FTC Announces 2025 Thresholds for HSR Act Filings and Interlocking Directorates Violations
The Federal Trade Commission (FTC) announced Friday increased jurisdictional thresholds for (1) notifications under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the HSR Act), (2) the HSR Act filing fee schedule, and (3) the interlocking directorate thresholds under Section 8 of the Clayton Act.
Revised HSR Thresholds
The FTC revises these thresholds annually based on changes in the gross national product. The new thresholds will be effective 30 days after publication in the Federal Register and will apply to all transactions closing on or after that date.
The HSR Act requires parties engaged in certain transactions (including mergers, joint ventures, exclusive licenses, and acquisitions of voting securities, assets, or non-corporate interests) to file an HSR notification and report form with the FTC and the Antitrust Division of the Department of Justice — and to observe the statutorily prescribed waiting period (usually 30 days, or 15 days in the case of cash tender offers and bankruptcy) prior to closing — if the parties meet “Size of Transaction” and “Size of Person” thresholds (absent any applicable exemptions).
A transaction is reportable if:
Size of Transaction Threshold
The acquiring person will hold, as a result of the transaction, an aggregate total amount of voting securities and assets of the acquired person valued in excess of $505.8 million;
Or
The acquiring person will hold, as a result of the transaction, an aggregate total amount of voting securities and assets of the acquired person valued in excess of $126.4 million, AND the Size of Person thresholds below are met.
Size of Person Threshold
Either the acquiring or the acquired person has at least $252.9 million in total assets (or annual net sales if that party is engaged in manufacturing), and the other party has at least $25.3 million in total assets or annual net sales.
Revised Filing Fee Schedule
Size of Transaction (transaction value)
New Filing Fee
Less than $179.4 million
$30,000
Not less than $179.4 million but less than $555.5 million
$105,000
Not less than $555.5 million but less than $1.111 billion
$265,000
Not less than $1.111 billion but less than $2.222 billion
$425,000
Not less than $2.222 billion but less than $5.555 billion
$850,000
$5.555 billion or more
$2,390,000
Revised Interlocking Directorate Thresholds
The FTC also approved revised jurisdictional thresholds under Section 8 of the Clayton Act, which become effective upon publication in the Federal Register. Section 8 prohibits an officer or director of one firm from simultaneously serving as an officer or director of a competing firm if each firm has capital, surplus, and undivided profits of more than $51,380,000 unless one of the following de minimus exemptions is met:
The competitive sales of either corporation are less than $5,138,000.
The competitive sales of either corporation are less than 2% of its total sales.
The competitive sales of each corporation are less than 4% of its total sales.
The FTC’s upcoming changes to the HSR Rules,[1] effective February 10, place an emphasis on gathering additional information as part of the merger filing process to better inform the agencies of potential Section 8 violations. In addition, the agencies have evidenced an increased scrutiny of interlocking directorates through numerous policy statements and actions.[2]
It is therefore especially important in the current antitrust enforcement environment to monitor roles of a company’s officers and directors at other organizations.
Endnotes
[1] Bruce D. Sokler, Robert G. Kidwell, Kristina Van Horn, Payton T. Thornton, Federal Trade Commission Finalizes HSR Changes, Mintz (Oct. 11, 2024), available at: https://natlawreview.com/article/federal-trade-commission-finalizes-hsr-changes.
[2] See, e.g., Karen S. Lovitch, Bruce D. Sokler, Joseph M. Miller, Raj Gambhir, FTC Hosts Panel and Launches Public Inquiry with DOJ and HHS on Private Equity and Health Care, Mintz (Mar. 6, 2024), available at: https://natlawreview.com/article/ftc-hosts-panel-and-launches-public-inquiry-doj-and-hhs-private-equity-and-health; Bruce D. Sokler, Robert G. Kidwell, Payton T. Thornton, FTC Proposed Settlement Requires Private Equity Firm to Divest Shares, Relinquish Potential Board Seat, and Other Expansive Remedies, Mintz (Aug. 21, 2023), available at: https://natlawreview.com/article/ftc-proposed-settlement-requires-private-equity-firm-to-divest-shares-relinquish; Bruce D. Sokler, Joseph M. Miller, Payton T. Thornton, A Dose of Steroids: Chair Khan’s FTC Releases Expansive Policy Statement on Unfair Methods of Competition, Mintz (Nov. 14, 2022), available at https://natlawreview.com/article/dose-steroids-chair-khan-s-ftc-releases-expansive-policy-statement-unfair-methods.
California DFPI Finalizes New Earned Wage Access Regulations
Go-To Guide:
The California Department of Financial Protection and Innovation (DFPI)’s finalized regulations for earned wage access (EWA) providers that include new registration and compliance requirements.
Starting Feb. 15, 2025, EWA providers must register with the DFPI, provide operational and financial information, and adhere to state lending laws.
Registered entities must submit annual reports detailing activities, fees, and complaints.
The DFPI plans to conduct examinations to monitor compliance with state consumer financial protection laws.
In October 2024, the California DFPI finalized regulations for providers of income-based advances (Earned Wage Access or EWA) [DEFINED ABOVE], clarifying registration requirements under the California Consumer Financial Protection Law (CCFPL). These changes impose new compliance obligations for businesses offering EWA products to California consumers.
This GT Alert summarizes the regulation’s highlights.
Classification as Loans
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California law classifies EWA transactions as “loans,” even if fees are nominal or structured as “tips” or “donations.”
–
Providers must adhere to state lending laws, including rate caps and disclosure requirements.
Mandatory Registration
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Beginning Feb. 15, 2025, the DFPI will register and regulate EWA products similar to how it regulates debt settlement services, student debt relief services, and private post-secondary education financing.
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EWA providers covered by the new regulations must file an application by the deadline to continue operating legally in the state. After Feb. 15, 2025, it is prohibited to offer EWA products in the state without filing an application.
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The Nationwide Multistate Licensing System & Registry (NMLS) will manage the application process, which requires providing detailed operational and financial information, compliance policies, and evidence of consumer protection measures. Registrants will also be required to create a self-service portal account with the DFPI.
Fee Transparency Requirements
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Providers must clearly disclose all fees, including optional charges, to consumers before offering services.
–
Misleading marketing practices, including presenting fees as “voluntary” without adequate explanation, are prohibited.
