Several More Companies Propose Move From Delaware To Nevada
As 2024 closed and 2025 began, four additional publicly traded companies proposed reincorporating from Delaware into the “sweet promised land”* of Nevada. These companies include:
Revelation Biosciences, Inc.
Eightco Holdings Inc.
Gaxos.ai Inc.
Remark Holdings, Inc.
In general, these companies cite tax savings, the enhanced ability to attract and retain management, greater liability protection, and flexibility as the reasons for proposing the move to Nevada. It remains to be seen whether the stockholders favor a move. Moreover, the proxy season is only just beginning and it will be interesting to see whether 2025 will be go down in history books as the “Year of the Great Move”.
__________________________*”Sweet Promised Land” is the title of a wonderful book by Robert Laxalt that tells the story of a Basque immigrant and his son’s return visit from Nevada to the father’s ancestral homeland. I’ve never been sure whether the title refers to Nevada, the Basque homeland, or both. The phrase also makes it appearance in the chorus of a song recorded in Walter Van Tilburg Clark’s semi-autobiographical novel about growing up in Reno, Nevada, The City of Trembling Leaves:
“Oh, this is the land that old Moses shall see;Oh, this is the land of the vine and the tree;Oh, this is the land for My children and Me,The sweet promised land of Nevada.”
FAQs Provide Details on Workforce Demographic Reporting for Massachusetts Employers
Massachusetts just released frequently asked questions (FAQs) to help employers comply with the wage data reporting aspect of the state’s new pay transparency law.
Quick Hits
Massachusetts issued new FAQs containing details for employers on how they can meet their obligations when reporting wage data pursuant to the state’s new pay transparency law.
Employers in Massachusetts will need to submit workforce demographic information to the state each year under a new law.
Covered employers must submit their most recently filed EEO-1 report to the state by February 3, 2025. Employers need not provide customized reports, nor do they need to include pay data.
The federal government requires certain employers to submit workforce demographic data in a report, called an EEO-1 form, each year. On July 31, 2024, Governor Maura Healey signed the Francis Perkins Workplace Equity Act, which requires Massachusetts employers with one hundred or more employees (and which are subject to EEO-1 reporting obligations) to send their most recent EEO-1 report to the state each year.
While the statute anticipated that EEO-1 reports would include wage data (which had been the case several years ago), that has not happened at the federal level. As such, employers need not submit any wage data, but rather only what is currently required under federal law. Multistate employers can file their companywide EEO-1 reports and do not need to create state-specific reports.
Covered employers were originally required to submit their EEO-1 reports to the state by February 1, 2025, but because February 1 falls on a Saturday this year, the Massachusetts Executive Office of Labor and Workforce Development (EOLWD) confirmed in the FAQs that it will accept filings through February 3, 2025.
The FAQs also note that starting on October 29, 2025, the law will require Massachusetts employers to list a salary range in most job postings. Additional guidance is expected to be forthcoming.
Next Steps
Massachusetts employers can check here for the link to submit an EEO-1 report, which is due February 3, 2025. The EOLWD website states that an online portal will be posted there as soon as it is available. While the deadline to comply with pay transparency in job postings is not until the end of October, employers may want to start taking steps now to ensure they will be in compliance once that aspect of the law is in effect.
Final Reissuance Regulations Released (Finally)
On December 30, 2024, the IRS and Treasury Department released final regulations regarding the reissuance analysis of tax-exempt bonds which finalize proposed regulations issued in 2018 (with some technical corrections). The final regulations are significant in that, firstly, they are intended to coordinate prior guidance in Notices 88-130 and 2008-41 regarding qualified tender bonds with Treasury Regulations § 1.1001-3 to determine when a tax-exempt bond is retired; and secondly, Notice 88-130 first promised these final regulations in July 1988—over 36 years ago (when hairstyles and tender bonds needed regulating). The final regulations amend § 1.1001-3 to incorporate and reference newly added § 1.150-3 which provides three general rules for when a tax-exempt bond is retired:
(1) a significant modification occurs under § 1.1001-3,
(2) the issuer or its agent acquires the bond in a manner that extinguishes the bond, or
(3) the bond is otherwise redeemed.
The final regulations set forth three exceptions to retirement or reissuance treatment (the first two exceptions apply to qualified tender bonds[1], and the third applies to all tax-exempt bonds:
(1) a qualified tender right[2] is disregarded in applying § 1.1001-3 to determine whether a change to the interest rate or interest rate mode (pursuant to the terms of the qualified tender bond) is a modification,
(2) an acquisition of a qualified tender bond by the issuer or its agent does not extinguish the bond if done pursuant to the operation of a qualified tender right and neither the issuer nor its agent holds the bond after the close of the 90-day period starting from the tender date.
(3) an acquisition of a tax-exempt bond by a guarantor or liquidity facility provider acting on the issuer’s behalf does not extinguish the bond if done pursuant to the terms of the guarantee or liquidity facility and the acquirer is not a related party to the issuer of the bond.
Consistent with Notice 2008-41, the final regulations permit a qualified tender bond to be resold at a premium or discount when the qualified tender right is exercised in connection with a conversion of the interest rate mode to a fixed rate for the remaining term of the bond. However, the final regulations, do not retain some rules from the prior guidance, including (i) that modifications to collateral or credit enhancement are significant only if there is a change in payment expectations, (ii) a specific exception for corrective changes, and (iii) permitting a conduit borrower under certain circumstances to purchase bonds that financed its conduit loan. The stated reasons for discontinuing these rules are that § 1.1001-3 is sufficient or that the rules were specific to the extraordinary circumstances of the 2008 financial crisis and no longer necessary.
