If You Don’t Know the Numbers, You Don’t Know the Business
Understanding EBITDA and Why It Matters
A business can have the best sales team, the best product, or the best service in the world. But if someone in the business doesn’t understand the finance function, the business is likely to fail.
A fundamental concept used to measure the financial health of a company is EBITDA- earnings before interest, taxes, depreciation, and amortization.
EBITDA, as the acronym suggests, measures a company’s financial performance by excluding the effects of financing decisions (interest), tax obligations, and non-cash expenses like depreciation and amortization. This approach provides a clearer view of a company’s operational profitability. It’s not the only approach for such measuring (EBIT and EBITDAR are examples of competing approaches) but it is very widely used.
Why Do People Use EBITDA?
Terry Orr, a forensic accountant with HKA, points out that private equity firms favor EBITDA because it helps them quickly assess whether a company will be able to service its debt after an acquisition. Businesses, investors, and analysts utilize EBITDA for several reasons:
Comparability: It allows for an apples-to-apples comparison between companies in the same industry, regardless of how they finance their operations.
Assessing Profitability: EBITDA can indicate a company’s operational performance by removing financing and tax decisions.
Mergers and Acquisitions (M&A): Buyers often consider EBITDA to determine the price they should pay for a company.
The Pitfalls of EBITDA
While EBITDA can be a useful tool, it has its drawbacks:
It’s Not GAAP-Defined: EBITDA is not part of Generally Accepted Accounting Principles (GAAP), meaning companies can adjust how they calculate it. GAAP is the standard endorsed by the US Securities and Exchange Commission (SEC) and serves as the default accounting standard for US-based companies.
It Ignores Key Expenses: Since it excludes debt payments and capital expenditures, EBITDA may present an overly optimistic picture of a company’s financial health.
It Can Be Manipulated: Some companies adjust EBITDA with ‘add-backs’ to make their numbers look better. Attorney Candice Kline emphasizes that when examining ‘adjusted EBITDA,’ it’s important to scrutinize the adjustments, as companies may be adding back one-time expenses in a way that stretches the definition of ‘one-time.’
Real-World Application: The Lemonade Stand Example
To illustrate how EBITDA works, consider two lemonade stands:
Lemonade Stand A is funded entirely by equity.
Lemonade Stand B is financed mostly by debt.
Both have the same revenue and cost of goods sold, but because Stand B has interest expenses on its debt, its net income is lower. However, their EBITDA is the same because EBITDA does not account for interest payments.
Professor Steven Stralser notes that EBITDA reveals how well the business itself is running, but not necessarily how well the owners or investors are doing.
When to Use — and When to Question — EBITDA
Use EBITDA when comparing companies within an industry, analyzing profitability trends, or evaluating a potential acquisition.
Question EBITDA when a company uses it as the sole measure of success, when there are numerous ‘adjustments,’ or when debt and capital expenses are significant aspects of the business model.
Final Thoughts
Understanding EBITDA can make attorneys, accountants, and business professionals more effective advisors to their clients. It’s a useful tool — but like any tool, it needs to be used wisely. EBITDA is just one piece of the puzzle that should always be considered alongside other financial metrics to get the full picture.
To learn more about this topic view MBA Bootcamp / EBITDA and Other Scary Words. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested to read other articles about accounting and finance principles for business owners and investors.
This article was originally published here.
©2025. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.
Parked: The Extension of the UK’s Sustainability Disclosure Requirements to Portfolio Managers
On 14 February 2025, the Financial Conduct Authority (the “FCA”) updated its webpage on consultation paper (CP24/8) on extending the sustainability disclosure requirements (“SDR”) and investment labelling regime to portfolio managers. In the update, the FCA confirmed that it no longer intends to do so and will continue to reflect on the feedback received and provide further information in due course.
The FCA had scheduled publishing a policy statement on this in Q2 2025, but has now stalled this, setting out they are continuing to want to ensure the extension of SDR to portfolio management delivers good outcomes for consumers, is practical for firms and supports growth of the sector.
