Update on the Proposed Amendments to the Foreign Agents Registration Act Regulations
On her very first day in office, Attorney General Pam Bondi issued a sweeping memorandum laying out what the Department of Justice’s (DOJ) enforcement priorities will be going forward under her leadership. It seems that the Foreign Agents Registration Act (FARA) will not be among those priorities, or, at least, the focus of FARA criminal enforcement efforts will be much narrower than it was during not only the Biden Administration but also the first Trump Administration.
First, the Attorney General has disbanded the Foreign Influence Task Force, established in 2017 by then-FBI Director Chris Wray to counter Russia’s attempts to influence U.S. elections and undermine democratic institutions and values. (The task force later expanded its focus to include similar malign foreign influence operations by China, Iran, and other U.S. adversaries).
Second, the Corporate Enforcement Unit within the National Security Division, the DOJ division that administers FARA, has also been disbanded, and its personnel are being reassigned.
Third, and most importantly here, criminal charges will now be brought under FARA only for “alleged conduct similar to more traditional espionage by foreign government actors.” An example would be the indictment of Sue Mi Terry, a Korea expert at think tanks in Washington and New York charged with acting as an unregistered agent of the Korean government and who, among other things, allegedly passed on non-public U.S. government information to Korean intelligence officers.
Alleged conduct on the part of non-governmental foreign actors that is not similar to “traditional espionage,” for example, a foreign company’s lobbying U.S. government officials for favorable tariff treatment for its products, without registering under FARA or availing itself of the so called “commercial exemption” for those that register under the Lobbying Disclosure Act (LDA), will be dealt with by means of only “civil enforcement, regulatory initiatives, and public guidance.”
The memorandum does not address the status of the proposed amendments to FARA that were published in the Federal Register in the final weeks of the Biden Administration and that are discussed in detail here. The comment period for this notice of proposed rulemaking was set to end on March 3, 2025, after which some version of the amendments, to the extent the comments may influence them, was eventually to be finalized and enacted.
But the “Regulatory Freeze Pending Review” memorandum that President Trump issued on Inauguration Day encompasses these proposed amendments. Paragraph 3 of that memorandum calls on agencies to consider postponing, for 60 days, the effective date of “…any rules that have been issued in any manner but have not taken effect, for the purpose of reviewing any questions of fact, law, and policy that the rules may raise.” If deemed necessary and legally permissible, the postponement can be extended beyond 60 days. “Rule” is defined to include notices of proposed rulemaking.
As explained here, the most notable proposed FARA amendments would narrow the commercial exemption, making it likelier, depending of course on the facts, that an agent of a foreign company seeking to influence the U.S. government for its commercial benefit could be criminally charged under the statute for failing to register under FARA or the LDA. Such narrowing would seem to be inconsistent with the policy laid out in the Attorney General’s memorandum, and, thus, be subject to the presidential memorandum’s call for a pause of at least 60 days for DOJ to determine whether it is in fact inconsistent. It seems unlikely, then, that the commercial exemption will be narrowed by the Trump DOJ, if ever, anytime soon.
DOJ and FTC Issue Antitrust Guidelines for Business Activities Affecting Workers
Four days before President Trump took office, the Department of Justice (“DOJ”) and Federal Trade Commission (“FTC”) (together, “the Agencies”) under the Biden administration released their “Antitrust Guidelines for Business Activities Affecting Workers” (“The Guidelines”). These Guidelines replace and expand upon antitrust guidance for HR professionals that the Obama administration issued in 2016. The new Guidelines aim to clarify how the DOJ and FTC “identify and assess business practices affecting workers that may violate the antitrust laws.”
In particular, the new Guidelines address the following types of agreements and business practices as violations of antitrust law that may trigger civil penalties or criminal liability:
1. Wage-Fixing and No-Poach Agreements
Wage-Fixing Agreements: These are agreements between businesses (or between individuals of different businesses) to fix wages or other terms of compensation, such as benefits and bonuses. The Agencies say these agreements may be illegal even if they only set a range, ceiling, or benchmark for calculating wages without setting a specific wage.
No-Poach/No-Solicit Agreements: These are agreements between businesses (or between individuals of different businesses) to not recruit, solicit, or hire workers. This can include an agreement to request permission from the other company before trying to hire an employee. The Agencies say an agreement may be illegal even if it does not completely prohibit hiring the other company’s workers. For example, an agreement not to “cold call” workers is considered a no-poach agreement by the Agencies regardless of whether the businesses are allowed to hire the workers who applied for a position without first being solicited.
