State-level securities laws — AKA “blue sky” laws — have been adopted by all 50 states plus Washington DC, Guam, Puerto Rico and the US Virgin Islands. As noted in this Wilmer Hale alert, these laws both regulate securities “left unregulated” by federal authorities (e.g., “securities only offered and sold within one state or offered by state or local governments”) and give states overlapping enforcement authority to prevent and punish securities fraud. The alert describes how state enforcement activity has — and is likely to continue to — “respond to perceived federal enforcement gaps” — i.e., possibly to act on crypto in ways the federal government is not.
Not surprising, perhaps, but here’s the key. Several states (the alert has a map) have adopted the more expansive “risk capital” test as either an alternative or complement to the Howey and Reves tests used to determine whether federal securities laws apply to a given financial instrument.
One of the most prominent applications of this test comes from the 1961 case Silver Hills Country Club v. Sobieski, decided by the Supreme Court of California. In Silver Hills, Justice Roger Traynor applied the risk capital test to conclude that memberships sold to develop a country club constituted securities—the memberships involved an investment of money in an enterprise for profit, which subjects the investor’s money to the risks of the enterprise, and the investor has no managerial control over the enterprise.
Some states have adopted this test by common law, and others by statute/regulation. For example:
The Supreme Court of Oregon has also adopted the risk capital test [and] a federal district court in Oregon has applied Oregon law to determine that a security exists under Oregon state law—but not federal law—where an individual bought into a franchising scheme.
Oregon is notable because it “provides a modern example of state attorneys general applying the broader risk capital test to treat newer instruments as securities” – i.e., its enforcement action against Coinbase. Oregon’s attorney general has shared his position in no uncertain terms: “[S]tates must fill the enforcement vacuum being left by federal regulators who are giving up under the new administration and abandoning these important cases.”
What does this mean for crypto and corporate issuers? That this may not be a one-off, and “the current polarized political environment” may “exacerbate the impact of the Howey/risk capital distinction.”
Given the Trump Administration’s pro-crypto and wider deregulatory policy agenda, Democratic state attorneys general and securities regulators may use state securities enforcement powers to act as a counterweight and/or to advance their own political priorities. Financial industry firms, exchanges, issuers and others should consider the potential impact of the Howey/risk capital distinction as they face what may be a more fractured securities regulatory environment in coming years.
Yesterday, the SEC announced that current Gibson Dunn partner Jim Moloney has been named the new Director of the Division of Corporation Finance.
Mr. Moloney previously served at the SEC for six years prior to joining Gibson Dunn & Crutcher, where he has worked the past 25 years, ascending from corporate associate to equity partner. He has served as a longstanding co-chair of the firm’s securities regulation and corporate governance practice. He has advised a wide base of clients on corporate governance matters, disclosure rules, mergers & acquisitions, tender offers, proxy contests, and going-private transactions among other areas.
During his tenure at the SEC from 1994 to 2000, Mr. Moloney was an attorney-advisor and later a special counsel in the Office of Mergers & Acquisitions in the Division of Corporation Finance. Notably, Mr. Moloney was the primary author of the proposing and adopting releases for Regulation M-A, a comprehensive set of rules governing mergers & acquisitions, tender offers and proxy solicitations.
I would note a lesser-appreciated accomplishment from Jim’s biography — that he got his J.D. cum laude from Pepperdine University. I’m convinced this is another reason he is well-suited to tackle the Commission’s ambitious agenda. If you can study amidst those Malibu ocean views, you can do anything.
His appointment will be effective next month, and Acting Director Cicely LaMothe will return to her role as a Deputy Director of Corp Fin. We’re updating our “List of Corp Fin Directors” for the news! Unfortunately, it also looks like we’ll need to update our list of advisory board members for TheCorporateCounsel.net and DealLawyers.com. Jim’s been a valued member of both for many years, but we’re guessing that his new position with the SEC won’t allow him to continue in that capacity. We’re grateful for all the contributions Jim’s made to our sites over the years and wish him every success in his new role!
Yesterday, the SEC announced an open meeting to be held at 10:00 am Eastern on Wednesday, September 17th. The agenda includes:
ITEM 2:Acceleration of Effectiveness of Registration Statements of Issuers with Certain Mandatory Arbitration Provisions – The Commission will consider whether to issue a policy statement addressing the presence of a provision requiring arbitration of investor claims arising under the Federal securities laws and its impact on decisions whether to accelerate the effectiveness of a registration statement.