We reported on the consultation paper here: FCA Sustainability Disclosure Requirements Consultation Paper on the Extension to Portfolio Managers now published – Insights – Proskauer Rose LLP.
How to Report “Pig Butchering” Crypto Fraud and Qualify for a Whistleblower Award
2024 Revenue from Pig Butchering Scams Increased 40% Year-over-Year
According to a Chainanlysis report, revenue from pig butchering crypto frauds, also known as relationship investment scams, grew nearly 40% year-over-year (YoY). Additionally, the number of deposits to these scams increased by nearly 210% YoY.
Pig butchering scams exploit dating apps, social media platforms, messaging apps, and even random “wrong number” text messages to target possible victims. Once a fraudster establishes and builds a relationship with their target, they pitch fraudulent investment opportunities in cryptocurrencies, precious metals, or foreign currencies. Victims are then directed to deceptive trading platforms–operated by the same organized criminal gangs–where they convert their funds into cryptocurrency and then send the crypto to the fraudulent trading platforms. These platforms falsely display substantial investment gains, and victims ultimately find themselves unable to withdraw their funds. To make matters worse, the trading platforms often tell the victims that they are required to pay certain fees to access their (fake) investment gains. These “fees” are just another ploy used by the fraudsters to trick victims into sending additional crypto to their fraudulent platforms.
The Chainalysis report, titled Crypto Scam Revenue 2024: Pig Butchering Grows Nearly 40% YoY as Fraud Industry Leverages AI and Increases in Sophistication, found that cryptocurrency scams received at least $9.9 billion on-chain, an amount that may increase as Chainanalysis identifies more illicit addresses. The report noted that “crypto fraud and scams have continued to increase in sophistication, as the fraud ecosystem becomes more professionalized.” It also highlighted that “crypto drainers continued to proliferate and grew across the board — nearly 170% YoY revenue growth, almost 55% YoY increase in deposit size, and 75% YoY growth in number of deposits.”
Whistleblowers Can Help Combat Pig Butchering Crypto Frauds
Whistleblowers can assist the Commodity Futures Trading Commission (CFTC) in combatting these frauds by reporting original information about pig butchering crypto scams to the CFTC Whistleblower Office. The CFTC Whistleblower Reward Program offers monetary awards to whistleblowers whose original information leads to enforcement actions resulting in civil penalties in excess of $1 million. Whistleblowers reporting pig butchering crypto scams can receive CFTC whistleblower awards between 10% and 30% of the total monetary sanctions collected in successful enforcement actions. The largest CFTC whistleblower award to date is $200 million.
How to Report Pig Butchering Scams to the CFTC and Qualify for a Whistleblower Award
A whistleblower providing original information to the CFTC about an investment romance scam may qualify for an award if:
Their original information caused the CFTC to open an investigation, reopen an investigation, or inquire into different conduct as part of a current investigation, and the CFTC brought a successful enforcement action based in whole or in part on conduct that was the subject of the original information; or
The conduct (i.e., the pig butchering crypto scam) was already under examination or investigation, and the whistleblower provided original information to the CFTC that significantly contributed to the success of the enforcement action.
In determining an award percentage of between 10% and 30%, the CFTC considers the particular facts and circumstances of each case. For example, positive factors may include the significance of the information, the level of assistance provided by the whistleblower and the whistleblower’s attorney, and the law enforcement interests at stake.
If represented by counsel, a whistleblower may submit a tip anonymously to the CFTC. In certain circumstances, a whistleblower may remain anonymous, even to the CFTC, until an award determination. However, even at the time of a reward, a whistleblower’s identity is not made available to the public.
To report a pig butchering crypto fraud and qualify for an award under the CFTC Whistleblower Program, the CFTC requires that whistleblowers or their attorneys report the tip online through the CFTC’s Tip, Complaint or Referral Portal or mail/fax a Form TCR to the CFTC Whistleblower Office. Prior to submitting a tip, whistleblowers should consult with an experienced whistleblower attorney and review the CFTC whistleblower rules to, among other things, understand eligibility rules and consider the factors that can significantly increase or decrease the size of a future whistleblower award.