Notably, the Agencies continue to identify no-poach and non-solicit agreements as potentially per se criminal violations of the antitrust law even after DOJ suffered a series of stinging losses in criminal no-poach trials.[1]
2. No-Poach Agreements Between Franchisor and Franchisee
No-poach agreements in the franchise context occur when franchisors and franchisees agree to not compete for workers. The updated Guidelines expand on the no-poach agreements in the franchise context with the Agencies stating they may be illegal regardless of whether they actually harm workers. The Agencies note that a franchisor can also violate antitrust laws if it organizes or enforces a no-poach agreement among franchisees that compete for workers. Written and/or unwritten agreements between franchisees not to poach, hire, or solicit each other’s workers may also violate state laws, according to the Agencies.
3. Sharing Competitively Sensitive Information
According to the Agencies, sharing competitively sensitive information with your competitors, including terms and conditions of employment or compensation, may also violate the antitrust laws if the information exchange has (or is likely to have) anticompetitive effect. Discussing two hot areas of antitrust focus—information exchanges and algorithmic collusion—the Agencies also state that information exchanges can serve as evidence of a wage-fixing conspiracy, including information exchanges facilitated through an algorithm or some other third party, or can be unlawful. The Agencies go so far as to say that algorithms that generate wage recommendations may be unlawful even if businesses do not strictly adhere to those recommendations.
4. Non-Compete Clauses
The Guidelines say that non-compete clauses that restrict workers from switching jobs or starting a competing business can violate the antitrust laws. As we previously discussed, the FTC issued a rule banning most non-compete agreements, but a federal judge in Texas struck down that rule in July 2024. The Guidelines acknowledge that case, which is now on appeal, but reassert the FTC’s authority to address non-competes on a “case-by-case” basis.
5. Other Employment Conditions
The Agencies say they will also scrutinize any agreements that “impede worker mobility or otherwise undermine competition.” The Guidelines use the following as illustrative examples:
Employee non-disclosure agreements
Training repayment agreements
Non-solicitation agreements with employees
Exit fee and liquidated damages agreements
False earnings claims by employers
Finally, the Guidelines emphasize that antitrust laws that protect employees also apply to independent contractors.
Will the Guidelines Have Staying Power in the new Administration?
Time will tell how the new Guidelines fare under the Trump Administration. On one hand, two Republican FTC Commissioners dissented from issuing the Guidelines—criticizing the timing “mere days before” the transition of power. On the other hand, the Obama administration’s 2016 guidelines survived the first Trump Administration. Previous Trump-appointed leaders of the DOJ Antitrust Division doubled down on the Guidance’s warning and brought the first criminal no-poach cases. The new Guidelines have already lasted a busy three weeks since the inauguration.
Given the continued antitrust focus on labor it remains wise for companies to:
Review hiring and compensation practices that implicate the types of activities the Guidelines cover—especially practices involving no-poach agreements, non-competes, information sharing, or hiring restrictions.
Review form or template agreements for employees and independent contractors to ensure compliance with antitrust laws.
Watch this space to stay up-to-date on the Trump administration’s approach to antitrust guidance and enforcement.
FOOTNOTES
[1] Ruling and Order on Defendants’ Motions for Judgment of Acquittal, United States v. Patel, No. 3:21- cr-220 (D. Conn. Apr. 28, 2023), ECF No. 599.
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Navigating Permanent Establishment Risks in Cross-Border Employment
As businesses continue to expand their operations across borders—by engaging contractors, hiring employees, or initiating other revenue-generating activities overseas—understanding permanent establishment risks becomes critical.
The creation of a permanent establishment (PE)—a tax concept that may trigger a company’s obligation to report, file, and pay corporate taxes in a foreign country—represents an additional administrative and financial obligation.
A foundational understanding of PE considerations can help global employers identify and mitigate potential issues—and better know when to seek appropriate professional guidance.
Quick Hits
Tax connections: Establishing a PE can result in the obligation to file corporate taxes abroad.
Local registration: Although PE is primarily a tax concept, it may coincide with requirements to register with local business authorities as a foreign entity conducting business in the country.
Understanding ‘Permanent Establishment’
A company’s business activities may create a significant economic presence that could trigger tax liability abroad. Usually, tax authorities look for revenue-generating activities in which the foreign company is engaged. Some countries have taken the position that if a key element of a product (including, in some instances, the use of intellectual property) is created on their soil that generates revenue—even outside of the relevant countries—the revenue is taxable. The business activities of a company that will trigger a PE are primarily governed by tax treaties between countries, or, in their absence, by local tax laws.
Key Triggers for Permanent Establishment Obligations
Fixed place of business: Traditionally, having a physical office, branch, factory, or any other fixed place where business activities are conducted, establishes a PE. This may include construction or installation projects that last for a certain period. The modern global economy and the rise of remote work, however, have complicated this definition.