Issuers may continue to apply Notice 88-130 or Notice 2008-41 until December 30, 2025 at which point such Notices will become obsolete and § 1.150-3 will govern the reissuance analysis in all instances.
And finally, the final regulations authorize the publication of further guidance in the Internal Revenue Bulletin to address “appropriate, tailored circumstances” where flexibility may be needed in determining when retirement and reissuance has occurred. So hold your breath (or don’t) for possibly final final guidance at which point we will likely all be retired (and hopefully not extinguished).
[1] Section 1.150-3 defines qualified tender bond as “a tax-exempt bond that, pursuant to the terms of the bond, has all of the following features: (1) during each authorized rate mode, the bond bears interest at a fixed interest rate, a qualified floating rate under § 1.1275‑5(b), or an objective rate for a tax-exempt bond under § 1.1275‑5(c)(5); (2) interest on the bond is unconditionally payable (as defined in § 1.1273‑1(c)(1)(ii)) at periodic intervals of no more than one year; (3) the bond has a stated maturity date that is not later than 40 years after the issue date of the bond; and (4) the bond includes a qualified tender right.”
[2] Section 1.150-3 defines a qualified tender right as “a right or obligation of a holder of a tax-exempt bond pursuant to the terms of the bond to tender the bond for purchase as described [herein]. The purchaser under the tender may be the issuer, its agent, or another party. The tender right is available on at least one date before the stated maturity date. For each such tender, the purchase price of the bond is equal to par (plus any accrued interest). Following each such tender, the issuer, its agent, or another party either redeems the bond or uses reasonable best efforts to resell the bond within the 90-day period beginning on the date of the tender. Upon any such resale, the resale price of the bond is equal to the par amount of the bond (plus any accrued interest), except that, if the tender right is exercised in connection with a conversion of the interest rate mode on the bond to a fixed rate for the remaining term of the bond, the bond may be resold at any price, including a premium price above the par amount of the bond or a discount price below the par amount of the bond (plus any accrued interest). Any premium received by the issuer pursuant to such a resale is treated solely for purposes of the arbitrage investment restrictions under section 148 of the Code as additional sale proceeds of the bonds.”
Federal Court Rules ESG-Guided Investing of 401(k) Plan Is a Breach of Fiduciary Duty
Following a bench trial, Judge O’Connor (N.D. Tex.) held that “that Defendants breached their fiduciary duty by failing to loyally act solely in the retirement plan’s best financial interests by allowing their corporate interests, as well as BlackRock’s ESG interests, to influence management of the plan.” In other words, investing a 401(k) retirement plan to reflect ESG interests–rather than strictly financial ones–constitutes a breach of the fiduciary duty of loyalty. (Notably, despite this holding, the court nonetheless ruled that the fiduciary duty of prudence had not been violated, because ESG-influenced investing was “act[ing] according to prevailing industry practices.”) In so holding, the Court emphasized that “[w]hile it is permissible to consider ESG risks when done through a strictly financial lens . . . ESG cannot stand on its own. . . . [as] ERISA does not permit a fiduciary to pursue a fiduciary to pursue a non-pecuniary interest no matter how noble it might view the aim.”
This decision–the first to consider ESG-focused investing of a 401(k) plan following a trial on the merits–will undoubtedly be influential, as it supports the position advocated by a number of critics of ESG that such ESG-influenced investment activity is per se a breach of fiduciary duty. Additionally, as this decision was issued by a federal district court in Texas, it is likely that it will be upheld on appeal, as the Fifth Circuit Court of Appeals–which oversees this particular district court–is the most conservative in the United States.
Still, this ruling does also offer a partial roadmap for ESG-focused investing to survive such challenges–as if ESG-focused investing can be justified based upon financial metrics, than it will pass legal muster.
Based upon the results in this case–although damages are yet to be determined–it is likely that additional lawsuits will be filed on behalf of 401(k) participants against investment managers who made use of ESG factors when determining investments.
American Airlines Inc. violated federal law by filling its 401(k) plan with funds from investment companies that pursue environmental, social, and corporate governance goals, a Texas federal judge ruled Friday in the biggest victory yet for opponents of the strategy. The airline breached its fiduciary duty of loyalty—but not its fiduciary duty of prudence—in allowing its $26 billion retirement plan to be influenced by corporate goals unrelated to workers’ best financial interests, Judge Reed O’Connor of the US District Court for the Northern District of Texas said after a four-day, non-jury trial. The 2023 lawsuit, which says the airline wrongly offered 401(k) funds managed by companies that pursue ESG policy goals through proxy voting and shareholder activism, is the latest battle in the broader debate over socially conscious investing.
www.bloomberglaw.com/…
Wisconsin Appellate Court Interprets Construction Defect Exclusion and Fungi Exclusion
Cincinnati Insurance Company v. James Ropicky, et al., No. 2023AP588, 2024 WL 5220615 (Wis. Ct. App. Dec. 26, 2024)
On December 26, 2024, the Court of Appeals of Wisconsin issued is decision in Cincinnati Insurance Company v. James Ropicky, et al., No. 2023AP588, 2024 WL 5220615 (Wis. Ct. App. Dec. 26, 2024), addressing whether an ensuing cause of loss exception to a Construction Defect Exclusion, Fungi Exclusion, and Fungi Additional Coverage endorsement contained in a homeowner’s insurance policy issued by Cincinnati to its insureds precluded coverage for damage sustained by the insureds’ home following a May 2018 rainstorm. A final publication decision is currently pending for this case.