CFTC Partners with Federal Agencies and NGOs to Combat Pig Butchering
The CFTC’s Office of Customer Outreach and Education is partnering with other federal agencies and non-governmental organizations (NGOs) to raise awareness about relationship investment scams targeting Americans through “wrong number” text messages, dating apps, and social media. This effort includes an infographic that identifies the warning signs of pig butchering:
Additionally, the interagency Dating or Defrauding? social media awareness campaign warns Americans to be skeptical of any request from online friends for cryptocurrency, gift cards, wire transfers, or other forms of payment. The campaign provides information about how to recognize relationship investment scams, what to do if you are affected, and why to share the information to warn others.
The Rules That Apply to Foreign Persons Purchasing Established Homes in Australia are Going to Change on 1 April 2025…. So, You May Need to Act Now
The Hon. Jim Chalmers MP, Federal Treasurer and the Hon. Clare O’Neil MP, Minister for Housing, Minister for Homelessness issued a joint media release on 16 February 2025 titled “Albanese Government clamping down on foreign purchase of established homes and land banking”.
The media release foreshadows changes to the rules that apply when a foreign person buys an established dwelling or undertakes a land development.
Parts of the media release are extracted below:
The Albanese Government will ban foreign investors from buying established homes for at least two years and crack down on foreign land banking.……..This is all about easing pressure on our housing market at the same time as we build more homes.………We’re banning foreign purchases of established dwellings from 1 April 2025, until 31 March 2027. A review will be undertaken to determine whether it should be extended beyond this point.The ban will mean Australians will be able to buy homes that would have otherwise been bought by foreign investors.Until now, foreign investors have generally been barred from buying existing property except in limited circumstances, such as when they come to live here for work or study.From 1 April 2025, foreign investors (including temporary residents and foreign owned companies) will no longer be able to purchase an established dwelling in Australia while the ban is in place unless an exception applies.………We will also bolster the Australian Taxation Office’s (ATO) foreign investment compliance team to enforce the ban and enhance screening of foreign investment proposals relating to residential property by providing $5.7 million over 4 years from 2025–26.This will ensure that the ban and exemptions are complied with, and tough enforcement action is taken for any non‑compliance.………We’re cracking down on land banking by foreign investors to free up land to build more homes more quickly.Foreign investors are subject to development conditions when they acquire vacant land in Australia to ensure that it is put to productive use within reasonable timeframes.………
Here are some initial observations:
The consequences of contravening Australia’s foreign investment laws are serious. The media release raises a number of questions, and the full implications will naturally depend upon the precise wording of the changes.
The media release notes “The ATO and Treasury will publish updated policy guidance prior to the commencement of the changes” (i.e. before 1 April 2025).
The existing rules already tightly limit the classes of foreign buyer who can acquire established homes. Currently this is essentially limited to:
A temporary resident (or their spouse) who is going to use the dwelling as their place of residence while in Australia and who applies for and obtains approval;
A buyer who is planning to redevelop the dwelling where the redevelopment will genuinely increase Australia’s housing stock and who applies for and obtains approval; and
Foreign controlled companies who are planning to purchase an established dwelling to house an Australian based employee and who apply for and obtain approval.
It seems clear the Government is also removing the ability for foreign companies to buy established dwellings to house their Australian based staff. While the Government may allow exceptions as it has flagged in the media release, this detail is yet to be seen.
We query whether there are other alternatives to an outright ban, such as only a ban on housing below a prescribed price threshold (area by area).
It is unclear from the media release if the Government is going to change the rules applicable to holders of an Australian permanent resident visa. But we suspect changes are not proposed for holders of an Australian permanent resident visa.
The message from the media release is that where a foreign person has already acquired or intends to acquire vacant land or an established dwelling for redevelopment, the foreign person should assume there is going to be:
More active monitoring of compliance with conditions (eg vacant residential land approvals require construction of all dwellings to be completed within four years of the date of the notice of approval); and
More rapid application of existing enforcement options.
If you currently have a Foreign Investment Review Board (FIRB) approval, make sure you are in complying with the conditions and seek advice if you are not.