Consumer Protection Standards
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Providers must implement policies to ensure consumers fully understand the terms of EWA services.
–
Mechanisms to address complaints and disputes must be accessible and transparent.
Annual Reporting Requirements and Examinations
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Registered entities must submit annual reports detailing their activities, fees charged, and complaints received.
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Non-compliance with reporting requirements may lead to penalties, suspension, or revocation of registration.
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The DFPI will also conduct examinations to monitor compliance with applicable state consumer financial protection laws to detect any unfair, unlawful, deceptive, or abusive acts and practices.
Exemptions
–
Under the CCFPL, certain persons are generally exempt from the law and its implementing regulations, such as licensees of other California state agencies and those who are already licensed under the DFPI, including, but not limited to, finance lenders and brokers, residential mortgage lenders, mortgage servicers, mortgage loan originators, and escrow agents.
These regulations mark a significant shift in the regulatory landscape for EWA providers in California. Businesses should review their operational models to enhance compliance with lending laws, registration obligations, and consumer protection standards. Failure to comply may result in enforcement actions, including financial penalties and loss of operational rights in the state.
In response to these new regulations, EWA providers should consider:
Assessing the Current Model
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Determine whether the EWA services offered fall under the DFPI’s definition of “loan.”
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Evaluate fee structures, marketing practices, and consumer disclosures for compliance.
Initiating Registration
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Create an account in the NMLS and submit the required application to the DFPI as soon as possible after the application is released, but no later than Feb. 15, 2025.
–
Prepare the application’s supplemental documentation requirements, including financial records and compliance policies.
Enhancing Compliance Policies
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Implement robust consumer protection measures and train employees on the new requirements.
–
Establish internal processes for ongoing compliance monitoring and reporting.
The DFPI released FAQs to assist EWA providers in complying with the new regulations.
A proactive and thorough approach may help EWA providers navigate the complexities of California’s new EWA regulations. Compliance is crucial to minimizing the risk of penalties but may also help build trust with consumers and regulators alike. By staying ahead of these regulatory changes, EWA providers can potentially enhance their standing in the financial services industry and maintain their operations in the nation’s largest market.
Key Legal Developments on Enforcement of the Corporate Transparency Act
In recent weeks, significant developments have unfolded regarding the implementation of the Corporate Transparency Act (CTA) and its beneficial ownership information (BOI) reporting requirements to the Financial Crimes Enforcement Network (FinCEN), which remain subject to a nationwide injunction.
As discussed in our previous Alert, on December 3, 2024, the U.S. District Court for the Eastern District of Texas granted a nationwide preliminary injunction in Texas Top Cop Shop, Inc., et al. v. Garland, et al., temporarily halting enforcement of the CTA and its BOI reporting requirements, including the January 1, 2025, filing deadline. The U.S. Department of Justice (DOJ) appealed, requesting a stay of the injunction or, alternatively, a narrowing of the injunction to apply only to the named plaintiffs and members of the National Federation of Independent Business.
In a flurry of year-end decisions, a panel of the Fifth Circuit Court of Appeals granted DOJ’s emergency motion on December 23, 2024, lifting the injunction. Three days later, a separate Fifth Circuit panel reversed the earlier decision, vacating the stay and reinstating the nationwide injunction. As a result, FinCEN again updated its guidance, stating that reporting companies may voluntarily submit BOI filings but are not required to do so during the pendency of the injunction.
On December 31, 2024, DOJ filed an emergency “Application for a Stay of the Injunction” with the U.S. Supreme Court, seeking to stay the injunction pending the Fifth Circuit’s review of the matter. Alternatively, DOJ invited the Court to “treat this application as a petition for a writ of certiorari before judgment presenting the question whether the district court erred in entering preliminary relief on a universal basis.”
The ongoing legal challenges have left the status of the BOI reporting requirement in flux. For the time being, unless the Supreme Court intervenes, the nationwide injunction is likely to remain in place through at least March 25, 2025, the scheduled date for oral arguments before the Fifth Circuit. Businesses that have not yet complied with the reporting requirements should remain alert to any changes. If the injunction is lifted, or if the Supreme Court grants a stay, reporting companies may be required to submit their beneficial ownership information promptly, subject to any deadline extensions provided by FinCEN. In the meantime, voluntary submissions of BOI reports to FinCEN are still accepted, but companies should be prepared to meet any new deadlines should the situation change. The next few months could prove critical for the future of the CTA and its enforcement.
Bank M&A Outlook for 2025
Overall M&A activity in 2024 continued to be subdued; however, the fourth quarter, especially after the Trump bump, showed signs of a significant pick up. Our M&A outlook for 2025 suggests the potential for a banner year. Numerous variables could hinder deal activity, but improving economic conditions coupled with enhanced net interest margins (NIMs) from lower short term interest rates and possible tax cuts should improve fundamentals. Moreover, a less hostile regulatory regime should eliminate a risk overhang to earnings.[1] The prospect for a more relaxed antitrust enforcement regime or at least less distrust of business combinations could create significant opportunities for strategic growth and investment.
Positive Factors for Dealmaking in 2025
CEO Confidence and Stock Market Performance. CEO confidence continues to go up, which can give C-suites and boards the necessary conviction to pursue M&A. If economic conditions improve, then capital markets should also strengthen. M&A volume frequently tracks stock market performance. In addition, improved economic conditions and higher trading price multiples could narrow valuation gaps between buyers and sellers that were obstacles to some transactions last year.
Antitrust. Not since Grover Cleveland has a President lost a bid for reelection and then ran again successfully. Thus, while a change in Presidential administration and political party leadership ordinarily brings policy uncertainty, we can look to President Trump’s first term for some guidance – but no guarantees – as to how his administration may govern this time around. This is particularly the case with the current regulatory skepticism, if not hostility, toward M&A. In 2023, President Biden adopted an Executive Order ostensibly designed to promote competition. The effect of that admonition was that regulators touching M&A across his administration, whether as part of an independent agency or otherwise, added criteria for M&A while also slowing the pace of review to allow for greater scrutiny. Bank regulators leaned into this Executive Order. Over the next four years, we generally expect regulators to be more open to structural remedies and less likely to block mergers outright. But caution is warranted. We may see bipartisan scrutiny of certain aspects of banking such as Fintech in light of lingering Synapse concerns. There are also populist views in the Trump administration and Congress that may scrutinize major consolidations or mergers, particularly if they will impact US jobs. The current expectation is also that the recently adopted HSR filing requirements for nonbank acquisitions will remain in effect.