ITEM 3:Amendments to the Commission’s Rules of Practice – The Commission will consider whether to amend its Rules of Practice relating to procedures governing Commission review of staff actions made pursuant to delegated authority in connection with the determination of the effectiveness of a registration statement or the qualification of a Regulation A offering.
On Item 2, MoFo’s Ryan Adams on LinkedIn said, “Wow, this is a big deal! Could this be the end of the SEC’s prohibition on mandatory arbitration provisions in the governing documents of those looking to go public? Sure seems like it…” If so, it would mean the death of a decades-old policy position that these clauses are contrary to public policy & potentially inconsistent with the anti-waiver provisions of the Securities Act & Exchange Act.
There has been speculation before that the SEC could change its stance on mandatory arbitration provisions (on this site, back as far as 2007 and during the first Trump administration). But this latest development goes far beyond speculation!
Yesterday, in a keynote address at the Inaugural OECD Roundtable on Global Financial Markets, which facilitates discussion of recent developments in financial markets to promote the development of consensus-based policies, Chairman Atkins shared views (subject to the SEC’s standard disclaimer) with roundtable attendees — including senior officials from ministries of finance, central banks, financial regulators and other relevant bodies. His speech touched on a number of high-priority topics for the Commission:
Accommodations for Foreign Issuers. Noting that the FPI concept release was one of his first actions this year, Chairman Atkins highlighted that the release seeks public feedback on whether “foreign companies listed in the United States should be subject to additional conditions—such as a minimum foreign trading volume or listing on a major foreign exchange—for them to receive accommodations not available to U.S. companies.”
To be clear, the SEC welcomes foreign companies that seek to access the U.S. capital markets. The concept release is not a signal that the SEC intends to disincentivize such firms from listing on U.S. exchanges. Rather, our goal is to better understand the impact on U.S. investors and the U.S. market resulting from significant changes to the population of foreign companies listed in the United States over the last two decades. Among the notable changes are the makeup of foreign companies reporting to the SEC and the trend of incorporating in a jurisdiction, such as the Cayman Islands, that differs from where the company is headquartered, operates, and is subject to a governance framework that implicates shareholder interests.
In light of these changes, does the SEC’s original rationale for extending special accommodations to all foreign companies without qualification still make sense or should our rules be updated? . . . While the official comment period closed this past Monday, the SEC of course will consider input it receives after the due date in evaluating whether to propose rule changes. I look forward to reviewing the public feedback on this topic.
Accounting Standards. Chairman Atkins expressed concern that the expansion of the IFRS Foundation’s remit in recent years (Trustees are now responsible for securing funding for both the International Accounting Standards Board (IASB) and the International Sustainability Standards Board (ISSB)) has the potential to divert its focus from its long-standing core responsibilities.
[T]he IASB must promote high-quality accounting standards that are focused solely on driving reliable financial reporting and are not used as a backdoor to achieve political or social agendas. Reliable financial reporting is critical to supporting capital allocation decisions. We all have a strong interest in the IASB’s being fully funded and operational, and I encourage the IFRS Foundation to meet its goal for “stable funding” that prioritizes the IASB and its focus on standards for financial accounting, rather than specious and speculative issues.
Notably, he says, “If the IASB does not receive full, stable funding, then one of the underlying premises for the SEC’s elimination of the reconciliation requirement for foreign companies in 2007 may no longer be valid, and we may need to engage in a retrospective review of that decision.”
Financial Materiality. Citing the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD) and the double materiality regulatory approach they apply, Chairman Atkins expressed concern about the impact of these laws on U.S. companies with EU operations and that the costs of compliance “are potentially passed on to American investors and customers.”
Agentic Finance. Chairman Atkins imagines agentic finance in our future — “a system whereby autonomous AI agents execute trades, allocate capital, and manage risk at speeds no human can match, with securities law compliance embedded in its code.” He noted the potential benefits of “faster markets, lower costs, and broader access to strategies once reserved for Wall Street’s largest firms” and shared his view that the “government’s responsibility here is to ensure that commonsense guardrails are in place while eliminating the regulatory obstructions that stifle innovation.”