We query whether the Government intends to revisit the rules when a foreign person rents a residential dwelling or whether the foreshadowed changes will just apply to purchases.
If a foreign person is unable to acquire an established dwelling, then that person will need to either acquire a new dwelling or access the rental market. The changes may increase still further the demand for dwellings to rent.
If a foreign person is planning on acquiring an established dwelling, take advice and seriously consider doing so before 1 April 2025.
Foreign Investor Surcharges
All six Australian States impose transfer duty surcharges on acquisitions of residential related property acquired by a foreign person (including a foreign company or trust). Typically, the surcharge duty rate is 7% or 8% and applies in addition transfer duty at general rates.
Further, some States and the Australian Capital Territory also impose surcharge land tax on foreign persons that own residential related property.If foreign buyers are prohibited from acquiring existing homes, this may have some impact on the level of surcharge duty and surcharge land tax revenue that will be collected at a State and Territory level.
Caution on Australian Citizens Buying for Foreign Persons
There are some circumstances in which family members (say, as a spouse or adult child) who are Australian citizens or permanent residents may want to acquire and hold property for family members who are foreign. The intention may be to avoid existing FIRB restrictions as well as the above- mentioned foreign investor surcharges.
Such arrangements are high risk and caution should be exercised.
Typically, such arrangements will create a trust relationship between the “apparent purchaser” (i.e. the Australian citizen) and the “real purchaser” (i.e. the foreign person who provides the money for the purchase).
Most Australian States and Territories now require a purchaser of land to provide a declaration which sets out:
Whether the purchaser is acquiring the land for their own purposes (or on trust for another person); and
If the purchaser is acquiring as trustee for another person, whether the beneficiaries of the trust are foreign.
Further, the duties and land tax legislation in most jurisdictions will apply to such arrangements. For example, section 104T in the Duties Act 1997 (NSW) expressly captures “apparent purchaser arrangements” such as those described above for surcharge purchaser duty purposes.
We note that a written agreement is not required to create a treat relationship. A verbal agreement can suffice.
A purchaser who provides a false declaration and does not disclose they are acquiring and holding a property on trust for a foreign person may commit an offence.
There are also risks for the foreign person on whose behalf the property has been purchased. If there is a break down in the relationship between the parties, it may be difficult for the foreign person to demonstrate that they are the real owner of the property (and the party entitled to the benefit of any rents or sale proceeds).
All tax and legal risks should be fully considered if any such arrangements are contemplated.
How can we Help?
We will continue to monitor changes to the rules that apply to acquisitions of established dwellings by foreign persons in Australia and will provide a further update when the new policy is released.
Australia: Review Recommends No Increases to Wholesale Client Test, Encourages Further Review
The Parliamentary Joint Committee on Corporations and Financial Services (Committee) has been inquiring into the wholesale investor test for offers of securities, and the wholesale client test for financial products and services in the Corporations Act 2001 (Inquiry) (see our previous post). The Committee has now released its report from the Inquiry.
The Inquiry followed on from the Australian Treasury’s Managed Investment Scheme Review (see our previous post) (MIS Review) which sought feedback on whether the wholesale client thresholds remain appropriate given they have not changed since their introduction in 2001, among other matters. Treasury’s findings on the MIS Review were due to be reported to the Government in early 2024 but these have not been publicly released.
The Committee made just two recommendations:
That the government consider establishing a mechanism for periodic review of the operation of the wholesale investor and client tests; and any such mechanism include mandatory requirements for engagement and consultation with Australia’s investment industry; and
That, subject to a period of stakeholder consultation, the government amend the Corporations Act 2001 to remove the subjective elements of the sophisticated investor test and introduce objective criteria relating to the knowledge and experience of the investor.
There was much speculation about the outcome in relation to the wholesale investor/client tests, particularly given that some stakeholders, most notably the Australian Securities and Investments Commission (ASIC), advocated for the thresholds to be substantially increased.
The Committee found that “a case for raising the test thresholds has not been established at this time” and that the current thresholds remain appropriate notwithstanding the greater proportion of people meeting the thresholds.