Lower Interest Rates. Acquisition financing should become more attractive if the Federal Reserve moderates its rate cutting, so that long-term rates might stabilize. Because acquisition financing tends to be longer term in duration, long term rates are much more important. If Department of Government Efficiency (DOGE) is truly effective in cutting spending or at least the pace of increased spending, then long-term rates might actually come down. Private equity financing of corporate debt has taken bank market share. This competition has lead to greater availability of deal funding. An open issue is whether private credit will continue to play as large a role in corporate financing if the cost of traditional bank debt goes down.
For bank buyers, the Federal Reserve may maintain the current Fed Funds rate. As a result, NIMs may continue to widen as the yield curve steepens. Short term deposit rates have declined while the bond market expects long term rates to increase from inflationary tariffs, government spending and tax policy. Wider NIMs lead to higher bank valuations.
Tax Policy. If Congress pursues tax cuts, the resulting savings could generate more cash flow to pursue acquisitions and make exit transactions even more attractive to selling shareholders. Another issue to watch is whether the Tax Cuts and Jobs Act (TCJA), which expires at the end of 2025, is extended and/or modified.
Deregulation. Dealmaking could be impacted if the new administration carries out its goal of deregulation, although it is not clear how quickly that impact might be felt. Deregulation is most likely to open M&A doors not just in banking but for fintech, crypto, and financial services generally. The nominations of Scott Bessent for Treasury, Kevin Hassett for the National Economic Council, and Paul Atkins for the Securities and Exchange Commission all indicate a more hospitable banking environment.
While we expect a significant uptick in M&A activity, we may see particular volume from the following:
Private Equity Exits. It has been widely reported that many private equity funds need to sell their interests in portfolio companies in order to wind-up and return profits to their investors. Exit transactions have been delayed for a variety of reasons, including valuation gaps and a lack of sponsor-to-sponsor M&A activity (largely due to the increased cost of capital associated with leveraged acquisitions caused by higher interest rates).
Strategic Divestments. Banks will continue to explore divesting branches, non-core assets and business lines, especially insurance, to simplify their organizations and footprints and possibly to ward off threats from activist shareholders.
Credit Unions. While we have started to see pushback on credit union and bank tie ups from state regulators, it is likely that the NCUA will continue to permit such combinations. The rise in bank stock valuations may add competition in 2025 that was not available for many deals in 2024. Nonetheless, the lack of credit union taxation or comparable tangible equity requirement and risk-based capital rules should enable credit unions to continue to compete effectively for deals.
Higher Long-term Rates. Certain banks continue to suffer AOCI pressure from the run-up in long-term rates that accompanied recent Federal Reserve rate cuts. Increasingly, national banks with less than 2% tangible capital and all banks with poor NIMs may be pushed by their regulators to sell or at least engage in a dilutive capital raise.
Purchase Accounting/Stock Valuations. For over 40 years, economies of scale have led to vibrant annual results for bank M&A transactions. The punishing accounting marks (AOCI, loan mark-to-market and core deposit intangibles) from M&A have held back such pent up need for growth. Buyers need to use stock consideration to replace the capital from purchase accounting. Higher stock prices are allowing more buyers to do so with less dilution to their shareholders.
Countervailing Factors and Uncertainties
Of course, M&A activity in 2025 may fall short of expectations, particularly if economic conditions deteriorate. Various factors that could adversely impact M&A in 2025 include:
Trade Wars / Tariffs. President Trump has made clear his goal to negotiate trade agreements and expressed his willingness to impose tariffs, which would necessarily impact borrowers in affected industries as well as inbound/outbound investment involving certain countries. As with most government policies, tariffs invariably have winners and losers. To the extent tariffs allow businesses to raise prices, the higher returns could impact creditworthiness, while other businesses will suffer if their supply chain falls apart or they are unable to pass along higher costs to consumers. There may also be bipartisan support for some tariffs, particularly on China.
Politics. Uncertainty over important government policies could hold M&A back. There is the constant specter of disfunction in Washington, D.C., and a thin Republican majority. In addition, proposed cuts in government spending—perhaps led by DOGE—could impact the economy. Staffing or other budget cuts at key governmental agencies (e.g., banking regulators) could also delay the ability to consummate M&A transactions.
Near-Term Transition Issues. Compared to his first term, President Trump is acting more quickly in naming key appointees. Nonetheless, the people who need to run the various important government agencies must obtain Senate approval, where a successful confirmation is not guaranteed and there is a backlogged Senate calendar. Delayed appointments may also stall President Trump’s high-priority items such as border security and tax policy.
Inflationary Pressures. Ongoing inflation will impact markets and economic conditions generally. There are also particular government policies under discussion (e.g., immigration) that could contribute to inflationary pressures. If the Federal Reserve reverses recent accommodation, banks may again suffer shrinking NIMs. This would revive the negative spiral of reduced valuations and impact whether there can be a meeting of the minds on price.
State Attorneys General/State Bank Regulators. A more business-friendly antitrust posture from the federal government could be offset by state attorneys general or state level bank regulators. This could be led by more localized concerns about competition or by state officials who see political upside in challenging transactions.
Geopolitical Risks. Numerous geopolitical risks could escalate in 2025, including the spread of war in the Middle East, Europe or elsewhere, acts of terrorism, sanctions, and the worsening of diplomatic and economic relations with certain countries, any of which could adversely affect markets.
[1] Bank Director survey indicated that almost 75% of bankers viewed regulatory risk as one of the top three risk areas.
Carleton Goss, Michael R. Horne, Lucia Jacangelo, Nathaniel “Nate” Jones, Jay Kestenbaum, Marysia Laskowski, Abigail M. Lyle, Brian R. Marek, Joshua McNulty, Betsy Lee Montague, Alexandra Noetzel, Sumaira Shaikh, Jake Stribling, and Taylor Williams also contributed to this article.
