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!
I really enjoyed listening to the latest episode of Women Governance Trailblazers. Courtney and Liz were joined by Eun Ah Choi, Senior Vice President, Global Head of Regulatory Operations at Nasdaq, and the episode is chock-full of helpful career development and substantive tidbits that you’ll want to know — and apply — now. Tune in to hear them discuss:
– How Eun Ah’s corporate governance, M&A and securities regulatory skillset has contributed to her success in roles that span Wall Street, private practice, public service at the SEC and her current senior leadership role at Nasdaq
– Eun Ah’s insights on adapting to new organizations and roles
– How companies can set themselves up for success in complying with Nasdaq’s listing standards, and recommendations for making public markets more attractive
– Emerging policies and initiatives that boards, counsel, and investors should be watching worldwide
– The role of mentorship in Eun Ah’s career
To listen to any of the prior episodes of Women Governance Trailblazers, visit the podcast page on TheCorporateCounsel.net or use your favorite podcast app. If you enjoy hearing Liz and Courtney chat with trailblazing women in the corporate governance field, you can support the podcast by subscribing to and rating it while you’re there! And, if there are governance trailblazers whose career paths and perspectives you’d like to hear more about, Courtney and Liz always appreciate recommendations! Drop Liz an email at liz@thecorporatecounsel.net.
On Friday, Liz pulled together a highlight reel of SEC actions on crypto since January — showing the agency’s concerted effort to act quickly on this topic. Commissioner Peirce also spoke on crypto at least twice last week — in a speech and on Bloomberg’s Trillions Podcast. But Congress has plans of its own and has also been making moves. The latest is the release by members of the House Financial Services Committee and Agriculture Committee of a discussion draft of a bill that would generally shift oversight of digital assets from the SEC to the CFTC — a long-standing wish of the industry. This Eversheds Sutherland alert explains how:
Specifically, the draft bill would amend the definition of “security” in the Securities Act of 1933 and the Securities Exchange Act of 1934 to expressly exclude “digital commodities.” To fall within the digital commodity definition, digital assets must come from “mature blockchain systems” – open-source, decentralized, fully automated networks – with no single entity owning more than 20% of the token supply.
The draft bill further proposes that secondary market trading of digital commodities, under specific conditions, would not be subject to SEC oversight. These exemptions for secondary transactions would not apply if the transactions involved purchasing an interest in the revenues, profits or assets of the issuer – more akin to equity or institutional offerings.
As written, the draft bill appears to exempt from SEC regulation the issuance and secondary trading of many of crypto’s most popular tokens, such as Ethereum, Solana, BNB, and Cardano, all seemingly meeting the definition of “digital commodity.” The draft bill sets forth procedures for how digital commodity exchanges would register with and be regulated by the CFTC.
Suffice it to say, the regulatory landscape for digital assets is rapidly shifting and changes are coming from all sides — keeping up with the developments is a full-time job. Latham recently released a “US Crypto Policy Tracker” – check it out for the current state of executive order, legislative, regulatory and industry group developments!