The Committee said that it was incumbent on ASIC as the chief regulatory body for Australia’s financial system to ensure that its policy recommendations include meaningful consultation with industry stakeholders. In the Inquiry hearings, ASIC acknowledged that it had not consulted industry regarding its submission to increase the thresholds.
The Committee also encouraged the government to consider whether a broader review of the legislation regulating wholesale and retail investors and the financial markets is needed. The Committee suggested that such a review could build on the Australian Law Reform Commission’s Review of the legislative framework for corporations and financial services regulation and the Quality of Advice Review.
Combatting Scams in Australia and the United Kingdom
In response to the growing threat of financial scams, the Australian Government has passed the Scams Prevention Framework Bill 2025. The Scams Prevention Framework (SPF) imposes a range of obligations on entities operating within the banking and telecommunications industries as well as digital platform service providers offering social media, paid search engine advertising or direct messaging services (Regulated Entities). In the first article of our scam series, Australia’s Proposed Scams Prevention Framework, we provided an overview of the SPF. In this article, we compare the SPF to the reimbursement rules adopted by the United Kingdom and consider the likely implications of each approach.
UK Model
The United Kingdom is a global leader in the introduction of customer protections against authorised push payment (APP) fraud. A customer-authorised transfer of funds may fall within the definition of an APP scam where:
The customer intended to transfer the funds to a person, but was instead deceived into transferring the funds to a different person; or
The customer transferred funds to another person for what they believed were legitimate purposes, but which were in fact fraudulent.
Reimbursement Requirement
A mandatory reimbursement framework was introduced on 7 October 2024 (the Reimbursement Framework) and applies to the United Kingdom’s payment service providers (PSPs). Under the Reimbursement Framework, PSPs are required to reimburse a customer who has fallen victim to an APP scam. The cost of reimbursement will be shared equally between the customer’s financial provider and the financial provider used by the perpetrator of the scam. However, PSPs will not be liable to reimburse a victim who has been grossly negligent by failing to meet the standard of care that PSPs can expect of their consumers (Consumer Standard of Caution) (discussed below), or who is involved in the fraud. Where the customer is classed as ‘vulnerable’, failure to meet the Consumer Standard of Caution will not exempt the PSP from liability.
Consumer Standard of Caution
The Consumer Standard of Caution exception consists of four key pillars:
Intervention – Consumers should have regard to interventions made by their PSP or a competent national authority such as law enforcement. However, a nonspecific ‘boilerplate’ warning will not be sufficient to shift the risk onto the customer.
Prompt reporting – Consumers, upon suspecting they have fallen victim to an APP scam, should report the matter to their PSP within 13 months of the last authorised payment.
Information sharing – Consumers should respond to reasonable and proportionate requests for information made by their PSP in assessing the reimbursement claim. Any requests for information must be limited to essential matters taking into account the value and complexity of the claim.
Involvement of police – Consumers should consent to their PSP reporting the matter to the police on their behalf. PSPs must consider the circumstances surrounding a customer’s reluctance in reporting their claim to the police before relying on this exception.
Failure to meet one or more of the above pillars will only exempt the PSP from liability where the customer has been grossly negligent. This is a higher standard of negligence than required under the common law and requires the customer to have shown a ‘significant degree of carelessness’.
Vulnerability
A vulnerable customer is someone who, due to their personal circumstances, is especially susceptible to harm. Personal circumstances relevant to determining whether a customer is ‘vulnerable’ include:
Health conditions or illnesses that affect one’s ability to carry out day-to-day tasks;
Life events such as bereavement, job losses or relationship breakdown;
Ability to withstand financial or emotional shocks; and
Knowledge barriers such as language and digital or financial literacy.
The Consumer Standard of Caution is not applicable to vulnerable customers. Accordingly, where the victim has been classified as a vulnerable customer, PSPs cannot avoid liability on the grounds of gross negligence for failing to meet the Consumer Standard of Caution.
Limit on Reimbursement
PSPs will not be required to reimburse amounts above the maximum level of reimbursement, which is currently £415,000 per claim.