Background Information
James Ropicky and Rebecca Leichtfuss (collectively “the insureds”) submitted a claim to their homeowner’s insurer, Cincinnati Insurance Company (“Cincinnati”), for alleged water and fungal damage that their home sustained as a result of a rainstorm that occurred on May 11, 2018. Based on Cincinnati’s investigation and the opinions rendered by its expert following his inspections of the insureds’ home, Cincinnati provided limited coverage for the insureds’ claim based on the contention that a majority of the damage was the result of “design or installation deficiencies” that had allowed storm water to enter the interior wall structure. Therefore, Cincinnati concluded the subject damage was either excluded under the policy’s Construction Defect Exclusion and Fungi Exclusion, or subject to the policy’s Fungi Additional Coverage endorsement. As a result, Cincinnati paid $10,000 under the policy’s fungi-related coverage (Fungi Additional Coverage endorsement) and $2,138.53 for other damages falling within the ensuing cause of loss exception to the Construction Defect Exclusion. Cincinnati denied coverage for costs associated with remedying and repairing the purported construction defects.
Eventually, Cincinnati filed a lawsuit against its insureds seeking declaratory judgement as to its coverage position. In response, Cincinnati’s insureds disputed Cincinnati’s coverage position and filed counterclaims against Cincinnati for breach of contract, declaratory judgment, and bad faith related to Cincinnati’s handling of their claim. The circuit court ultimately granted Cincinnati’s summary judgment motion as to coverage, agreeing that the Construction Defect and Fungi Exclusions contained in the applicable homeowner’s policy barred any additional coverage under the policy’s terms beyond that which Cincinnati had already paid with respect to the alleged May 2018 rainstorm damage. Further, because the circuit court ruled in Cincinnati’s favor and held that Cincinnati had not breached its contract with the insureds, the court dismissed, sua sponte, the insured’s bad faith claim as a matter of law. The insureds appealed the circuit court’s decision.
Decision and Analysis
On appeal, the Court of Appeals of Wisconsin concluded the ensuing cause of loss exception to the policy’s Construction Defect Exclusion reinstates coverage, and the policy’s Fungi Additional Coverage endorsement renders the Fungi Exclusion inapplicable. Thus, the appellate court reversed the circuit court’s decision, finding the circuit court erred in granting summary judgment in Cincinnati’s favor, and remanded the case for further proceedings.
First, the appellate court held that even assuming the Construction Defect Exclusion applies, the damage to the insureds’ home nevertheless constitutes an ensuing cause of loss under the policy’s ensuing cause of loss exception and the authority of Arnold v. Cincinnati Insurance Co., 2004 WI App 195, 276 Wis. 2d 762, 688 N.W.2d 707. Relying on Arnold as binding authority, the appellate court explained that an “ensuing loss” “is a loss that follows the excluded loss ‘as a chance, likely, or necessary consequence’ of that excluded loss[,]” and “in addition to being a loss that follows as a chance, likely, or necessary consequence of the excluded loss, an ensuing loss must result from a cause in addition to the excluded cause.” Id. at ¶¶27, 29 (emphasis added). The appellate court then proceeded to apply the following three-step framework adopted in Arnold to determine whether the ensuing cause of loss exception applies: (1) first identify the loss caused by the faulty workmanship that is excluded; (2) identify each ensuing loss, if any – that is, each loss that follows as a chance, likely, or necessary consequence from that excluded loss; and (3) for each ensuing loss determine whether it is an excepted or excluded loss under the policy. See id. at ¶34. Based on the appellate court’s application of this three-step framework, it concluded the rainwater at issue, i.e., the May 2018 rainstorm, was an ensuing cause of loss within the meaning of the applicable policy’s ensuing cause of loss exception to a Construction Defect Exclusion.
Second, the appellate court held that the policy’s Fungi Exclusion and its anti-concurrent cause of loss clause did not exclude coverage for the damage to the insureds’ home. Most significantly, in reaching this conclusion, the appellate court determined that the phrase “[t]his exclusion does not apply” in the Fungi Exclusion does not introduce an exception to the exclusion, but rather introduces two scenarios in which the Fungi Exclusion is never triggered in the first instance because its conditions for application are never satisfied. According to the appellate court, one of the circumstances enumerated in the Fungi Exclusion, wherein it states the exclusion “does not apply” “[t]o the extent coverage is provided for in Section I, A.5. Section I – Additional Coverage m. Fungi, Wet or Dry Rot, or Bacteria with respect to ‘physical loss’ caused by a Covered Cause of Loss other than fire or lightning,” rendered the exclusion inoperative with respect to the subject loss. Notably, the concurring opinion explains how the majority’s interpretation of the Fungi Exclusion’s “this exclusion does not apply” language appears to depart from prior case law, wherein Wisconsin courts have repeatedly concluded that this language creates an exception to an exclusion that reinstates coverage. See Neubauer, J. (concurring).
Third, the appellate court held the policy’s $10,000 limit of Fungi Additional Coverage applies to the portion of subject home’s damages that was at least partially caused by “fungi, wet or dry, or bacteria.” However, the $10,000 limit does not decrease or limit the coverage that was otherwise available for the home’s damages caused solely by rainwater.
Based on its interpretation of the policy provisions set forth above, the appellate court additionally held: (1) genuine questions of material fact exist at least as to whether “fungi, wet or dry rot, or bacteria” caused any of the damage to the insureds’ home, and if so, what portion of the damage is attributable to “fungi, wet or dry rot, or bacteria”; (2) only after properly apportioning any damage caused by “fungi, wet or dry rot, or bacteria” can Cincinnati determine the extent of coverage it is obligated to provide under the terms of the homeowner’s insurance policy; and (3) because issues of material fact remain as to the cost to repair the construction defects (not the ensuing loss), this issue remains to be addressed on remand. The appellate court also reinstated the insureds’ bad faith claim asserted against Cincinnati in the underlying action, which had been dismissed by the circuit court when granting summary judgment in Cincinnati’s favor.