Last week, the SEC announced the creation of a Division of Enforcement task force focused on identifying and combating cross-border fraud harming U.S. investors. The press release says the task force will focus on investigating:
– U.S. federal securities law violations related to foreign-based companies (e.g., “pump-and-dump” and “ramp-and-dump” schemes)
– Violations related to companies from foreign jurisdictions where governmental control and other factors pose unique investor risks (e.g., China)
– Gatekeepers that help these companies access the U.S. capital markets (e.g., auditors and underwriters)
Cross-border fraud isn’t solely an area of focus for the Division of Enforcement. Chairman Atkins states: “I have also directed the staff in other SEC divisions and offices, including the Divisions of Corporation Finance, Examinations, Economic and Risk Analysis, and Trading and Markets as well as the Office of International Affairs, to consider and recommend other actions that would better protect U.S. investors, including new disclosure guidance and any necessary rule changes.”
This Quinn Emanuel alert says, “This isn’t just bureaucratic noise. It’s the first big enforcement signal from Chairman Paul Atkins since he took over in April. After months of staying tight-lipped on enforcement priorities, Atkins is now making it clear: old-school fraud is back in the SEC’s sights, and the agency’s going global.”
This O’Melveny Public Company Advisory Group publication reports on the results of the firm’s review of risk factor disclosures from large companies’ latest Form 10-Ks to identify common trends in reported risks across industries. Not surprisingly, risks related to AI, tariffs and the change in the presidential administration were trending up, while pandemic risk factors were trending down, and DEI risk disclosures were evolving. Here’s more info:
Artificial Intelligence. AI risks were mentioned in 86% of all Forms 10-K filed by large companies in 2025. Many large companies included a “standalone AI risk factor” that consolidated AI-related risks. AI was also referenced in these 10 other risk factors:
– Cyber threat – Actors using AI to commit cyber crimes
– Human Capital – Retaining a sufficiently skilled workforce
– Regulatory – Complying with expanding governmental oversight of AI
– Competitive – Keeping pace with technological advancements of competitors
– Use & Misuse – Misuse of AI by employees, contractors, and bad actors
– Execution – Launching new tools without vulnerabilities, bugs, or defects
– Strategic – Responding to rapid changes in technology and customer preferences
– IP – AI use leading to infringement claims by or against the company
– R&D – Recovering investments in new technologies
– Reputation – Bad publicity or liability arising from company’s use of AI
Tariffs. Tariff risks were mentioned in the Risk Factors section of 85% of all Forms 10-K filed by large companies in 2025. Those risk factors addressed:
– Tariffs and trade policies impacting availability and pricing for commodities and raw materials
– Tariffs as a factor contributing to volatility in the political and economic environment
– Tariffs and other trade restrictions causing supply chain interruptions
– Tariffs causing fluctuations in customer demand, making forecasting difficult
– Tariffs causing reduction in consumer spending
Presidential Administration Change.15% of all Forms 10-K filed by large companies in 2025 discussed risks related to the change in presidential administration. In addition to tariffs, those included:
– Risks to the company (including FCA liability) if their sustainability or other practices are deemed to be in contradiction to the Trump Administration’s “anti-ESG” policies
– Impact of the Administration’s efforts to reduce the federal workforce, in particular for companies that require federal agency approvals
– Impact of the Trump Administration’s efforts to roll back government spending, in particular for companies that rely on government contracts and subsidies
DEI. The percentage of large companies including references to DEI in risk factors declined from 2024, even while 7% of large companies added a new risk factor mentioning DEI. Where maintained or added, the risk factors often addressed the difficulty of balancing competing pressures from investors, regulators, consumers and the federal government.
The latest issue of The Corporate Executive newsletter has been sent to the printer. It is also available online to members of TheCorporateCounsel.net who subscribe to the electronic format. This issue addresses a number of very timely topics
– EDGAR Next Is Here: Our Last-Minute Guide!
– Now Available: Electronic Filing for Section 83(b) Elections
– Proxy Advisor Regulation: Texas Enters the Fray
– The SEC’s Focus on Executive Compensation Disclosure: What Have We Learned?
