On Friday, the Staff of the Division of Corporation Finance revised two and withdrew one of the Regulation S-K Compliance and Disclosure Interpretations addressing disclosure of environmental proceedings pursuant to Item 103 of Regulation S-K. These changes to the CDIs appear to stem from the updates to Item 103 that occurred in August 2020 in Release No. 33-10825, Modernization of Regulation S-K Items 101, 103, and 105. Those changes were intended to “update these rules to account for developments since their adoption or last revision, to improve disclosure for investors, and to simplify compliance for registrants.” The SEC reorganized Item 103 to incorporate the instructions into the text of the rule and to modify the quantitative thresholds for environmental proceedings.
In the updated CDIs, the Staff withdrew Question 105.02, which previously indicated that language in former Instruction 5 to Item 103 regarding administrative or judicial proceeding arising under “local provisions” was interpreted to include environmental actions brought by a foreign government. The Staff revised Question 105.01 to update the prior reference to a deleted instruction and to eliminate a reference to the Staff’s former view and instead only reference the Staff’s current view, which remained unchanged. In Question 105.03, the Staff revised the references to an instruction that was eliminated in the 2020 rulemaking to instead refer to the relevant text of the rule.
As we have covered over the past few months, the future of the PCAOB remains in hands of Congress as a proposal was advanced to eliminate the PCAOB and fold its auditor oversight operations into the SEC. As Dan Goelzer noted earlier this month, a group of forty-six academics and former regulatory officials wrote to the Senate Banking and Budget committees to explain why the proposal to abolish the PCAOB in the 2025 budget resolution violates the Senate’s “Byrd Rule.” Dan notes: “That rule requires that the budget impact of reconciliation provisions must be more than merely incidental to the non-budgetary consequences. Eliminating the PCAOB would have little effect on the federal budget but major policy implications for auditor oversight and investor protection.” The letter from the academics and former regulatory officals states:
We believe this proposal violates several of the Byrd Rule criteria for inclusion in a reconciliation bill for the following reasons:
1. The PCAOB is a nonprofit organization and is not funded through the federal budget.
2. The proposal would not result in a significant reduction to the federal deficit, because, per Sec. 50002 and the Congressional Budget Office (CBO), it would replace the PCAOB by establishing a new program inside the SEC that would require similar funding to carry out operations.
3. The PCAOB was created by a provision of the Sarbanes-Oxley Act of 2002, which was enacted through regular order, not through budget reconciliation. If this provision of the Act is to be overturned, that should also be accomplished through regular order rather than through budget reconciliation.
4. The non-budgetary consequences of Sec. 50002 are substantial and very large relative to any budgetary consequences, which are merely incidental.
5. The proposal relates to a specific organization and could be considered “targeting.” Targeting violates the Byrd Rule.
As this Thomson Reuters article notes, last Thursday the Senate parliamentarian deemed the Republican PCAOB elimination proposal to be subject to the Byrd Rule. The article notes:
The June 19, 2025, ruling by the Senate parliamentarian means the provision would be subject to a 60-vote requirement, which would almost certainly be unworkable for a bill that faces a precarious road to passage even through the simple majority allowed under the reconciliation process.
With this development, it appears that the PCAOB will likely continue to operate in its current form, at least for now.
Ideagen/Audit Analytics recently released its annual study of financial restatements. The study provides data on restatements from 2005 through 2024, and the topics addressed include the number of Big R & Little r restatements, the average length of the restatement period, the impact of restatements on previously reported income, and a breakdown of restatements by industry. This excerpt discusses the filer status of companies that restated results:
Non-accelerated filers continue to disclose the most restatements of any filer status. In 2021, the number of non accelerated filer restatements increased by 451% to a total of 1,136 restatements, primarily due to SPAC restatements. This was the largest amount seen for any filer status group over the 20-year period. Although restatements have generally returned to pre-2021 levels, non-accelerated filer restatements still constituted the largest percentage of all restatements during 2024 at 45%.
Despite still having of the largest percentage, non-accelerated filers achieved the lowest percentage of total restatements since 2019 and the second lowest figure over the 20-year period. In 2024, 100 restatements came from these smaller companies, down from 243 restatements for non-accelerated filers in 2023.
Accelerated filers have seen the lowest restatement rates for the past 12 years, constituting between 5% and 31% of restatements annually. After reaching a historic low of 5% in 2021, the percentage of restatements filed by accelerated filers increased to 20% in 2024, aligned with the overall average for accelerated filers across the period. The total number of accelerated filer restatements reached an all-time low of 44 in 2024, decreasing from 63 restatements in 2023.
The percentage and total number of restatements filed by large accelerated filers have continued to exceed those of accelerated filers since 2012. In 2019, 35% of restatements were filed by large accelerated filers, the most seen over the 20-year period. In 2024, the percentage of large accelerated filer restatements increased significantly from 20% in 2023 to 35%, despite only a slight increase in the total number of restatements from 75 to 78.
The study found that total restatements increased by approximately 10%, from 434 in 2023 to 479 in 2024, and that the majority of the increase is attributable to restatements by former BF Borgers clients, who were associated with 41 restatements disclosed last year.