Wildfires in Los Angeles: Key Considerations for Employers Navigating Disaster Response and Compliance
Wildfires continue to rage across the Los Angeles area, causing death, massive destruction of property, and forcing tens of thousands to flee their homes. President Biden has approved a “Major Disaster Declaration” for California because of the wildfires. This disaster also impacts employers’ obligations under California law, including California’s workplace safety and health statute, California wage and hour law, Cal-WARN, and the Los Angeles Fair Work Week ordinance.
Quick Hits
Wildfires sweeping through the Los Angeles area have prompted evacuation orders affecting tens of thousands of residents and creating dangerous conditions for travel.
Employers affected by the disaster may need to consider their emergency preparedness plans, immediate workplace safety risks, and employment and staffing concerns while maintaining critical business functions.
Wildfires, pushed by high winds and drought conditions, have swept through areas around Los Angeles, destroying homes and businesses. As firefighters work to control the blazes, tens of thousands of residents are under evacuation orders and schools are closed. Thousands across Southern California have lost power, and many more are at risk of experiencing preemptive power outages taken as a precaution to prevent additional fires.
The wildfires—as with similar natural disasters, such as hurricanes, earthquakes, and floods—have created further challenges for employers, forcing them to adapt their operations and put their emergency preparedness plans to the test. For others, the disaster is a devastating reminder of the importance of preparedness—and its limits—as natural disasters can arise quickly and without warning.
Here are some key considerations for employers impacted by these latest wildfires.
Emergency Preparedness
Emergency plans and communication protocols. Employers with employees or workplaces impacted by the wildfires may want to consider their emergency response plans and communication protocols and consult emergency contact lists. Communication with employees is critical to maintaining employee safety, keeping track of employees amid evacuations, and informing employees of potential hazards affecting the workplace or impacting transportation.
Business disruptions. Affected employers may want to determine which business functions are critical and implement plans to maintain these operations during the wildfires.
Flexible work arrangements. With evacuation orders and travel advisories, many employers may have to close physical workplaces and/or employees will need to find other work arrangements. Employers may want to consider temporary remote work arrangements, adjust schedules to accommodate for transportation or safety issues, or temporarily suspend operations if necessary to ensure safety.
Workplace Safety and Health
Workplace safety obligations. During a natural disaster, employers’ workplace safety obligations in some ways become even more complicated and challenging. The California Division of Occupational Safety and Health (Cal/OSHA) requires employers to ensure employees are not exposed to unaddressed hazards, even if employers are displaced from their normal operating environment during a natural disaster.
Wildfire smoke. Smoke from wildfires creates health risks that can impact employers. Cal/OSHA has a specific wildfire smoke standard that applies to most outdoor workplaces in which the Air Quality Index (AQI) for airborne particulate matter 2.5 micrometers or smaller (PM2.5) is 151 or greater or where “employer[s] should reasonably anticipate that employees may be exposed to wildfire smoke.” Cal/OSHA has published more information on the wildfire smoke standards on its website.
California Wage and Hour Requirements
Nonexempt employees. Even during workplace disruptions caused by wildfires, California law and the Fair Labor Standards Act (FLSA) require that employers pay nonexempt employees for all work performed, and all hours worked must be recorded and tracked. Such disruptions also may result in overtime hours for other employees who are able to work.
Exempt employees. Exempt employees must still be paid for an entire week if they work any portion of a workweek, even if their physical work location is closed or they are forced to stay home and/or evacuate.
Reporting time pay requirements. California requires employers to pay “reporting time” each day an employee reports for a scheduled day’s work but is provided less than half of the employee’s usual or scheduled day’s work. However, reporting time obligations do not apply when “the interruption of work is caused by an Act of God or other cause not within the employer’s control.” (IWC Orders 1-16, Section 5(C)).
Los Angeles’s Fair Work Week Ordinance
The City of Los Angeles has confirmed that store closures caused by wildfires will be considered an exception to Los Angeles’s Fair Work Week Ordinance. The ordinance typically requires covered employers to provide employees with notice of their work schedules at least fourteen days in advance of the start of the work period and allows employees to decline hours if an employer makes changes to a shift or a work location after the notice deadline. The ordinance includes exceptions when employers’ operations are compromised due to force majeure, including fires, floods, earthquakes, epidemics, quarantine restrictions and other natural disasters or civil disturbances.
Leaves of Absence
Employers may be required to provide leave under the California Family Rights Act (CFRA) and/or Family and Medical Leave Act (FMLA) to employees with a serious health condition caused or exacerbated by a natural disaster, including smoke from wildfires. Employees also may need CFRA/FMLA leave to provide care for a covered family member suffering a serious health condition or medical emergency caused by a natural disaster.
Cal-WARN
The Los Angeles wildfires may force employers to reduce staff and/or temporarily shut down operations. The California Worker Adjustment and Retraining Notification Act (Cal-WARN) generally requires sixty days’ notice of a mass layoff, plant closure or relocation of at least one hundred miles. However, Cal-WARN exempts employers from providing this notice in situations involving “physical calamity.”