Key Distinctions Between the SPF and the UK Model
Financial Burden of Scams
Both the UK and Australian models seek to incentivise entities to adopt policies and procedures aimed at lowering the risk of scams. By requiring PSPs to reimburse scam victims, the UK’s model shifts the economic cost of scams from customers onto PSPs. A similar purpose is achieved under the SPF, which provides for harsh financial penalties for entities that fail to develop and implement appropriate policies to protect customers against scams. However, a significant point of difference is the extent to which these financial burdens benefit victims of scams directly.
Under the UK model, a victim of an APP scam will be able to recover the full amount of their loss (up to the prescribed maximum amount) so long as:
They were not grossly negligent in authorising the payment;
They were not a party to the fraud;
They are not claiming reimbursement fraudulently or dishonestly;
The amount claimed is not the subject of a civil dispute or other civil legal action;
The payment was not made for an unlawful purpose; and
The claim is made within 13 months of the final APP scam payment.
In contrast, there is no indication that any funds paid under Australia’s SPF civil penalty provisions will be directed towards the reimbursement of victims. However, under the Scams Prevention Framework Bill 2025, where a Regulated Entity has failed to comply with its obligations under the SPF and this failure has contributed to a customer’s scam loss, the customer may be able to recover monetary damages from the Regulated Entity.
Possible Effect on Individual Vigilance
The UK’s Reimbursement Framework recognises that PSPs, as opposed to individuals, have greater resources available to combat the threat of scams. However, there is a risk that by passing the economic cost of scams onto PSPs, individuals will become less vigilant. Where an individual fails to make proper inquiries which would have revealed the true nature of the scam, they may still be eligible for reimbursement so long as they have not shown a ‘significant degree of carelessness’. With this safety net, individuals may become complacent about protecting themselves from the threat of scams.
In contrast to the UK model, individuals will continue to bear the burden of unrecoverable scam losses under Australia’s SPF unless a Regulated Entity’s breach of SPF obligations has contributed to the loss. As a result, individuals will continue to have a financial incentive to remain vigilant in protecting themselves against the threat of scams.
Scope of Framework
Australia
The SPF applies to entities across multiple industries, reflecting Australia’s ‘whole of the ecosystem’ approach to scams prevention. Upon introduction, the SPF is intended to apply to banking and telecommunications entities as well as entities providing social media, paid search engine advertising or direct messaging services. It is noted in the explanatory materials that the scope of the SPF is intended to be extended to other industries over time to respond to changes in scam trends.
The purpose of this wider approach is to target the initial point of contact between the perpetrator and victim. For example, a perpetrator may create a social media post purporting to sell fake concert tickets. Successful disruptive actions by the social media provider, such as taking down the post or freezing the perpetrator’s account, may prevent the dissemination of the fake advertisement and potentially reduce the number of individuals who would otherwise fall victim to the scam.
United Kingdom
In contrast, the UK’s Reimbursement Framework only applies to PSPs participating in the Faster Payments Scheme (FPS) that provide Relevant Accounts.
FPS
The FPS is one of eight UK payment systems designated by HM Treasury. According to the Payment Systems Regulator, almost all internet and telephone banking payments in the United Kingdom are now processed via FPS.
Relevant Account
A Relevant Account is an account that:
Is provided to a service user;
Is held in the United Kingdom; and
Can send or receive payments using the FPS,
but excludes accounts provided by credit unions, municipal banks and national savings banks.
Effect of Single-Sector Approach
Due to the United Kingdom’s single-sector approach, different frameworks need to be developed to combat scam activity in other parts of the ecosystem. This disjointed approach may create enforcement issues where entities across multiple sectors fail to implement sufficient procedures to detect and prevent scam activities. Further, it places a disproportionate burden on the banking sector, failing to acknowledge the responsibility of other sectors to protect the community from the growing threat of scams.
Key Takeaways
While both the United Kingdom and Australia have demonstrated a commitment to adopting tough anti-scams policies, they have adopted very different approaches. Time will tell which approach has the largest impact on scam detection and prevention.
The authors would like to thank paralegal Tamsyn Sharpe for her contribution to this legal insight.