Immigration Insights Episode 4 | Bank Compliance and Investment Immigration: A Discussion with Metropolitan Commercial Bank [Podast]
In this episode of Greenberg Traurig’s Immigration Insights series, host Kate Kalmykov is joined by James Sozomenou, Co-Head of Metropolitan Commercial Bank’s EB-5 Private Client Group, to discuss an overview of EB-5 and new integrity measures in the RIA. Together, they highlight how the RIA impacts services banks offer to regional centers, working with fund administrators, compliance on behalf of investors, and ways foreign nationals work with banks.
Massachusetts: New Year, New Law — Governor Signs “An Act enhancing the market review process” (House Bill No. 5159)
On January 8, 2025, Governor Maura Healey signed into law H.B. 5159, “an Act enhancing the market review process.” This new law promises sweeping reform to reshape how health care businesses operate and grow. With stricter oversight, expanded reporting obligations, and new licensing requirements, the legislation signals an uptick in regulatory oversight of health care transactions and operations in Massachusetts. These changes have wide-ranging implications for stakeholders across the health care space. Many provisions of the new law will become effective once the applicable agencies issue implementing regulations. This is an expansive set of statutory changes, and this blog highlights only a few of the material provisions. Foley will provide several issue-specific analyses in the coming weeks, including implications for investors.
Here is what stakeholders need to know — and how to prepare.
Key Changes at a Glance
Increased Oversight of Health Care Transactions: The Massachusetts Attorney General, the Health Policy Commission (HPC), and the Center for Health Information and Analysis (CHIA), have greater authority to scrutinize mergers, acquisitions, and other significant market changes. The HPC will now have oversight over a number of other actors and activities in the local market, including private equity players, sale/leaseback transactions.
New Licensing Categories: Office-based surgical centers and urgent care centers face stricter licensing requirements. Implementing regulations must be issued by October 1, 2025.
Massachusetts False Claims Act: Imposes liability on owners and investors that know about and fail to disclose violations of the Massachusetts False Claims Act.
Required Assessments from Health Care Entities: Non-hospital provider organizations, pharmaceutical manufacturing companies and pharmacy benefit managers are now required to pay estimated expenses of the HPC (in addition to acute hospitals and ambulatory surgical centers).
Expanded Reporting Obligations: Requirements to include additional information regarding private equity (PE) investors, management services organizations (MSOs) relationships, and real estate leaseback arrangements in 2025 Provider Organization Registration Program renewals and registrations to enhance market transparency throughout the Commonwealth.
Office for Health Resource Planning: A new office will be established within the HPC to develop a state health resource plan. The office will be tasked with studying many aspects of the sector, including “health care resources”, which are expansively defined to include “any resource, whether personal or institutional in nature and whether owned or operated by any person, the commonwealth or political subdivision thereof, the principal purpose of which is to provide, or facilitate the provision of, services for the prevention, detection, diagnosis or treatment of those physical and mental conditions, which usually are the result of, or result in, disease, injury, deformity or pain; provided, however, that the term “treatment”, as used in this definition, shall include custodial and rehabilitative care incident to infirmity, developmental disability or old age.”
Expanding Studies on Health Care: Establishes a primary care task force to address access, provider, and payment issues in the primary care setting that shall issue its first report to legislature by September 15, 2025, and expands the scope of CHIA’s functions.
Prohibitions on Hospitals Leasing its Main Campus from a real estate investment trust (“REIT”). This exempts hospitals that had a main campus/REIT arrangement prior to April 1, 2024.
These sections reflect the legislature’s efforts to balance the changing landscape of health care and consumer protection, but they also create challenges for businesses navigating this complex regulatory environment.
HPC’s Expanded Role in Oversight Measures
For the past decade, the HPC has overseen health care transactions in the Commonwealth through the Notice of Material Change process. “Providers” or “Provider Organizations” (including organizations in the business of health care management) that plan to undergo “Material Changes” to their operations or governance structure must submit notice to the HPC 60 days prior to closing. “Material Changes” include:
A Provider or Provider Organization entering into a merger or affiliation, or acquisition of, by, or with a carrier or involving a hospital or hospital system;
Any other acquisition, merger, or affiliation of, by, or with another Provider or Provider Organization that would result in:
an increase in annual Net Patient Services Revenue of the Provider or Provider Organization of US$10 million dollars or more, or
the Provider or Provider Organization having a near-majority of market share in a given service or region.
A clinical affiliation between two or more Providers or Provider Organizations that each had annual Net Patient Service Revenue of US$25 million or more in the preceding fiscal year; or
Creating an organization to administer contracts with carriers or third-party administrators or perform current or future contracting on behalf of one or more Providers or Provider Organizations.
Upon receipt of a completed notice to the HPC, the HPC is required, within 30 days, to conduct a preliminary review to ascertain whether the Material Change may result in a “significant impact” on the Commonwealth’s health care cost growth benchmark goals, or on the competitive market. If the HPC determines that there will be a significant impact by the Material Change on the health care cost growth benchmark, or on the market, the HPC may initiate a cost and market impact review.
The new law expands the scope of regulated transaction by revising “Materials Changes” to also include:
Significant expansions in provider or provider organization’s capacity;
Transactions that involve a significant equity investor, which result in a change of ownership or control of a Provider or Provider Organization;
Significant acquisitions, sales, or transfers of assets including, but not limited to, real estate sale lease-back arrangements; and
Conversion of a Provider or Provider Organization from a non-profit entity to a for-profit entity.
While the new law has not set thresholds for these new categories, we expect additional clarity in forthcoming guidance and regulations.
The HPC will be also seeking far more intrusive access to the financial and operational conditions of significant equity investors, including but not limited to “information regarding the significant equity investor’s capital structure, general financial condition, ownership and management structure and audited financial statements.”
Notably, the statute exempts from the definition of “significant equity investor” venture capital firms “exclusively funding startups or other early-stage businesses,” which terms are not defined.
The role of the HPC is expanding well-beyond the state legislature’s initial intent. Rather than just being an advisory review body that looks at initial material change transactions, it will now have ongoing oversight for a period of five years following the completion of a material change, including the right to request additional documentation “to assess the post-transaction impacts of a material change.” Cost and market impact reviews are also being tasked to ask deeper questions than before including quality of care and patient experience as well as referral patterns. Similarly, the statute empowers CHIA to require registered provider organizations to provide additional annual internal and financial and operational information to the HPC.