7 Practical Tips for Preparing for the 2025 Annual Report and Proxy Season
As the 2025 proxy season approaches, public companies must gear up for an environment shaped by evolving regulations, investor expectations, and governance trends. To ensure your company is well-prepared, here are some practical tips to keep in mind:
1) Dust Off the Proxy Season Calendar and Confirm Filer Status
Start your preparations by revisiting your proxy season timeline. Ensure you know your key deadlines for Securities and Exchange Commission (SEC) filings, including the Form 10-K/20-F, proxy statement, and annual meeting. Check your filer status (e.g., large accelerated, accelerated, non-accelerated) to confirm applicable deadlines and determine whether any recent status changes affect your compliance requirements.
2) Be Aware of New SEC Disclosure Obligations
The SEC has introduced several new disclosure obligations for 2025. Among others, there are two key changes to note:
Insider Trading Policies and Procedures.
Narrative Disclosure – Item 408(b) of Regulation S-K requires a company to disclose whether it has adopted policies or procedures governing purchases, sales, or other dispositions of its securities by directors, officers, and employees or by the issuer itself and, if not, why it has not done so.
Exhibit Filing – Any insider trading policy must be filed as Exhibit 19 to the 2024 Form 10-K. If the company’s code of ethics includes such a policy, a separate exhibit filing is not required. (A similar disclosure requirement applies under Item 16J of Form 20-F.)
Option Award Granting Policies and Procedures (402(x) of Regulation S-K):
Narrative Disclosure – Under new Item 402(x), a company must provide narrative disclosure discussing its policies and practices regarding the timing of awards of stock options, stock appreciation rights (SARs) and similar option-like instruments in relation to the disclosure of material nonpublic information (MNPI), including how the board determines when to grant these awards. In addition, a company must disclose whether the board or compensation committee takes MNPI into account when determining the timing and terms of applicable awards, and, if so, how and whether the company has timed the disclosure of MNPI for the purpose of affecting the value of executive compensation.
Potential New Tabular Disclosure – New Item 402(x) also requires detailed tabular disclosure if, during the last completed fiscal year, stock options, SARs or similar option-like instruments were awarded to a named executive officer (NEO) within a period starting four business days before and ending one business day after the filing of a Form 10-K or 10-Q, or the filing or furnishing of a Current Report on Form 8-K that discloses MNPI (including earnings information).
3) Revisit Cybersecurity Disclosure in Light of SEC Comment Letters and Trends
On July 26, 2023, the SEC adopted final rules requiring (i) the disclosure of material cybersecurity incidents in Form 8-K, and (ii) new cybersecurity risk management, strategy, and governance disclosures in Form 10-K and 20-F. All public companies were required to comply with these disclosure requirements for the first time beginning with their annual reports on Form 10-K or 20-F for the fiscal year ending on or after Dec. 15, 2023. As a result, calendar fiscal year companies included these disclosures for the first time in their respective annual report filings last annual reporting cycle.
With the passage of time, we are beginning to see SEC comment letters issued on filings related to the new cybersecurity disclosure rules. We believe it is prudent to be familiar with these comment letter trends to assess whether any improvements might apply to a company’s first-year disclosures.
Here is an SEC comment exchange related to a company’s Item 1C cybersecurity disclosures (with the SEC comment in bold and the response following):
“We note your senior leadership team consisting of your CEO and his direct reports (SLT) is responsible for setting the tone for strategic growth, effective operations and risk mitigation at the management level, as well as, the overall managerial responsibility for confirming that the information security program functions in a manner that meets the needs of Equifax. We also note that you described the relevant expertise of your CISO but not of the other members of the SLT. Please revise future filings to discuss the relevant expertise of such members of senior management as required by Item 106(c)(2)(i) of Regulation S-K.
We respectfully acknowledge the Staff’s comment above. While our senior leadership team (“SLT”) has responsibility for risk management at the managerial level and overall managerial responsibility for the various programs of the Company, including information security, our Chief Information Security Officer (“CISO”) is the management position responsible for assessing and managing material risks from cybersecurity threats under Item 106(c)(2)(i) of Regulation S-K. In future filings, we will clarify that the CISO is the management position responsible for assessing and managing material risks from cybersecurity threats.”
It appears the SEC staff accepted the reporting person’s explanation in the above-referenced exchange, as there were no follow-up letters made public. A link to the actual letter is here.
4) Be Aware of Proxy Advisory and Institutional Shareholder Policy Updates
Both Glass Lewis and ISS have updated their guidelines for 2025, which take effect for meetings held after Jan. 1, 2025 for Glass Lewis and on or after Feb. 1, 2025 for ISS. Below are a few key takeaways from their updates:
Board Oversight of AI
Given the rise in the use of artificial intelligence (AI), Glass Lewis has noted the importance of boards’ awareness of and policies surrounding the use of such technologies and the potential associated risks. If the company has not suffered any material incidents related to its use or management of AI, Glass Lewis will generally not make voting recommendations on the basis of its oversight of AI-related issues, but if there has been a material incident, Glass Lewis will review the company’s AI-related policies to ensure sufficient oversight and adequate response to such incidents and may recommend against certain directors in light thereof.
Defensive Profile and Reincorporation.
Glass Lewis revised its stance on reincorporating the company in different states to clarify that it will take these on a case-by-case basis, depending on the shareholder rights, financial benefits, and other corporate governance provisions of the laws of the state or country of reincorporation.
ISS votes case by case when it comes to poison pills with a term of one year or less, but this year it added several factors to its list of items it takes into consideration, including the context in which the pill was adopted and the company’s overall track record regarding corporate governance. This allows for a more holistic approach in ISS’s evaluation.
Executive Compensation.