Dependent agents: Engaging a dependent agent—whether an employee or an independent contractor who primarily works for the company and has the authority to enter into contracts on its behalf—may also trigger a PE. The agent’s financial dependence and exclusivity to the company are critical factors.
Rendering services: Providing services such as consulting, engineering, or management in a foreign country for a specified duration (often 183 days within 12 months) may establish a PE. This duration may vary by country, with some having shorter periods.
Remote Work and Permanent Establishment Risk
The COVID-19 pandemic has significantly impacted the concept of PE, particularly with the rise of remote work. Initially, many countries considered remote work arrangements as temporary activities that did not establish a PE. But as remote work has become more permanent, tax authorities have increased their scrutiny of these arrangements. Factors such as whether an employee’s home is at the company’s disposal, whether the company pays for home office expenses, the use of the home address for business purposes, and other indicia of company/employer control over the address are often considered by tax authorities in their PE determinations.
Special Considerations and Examples
Intellectual property: In some countries, such as Germany, creating intellectual property within the country and using it for revenue-generating activities abroad may establish a PE.
Sales activities: While supporting sales activities may not trigger a PE, actively selling within a foreign market likely will.
Country-specific rules: Some countries, such as India, have unique rules where employing individuals within the territory, even for non-revenue–generating activities, may trigger a PE.
Mitigating Risk and Maintaining Compliance
Businesses carefully evaluating their cross-border activities to avoid unintended tax obligations may want to consider the following:
Remote work: Do the benefits of allowing employees to work remotely from another country outweigh the potential tax risks? Employers might also consider pushing back on paying remote work expenses to mitigate PE risks.
Contract structuring: Businesses often attempt to mitigate PE risk by structuring contracts such that significant decisions and signatures occur outside the foreign country. Tax authorities might question this strategy, focusing on the substance over the form of the business activities.
Preparatory and auxiliary activities: Activities considered preparatory or auxiliary, such as administrative tasks, research and development, or marketing support, generally do not establish a PE. However, sales activities that directly generate revenue in the foreign country may fall within a gray area.
Tax professionals: Engaging tax advisors to navigate the complex and evolving landscape of international tax laws and treaties often makes good sense.
Conclusion
Understanding, strategically planning for, and managing permanent establishment risks are crucial steps for businesses operating abroad. While labor and employment attorneys and HR professionals may not specialize in tax law, they play a vital role in issue-spotting and ensuring that potential tax implications are addressed with the help of seasoned tax professionals. By staying informed and proactive, businesses can navigate PE complexities and considerations, avoid unintended tax consequences, and maintain compliance in the global marketplace.
Where Is Corporate Venture Capital Headed In 2025, And Will It Lead To More M&A?
Corporate Venture Capital (CVC) investment is an increasingly used strategic tool that enables large corporations to make minority investments in startups that will complement and expand their existing products or services. This type of investment can be highly beneficial as it can provide strong financial returns, as well as access to innovation, without the time and heavier expense load of in-house research and development (R&D) projects.
While many would think that an eventual merger, acquisition, or other type of M&A transaction would be the end goal of CVC investment, a recent analysis by PitchBook indicates that despite elevated CVC activity over the past 10 years, it has not resulted in much M&A. According to their data, from 2014 to 2024, CVC has made up more than 46% of total VC deal value and 21% of deal count. However, despite having invested a vast amount of capital, very little of this investment has translated to acquisitions.
To put it into perspective, their data shows that since 2000, below 4% of CVC-backed companies were acquired by an existing CVC investor. So, why aren’t more CVCs moving toward acquisitions, especially as their approach typically involves looking for companies who could provide great returns and complement or expand their existing products? The definition of what a strategic return looks like can vary greatly among CVCs. It could be access to new technologies or markets, driving innovation, competitive advantage, a boost to public image, or many other motivating factors. But for only a small fraction of CVCs, a strategic return yields an acquisition.
PitchBook points to several factors that might explain why M&A is not always their “end goal,” such as stage preference. CVC investors tend to focus on later-stage investment. This is due in large part to their interest in companies that have reached a more mature stage of product development and pose a lower risk. While some CVCs focus on earlier-stage investment, the asset class as a whole favors later-stage investment. It is simply more difficult and costly to integrate a company in its later stages into a larger corporation. And for those investing in earlier-stage startups, there are, of course, more risks that go along with acquisitions of these companies, as well as a higher risk of failure.