Massachusetts False Claims Act Liability of Owners and Investors
In a broad statutory challenge to the historic protections of the corporate veil that insulates shareholders from underlying liability, the new law imposes liability under the state false claims act on shareholders with an ownership or investment interest in a violating entity, who knows about the violation, and fail to disclose the violation to the Commonwealth within 60 days of identifying the violation. This change is directly related to a high-profile case brought by the Office of the Attorney General resulting in $25MM settlement paid by investors in a behavioral health company in Massachusetts in 2021. Investors will now have a more direct risk of liability for the activities of their portfolio companies.
Licensing Changes
The law also established two new license types: Office-Based Surgical Centers and Urgent Care Centers. The law has delegated broad discretion to the Massachusetts Department of Public Health (DPH) to create and implement specific licensure requirements for each of the new categories. Many medical practices historically offered urgent care under the historic exception to licensure for physician practices. This new law will require physician-based urgent care centers to submit to DPH regulatory and licensure oversight. Once regulations are drafted and implemented, any person or entity that “advertises, announces, establishes, or maintains an office-based surgical center [or urgent care center] without a license” will be subject to a fine of up to US$10,000.
(1) Office-Based Surgical Centers, which provide:
“ambulatory surgical or other invasive procedure requiring: (i) general anesthesia; (ii) moderate sedation; or (iii) deep sedation and any liposuction procedure, excluding minor procedures and procedures requiring minimal sedation, where such surgical or other invasive procedure or liposuction is performed by a practitioner at an office- based surgical center.”
This category is distinct from ambulatory surgical centers, which are already subject to clinic licensure by DPH and follow the federal definition.[1] Licensed hospitals are also exempt from obtaining an office-based surgical center license, though their affiliated physician organizations may need to be exempted through rulemaking.
(2) Urgent Care Centers, which are clinics not affiliated with a licensed hospital that provide urgent care services:
“a model of episodic care for the diagnosis, treatment, management or monitoring of acute and chronic disease or injury that is: (i) for the treatment of illness or injury that is immediate in nature but does not require emergency services; (ii) provided on a walk-in basis without a prior appointment; (iii) available to the general public during times of the day, weekends or holidays when primary care provider offices are not customarily open; and (iv) is not intended and should not be used for preventative or routine services.”
Licensed hospitals (and entities “corporately affiliated with hospitals”), clinics, limited service clinics, and community health centers receiving federal grants are exempt from obtaining an urgent care center license. In other words, this new oversight is directed to urgent care centers offered in a freestanding physician office and “friendly PC” environment.
Other Notable Provisions and Exclusions
It appears that the New Year brought about a spirit of compromise, as some of the changes previewed this summer in S.B. 2881, “an Act enhancing the market review process” discussed in our prior blog, “Massachusetts Health Care Act Dies at the End of Legislative Session But Previews Sweeping Changes for the Health Care Industry,” were excluded from the new law. Most notably, restrictions on (i) who can employ registered practicing clinicians (physicians, advanced practice providers, psychiatric nurse mental health clinical specialists, nurse anesthetists, nurse-midwives, psychologists, and licensed clinical social workers) and (ii) the corporate practice of medicine were excluded from the enacted version of the law.
While the emphasis of the law expands the scope and scale of what stakeholders are subject to state oversight, the law also establishes and expands the Commonwealth’s ability to monitor and study primary care services, access, delivery, cost, and payment, to name a few.
What Happens Next?
Stakeholders should apprise themselves of these new requirements and be on the lookout for forthcoming regulations as increased governmental scrutiny has come to the Commonwealth.
[1] 42 CFR 416.2 “Ambulatory surgical center or ASC means any distinct entity that operates exclusively for the purpose of providing surgical services to patients not requiring hospitalization and in which the expected duration of services would not exceed 24 hours following an admission. The entity must have an agreement with CMS to participate in Medicare as an ASC, and must meet the conditions set forth in subparts B and C of this part.”
New US Sanctions Target Russia’s Energy Sector
On 10 January 2025, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a package of new sanctions targeting Russia’s energy sector. In an effort to curtail Russia’s oil revenue and ability to evade US sanctions, OFAC issued: (1) a Determination authorizing sanctions on parties operating in Russia’s energy sector; (2) a Determination banning US petroleum services to Russia; and (3) blocking sanctions against oil and gas majors, vessels in the so-called “shadow fleet,” certain traders of Russian oil, Russian maritime insurers, and Russian oilfield service providers.
Operating in Russia’s Oil Sector
The new “Energy Sector” Determination broadens OFAC’s authority to block parties that operate in Russia’s “energy sector,” which OFAC will define in forthcoming regulations to broadly cover activities in Russia’s oil, nuclear, electrical, thermal, and renewable sectors.
Ban on US Petroleum Services
The “US Petroleum Services” Determination prohibits most petroleum services (directly or indirectly) to Russia from the US or by US persons, effective 27 February 2025. OFAC plans to define “petroleum services” to include services related to oil exploration, production, refining, storage, transportation, distribution, marketing, among others. OFAC confirmed this Determination does not ban all US services for maritime transportation of Russian oil, provided services comply with applicable price caps and do not involve blocked parties. FAQ 1217.
Blocking Sanctions
OFAC designated hundreds of entities, vessels, and individuals to the Specially Designated Nationals and Blocked Persons List (SDN List). Notably, these blocking sanctions targeted:
Gazprom Neft and Surgutneftegas (two of Russia’s biggest oil producers and exporters) and numerous subsidiaries.
183 vessels in the “shadow fleet” that aids Russia’s sanctions evasion, including Sovcomflot vessels previously covered by General License 93, which OFAC revoked.
A network of traders of Russian oil that are linked to the Russian government or otherwise have suspicious ownership.
Over 30 Russian oilfield service providers.
Russian maritime insurance providers, Ingosstrakh Insurance and Alfastrakhovanie.
US persons are prohibited from all dealings with parties listed on the SDN List and entities owned more than 50% by parties on the SDN List. The property interests of these parties must be blocked/frozen and reported to OFAC if they are within US jurisdiction or US person possession/control.
General Licenses
OFAC issued several General Licenses (GLs) to authorize: petroleum services for certain projects (GL 121), wind down transactions related to energy (GL 8L), certain transactions for nuclear projects (GL 115A), certain transactions involving Russian oil majors (GL 117, 118, and 119), and safety-related transactions for blocked vessels (GL 120).