Over the past few years, we’ve blogged about the DOJ’s enforcement push targeting violations of the Clayton Act’s prohibition on interlocking directorates. That push has resulted in a few handfuls of director resignations, but a new study from a group of Stanford & Boston University law professors suggests that antitrust regulators have a lot of work left to do when it comes to director interlocks. In fact, their study claims that the level of non-compliance with Section 8 of the Clayton Act is simply shocking:
We show that large numbers of companies are directly violating that law, and that the problem goes well beyond simply breaking the law. Using a new dataset that enables us to provide the first analysis of board members on both public and private companies—rather than just public companies—we find 2,309 instances of individuals sitting on the boards of two companies that are direct competitors. The extent of interlocks is so great that for those companies about which we have data on at least five board members, 8.1% had an individual interlock.
The study says that interlocks are particularly common in the IT and life sciences industries, and claims that over 18% of pharma & biotech companies have at least one director who sits on the board of a direct competitor, while over 10% of IT software companies find themselves in the same position.
I’d be very surprised if the results of this study escaped the FTC & DOJ’s attention, so public and private companies would be smart to raise the consciousness of their boards about this issue and address any problems that are identified. Regulators haven’t typically sought to impose fines or penalties for interlocks violations, but they do force directors off of the board, which is disruptive and can cause reputational damage.
If you’re looking for some thoughts on how to prevent Clayton Act violations, check out this Forbes article by Woodruff Sawyer’s Priya Cherian Huskins.
Efforts by the Trump administration, anti-DEI activists, and private plaintiffs to target companies that continue to maintain DEI programs are receiving a lot of attention, but if companies think that the only risk they face is failing to unwind these programs as quickly as possible, a recent Bloomberg Law article says they need to think again. According to SMU Law Prof. Carliss Chatman, companies that roll back these programs may put themselves in legal jeopardy for that decision as well.
As she explains in the article, the issue arises under a Reconstruction Era civil rights statute, 42 USC §1981, which prohibits racial discrimination in making and enforcing contracts:
Section 1981 was enacted after the Civil War to guarantee all persons in the US the same right to make and enforce contracts “as is enjoyed by white citizens.” While the statute is often overlooked in corporate compliance discussions, it remains a potent tool for challenging race-based interference with commercial relationships.
Recent DEI pullbacks—especially those terminating or reducing contracts with Black vendors—may expose companies to Section 1981 litigation. Even in the wake of the Supreme Court decision Comcast Corp. v. NAAAOM, which imposed a but-for causation standard, companies are vulnerable if plaintiffs can show that race was a motivating factor in the decision to alter or end a contractual relationship.
This risk isn’t hypothetical. As companies such as Target and McDonald’s face public scrutiny for reversing course on supplier diversity, Black-owned businesses are left with fewer procurement opportunities and diminished access to markets that briefly opened during the post-George Floyd DEI wave.
If those opportunities didn’t evaporate because of objective performance metrics, but due to external political pressure or discomfort with racial equity branding, that may be enough to support a Section 1981 claim.
The article also points out that, if companies have previously highlighted their DEI policies as being a material component of their business strategy, sudden changes to those policies may trigger disclosure obligations under Regulation S-K and expose those companies to disclosure-based shareholder claims.
It’s been a tough year for business leaders, with each week seemingly bringing another unpleasant surprise for them to deal with. Since that’s the case, maybe it’s not surprising some of the responses to a recent survey of over 500 C-Suite executives by PwC and The Conference Board suggest that directors are increasingly getting on the nerves of corporate executives. For example:
– A whopping 93% of executives say they want someone on their board replaced (highest ever), but only 50% have confidence in their board’s ability to remove underperforming directors.
– Only 32% of executives think their board has the right expertise, with international, AI, and environmental/sustainability expertise topping the list of executives’ “want to haves” for their boards.
– 32% of executives think that their boards overstep the boundaries of their role. That’s double the percentage who thought so last year.
On the other hand, the survey also found that the percentage of C-Suite executives who rate their boards’ performance as excellent or good has increased from 29% in 2021 to 35% last year. However, that rating varies widely depending upon a particular executive’s role.
In that regard, 94% of CEOs and 72% of CFOs rate their boards’ performance as excellent or good, but that positive assessment plummets when you move down the ranks. Only 23% of CAOs, 32% of CHROs, 21% of CIOs and 23% of GCs give their boards an excellent or good rating. This excerpt from the survey suggests some reasons that might account for the differences in assessments of the board’s performance between various members of the C-Suite:
Not all executives have full visibility into board dynamics or deliberations, with perceptions shaped by select touchpoints or outcomes rather than the full scope of board responsibilities. Executives who interact with the board frequently tend to have a stronger grasp of its role and responsibilities. Those with more limited access to board discussions may have different expectations, often believing directors should have greater expertise in their functional areas. This could create a gap in perceived effectiveness among all executives.