CVCs might also be motivated by a need for flexibility and options. As a minority stakeholder, they can have great insight into a startup’s innovation, inner workings, and competitive position with minimal risk. As conditions change, they still have the ability to pivot. That becomes much more difficult once they enter into an acquisition. There is also the issue of investing in complementary businesses versus those that you want to integrate into your corporation. Investing in a startup that is complementary to yours that allows access to new technologies or innovations does not necessarily mean it makes sense to then fully integrate it into your organization.
Additionally, the goals of the startup may not be aligned with CVC M&A. CVCs are targeting later stage startups in larger numbers. At this stage, founders often have their sights set on an IPO as opposed to an acquisition, and even if their goal is to be acquired, there is likely more than one interested party, making the competition fierce. An IPO or sale to another buyer could still allow a CVC to realize some significant returns without going through the acquisition process.
While the goal of a startup might not be an acquisition by its corporate investors, there are some significant benefits that come with corporate investment. A study conducted by Global Corporate Venturing showed that startups that had corporate investors saw their risk of bankruptcy cut in half, as well as an increase in exit multiples in the case of an acquisition or IPO. This is likely due in large part to the additional advantages that can accompany corporate investment as opposed to traditional VC investment. These could include access to invaluable knowledge, facilities, distribution channels, or strategic partnerships. Corporate investment can also help to boost the profile of a startup, enhancing its visibility, providing validation, as well as a greater sense of stability.
There are many reasons why the actual number of acquisitions by CVCs is so low. It truly depends on the motivating factors of the company and what makes the most sense based on their short and long-term goals, as well as those of the startup. However, it is clear that CVC investment can come with incredible benefits for startups, and it is showing no signs of slowing down anytime soon.
Corporate Transparency Act Compliance Still on Hold, For Now
On January 23, the U.S. Supreme Court lifted a nationwide preliminary injunction on the enforcement of the Corporate Transparency Act (the CTA), a law requiring millions of business entities to report information about their individual beneficial owners (including the individual persons who control them) to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. The preliminary injunction was originally issued by the U.S. District Court for the Eastern District of Texas in the case of Texas Top Cop Shop, Inc. v. Bondi—formerly, Texas Top Cop Shop v. Garland.
Despite the Supreme Court’s decision in Texas Top Cop Shop, the CTA reporting obligations are still on hold due to a separate nationwide injunction that remains in place. The second nationwide injunction was issued by a different judge of the U.S. District Court for the Eastern District of Texas in the case of Smith v. U.S. Department of the Treasury. The federal government has filed an appeal to the U.S. Court of Appeals for the Fifth Circuit seeking to lift the Smith injunction. This appeal represents the first action taken by the federal government in a CTA court proceeding since January 20, 2025, when the new administration took office.
If the injunction in the Smith case is lifted, the reporting obligations under the CTA would resume and all non-exempt reporting companies would be required to file beneficial ownership information reports (“BOIRs”) within a deadline to be determined by FinCEN. Notably, the government’s request for a stay in the Smith case pending appeal stated that FinCEN intends to extend the CTA compliance deadline for 30 days if the stay is granted. The government also implied that FinCEN is considering changes to the CTA’s reporting requirements to alleviate the burden on low-risk entities while prioritizing enforcement to address the most significant risks to U.S. national security.
Background
See below to view a timeline of notable developments.
What Might Happen Next
The future of the CTA remains in limbo. For now, FinCEN has acknowledged that a nationwide preliminary injunction in the Smith case remains in place, meaning that reporting companies are not currently required to file BOIRs with FinCEN, and further, that reporting companies are not currently subject to liability if they fail to do so. FinCEN has stated that reporting companies may continue to voluntarily submit BOIRs.1
Neither the Supreme Court nor any lower court has made a determination on the merits of the constitutionality of the CTA; the rulings to date have only concerned whether the CTA may be enforced while litigation over the validity of the CTA continues.
As stated above, CTA reporting obligations will likely resume if the Smith injunction is lifted (presumably, within 30 days of such decision), and also could resume in the future depending on the final outcomes in the Smith and Texas Top Cop Shop cases. While new developments may arise in the ongoing litigation over the CTA, Congress could also settle the debate by repealing the CTA.
Given the uncertain landscape, reporting companies who have yet to file their initial BOIRs should consider whether to continue reviewing their reporting obligations under the CTA, as such reporting companies may be required to file BOIRs within 30 days if the government’s request for a stay in the Smith case is granted. Likewise, reporting companies that have already filed should consider whether any changes have occurred to information previously reported, and should be ready to file updated or corrected reports relating to such changes or developments that occur during the pendency of the preliminary injunction. Reporting companies may also choose to voluntarily file initial or updated reports at any time despite the preliminary injunction.