Conclusion
These new sanctions increase risk and pose considerable challenges for companies with connections to Russia’s energy sector. While US companies are prohibited from providing most petroleum services to Russia, non-US companies face the risk of blocking sanctions if their operations support the broader Russian energy sector. Although OFAC intends to issue regulations and guidance that clarify these measures, businesses must assess risk now, with the assistance of counsel, to identify effected transactions and implement appropriate compliance measures.
5 Trends to Watch: 2025 Capital Markets
1. Strong U.S. Equity Markets, SPACs, and ETFs: The U.S. equity markets are likely to kick off the year strong, as a variety of players are expected to take advantage of the early days of the incoming presidential administration. This may lead to a flurry of deals, particularly during the first three quarters, as companies seek to capitalize on favorable conditions and the markets assess the impact of the new administration on the economy and the broader geopolitical environment.
A new wave of SPAC IPOs gained momentum in late 2024 that is likely to continue into 2025, particularly as the incoming administration takes aim at accelerating business growth through deregulation and expected tax cuts impact capital gains and losses. The decline in the PIPE market to facilitate SPAC mergers will need a robust turnaround, however, to determine if the SPAC will ultimately prove to once again be a viable vehicle for alternative entry to the public markets. Exchange-traded funds (ETFs) are also experiencing dynamic growth and change, particularly with the rise of thematic and niche ETFs that concentrate on specific trends like clean energy, technology, or emerging markets, appealing to investors interested in particular sectors or themes. As ETFs gain popularity, there is a possibility of increased regulation, with new rules potentially being introduced to ensure transparency, liquidity, and investor protection. Furthermore, innovation in product offerings, such as the creation of actively managed ETFs or those incorporating alternative assets, could provide investors with a wider array of investment options. These developments are shaping the ETF landscape by broadening the scope of investment opportunities and ensuring a more regulated market environment.
2. Regulatory Changes and Digital Assets: Republican commissioners and staff attorneys at the SEC and CFTC have signaled that, while awaiting comprehensive legislation and confirmation of the new SEC chair, they intend to reduce reliance on enforcement to mold regulatory guardrails, provide increased executive relief through no-action letters, and collaborate with industry participants in crafting rules differentiating tokens as commodities from tokens as securities. In doing so, clearer regulatory guidelines could emerge, fostering a more favorable environment for blockchain investments. Individual states such as California, on the other hand, may increase their enforcement activity in 2025.
3. Divergent Landscape Continues for Climate and Human Capital Disclosures: In the United States, there may be a rollback of regulations at the federal level requiring climate risk disclosures, while international issuers will still need to comply with EU and UK rules, potentially creating disparities in disclosure requirements. Similarly, there could be less emphasis on human capital disclosures, including those related to ESG (environmental, social, and governance) criteria. Investors might also reduce their demands on issuers regarding these disclosures. Meanwhile, certain states (e.g. California, Minnesota, and New York) are continuing to move forward with their climate-risk disclosure reporting regimes. In the EU and UK, the development of sustainability laws and regulations continues at a fast pace, which could influence debt and equity capital markets transactions, including corporate disclosure, product level disclosure, and ESG due diligence obligations and ratings.
4. Revised Regulatory Framework for EU Equity Issuers: In the European Union, the recent implementation of the Listing Act is widely expected to represent a pivotal milestone for EU capital markets, aimed at streamlining access and reducing administrative burdens, particularly for well-established issuers. This legislative measure is anticipated to further enhance the European financial sector by simplifying the process for companies to access public markets, thereby creating a more dynamic and competitive environment and providing a more viable alternative to standard bank financing. By simplifying some of the complex offering and listing regulatory obstacles and facilitating easier market entry, the Act is expected to enhance liquidity and attract a broader range of issuers, including small and medium-sized enterprises, fostering innovation and economic expansion across member states. While it may take some time to fully benefit from all the regulatory changes aimed at addressing the concerns raised by practitioners in the field, the recent legislation clearly indicates that the EU seeks to strengthen its position as a leading global financial center.
5. Anticipated Tax Policy Changes Likely to Influence Investment Strategies: Potential changes in tax policies, such as adjustments to capital gains tax rates, could significantly influence investor behavior and decision-making related to asset sales and investment strategies. With the Tax Cuts and Jobs Act of 2017 set to expire in 2025, Congress may consider extending it or implementing further tax cuts. Additionally, the use of advanced real-time tax management tools is likely to become more prevalent, enabling investors to optimize their tax positions concerning capital gains and losses. These developments could collectively impact the landscape of capital gains and losses, shaping investment strategies and economic growth.
Dorothee & Rafał Sieński contributed to this article.
The CTA Is Dealt Another Blow
As has been widely reported, U.S. District Court Judge Amos L. Mazzant in early December of last year preliminarily enjoined the CTA and its implementing regulations. Texas Top Cop Shop, Inc. v. Garland, 2024 WL 5049220 (E.D. Tex. Dec. 5, 2024). This led to an off again/on again series of decisions from the Fifth Circuit Court of Appeals and a pending application for a stay of the injunction to the U.S. Supreme Court. See Seriously, The CTA Imposes Only “Minimal Burdens”? A response was filed with the Supreme Court last Friday as well as a plethora of amicus briefs.
In a further wrinkle, U.S. District Court Judge Jeremy D. Kernodle in the Easter District of Texas has also issued an injunction, finding with respect to the risk of irreparable harm:
Compelling individuals to comply with a law that is unconstitutional is irreparable harm. BST Holdings, LLC v. OSHA, 17 F.4th 604, 618 (5th Cir. 2021) (“For individual petitioners, the loss of constitutional freedoms ‘for even minimal periods of time … unquestionably constitutes irreparable injury.’ ” (quoting Elrod v. Burns, 427 U.S. 347, 373, 96 S.Ct. 2673, 49 L.Ed.2d 547 (1976))); Carroll Indep. Sch. Dist. v. U.S. Dep’t of Educ., ––– F.Supp.3d ––––, ––––, 2024 WL 3381901, at *6 (N.D. Tex. July 11, 2024) (noting that “the potential to infringe on constitutional rights” is “per se irreparable injury”); Top Cop Shop, ––– F.Supp.3d at ––––, 2024 WL 5049220, at *15 (“[I]f Plaintiffs must comply with an unconstitutional law, the bell [of irreparable harm] has been rung.”). And, as noted above, Plaintiffs have demonstrated that the CTA is likely unconstitutional.