In the aftermath of the first full year of pay versus performance disclosures, Glass Lewis has clarified it will continue to evaluate executive compensation programs holistically and not in accordance with a predetermined scorecard. While there are some factors that may lead to a recommendation against or for a say-on-pay vote, Glass Lewis said it will evaluate each program in the context of its whole, rather than its parts.
Board Responsiveness to Shareholders.
Both advisors included discussion about the board’s willingness and ability to respond to shareholders in its updates for this year. Glass Lewis has added to its discussion on board responsiveness a recommendation that shareholder proposals that received significant support but did not pass (generally more than 30 percent but less than a majority) should illicit board engagement with shareholders to address the issue and then provide disclosure of those efforts. Additionally, in its evaluation of whether to recommend a vote for or against a short-term poison pill, ISS states it will include the board’s responsiveness to shareholders in its review of the company’s corporate governance practices.
Expansion of Environmental Focus.
ISS revised its guidance on what used to be its section on general environmental and community impact proposals to include all natural capital-related matters. This includes topics like biodiversity, deforestation and related ecosystem loss, and other areas that group under the theme “natural capital.”
SPACs
ISS revised its stance on proposals for special purpose acquisition companies (SPAC) extensions from a case-by-case model with a variety of factors at play, including length of the request, prior requests for extension, and acquisition transactions pending in the pipeline, to a general support of extensions of up to one year from the original termination date.
In addition to ISS and Glass Lewis, in December 2024 BlackRock released its updated U.S. proxy voting guidelines for benchmark policies.
5) Consider Hypothetical Risk Factors
On Nov. 6, 2024, the U.S. Supreme Court heard oral arguments for Facebook, Inc. v. Amalgamated Bank, a securities law case involving the 2016 Facebook (now Meta)/Cambridge Analytica’s user data scandal. Facebook investors alleged that the company, among other things, had included in its risk factor disclosures references to risks of unauthorized user data disclosures, but such risks were presented as hypothetical when in fact they had already materialized.
In its Oct. 18, 2023 opinion, the U.S. Court of Appeals for the Ninth Circuit ruled, “Because Facebook presented the prospect of a breach as purely hypothetical when it had already occurred, such a statement could be misleading even if the magnitude of the ensuing harm was still unknown.” Facebook subsequently filed a petition to the Supreme Court for a writ of certiorari. On Nov. 22, 2024, the Supreme Court dismissed the case on the grounds that the writ of certiorari was improvidently granted, affirming the Ninth Circuit’s ruling.
In light of this case and the continued hindsight focus on “hypothetical risk factors” by shareholder litigants, companies should consider reviewing their risk factors and assess whether any of them that may be deemed “hypothetical” have actually occurred, and therefore require further disclosures.
6) Familiarize Yourself With SEC Changes to EDGAR System
On Sept.27, 2024, the SEC adopted a series of rule and form amendments concerning access to and management of accounts on their Electronic Data Gathering, Analysis, and Retrieval system (EDGAR). These amendments – designed to enhance the security of EDGAR, improve the ability of filers to manage their EDGAR accounts, and modernize connections to EDGAR – are collectively referred to as EDGAR Next.
At the heart of the amendments is a shift in how filers (and appropriately permissioned third parties) access EDGAR. Presently, the SEC assigns EDGAR filers access codes; any individual in possession of a filer’s access codes may access the filer’s account, view and make changes to the information maintained therein, and transmit submissions on the filer’s behalf. EDGAR Next will retire the majority of these codes and require that EDGAR filers authorize specific individuals to perform the above-mentioned functions. Each authorized individual will verify their identity using login.gov credentials.
Enrollment in EDGAR Next opens on March 24, 2025, and all existing filers must enroll by Dec. 19, 2025.
To get a jump on preparing for enrollment, filers should take the earliest opportunity to (i) ensure that all of their existing EDGAR access codes are current and (ii) identify the individuals (e.g., employees, legal advisors, third-party filing agents) who will need access to their EDGAR accounts. Individuals who anticipate interfacing with the EDGAR Next system should obtain login.gov credentials.
7) Changes to Nasdaq Diversity Disclosure Requirement
In December 2024, the U.S. Court of Appeals for the Fifth Circuit vacated the SEC’s approval of Nasdaq’s board diversity rules. Nasdaq has stated that it will not appeal the decision. As a result, Nasdaq-listed companies will no longer need to include the previously required board diversity matrix in their proxy statement or on their website, or provide other narrative disclosure explaining why they did not have at least the minimum number of directors in specified diversity categories. There was no comparable disclosure requirement for New York Stock Exchange (NYSE) listed companies.
Notwithstanding this change, board diversity remains a continued focus for many public company boards and other considerations are still in place. For example, ISS, Glass Lewis and certain large institutional investors have their own diversity standards that may influence a company’s disclosure, and Item 407(c) of Regulation S-K may elicit diversity-related disclosures regarding a nominating committee’s consideration of director candidates. As a result, many companies are continuing to solicit such information in their directors and officers (D&O) questionnaires for the 2025 proxy season. Ultimately, each public company will need to consider relevant factors in determining whether, or to what extent, diversity factors into their SEC disclosures.
CFPB Announces Plans to Regulate Nonbank Personal Loan Providers
On January 8, the CFPB announced its intent to pursue rulemaking that would allow the agency to oversee nonbank personal loan lender. The announcement came in response to a petition filed in September 2022 by the Consumer Bankers Association and the Center for Responsible Lending, which called on the CFPB to engage in rulemaking under section 1024(a)(2) of the Consumer Financial Protection Act to subject certain “larger participants” in the nonbank personal loan market to the CFPB’s supervisory authority.