Timeline
Below is a timeline of notable developments since the original nationwide preliminary injunction was issued.
December 3, 2024 – U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against enforcement of the CTA in the Texas Top Cop Shop case.
December 5, 2024 – The government appealed the ruling in the Texas Top Cop Shop case to U.S. Court of Appeals for the Fifth Circuit.
December 6, 2024 – FinCEN issued a statement that it will not enforce the reporting requirements while the injunction is in place and that filing BOIRs during such period is voluntary.
December 13, 2024 – The government filed a motion with the Fifth Circuit seeking an emergency stay of the injunction in the Texas Top Cop Shop case.
December 23, 2024 – A motions panel of the Fifth Circuit granted the government’s emergency motion, issuing a stay of the injunction in the Texas Top Cop Shop case pending the Fifth Circuit’s review of the merits of the appeal. Shortly thereafter, FinCEN reinstated the CTA reporting obligations and extended the reporting deadline from January 1 to January 13, 2025
December 26, 2024 – A separate panel of judges on the Fifth Circuit vacated the stay and reinstated the injunction originating in the Texas Top Cop Shop case, effectively suspending enforcement of the CTA reporting requirements under the CTA. In doing so, the merits panel reasoned that the constitutional status quo needs to be preserved while it considers the parties’ substantive arguments. The Fifth Circuit issued an expedited briefing and oral argument schedule under which briefing is to be completed by February 28, 2025, and oral arguments to occur on March 25, 2025.
December 27, 2024 – FinCEN issued a new statement that it will not enforce the reporting requirements while the reinstated Texas Top Cop Shop injunction is in place and that filing BOIRs during such period is voluntary.
December 31, 2024 – The government filed an emergency application with the Supreme Court for a stay of the injunction originating in the Texas Top Cop Shop case.
January 7, 2025 – U.S. District Court for the Eastern District of Texas issued a separate nationwide preliminary injunction against enforcement of the CTA in the Smith case.
January 15, 2025 – U.S. Senator Tommy Tuberville and Congressman Warren Davidson re-introduced the Repealing Big Brother Overreach Act in Congress seeking to overturn the CTA.
January 23, 2025 – Supreme Court lifted the nationwide injunction originating in the Texas Top Cop Shop case; the Supreme Court’s order did not address the separate nationwide injunction originating in the Smith case.
January 24, 2025 – FinCEN issued a statement that, despite the Supreme Court’s order, reporting companies are still not required to file BOIRs due to the Smith injunction.
February 5, 2025 – The government filed an appeal case seeking a stay of the injunction originating in the Smith case.
1 Further updates from FinCEN can be found at https://fincen.gov/boi.
Scott D. DeWald, Andrew F. Dixon, Laura A. Lo Bianco, Mark Patton, Mark D. Patton, Matthew C. Sweger, Amanda L. Thatcher, and Karen L. Witt
President Trump Pauses FCPA Enforcement
On February 10, 2025, President Donald Trump issued an Executive Order titled “Pausing Foreign Corrupt Practices Act Enforcement to Further American Economic and National Security” (the “E.O.”). The E.O was issued five days after Attorney General Pamela Bondi issued a memorandum (the “Memorandum”) redirecting enforcement of the Foreign Corrupt Practices Act (FCPA) away from U.S. businesses. The E.O. imposes additional obligations and restrictions on the Attorney General with regard to FCPA enforcement.
The FCPA prohibits paying or offering to pay money or anything of value to a foreign official for the purpose of obtaining or retaining business. The FCPA applies to U.S. persons, domestic concerns, and issuers of securities listed on a U.S. exchange or that are required to file S.E.C. reports, as well as to foreign persons and entities that engage in foreign corrupt activity that occurs, at least in part, in or through the United States (such as by using U.S. currency). The FCPA also prohibits issuers from falsifying books and records, and from circumventing or knowingly failing to implement internal controls.
The E.O. declares that the FCPA has been “stretched beyond proper bounds and abused in a manner that harms the interests of the United States” and that current FCPA enforcement “impedes the United States’ foreign policy objectives[.]” The E.O. continues that “[t]he President’s foreign policy authority is inextricably linked with the global economic competitiveness of American companies,” and that “American national security depends in substantial part on the United States and its companies gaining strategic business advantages whether in critical minerals, deep-water ports, or other key infrastructure or assets.”
The E.O. goes on to say that “overexpansive and unpredictable FCPA enforcement against American citizens and businesses — by our own Government — for routine business practices in other nations not only wastes limited prosecutorial resources that could be dedicated to preserving American freedoms, but actively harms American economic competitiveness and, therefore, national security. It is therefore the policy of my Administration to preserve the Presidential authority to conduct foreign affairs and advance American economic and national security by eliminating excessive barriers to American commerce abroad.”