The State of the Funding Market for AI Companies: A 2024 – 2025 Outlook
Artificial intelligence (AI) has emerged as an influential technology, driving notable investments across various industries in recent years. In 2024, venture capital (VC) funding for AI companies reached record levels, signaling ongoing interest and optimism in the sector’s potential. Looking ahead, 2025 is anticipated to bring continued innovation, with promising funding opportunities and a growing IPO market for AI-driven businesses.
VC Funding in 2024: A Year of Growth
Global VC investment in AI companies saw remarkable growth in 2024, as funding to AI-related companies exceeded $100 billion, an increase of over 80% from $55.6 billion in 2023. Nearly 33% of all global venture funding was directed to AI companies, making artificial intelligence the leading sector for investments. This marked the highest funding year for the AI sector in the past decade, surpassing even peak global funding levels in 2021. This growth also reflects the increasing adoption of AI technologies across diverse sectors, from healthcare to transportation and more, and the growing confidence of investors in AI’s transformative potential.
Industries Attracting Funding
The surge in global venture capital funding for AI companies in 2024 was driven by diverse industries adopting AI to innovate and solve complex problems. This section explores some of the industries that captured significant investments and highlights their transformative potential.
Generative AI. Generative AI, which includes technologies capable of creating text, code, images, and synthetic data, has experienced a remarkable surge in investment. In 2024, global venture capital funding for generative AI reached approximately $45 billion, nearly doubling from $24 billion in 2023. Late-stage VC deal sizes for GenAI companies have also skyrocketed from $48 million in 2023 to $327 million in 2024. The growing popularity of consumer-facing generative AI programs like Google’s Bard and OpenAI’s ChatGPT has further fueled market expansion, with Bloomberg Intelligence projecting the industry to grow from $40 billion in 2022 to $1.3 trillion over the next decade. As a result, venture capitalists are increasingly focusing on GenAI application companies—businesses that build specialized software using third-party foundation models for consumer or enterprise use. This new wave of AI identifies patterns in input data and generates realistic content that mimics the features of its training data. Models like ChatGPT generate coherent and contextually relevant text, while image-generation tools such as DALL-E create unique visuals from textual descriptions.
Healthcare and Biotechnology: The healthcare and biotechnology industries have seen a significant surge in AI integration, with startups harnessing the power of artificial intelligence for diagnostics, drug discovery, and personalized medicine. In 2024, these AI-driven companies captured a substantial share of venture capital funding. Overall, venture capital investment in healthcare rose to $23 billion, up from $20 billion in 2023, with nearly 30% of the 2024 funding directed toward AI-focused startups. Specifically, biotechnology AI attracted $5.6 billion in investment, underscoring the growing confidence in AI’s ability to revolutionize healthcare solutions. As AI continues to evolve, its impact on diagnostics and personalized treatments is expected to shape the future of patient care, driving innovation across the sector.
Financial Technology: Fintech, short for financial technology, refers to the use of innovative technologies to enhance and automate financial services. It includes areas like digital banking, payments, lending, and investment management, offering more efficient, accessible, and cost-effective solutions for consumers and businesses. In recent years, AI has become an important tool in fintech, helping to improve customer service through chatbots, enhance fraud detection with machine learning algorithms, automate trading, and personalize financial advice. While overall fintech investment in 2024 has dropped to around $118.2 billion, down from $229 billion in 2021, AI in fintech remains a high-growth area, valued at $17 billion in 2024 and projected to reach $70.1 billion by 2033. This reflects a strong and sustained interest in leveraging AI to revolutionize financial services despite broader investment slowdowns in the sector.
Trends for 2025
In 2025, VC investments in AI companies are continuing the momentum from previous years. Global venture funding totaled $26 billion in January 2025, of which AI-related companies garnered $5.7 billion, accounting for 22% of overall funding. However, despite the continued interest in AI investment, the investment strategies in 2025 may evolve from the approaches seen in 2024, as market dynamics shift and investors adapt to new challenges and opportunities.