The petitioners argued that, although the CFPB’s supervisory authority already extends to large banks and nonbanks in most segments of consumer lending, the CFPB’s authority over the personal loan market currently does not extend beyond short-term payday lenders. The petitioners further argued that this gap in the CFPB’s supervisory authority creates both an unlevel playing filed and a significant risk that consumer protections issues affecting vulnerable consumers will go undetected.
In a response letter to the petitioners, the CFPB’s general counsel acknowledged the gap in the agency’s authority over the nonbank segment of the personal loan market, which consists of 85 million accounts and over $125 billion in outstanding balances. In addition, the letter expresses agreement with the petitioners’ concerns with respect to the unlevel playing filed that this gap creates. Finally, the letter states that, while the CFPB is already supervising certain nonbank personal loan providers pursuant to other authorities, the Bureau further intends to develop a proposed rule in line with the petitioners’ suggestion.
Putting it into Practice: Although the CFPB has expressed its intent to pursue so-called “large participant” rulemaking, it is unclear whether there will be any follow through. Anticipated shifts in policy priorities under the incoming administration may mean that the Bureau will not ultimately pursue the rulemaking. Despite this uncertainty, the petitioners have expressed that they are eager to continue working with the Bureau to level the playing field in the nonbank personal loan market.
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DOE Issues Unprecedented $25 Million Penalty for Violations of Federal Appliance Efficiency Standards
Capping a four-year effort to revitalize enforcement under its Appliance and Equipment Standards Program, earlier this week, the U.S. Department of Energy (DOE) announced that it had assessed and collected a civil penalty of $25,312,725 from Galanz Americas Limited Company and Zhongshan Galanz Consumer Electric Appliances Co., Ltd. (“Galanz”). This penalty, the largest in the history of this program, resulted from DOE testing showing that a single compact refrigerator-freezer model manufactured by Galanz for distribution in the United States failed to meet applicable energy efficiency standards. While DOE has not published sales figures, the high penalty likely means that Galanz sold a considerable volume of the model.
Violations of DOE’s energy efficiency standards can result in civil penalties of up to $575 per violation, with each unit sold of a non-compliant product considered a separate violation. DOE, therefore, has the statutory authority to assess penalties in the millions or even tens of millions of dollar range, but the Department typically exercises its discretion to settle violations for significantly below the maximum, applying factors set out in its Penalty Policy. The large majority of assessed civil penalties range between $20,000 and $1,000,000, but the Department has occasionally issued seven-figure penalties. During the Biden Administration, DOE has taken an increasingly aggressive enforcement posture and settled a number of enforcement actions with seven-figure civil penalties. Note also that because DOE is authorized to enjoin further distribution of non-compliant models, civil penalties constitute only a portion of the financial impact on manufacturers, importers, private labelers, and retailers found to be in violation of federal requirements.
DOE has settled over a dozen enforcement cases in the past few months, likely in an effort to resolve as many outstanding violations as possible before a presidential transition that will bring a major change in enforcement priorities.
FTC Blog Outlines Factors for Companies to Consider About AI — AI: The Washington Report
The FTC staff recently published a blog post outlining four factors for companies to consider when developing or deploying AI products to avoid running afoul of the nation’s consumer protection laws.
The blog post does not represent formal guidance but it likely articulates the FTC’s thinking and enforcement approach, particularly regarding deceptive claims about AI tools and due diligence when using AI-powered systems.
Although the blog post comes just days before current Republican Commissioner Andrew Ferguson becomes FTC Chair on January 20, the FTC is likely to continue the same focus on AI as it relates to consumer protection issues as it has under Chair Khan. Ferguson has voted in support of nearly all of the FTC’s AI consumer protection actions, but his one dissent underscores how he might dial back some of the current FTC’s aggressive AI consumer protection agenda.
The FTC staff in the Office of Technology and the Division of Advertising Practices in the FTC Bureau of Consumer Protection released a blog outlining four factors that companies should consider when developing or deploying an AI-based product. These factors are not binding, but they underscore the FTC’s continued focus on enforcing the nation’s consumer protection laws as they relate to AI.
The blog comes just under two weeks before current Republican Commissioner Andrew Ferguson will become the FTC Chair. However, under Ferguson, as we discuss below, the FTC will likely continue its same focus on AI consumer protection issues, though it may take a more modest approach.
The Four Factors for Companies to Consider about AI
The blog post outlines four factors for companies to consider when developing or deploying AI:
Doing due diligence to prevent harm before and while developing or deploying an AI service or product
In 2024, the FTC filed a complaint against a leading retail pharmacy alleging that it “failed to take reasonable measures to prevent harm to consumers in its use of facial recognition technology (FRT) that falsely tagged consumers in its stores, particularly women and people of color, as shoplifters.” The FTC has “highlighted that companies offering AI models need to assess and mitigate potential downstream harm before and during deployment of their tools, which includes addressing the use and impact of the technologies that are used to make decisions about consumers.”
Taking preventative steps to detect and remove AI-generated deepfakes and fake images, including child sexual abuse material and non-consensual intimate imagery
In April 2024, the FTC finalized its impersonation rule, and the FTC also launched a Voice Cloning Challenge to create ways to protect consumers from voice cloning software. The FTC has previously discussed deepfakes and their harms to Congress in its Combatting Online Harms Report.
Avoiding deceptive claims about AI systems or services that result in people losing money or harm users
The FTC’s Operation AI Comply, which we covered, as well as other enforcement actions have taken aim at companies that have made false or deceptive claims about the capabilities of their AI products or services. Many of the FTC’s enforcement actions have targeted companies that have falsely claimed that their AI products or services would help people make money or start a business.
