficient to prove it.”
Plaintiffs sought to satisfy the tracing requirement by alleging that (i) the probability that plaintiffs “purchased at least one registered share is so high as to constitute a legal certainty”; (ii) they would be able to prove traceability with appropriate discovery; and (iii) “any unregistered shares they purchased should be deemed registered on an integrated offering theory.”
[But] the district court held that plaintiffs could not plausibly allege that the shares they purchased were issued pursuant to the allegedly deficient registration statement because both registered and unregistered shares of the issuer’s stock were available at the time of the direct listing.
The alert continues with these implications, which are similar to those Liz had highlighted when Slack was released:
– The decision confirms that Slack’s strict tracing requirement may effectively insulate companies that go public through a direct listing from Section 11 liability.
– The decision further suggests that nothing short of chain-of-title allegations will suffice to plead traceability, posing a significant challenge to plaintiffs seeking to plead a Section 11 claim arising out of a direct listing.
– The decision may also have implications in other circumstances where tracing shares to a particular registration statement is difficult, such as where unregistered shares enter the market after an IPO lockup period expires, or where there have been multiple offerings pursuant to multiple registration statements. Ultimately, this decision and others interpreting Slack may make direct listings a more attractive avenue for companies that are looking to go public, as a direct listing may reduce associated litigation exposure.
KPMG recently released its 2024 study on material weaknesses and reported on trends over the last five years. Here are some of the data points highlighted in the report:
– Of the 3,502 annual reports filed in the 2023/2024 year, 279 companies (8%) disclosed material weaknesses in their filings.
– The percentage of companies disclosing material weaknesses in 2024 increased slightly as compared to the prior year.
– The top five issues driving material weaknesses were: lack of documentation, policies and procedures; lack of accounting resources or expertise; IT, software, security and access issues; lack of segregation of duties/design controls; and inadequate disclosure controls. (These are consistent with prior years.)
– Material weaknesses related to restatement of company filings decreased by 7% in FY24, and this is also within the typical range that’s been shown over the last several years.
– Perhaps not surprisingly, material weaknesses related to lack of accounting resources/expertise and IT, software, security and access issues have steadily increased from 2021 to 2024.
– Process areas with the highest concentration of material weaknesses include: financial close/reporting; control environment; systems; nonroutine/complex transactions; and revenue.
– Of the 757 companies that filed a report with a material weaknesse between 2020 and 2024, 236 companies (31%) disclosed material weaknesses in multiple years.
I’ve been listening to and loving Dave & Liz’s Mentorship Matters Podcasts. I mostly recently listened to their podcast with Keir Gumbs, and on that and many of their podcasts, they’ve discussed how folks new to securities law can develop foundational skills and knowledge. One of the things it got me thinking about is how I can make blogs more accessible to securities lawyers who are earlier in their careers. So, if that’s you and you’re looking for a commute read (a practice of Keir’s!) to understand internal controls over financial reporting, material weaknesses, significant deficiencies, the related disclosure requirements and other implications, navigate over to our “Internal Controls Disclosure” Handbook when you have a moment.
The US Attorney General has announced a major change in how federal regulators approach cryptocurrency markets. A recent memorandum directed the U.S. Department of Justice (DOJ) to scale back litigation and enforcement actions against digital asset platforms. Instead, the DOJ will focus on individuals and organizations using digital assets in unlawful ways. A recent memo from Sidley summarizes the changes:
“Continuing the Trump Administration’s shift away from targeting digital asset platforms, software, and other facilitating spaces, DOJ leadership has directed its prosecutors to deprioritize cases against virtual currency exchanges, mixing and tumbling services, and offline wallets for the acts of their end users or for ‘unwitting’ violations of regulations. Instead, DOJ prosecutors are instructed to focus on cases against individual actors that victimize investors, including: (1) embezzlement of funds on exchanges; (2) digital asset scams; (3) rug pulls; (4) hacking; and (5) exploitation of smart contract vulnerabilities”
The DOJ’s National Cryptocurrency Enforcement Team is now disbanded, as part of the DOJ’s new approach. Additionally, the memorandum reaches beyond the DOJ and is being implemented by other federal agencies. The Commodity Futures Trading Commission (CFTC) has announced its intentions to adhere to the memorandum. The spotlight is shifting from digital asset platforms, but the DOJ will still litigate against platforms directly engaging in unlawful activity. This comes as the administration makes efforts to expand the use and adoption of cryptocurrencies into traditional banking systems. It is unclear how this might affect the broader cryptocurrency ecosystem, but it does bring several pending enforcement actions against crypto platforms to an end.
Check out our “Crypto” Practice Area where we’re posting related resources on crypto developments. And, if you haven’t already, subscribe now to get free notifications from our new “AI Counsel” blog in your inbox!