– Build a Winning Hand – Join Us in Vegas!
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Last Friday, SEC Chairman Atkins and CFTC Acting Chairman Caroline Pham issued a joint statement regarding the harmonization of SEC and CFTC regulatory frameworks, which the statement says is necessary “to ensure there is not a regulatory ‘no man’s land’ due to inaction by one or both agencies.” It follows up on a joint statement by the Staff of both agencies regarding the trading of certain spot crypto asset products, clarifying the views that SEC- and CFTC-registered exchanges are not prohibited from facilitating the trading of certain spot crypto commodity products.
The next step in the agencies’ combined efforts is a joint SEC-CFTC roundtable on regulatory harmonization to be held on September 29, open to the public (registration required to attend live) and webcast live on the SEC’s website. Potential areas of coordination to be discussed at the joint roundtable include event contracts, perpetual contracts, portfolio margining, DeFi and 24/7 markets. Here’s what the statement says about that last one:
For on-chain finance to scale, the SEC and the CFTC should collaborate to consider the possibility of further expanding trading hours, where appropriate. Factors that may be relevant to this consideration include operational feasibility and liquidity consistent with investor and customer protections. Certain markets, including foreign exchange, gold, and crypto assets, already trade continuously. Further expanding trading hours could better align U.S. markets with the evolving reality of a global, always-on economy. Expanding trading hours may be more viable in some asset classes than others, so there may not be a one-size-fits-all approach for all products.
Last Friday, Nasdaq submitted another rulemaking proposal to the SEC. This one is a bit different. This proposal seeks to integrate digital assets into the exchange’s current infrastructure and systems and, to that end, proposes to amend Nasdaq rules to allow member firms and investors to tokenize equity securities and ETPs they trade on Nasdaq.
Here’s more from this Q&A with Chuck Mack, Senior Vice President of North American Markets for Nasdaq:
[T]he filing provides a simple and clear approach to enable trading of tokenized securities under the existing regulatory frameworks, utilizing the Depository Trust Corporation (DTC) to clear and settle trades in token form.
Here’s how it would work: A security may be traded on Nasdaq in either traditional form or tokenized form.
The traditional form is a digital representation of ownership and rights, but without utilizing distributed ledger or blockchain technology
The tokenized form is a digital representation of ownership and rights, utilizing distributed ledger or blockchain technology
Upon entry of the order, a participant can select to clear and settle in regular or tokenized form, and the exchange will communicate the participant’s instruction to the DTC. All shares will be traded on Nasdaq with the same order entry and execution rules, has the same identification number (CUSIP) as, and gives its holder the same rights and benefits as a traditional share.
Nasdaq says “this is about responding to demand,” citing “potential efficiencies, including faster settlements, improved audit trails, and a more streamlined flow from order to trade to settlement.” The Q&A stresses that “tokenization is just a different method of digitally representing an asset” and “trading would still take place under the SEC’s existing federal regulations.”
That’s a key point we make in our filing: the U.S. has existing rules that don’t preclude different types of representation of a security. If you’re trading a stock and we’re having DTC tokenize it after the trade, then nothing is different from the perspective of how the market functions, how you trade, how you get your best execution, or how you buy or sell on your trading platform. Importantly, both the traditional and tokenized types of shares would have the same value, the same rights and benefits, and the same market identification number.
The Q&A also addresses some recent reports that Nasdaq has required some crypto treasury companies to obtain shareholder approval before issuing stock to buy crypto. It clarifies that these reports do not reflect any changes or new rules, but that Nasdaq, similar to any market development, is providing guidance to listed companies on the applicability of the existing shareholder approval requirements to securities issuances. These reports, together with other proposed rule changes, are separate from each other and unrelated — but for the “common thread” of “optimizing capital formation while protecting investors and ensuring market integrity.”
Important information if you’ve registered for our “Proxy Disclosure & 22nd Annual Executive Compensation Conferences” – Be on the lookout for an email from “no-reply@events.ringcentral.com (our event platform). This email confirms your registration and contains your unique link to access the Conferences virtually, whether you are using that in real-time as a virtual attendee, or as an on-site resource for in-person attendance. (Note, if you’ve never attended a RingCentral event before, you will also receive a second email confirming that a RingCentral account has been created for you.)
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