The E.O. institutes a 180-day review period, during which the Attorney General will:
Review all pending FCPA investigations and enforcement actions and take measures “to restore proper bounds on FCPA enforcement and preserve Presidential foreign policy prerogatives”;
Cease initiation of any new FCPA investigations or enforcement actions, unless the Attorney General determines that an individual exception should be made;
Review guidelines and policies governing FCPA investigations and enforcement actions;
Issue updated guidelines or policies that will govern the conduct of FCPA investigations and enforcement actions, which may only be initiated or continued with the specific authorization of the Attorney General.
The Attorney General may extend the 180-day review period by an additional 180 days. In addition, after the revised guidelines or policies have been issued, the Attorney General will determine whether additional actions are warranted, including “remedial measures with respect to inappropriate past FCPA investigations and enforcement actions.” The Attorney General will take such additional actions, and if Presidential action is required, the Attorney General will recommend such actions to the President.
The February 5, 2025 Memorandum redirects FCPA enforcement away from businesses, and toward Cartels and Transnational Criminal Organizations (“TCOs”). The February 10, 2025 E.O. makes no mention of Cartels or TCOs, but goes considerably further than the Memorandum with regard to shielding businesses, by imposing a moratorium on FCPA enforcement, and by requiring a review of past enforcement and consideration of possible remediation.
The E.O. does not apply to the S.E.C., which is not part of the Department of Justice and which has civil enforcement authority over issuers. It remains to be seen when and how the administration intends to restrict that authority in furtherance of its stated policy goals.
The E.O. can be revoked by a future president. While enforcement of the FCPA is now in suspense mode, and while that could remain the case for the duration of President Trump’s term, absent legislation that repeals or modifies it, the FCPA will remain in effect, and will be available to the next administration should it choose to enforce it, even on a retroactive basis, provided the statute of limitations (either five years or six, depending on the offense) for a particular violation has not expired.
The FCPA can raise complex and challenging issues for U.S. companies that do business in foreign countries, and for foreign companies that do business in or through the United States. Katten is well-equipped to help clients navigate those challenges.
Weekly Bankruptcy Alert February 10, 2025 (For the Week Ending February 9, 2025)
Covering reported business bankruptcy filings in Massachusetts, Maine, New Hampshire, and Rhode Island, and Chapter 11 bankruptcy filings in New York and Delaware listing assets of more than $1 million.
Chapter 11
Debtor Name
BusinessType1
BankruptcyCourt
Assets
Liabilities
FilingDate
7 Wales Street, LLC(Dorchester, MA)
Not Disclosed
Boston(MA)
$500,001to$1 Million
$100,001to$500,000
2/3/25
SBF Ventures, LLC(Boston, MA)
Not Disclosed
Boston(MA)
$1,000,001to$10 Million
$1,000,001to$10 Million
2/3/25
Zmetra Land Holdings, LLC(Webster, MA)
Lessors of Real Estate
Worcester(MA)
$1,000,001to$10 Million
$1,000,001to$10 Million
2/4/25
MMK Subs, LLC(Westbrook, ME)
Not Disclosed
Portland(ME)
$50,001to$100,000
$500,001to$1 Million
2/4/25
MMK Family Investments, Inc.(Biddeford, ME)
Not Disclosed
Portland(ME)
$50,001to$100,000
$500,001to$1 Million
2/4/25
York Beach Surf Club LLC(York, ME)
Traveler Accommodation
Portland(ME)
$10,000,001to$50 Million
$10,000,001to$50 Million
2/6/25
Omega Therapeutics, Inc.(Cambridge, MA)
Pharmaceutical and Medicine Manufacturing
Wilmington(DE)
$100,000,001to$500 Million
$100,000,001to$500 Million
2/10/25
Orispel V LLC(New York, NY)
Not Disclosed
Manhattan(NY)
$10,000,001to$50 Million
$10,000,001to$50 Million
2/7/25
Xinergy Corp.2(Knoxville, TN)
Mining, Quarrying and Oil and Gas Extraction
Wilmington(DE)
$10,000,001to$50 Million
$50,000,001to$100 Million
2/7/25
Chapter 7
Debtor Name
BusinessType1
BankruptcyCourt
Assets
Liabilities
FilingDate
JPKS Management LLC(Manchester, NH)
Restaurants and Other Eating Places
Concord(NH)
$0to$50,000
$1,000,001to$10 Million
2/5/25
Bruneau Antiques Inc.,d/b/a Bruneau & Co Auctioneers(North Scituate, RI)
Retail Trade
Providence(RI)
$0to$50,000
$500,0001to$1 Million
2/6/25
1Business Type information is taken from Bankruptcy Court filings, which may include incorrect categorization by the debtor or others.