NAVEX recently released its 2025 Whistleblowing & Incident Management Benchmark Report (available for download). Overall, NAVEX points to “several relatively consistent metrics from 2023 to 2024 following the major disruptions related to the COVID-19 pandemic, signaling that some workplace dynamics are likely settling into a more steady pattern.” Here are some more detailed takeaways from the executive summary:
Median reports per 100 employees were again at record levels in 2024 — matching the level from 2023 at 1.57.
Frequency of web-based reports (33.4%) surpassed hotline reports (29.4%) for the first time. “Other” reports (typically those made in person) still represent the greatest share of reports by frequency globally.
The substantiation rate (reports found to be true) again reached a new all-time high at 46% in 2024 (up from the all-time high of 45% in 2023).
In 2024, even more substantiated reports (20.2%) resulted in separation from employment, and this figure has increased a few percentage points each year since 2021, suggesting that organizations are “becoming bolder in their responses to misconduct.”
New this year, NAVEX has added reporting data broken down by entity type — including public companies, private companies, government entities, and education organizations — allowing for more tailored comparisons.
In February, Liz blogged about the Trump Administration’s announcement of a 180-day suspension of new FCPA investigations while the DOJ reviews cases & revises its enforcement guidelines. Her blog focused on why companies still benefit from maintaining their anti-corruption compliance programs during this pause and beyond. If that wasn’t enough, California and Europe have chimed in with two more reasons to add to Liz’s checklist.
California – As Gibson Dunn reports: In a press release and legal alert issued on April 2, 2025, California Attorney General Rob Bonta reminded businesses operating in California that making payments to foreign officials to obtain or retain business remains illegal [and] “[v]iolations of the FCPA remain actionable under California’s Unfair Competition Law (UCL)”—and that California may step up corruption-related enforcement if federal authorities’ priorities shift to other areas.
Broadly speaking, the UCL prohibits “unlawful, unfair or fraudulent” behavior across nearly all business practices.[1] For purposes of “unlawful” conduct, the UCL “borrows” violations of other laws, including federal laws such as the FCPA, and treats them as “independently actionable as unfair competitive practices.”[2] But under the UCL, even foreign bribery that does not meet all the elements of an FCPA violation may be actionable if it constitutes an unfair or fraudulent business act and has the requisite connection to California . . . Both the Attorney General and private parties are authorized to pursue claims . . .
There is some limited precedent for pursuing cases under the UCL that are based on a violation of the FCPA[; however, one] practical limitation to California-based anti-corruption enforcement may lie in the requirement of injury in California, as the UCL does not apply extraterritorially.
Europe – From this McGuireWoods blog: United Kingdom, France, and Switzerland have formed a new cross-border alliance: the International Anti-Corruption Prosecutorial Taskforce. Announced on March 20, 2025 by the U.K.’s Serious Fraud Office (SFO), the taskforce is designed to deepen cooperation among these three countries on bribery and corruption investigations—at a time when the Trump Administration is reshaping the United States’ approach . . .
For multinational companies, this shift reinforces a critical message: anti-bribery compliance cannot be paused simply because U.S. enforcement is in a state of transition. The U.K. Bribery Act, France’s Sapin II, and Swiss anti-corruption laws all carry significant penalties for bribery, and each country has broad jurisdiction to prosecute foreign companies operating or headquartered in their territory. Importantly, these laws are not carbon copies of the FCPA and some penalize conduct that would not fall within scope of the FCPA.
Noting that “criminal enforcement of the FCPA by DOJ is only one risk of committing bribery abroad, and the global anti-corruption landscape is shifting,” the blog gives these recommendations:
– Companies that operate internationally should not limit their anti-bribery compliance efforts. European authorities appear to be filling the gap left by the pause in FCPA enforcement. Companies that scale back compliance efforts risk becoming easy targets for cross-border investigations.
– Expect more multi-agency investigations. Increased use of taskforces and JITs means that misconduct discovered in one country could quickly become the basis for enforcement elsewhere.
– Tailor your compliance program to multiple regimes. One-size-fits-all compliance may not satisfy the requirements of U.K., French, or Swiss authorities. Programs should be evaluated and adapted accordingly.
– Stay alert to future developments in the U.S. The Order pausing FCPA enforcement is a policy decision that may be rescinded by this or a subsequent administration and the FCPA is still a valid law. Further, the pause does not fully foreclose the possibility that an FCPA investigation can be initiated and carried through to an enforcement action, so long as it is approved by the Attorney General. In addition, misconduct which occurs during the current presidential administration may be prosecuted during the next administration.