Additionally, incurring unrecoverable costs of compliance with federal law constitutes irreparable harm. Wages & White Lion Invs., LLC v. FDA, 16 F.4th 1130, 1142 (5th Cir. 2021). And, here, Plaintiffs must expend money to comply with the reporting requirements of the CTA, which is unlikely to be recovered since “federal agencies generally enjoy sovereign immunity for any monetary damages.” Id.; Docket No. 7-1 at 3–4; Docket No. 7-2 at 3–4. Compliance with the CTA also requires Plaintiffs to provide private information to FinCEN that they otherwise would not disclose. Docket No. 7-1 at 4; Docket No. 7-2 at 4. The disclosure of such information is a type of harm that “cannot be undone through monetary remedies.” See Dennis Melancon, Inc. v. City of New Orleans, 703 F.3d 262, 279 (5th Cir. 2012); Top Cop, ––– F.Supp.3d at ––––, 2024 WL 5049220, at *15 (“Absent injunctive relief, come January 2, 2025, Plaintiffs would have disclosed the information they seek to keep private …. That harm is irreparable.”).
Smith v. United States Dep’t of the Treasury, 2025 WL 41924, at *13 (E.D. Tex. Jan. 7, 2025). Stay tuned.
I’ll Cry if I Want To – But Taking Steps to Avoid Tears Is a Better Strategy for Private Company Business Partners
In recent years, the headlines have tracked the news of high-profile breakups among business partners in private companies. These business partner fallouts include:
2023: Sam Altman was ousted as Open AI CEO (for less than three days) before he was brought back in a dramatic return to the company where he remains today.
2022, Republic First Bank CEO Vernon Hill resigned after a power struggle with insiders that lasted for months, including with the bank’s founder, Harry Madonna.
Also in 2022, real estate developer Steve Ross, chairman of New York-based Related Companies, ended his longtime business relationship with partner Jorge Perez, chairman of Miami-based Related Group, which they said publicly was amicable.
Finally, in 2020, Forbes reported: “Perhaps no duo on Wall Street has ever soared higher and broken apart quicker than the partnership between billionaires Robert F. Smith and Brian N. Sheth, the co-founders of Vista Equity Partners.”
Reflecting on these business partner breakups made me think of Leslie Gore’s golden oldie, which still remains popular today: “It’s my party and I’ll cry if I want to.” These high-profile splits among business partners create notable headlines, but with some planning they may be avoidable. Even when a business divorce does become necessary, it doesn’t have to result in tears and trauma for the partners or for their businesses. In this new post, we review steps for business partners to consider that can help avoid conflicts, but which will also provide a more peaceful path to an exit if one of the partners ultimately decides to leave the business.
Document Essential Terms in Writing
The venerable Western saying is good fences make good neighbors. In business, good agreements make for good partnerships. To avoid/lessen conflicts, business partners need to put their agreements in place on key terms that address who controls the business and its operational structure. These terms include: (1) who decides key issues such as compensation, (2) whether to issue executive bonuses and distributions/dividends to owners and in what amounts, (3) whether major company decisions should be made by a bare majority of owners, by unanimous consent of all owners, or by a super majority percentage, (4) if the decision-making structure can lead to a deadlock between the partners on key decisions, what mechanism exists to permit the partners to break the deadlock (a third party will likely need to be involved), and (5) whether to appoint and give authority to independent board members or managers who can provide objective input to the partners (co-owners) about significant issues.
No business operates without facing challenges, some quite serious. For business partner owners to surmount these challenges, they will be helped greatly if they have created a decision-making structure that includes third parties who provide input and recommendations based on their own track record and experience. Further, partners who look ahead and seek to reach agreement on management and control issues in the business before conflicts arise can avoid more serious disagreements.
Negotiate and Adopt a Business Prenup
There are many anecdotal stories about business partners who worked their entire adult lives together after starting up a private company before they finally sold it or passed it along to their children. Those are heart-warming histories, but they are the exception, not the rule. In most cases, business partners do not stay together for decades; instead, partners will come and go and transitions are not unusual. For this practical reason, business partners should consider entering into corporate prenups with each other when the company is first formed or when a new business partner makes an investment into an existing business. This is an opportune time to enter into this type of agreement governing the exit of a partner as they are focused on the future success of the company and generally have a positive view of each other.
There should be a mutual interest by both company owners and investors to enter into this corporate prenup, which is generally set forth in some form of a buy-sell agreement (BSA). For majority owners, the benefit of securing a BSA is that it provides the owner with the authority to redeem the ownership interest of a minority partner even if that partner doesn’t want to leave the business. No private company majority owner wants to be stuck in business with a minority partner who is dysfunctional, disruptive or, worse, directly interfering with the operation of the business. The BSA therefore provides the majority owner with a “call right,” which permits the owner to secure an involuntary exit of the minority investor if the need arises.
For minority investors, the BSA will also provide them with a critically important benefit. Specifically, the BSA provides the minority partner with a guaranteed way to monetize his or her ownership interest in the business. In the absence of a BSA, the minority investor will not have the right to exercise a “put right” to obtain a redemption, and the investor may therefore be stuck for years holding an illiquid, unmarketable ownership interest in the company.
Negotiate a BSA That Meets the Needs of All Partners
The BSA will address all of the following issues: (1) when can it be triggered by the majority owner or investor, (2) how will the value be determined of the minority ownership interest that is being redeemed, (3) how will the payment be structured to the investor for the interest that is held in the business, and (4) what dispute resolution procedure will govern the enforcement and application of the BSA between the partners.
These issues need to be addressed right at the outset of the investment, and they need to be carefully evaluated to meet the business objectives of both parties. For example, the parties may decide that the BSA cannot be triggered for some period of years after the investment is made. This is referred to as a “delayed trigger,” which will allow time for the company to grow in value after the investment has been made before it can be redeemed or sold. Both the majority owner and the minority investor may therefore be required to wait three, four or even five years before either side can pull the trigger to either redeem the interest held by the investor or to secure a buyout of the investor’s interest in the business.