2Additional affiliate filings include: Brier Creek Coal Company, LLC, Bull Creek Processing Company, LLC, Raven Crest Contracting, LLC, Raven Crest Leasing, LLC, Raven Crest Minerals, LLC, Raven Crest Mining, LLC, Shenandoah Energy, LLC, South Fork Coal Company, LLC, White Forest Resources, Inc. and Xinergy of West Virginia Inc.
Michelle Pottle also contributed to this article.
Can DExit Be Ended by Amputating the Chancellor’s Foot?
During over four decades of legal practice, any questioning the quality and predictability of the Delaware Court of Chancery was nothing short of heretical. That changed with one famous post by Elon Musk (“Never incorporate your company in the state of Delaware”). Suddenly, it was socially acceptable for boards of directors to consider other alternatives.
The Court of Chancery is famously a court of equity. This endows the Court of Chancery with considerable leeway to fashion remedies and rules that in many cases are only loosely derived from statutory law. It also places the Court of Chancery out of the mainstream of other states which have either abolished separate courts of chancery or never had such courts. Other states rejected courts of equity because they were viewed as arbitrary and therefore unpredictable. The same criticisms were leveled against the Court of Chancery’s English forebear:
Equity is a roguish thing: for law we have a measure, know what to trust to; equity is according to the conscience of him that is Chancellor, and as that is larger or narrower, so is equity. ‘Tis all one, as if they should make his foot the standard for the measure we call a Chancellor’s foot; what an uncertain measure would this be! One Chancellor has a long foot, another a short foot, a third an indifferent foot; ‘tis the same thing in the Chancellor’s conscience.*
For students of history, it should therefore be no surprise that Delaware’s Governor Matt Meyer, a former corporate lawyer, is reportedly looking at changes to Delaware’s Court of Chancery.
_______________________*John Selden, The Table-Talk of John Selden, p. 49.
Delaware Supreme Court Applies the Business Judgment Rule to Fiduciary Duty Claims Related to Reincorporation Out of Delaware
The Delaware Supreme Court, in Maffei v. Palkon, No. 125, 2024 (Del. Feb. 4, 2025), has reversed the Court of Chancery and decided that business judgment deference applied to breach of fiduciary duty claims related to a controlled corporation’s decision to reincorporate from Delaware to Nevada. The Delaware Supreme Court held that claims regarding additional litigation or liability protections that TripAdvisor’s controlling stockholder and/or board of directors could receive following the conversion from a Delaware to Nevada corporation were highly speculative. The speculative nature of such claims failed to demonstrate that there was a material non-ratable benefit involved in the conversion which created a conflicted controller transaction subject to entire fairness review.
On a motion to dismiss these claims, the Delaware Court of Chancery previously held that the controlling stockholder and board of directors of TripAdvisor and its affiliate Liberty TripAdvisor would receive a material unique benefit in the reincorporation, in the form of greater protection from personal liability afforded by Nevada law. As a result, the Court of Chancery determined that the entire fairness standard of review would apply in the absence of Delaware law procedures for cleansing breach of fiduciary duty claims.
Given the important legal issues involved, the Delaware Supreme Court accepted an interlocutory appeal. The Delaware Supreme Court noted that temporality of any litigation against the defendants (and corresponding benefits of protection in such litigation) is a key factor in determining the materiality of any unique benefits that the defendants might derive from the reincorporation. In the absence of allegations that the reincorporation was used to avoid threatened or pending litigation or in contemplation of a particular transaction, the Court viewed any benefit as too speculative to be material and therefore determined that the reincorporation was not subject to entire fairness review. The Court also noted that, although it was not an independent ground for its decision, its holding furthered the goals of comity by declining to engage in a comparison of the Delaware and Nevada corporate governance regimes.
This decision provides useful guidance regarding the standard of review applicable to breach of fiduciary duty claims related to reincorporation transactions (including mergers, conversions, and domestications), as well as board considerations in connection with such a transaction. We will continue to monitor this issue from Delaware, Nevada, and other related perspectives.
New York AG Reaches $1 Billion Settlement with ‘Predatory’ Lender
On January 22, New York Attorney General Letitia James announced a $1 billion settlement with a now defunct cash advance firm and its officers. The settlement resolves allegations that the firm and its officers repeatedly engaged in fraudulent and deceptive predatory lending practices aimed at small business owners in violation of New York law.