Liz and I continue to post new items regularly on our “Proxy Season Blog” for TheCorporateCounsel.net members. In particular, we’ve covered a number of developments related to institutional investor voting policies applicable to 2025 annual meetings (cheers to Liz on these — they are not easy to track!) and to shareholder proposals. Here are some of the recent related entries:
Following that blog an easy way to stay in-the-know on shareholder proposals, engagement trends and more. Members can sign up to get that blog pushed out to them via email whenever there is a new post.
Dave and Liz recently shared helpful tariff-related disclosure considerations for upcoming 10-Qs. This H/Advisors Abernathy article has tips for navigating earnings and investor calls in these periods of unprecedented uncertainty. Generally, it stresses that management teams need to be nimble, provide detailed and precise information where they are able to and also be comfortable saying “we don’t know” when asked questions they shouldn’t be expected to have answers to. Here are some tips from the alert:
Ditch the “closely monitoring” and “wait and see” messages. Leadership must be able to answer detailed, pointed questions from investors and analysts. This is especially important if a company has substantial exposure and/or a complex global supply chain. Tackle the issue head on. Don’t wait for the question.
Ensure internal alignment and message consistency. Board directors should use the same talking points as the CEO and CFO, and the same goes for investor relations and government affairs. All must be consistent to avoid confusion with financial audiences and uncertainty with other stakeholders.
Deliver earnings and investor calls live – or be prepared to ditch any pre-recorded versions. Daily, if not hourly, news and market jolts mean messages may have to quickly change to be credible with audiences. Addressing pressing issues immediately instills confidence in management.
Tailor financial guidance to a specific situation. Adjust and augment disclosures if needed. Even if near-term expectations have not changed, longer-term outlooks may be nearly impossible to peg accurately. It’s acceptable to adjust guidance disclosures to reflect current circumstances. Outline underlying assumptions and key swing factors. Silence can be perceived as re-affirming.
Talk about operational changes being considered or implemented – to a point. Focus on options rather than disclosing specific long-term plans, given that tariffs could be diluted or reversed if Trump strikes deals. It’s also OK to acknowledge what level of tariff in a certain country the business can sustain – and what it can’t.
On the compliance front, this CFA Institute post reminds us that companies are unlikely to adjust out the impact of tariffs in their non-GAAP numbers. It notes that tariffs are generally “normal, recurring, cash operating expenses necessary to operate a business, especially if that business already has an established history of paying tariffs.”
I would add that companies should be especially mindful of the Reg. FD risks posed by private meetings in these periods of uncertainty. Private reaffirmation of earnings guidance even shortly after a public earnings announcement may not be appropriate with the current pace of change. Be wary of investor “one-on-ones” having a different tone than recent public statements or providing “additional color.” Companies might be finding themselves following a “no comment” policy more often than usual or making more frequent public disclosures to accommodate private meetings.
Over on the Business Law Prof Blog, Prof Benjamin Edwards of the UNLV William S. Boyd School of Law has been tracking filings by companies seeking to reincorporate from Delaware since the passage of Delaware’s Senate Bill 21 in late March. Among the eight reincorporations he identifies over twoblogs (seven to Nevada and one to Texas), he identifies the reasons companies commonly cite when seeking to move their state of incorporation. Below, I’ve paraphrased some of the proxy disclosures he cites in the blogs:
– More predictability and certainty. These disclosures point to Nevada and Texas using a “statute-focused approach to corporate law” and particularly that Nevada statutes “codify the fiduciary duties of directors and officers.”
– Reducing risk of “opportunistic litigation,” saying that there’s an “increasingly litigious environment in Delaware” and the company wants to avoid “unnecessary distraction to the company’s directors and management team,” sometimes citing specific past examples.
– Avoiding franchise taxes, comparing annual fees in Nevada to Delaware franchise taxes.
– Cheaper D&O insurance, claiming that reduction in litigation costs may reduce premiums.
– Local presence — citing a nexus to the new state.
Some of the disclosures specifically address the recent amendments to the DGCL and mostly say that it’s still appropriate to reincorporate because of continued uncertainty. They say, “the DGCL Amendments are new, untested and subject to judicial interpretation,” and “interpretative questions will remain as prior doctrines are reconciled with the new statutory mandates.”
Speaking of interpretive questions, on Tuesday, April 29, at 2 pm ET, we’re hosting the webcast “2025 DGCL Amendments: Implications & Unanswered Questions” on DealLawyers.com. Hunton’s Steven Haas, Gibson Dunn’s Julia Lapitskaya, and Morris Nichols’ Eric Klinger-Wilensky will give an overview of the amendments, discuss implications for transactions with directors & officers or controlling stockholders and for books & records demands, and consider unanswered interpretive questions.