Given that the majority owner also has a redemption right, the investor will want to be sure the majority owner’s right to redeem (purchase) the interest held by the investor in the business is subject to a “lookback” provision. This term protects the investor in the event that the business is sold not long after the investor’s interest is purchased by the majority owner (lookback provisions often last for at least one full year after the redemption of the investor takes place). If the business is sold during the lookback period for a higher value than the investor received in the redemption, this provision will require the majority owner to issue a true-up payment to the investor to ensure that the investor receives the benefit of the higher valuation that was achieved when the business was sold.
Conclusion
Business partner breakups will continue to make headlines, especially when they involve high-profile figures at large companies. But business partners who engage in advance planning and take steps to address internal governance issues can avoid the conflicts that lead to a business divorce. This type of advance planning, including the adoption of a well-crafted BSA, will also lessen the heartaches and headaches if a business divorce becomes inevitable.
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Game On: How the CFPB’s EFTA and Regulation E Changes Could Shape Video Game and Online Marketplace Transactions
The Electronic Fund Transfer Act (EFTA) and Regulation E apply to an electronic fund transfer (EFT) that authorizes a “financial institution” to debit or credit a consumer’s account. While a “financial institution” traditionally refers to a bank, credit union, or savings association, it is well established that “financial institutions” can also include non-bank entities that directly or indirectly hold an account belonging to a consumer, or that issue an access device and agree with a consumer to provide EFT services. Prepaid accounts and “other consumer asset accounts” into which funds can be deposited by or on behalf of the consumer and which have features of deposit or savings accounts, also meet Regulation E’s definition of “account.” Some video game accounts used to purchase virtual items from multiple game developers or players may fall under the definition of “other consumer asset accounts.”
In April 2024, the Consumer Financial Protection Bureau (CFPB) issued a report on the banking and payment services becoming more prevalent in gaming and virtual worlds where consumers spend billions of dollars annually to purchase gaming assets—often by converting U.S. dollars to virtual currencies. The report raised concerns about consumer protections and the uncertain allocation of responsibility for errors or fraud when a customer’s digital currency or assets are lost through hacking, account theft, scams, or unauthorized transactions.
Recent Developments
Following that report, on January 10, 2025, the CFPB issued a proposed interpretive rule that aims to expand the scope of Regulation E’s coverage to video game platforms that hold consumers’ money for personal, family, or household use and treat those game platforms as if they are account holders just like a bank or credit union for Regulation E purposes.
The interpretive rule expands on what constitutes an EFT, particularly for new payment methods such as peer-to-peer payment platforms and digital wallets. This expansion includes transfers initiated through apps and payment systems tied to consumer accounts. The key is whether the funds act like or are used like money, such that they are accepted as a medium of exchange, a measure of value, or a means of payment.
The interpretive rule would also clarify that video game companies operating online marketplaces or otherwise facilitating EFTs would be subject to the consumer protection provisions under Regulation E, namely investigation and error resolution obligations. Additionally, the interpretive rule would require a video game company to disclose the terms and conditions of EFT services.
Next Steps
The CFPB is soliciting comments from the gaming community for this proposed interpretive rule, which must be sent via email to [email protected] on or before March 31, 2025.
SEC Priorities for 2025: What Investment Advisers Should Know
The US Securities and Exchange Commission (SEC) recently released its priorities for 2025. As in recent years, the SEC is focusing on fiduciary duties and the development of compliance programs as well as emerging risk areas such as cybersecurity and artificial intelligence (AI). This alert details the key areas of focus for investment advisers.
1. Fiduciary Duties Standards of Conduct
The Investment Advisers Act of 1940 (Advisers Act) established that all investment advisers owe their clients the duties of care and loyalty. In 2025, the SEC will focus on whether investment advice to clients satisfies an investment adviser’s fiduciary obligations, particularly in relation to (1) high-cost products, (2) unconventional investments, (3) illiquid assets, (4) assets that are difficult to value, (5) assets that are sensitive to heightened interest rates and market conditions, and (6) conflicts of interests.
For investment advisers who are dual registrants or affiliated with broker-dealers, the SEC will focus on reviewing (1) whether investment advice is suitable for a client’s advisory accounts, (2) disclosures regarding recommendations, (3) account selection practices, and (4) disclosures regarding conflicts of interests.
2. Effectiveness of Advisers Compliance Programs
The Compliance Rule, Rule 206(4)-7, under the Advisers Act requires investment advisers to (1) implement written policies reasonably designed to prevent violations of the Advisers Act, (2) designate a Chief Compliance Officer, and (3) annually review such policies for adequacy and effectiveness.
In 2025, the SEC will focus on a variety of topics related to the Compliance Rule, including marketing, valuation, trading, investment management, disclosure, filings, and custody, as well as the effectiveness of annual reviews.
Among its top priorities is evaluating whether compliance policies and procedures are reasonably designed to prevent conflicts of interest. Such examination may include a focus on (1) fiduciary obligations related to outsourcing investment selection and management, (2) alternative sources of revenue or benefits received by advisers, and (3) fee calculations and disclosure.
Review under the Compliance Rule is fact-specific, meaning it will vary depending on each adviser’s practices and products. For example, advisers who utilize AI for management, trading, marketing, and compliance will be evaluated to determine the effectiveness of compliance programs related to the use of AI. The SEC may also focus more on advisers with clients that invest in difficult-to-value assets.
3. Examinations of Private Fund Advisers
The SEC will continue to focus on advisers to private funds, which constitute a significant portion of SEC-registered advisers. Specifically, the SEC will prioritize reviewing:
Disclosures to determine whether they are consistent with actual practices.
Fiduciary duties during volatile markets.
Exposure to interest rate fluctuations.
Calculations and allocations of fees and expenses.
Disclosures related to conflicts of interests and investment risks.
Compliance with recently adopted or amended SEC rules, such as Form PF (previously discussed here).
4. Never Examined Advisers, Recently Registered Advisers, and Advisers Not Recently Examined
Finally, the SEC will continue to prioritize recently registered advisers, advisers not examined recently, and advisers who have never been examined.
Key Takeaways
Investment advisers can expect SEC examinations in 2025 to focus heavily on fiduciary duties, compliance programs, and conflicts of interest. As such, advisers should review their policies and procedures related to fiduciary duties and conflicts of interest as well as evaluating the effectiveness of their compliance programs.