The lawsuit alleges that the firm and its network of affiliated companies engaged in a range of deceptive lending practices. These alleged transgressions included misrepresenting the true cost of financing by disguising high-cost loans as merchant cash advances, which often led to small business owners to believe they were not taking on debt. The lawsuit also claimed the firm charged unreasonable interest rates, frequently exceeding 100%, and imposed hidden fees. These practices allegedly trapped borrowers in debt cycles, making it difficult for them to sustain their businesses. The firm was also accused of employing aggressive and harassing debt collection tactics, including threats and intimidation, which led to significant distress to small business owners.
Specifically, the settlement requires the firm to:
Forgive debts of affected small businesses. Over $534 million of outstanding debt owned by more than 18,000 small businesses nationwide will be canceled.
Pay restitution to affected small business owners. $16.1 million will be paid immediately for distribution to borrowers who were harmed by the firm’s practices.
Settling officers to pay a fine. The settling officers agree to pay a fine of $12.7 million dollars.
The company and its officers are also permanently banned from the merchant-cash advance industry.
Putting It Into Practice: This state-level settlement underscores the importance of monitoring actions by state regulators, particularly during a period of potential shifts in federal regulatory authority (previously discussed here). Companies engaged in lending or debt collection practices should proactively review their policies and procedures to ensure compliance with state laws and regulations.
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It Lives: Trump Administration Defends Corporate Transparency Act; May Modify its Application
On February 5, 2025, the Trump administration added a new chapter to the saga that has been implementation of the Corporate Transparency Act (CTA), filing a notice of appeal and motion for stay against an Eastern District of Texas injunction in Smith v. United States Department of the Treasury on enforcement of the CTA’s filing deadline.
In its filing, the Treasury Department stated that it would extend the filing deadline for 30 days if the stay is granted, and would use those 30 days to determine if lower-risk categories of entities should be excluded from the reach of the filing requirements. In light of the Supreme Court’s stay of the injunction in Texas Top Cop Shop, Inc., et al. v. Merrick Garland, et al., also from the Eastern District of Texas, it is likely that stay will be granted.
Passed in the first Trump administration but implemented during the Biden presidency, the CTA – an anti-money laundering law designed to combat terrorist financing, seize proceeds of drug trafficking, and root out illicit assets of sanctioned parties and foreign criminals in the United States – has faced legal challenges around the country.
The constitutionality of the CTA was challenged in several cases, with most courts upholding the law, but some issuing either preliminary injunctions or determining that the law is unconstitutional. In addition to the appeals of Texas Top Cop Shop and Smith, both before the Fifth Circuit, appeals are currently pending in the Fourth, Ninth, and Eleventh Circuits.
Although enforcement of the CTA deadline is currently paused, the granting of a stay in Smith, or a ruling by one of the circuits, could reinstate the deadline at any time, triggering the start of the 30-day clock to file. Entities may file now notwithstanding the injunction if they choose to do so, and entities may wish to complete the filing so that they do not need to monitor the situation and to avoid high traffic to the filing website in the event a deadline is reimposed.
Please note that if you file or have already filed and the law is ultimately found unconstitutional or otherwise overturned or rescinded, you will not be under any continuing obligation regarding that filing.
Entities can, of course, choose not to file or to keep filings updated. However, be aware that in addition to the potential need to file on short notice should the preliminary injunction be limited, stayed, or overturned, financial institutions may inquire as to whether the entity has filed a CTA and could require filing as part of the financial institution’s anti-money laundering program.
Is Lack of Diversity the Cause of DExit?
Suddenly, DExit has moved from the theoretical to the real. Over the last several months, several publicly traded companies have filed proxy materials with the Securities and Exchange Commission that include proposals to reincorporate in Nevada. See Several More Companies Propose Move From Delaware To Nevada. More recently, Dropbox filed materials disclosing a plan to reincorporate in Delaware and it has been reported that Bill Ackman intended to reincorporate his management company in Nevada. Suddenly, the Silver State is looking positively golden.
Delaware legislators have taken notice. In an opinion piece Senato Nicole Poore and Speaker Melissa Minor-Brown duly note the importance of the corporate franchise business to Delaware. According to these legislators, the problem is a lack of diversity:
While Delaware’s Court of Chancery has remained widely respected for its expertise and fairness, we acknowledge that it’s important to address its lack of diversity and ensure the judiciary reflects the broader perspectives of the communities it serves, thereby enhancing its credibility and fairness, and Delaware’s leadership in corporate governance and justice.
I have yet to find a proxy statement which cites a lack of diversity in the Delaware courts as a reason for leaving.