This Troutman Pepper Locke alert says that the bill may actually be more complex and confusing than its title suggests, including with respect to when a digital asset is a security:
Despite promises of clarity in the Act’s short title, its definitions and numerous cross references to securities and commodities statutes and rules provide a complex and potentially confusing approach to clarifying status as a security and, accordingly, regulatory jurisdiction over digital assets.
Digital commodities and permitted payment stablecoins — which are currently the subject of proposed regulation under H.R. 2392, the Stablecoin Transparency and Accountability for a Better Ledger Economy Act of 2025 (the STABLE Act of 2025) — would expressly be excluded from the definition of “security” under the securities laws. In addition, the Act clarifies that a digital asset that is directly transferable peer-to-peer and recorded on the blockchain is not an “investment contract” and, therefore, not a security.
It also “distances the digital assets regulatory regime from existing securities and commodities laws” in a number of other ways and leaves gaps that it requires the CFTC to address through rulemaking that, in some cases, must be joint with the SEC.
After a Full Committee Markup hearing on June 10, the bill passed the House Committee on Financial Services and the House Agriculture Committee on Wednesday with bipartisan support. CoinDesk reports that the markups from each committee will be combined into a unified committee report to be considered by the full House.
We’re only halfway through 2025, and the year has already given us plenty to talk about when it comes to developments in securities regulation, executive compensation, and corporate governance. That’s even before we add in the significant governance, disclosure and compliance challenges created by unexpected surprises like dramatic changes in tariff policy and the potential for a full-blown global trade war.
In the past, our PDEC Conferences have started on a Monday, but this year, they will be held on Tuesday & Wednesday, October 21-22, at Virgin Hotels Las Vegas, with a virtual option for those who can’t attend in person. Reach out to our team to register by emailing info@ccrcorp.com or calling 1.800.737.1271. If you act now, you’ll also be able to take advantage of our Early Bird Rate and save a bundle on your registration!
We won’t be blogging tomorrow in recognition of the Juneteenth holiday. Our blogs will be back on Friday.
We’ve previously blogged about updating risk factor disclosures in light of President Trump’s “Liberation Day” tariffs, but in this “D&O Diary” blog, Kevin LaCroix expands the discussion to address legal and compliance risks that companies face when doing business during a trade war. This excerpt discusses some of tariff-related compliance issues that companies may face:
In addition to the potential impact from the tariffs on corporate business results, companies also face increased tariff-related enforcement and regulatory risks. For example, a May 12, 2025, memo stating the U.S. Department of Justice’s policies on white collar crime identified as a key threat to U.S. national security from “trade and customs fraudsters, including those who commit tariff evasion,” who may seek “to circumvent the rules and regulations that protect American consumers and undermine the Administration’s efforts to create jobs and increase investment in the United States.”
In addition, as the memo’s authors note, the SEC will likely “continue to investigate companies that misrepresent identities of suppliers and customers to avoid the impact of sanctions and tariffs, falsely improve their profit margins by not recording costs associated with sanctions and tariffs, intentionally conceal disappointing financial performance in key parts of their business, or otherwise engage in accounting fraud to mislead investors.”
Kevin points out that in 2019, the SEC brought enforcement proceedings against a public company based on alleged misrepresentations concerning the country of origin of goods or materials. He also references the possibility of liability under the False Claims Act for tariff-related violations, which is a topic we’ve also blogged about.
While it’s important to keep these ongoing risks in mind when updating risk factor disclosure, it’s even more important to ensure that the potential for tariff-related misconduct is appropriately addressed in corporate compliance programs.
Compliance issues are far from the only tariff-related operational challenges facing companies. This Debevoise memo discusses some of the friction points in commercial contracts that may arise due to tariffs. Here’s an excerpt addressing the potential contractual implications of supply chain disruptions:
Tariffs may cause delays and increase costs along a company’s supply chain. This may affect the ability of companies to meet contractual delivery, payment or timing obligations.
To assess risks in this scenario, companies should identify any price, delivery, timing or payment obligations in their contracts that may expressly allocate tariff risks to any given party. Some contracts, for example, may provide that the purchase price is inclusive of all applicable tariffs, whether existing or imposed during the term of the contract, thereby allocating tariff risks to the seller. Other contracts may establish procedures for determining which party bears the risk of any material change in circumstances, including tariff increases. For example, the seller may be given an opportunity to propose an adjusted price to reflect an increase in tariffs, after which the parties are to negotiate an equitable adjustment in good faith.
But not all fixed price, delivery or timing clauses will account for tariff risk. In many cases the clauses will impose hard deadlines and firm prices with clear consequences if an obligation is not met. Fixed delivery or “time is of the essence” provisions, for example, could allow the buyer to cancel the order, seek liquidated damages, or claim nonperformance for any late deliveries regardless of the cause. Some contracts may account for such risks in other types of clauses, which we describe below. However, where there is any ambiguity in the contract’s accounting of such risk, parties should expect dispute vulnerability to increase.
The memo points out that parties to a contract may have allocated tariff risk through broad indemnity or pass-through provisions, even if tariffs are not specifically called out in the language of the contract. It also addresses the potential role of liquidated damages provisions, force majeure provisions and non-contractual excuses for non-performance, and issues surrounding contract terminations and renegotiations.