Protecting privacy and safety
AI models, especially generative AI ones, run on large amounts of data, some of which may be highly sensitive. “The Commission has a long record of providing guidance to businesses about ensuring data security and protecting privacy,” as well as taking action against companies that have failed to do so.
While the four factors highlight consumer protection issues that the FTC has focused on, FTC staff cautions that the four factors are “not a comprehensive overview of what companies should be considering when they design, build, test, and deploy their own products.”
New FTC Chair: New or Same Focus on AI Consumer Protection Issues?
The blog post comes under two weeks before President-elect Trump’s pick to lead the FTC, current FTC Commissioner Andrew Ferguson, becomes the FTC Chair. Under Chair Ferguson, the FTC’s focus on the consumer protection side of AI is unlikely to undergo significant changes; Ferguson has voted in support of nearly all of the FTC’s consumer protection AI enforcement actions.
However, Ferguson’s one dissent in a consumer protection case brought against an AI company illuminates how the FTC under his leadership could take a more modest approach to consumer protection issues related to AI. In his dissent, Commissioner Ferguson wrote:
The Commission’s theory is that Section 5 prohibits products and services that could be used to facilitate deception or unfairness because such products and services are the means and instrumentalities of deception and unfairness. Treating as categorically illegal a generative AI tool merely because of the possibility that someone might use it for fraud is inconsistent with our precedents … and risks strangling a potentially revolutionary technology in its cradle.
Commissioner Ferguson’s point seems well taken.Less clear is where he would draw the line.Moreover, as a practical matter, his ability to move the needle would likely need to wait until President Trump’s other nominee, Mark Meador, is confirmed, as expected, later this year.
Matthew Tikhonovsky also contributed to this article.
CFPB Updates No-Action Letter and Compliance Assistance Sandbox Policies to Spur Innovation
On January 3, 2025, the CFPB announced a reboot of its no-action letter and compliance assistance sandbox policy, aimed at promoting consumer-beneficial innovation in financial services. The new policies are designed to foster competition and transparency while addressing unmet consumer needs.
The CFPB originally rescinded the policies in 2022, citing a failure to meet transparency standards and promote consumer-beneficial innovation. The updated framework aims to address these shortcomings with several key changes, including:
Unmet Consumer Needs. Applicants must clearly identify a specific consumer problem their product or service addresses, providing data and detailed explanations to justify the innovation’s necessity and benefits.
Market Competition. To avoid granting regulatory advantages to an individual company, the CFPB will solicit applications from competitors offering similar products or services, ensuring a level playing field within the market. The Bureau does not want any company to have a first-mover advantage; but with its policy, the CFPB is essentially signaling to your competitors what you intend to do.
Eligibility Criteria. The CFPB will not consider applications that have been the subject of an enforcement action involving violations of federal consumer financial law in the past five years, or who are the subject of a pending state or federal enforcement action. This restriction applies even if the enforcement action was in a product vertical wholly unrelated to the one being considered for the no-action letter.
Former CFPB Employees Face Bureau “Non-Compete.” The Bureau has stated it will not consider applications from companies that are represented by former CFPB attorneys as outside counsel, even if those lawyers worked at the Bureau more than ten years ago, to avoid any perceived “ethical conflict.”
Finally, recipients of sandbox approvals or no-action letters are prohibited from using these designations in promotional materials to avoid misleading consumers into believing the CFPB endorses their offerings.
Putting It Into Practice: With less than a week to go before a change in administration, the Bureau has decided to reboot its regulatory sandbox policy. However, given the overbearing requirements and restrictions on applying for a no-action letter under the Bureau’s new innovation policies, it will be interesting to see how many companies decide to apply, or if the policies will soon be rescinded.
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CFPB Alleges Credit Reporting Agency Conducted Sham Investigations of Errors
On January 7, 2025, the CFPB filed a lawsuit against a nationwide consumer reporting agency for violations of the Fair Credit Reporting Act. The lawsuit claims the company’s investigation of consumer disputes was inadequate, specifically criticizing their intake, processing, investigation, and customer notification processes. The lawsuit also alleges the company reinserted inaccurate information on credit reports, which the agency alleges harmed consumers’ access to credit, employment, and housing. In addition to FCRA, the Bureau alleges that the company’s faulty intake procedures and unlawful processes regarding consumer reports violated the Consumer Financial Protection Act’s (CFPA) prohibition on unfair acts or practices.
Specifically, the Bureau alleges the company:
Conducted sham investigations. The CFPB claims the company uses faulty intake procedures when handling consumer disputes, including not accurately conveying all relevant information about the disputes to the original furnisher. The company also allegedly routinely accepted furnisher responses to the disputes without an appropriate review such as when furnisher responses seemed improbable, illogical, or when the company has information that the furnisher was unreliable. The Bureau also alleged the company failed to provide consumers with investigation results and provided them ambiguous, incorrect, or internally inconsistent information.
Improperly reinserted inaccurate information on consumer reports. The CFPB alleged the company failed to use adequate matching tools, leading to reinsertion of previously deleted inaccurate information on consumer reports. Consumers who disputed the accuracy of an account and thought their consumer report had been corrected instead saw the same inaccurate information reappear on their consumer report without explanation under the name of a new furnisher.
Putting It Into Practice: This lawsuit reflects a broader trend of the CFPB’s increased regulatory scrutiny of FCRA compliance. (previously discussed here, here, and here). The CFPB has demonstrated a focus on ensuring the accuracy and integrity of consumer credit information. Consumer reporting agencies should proactively review their policies and procedures related to dispute investigation, data handling, and furnisher interaction to ensure they are in compliance with all aspects of the FCRA.
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