Members of DealLawyers.com are able to attend this critical webcast at no charge. If you’re not yet a member, try a no-risk trial now. Our “100-Day Promise” guarantees that during the first 100 days as an activated member, you may cancel for any reason and receive a full refund. The webcast cost for non-members is $595. You can sign up by credit card online. If you need assistance, send us an email at info@ccrcorp.com – or call us at 800.737.1271.
On April 4, the SEC posted this Notice of Filing of Application, as Amended, for Registration as a National Securities Exchange by Texas Stock Exchange LLC, which application was initially filed on January 31 and amended on April 2. TXSE’s press release says it is the first fully integrated exchange to seek registration in 25 years! A Troutman alert notes this historic application “comes against the backdrop of an assertive campaign by the state of Texas to position itself as a rival to both New York and Delaware as the financial and corporate home for publicly traded companies.”
The alert also takes a close look at the application to better understand how the exchange plans to operate since the application includes its proposed listing rules. Securities practitioners will be happy to know that the rules will look familiar — there are many similarities to Nasday’s listing rules. In fact, the alert says, “the TXSE’s proposed corporate governance and shareholder approval rules appear to be based, virtually verbatim in certain instances, on Nasdaq’s rules, including the latter’s recent tightening of rules relating to reverse stock splits.”
With respect to initial listing criteria, however, TXSE aligns more closely with NYSE and has no tiers. And, in a move that might make it less palatable to small- and micro-cap companies, its proposed initial and continued listing requirements are more stringent than the Nasdaq Capital Market. The Troutman team prepared this helpful comparison of the TXSE’s proposed initial listing criteria with those of NYSE and the Nasdaq Capital, Global and Global Select Markets.
But that’s not all! The alert also points out that both NYSE and Nasdaq have “announced the creation of Texas-located markets or offices, with the NYSE moving one of its electronic exchanges to the state and Nasdaq opening a new regional headquarters in Dallas.” Move over, New York, there’s a new sheriff in town.
On Friday, Corp Fin posted a handful of new CDIs, including six new Exchange Act Forms CDIs that address clawbacks-related checkboxes on the Form 10-K cover page and the timing of required Item 402(w)(2) disclosure and one new Exchange Act Rules CDI that addresses co-registrants in a de-SPAC transaction. Below, I’ve paraphrased the Form 10-K CDIs, and I addressed the de-SPAC CDI in a DealLawyers.com blog.
104.20: When an issuer reports a change to its previously issued financial statements in an annual report, it should determine whether “the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements” for purposes of the check box by looking to applicable accounting guidance on whether the change represents the correction of an error. The CDI notes that this includes “Big R” restatements and “little r” restatements but excludes “out-of-period adjustments” since the previously issued financial statements are not revised.
104.21: Companies must mark the check box on the cover of an amended annual report to indicate that the restatement “required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period” pursuant to Exchange Act Rule 10D-1(b) even when (1) no incentive-based compensation was received by any executive officers at all during the relevant time frame or (2) incentive-based compensation was received but that incentive-based compensation was not based on a financial reporting measure impacted by the restatement (and explain).
104.22: After filing an amended 20X3 10-K, an issuer includes the same restated financial statements in its subsequent 20X4 annual report. Assuming there are no additional restatements, the staff will not object to the check boxes remaining unmarked on the cover page of the 20X4 annual report. But the proxy or information statement filed during 20X5 that includes 20X4 executive compensation information pursuant to Item 402 must also include the disclosure of Item 402(w)(2) of Regulation S-K.
104.23: If an issuer discovers an error in its previously issued 20X3 financial statements in 20X5 (prior to filing the 20X4 annual report), applies its recovery policy, determines that no recovery is required, checks both boxes on its 20X4 annual report and provides Item 402(w)(2) disclosure in its proxy or information statement incorporated by reference, the staff will not object if the 20X5 annual report does not include or incorporate by reference Item 402(w)(2) disclosure, notwithstanding that the restatement occurred “during…the [issuer’s] last completed fiscal year” as long as there are no additional facts that would affect the conclusion of the prior Exchange Act Rule 10D-1(b) recovery analysis that no recovery is required.
104.24: An issuer initially reports a restatement of an annual period in a form that does not include a cover page check box requirement – for example, a Form 8-K or a registration statement. If that annual period is presented in the issuer’s financial statements in its next annual report, the issuer is required to mark that check box on the cover page of that annual report.
104.25: If an issuer determines in the fourth quarter that it is required to prepare restatements of its first, second and third quarterly periods of that year, the issuer is not required to mark any of the check boxes on the cover page of its annual report even if the issuer includes disclosures about the interim restatements in a footnote to the annual period financial statements. However, it must provide disclosure pursuant to Item 402(w) of Regulation S-K in its 10-K or proxy or information statement since, for purposes of that disclosure, an accounting restatement is not limited to one that impacts annual periods.