In 2024, the investment strategy was heavily characterized by aggressive funding and rapid scaling. Investor focus appeared to be on capitalizing on the hype around AI technology, leading to substantial valuations and rapid deal cycles. The strategy was primarily characterized by pure innovation, with VCs eager to back groundbreaking technologies regardless of immediate profitability. This led to significant investments in cutting-edge research and experimental applications. However, this approach often led to inflated valuations.
On the other hand, the investment landscape in 2025 is expected to shift with VCs adopting more disciplined and strategic investment approaches. The focus now appears to be on sustainable growth and profitability. Investors are predicted to become more selective, favoring companies with solid fundamentals and proven business models to navigate economic uncertainties.
Regulatory concerns are also playing an increasingly significant role in shaping VC investment strategies in AI. Governments worldwide are ramping up efforts to regulate AI technologies to address issues such as data privacy, algorithmic bias, and security risks. For instance, in the United States, regulatory scrutiny is also intensifying, with lawmakers proposing new frameworks to ensure transparency and accountability in AI algorithms. This includes discussions about mandating audits of high-risk AI systems and potentially introducing liability rules for AI-generated content. These evolving regulatory landscapes are contributing to market unpredictability, as startups may face heightened compliance burdens and legal uncertainties. As a result, while the enthusiasm for AI investments remains high, the 2025 strategy is marked by increased due diligence and a more calculated approach, reflecting a growing emphasis on navigating complex regulatory landscapes.
Resurgence of Initial Public Offerings (IPOs):
In 2025, the IPO market for AI companies is expected to be a significant area of focus, driven by a combination of strong growth in the sector and favorable market conditions. A major window for the IPO market could be opening. Analysts attribute this rebound to factors such as markets reaching new highs, stabilized interest rates, a strong economy, and a clearer understanding of the new administration’s plans following the recent election. The favorable market environment for these companies is supported by a solid U.S. economy, which is expected to grow by 2.3% in 2025.
Several major AI players are preparing to enter the public markets. One of the most anticipated IPOs is that of Databricks, an AI-driven data analytics platform that has raised nearly $14 billion in funding, most recently at a $62 billion valuation. The company has expressed intentions to go public in 2025, indicating a favorable outlook for the sector. Additionally, companies like CoreWeave, an AI cloud platform based in New Jersey, are expected to follow with their own IPOs later in the year, further fueling the optimism around AI investments. Crunchbase News highlights that there are at least 13 other AI startups with strong IPO potential in 2025. This IPO pipeline is a reflection of the broader momentum within the AI sector.
Despite these positive indicators, economic challenges such as trade tensions, inflationary pressures, and concerns over policy decisions add a layer of complexity to the market. For example, trade tensions could contribute to rising manufacturing costs, which could put pressure on companies that rely on global supply chains. Tariffs could contribute to inflationary pressures, which could dampen consumer spending and overall economic growth. These challenges highlight the need for companies to navigate an evolving landscape where trade policies and inflationary concerns could impact their growth trajectories.
Despite these hurdles, the IPO market remains buoyed by investor confidence, particularly in AI. As AI companies continue to develop new applications across industries, the appetite for public offerings remains strong. The favorable market environment for these companies suggests that AI will be a key focus for investors seeking sustainable growth opportunities in 2025.
Conclusion
The AI funding landscape in 2024 demonstrated the technology’s transformative potential across industries. As we move into 2025, investors and companies alike will need to navigate evolving market dynamics and regulatory landscapes. The IPO market, too, holds promise, provided companies are well-prepared to meet investor expectations surrounding sustainable growth and profitability.
AI and Blockchain – 1+1 =3
Individually, AI and blockchain are among the hottest, most transformative technologies. Collectively, they are incredibly synergistic – hence the 1+1=3 concept in the title. We are seeing more examples of how the two will interact. Over time, the level of interaction will be extensive. Many projects are being developed that bring the power of AI to blockchain applications and vice versa. One of these projects that has garnered significant attention is the Virtuals Protocol. The project launched in October 2024 via integration with Base, an Ethereum layer-2 network. Just recently, the project announced that it is expanding to Solana.
The Virtuals Protocol is a decentralized platform for buying, trading, and creating AI agents. It transforms AI agents into tokenized, revenue-generating assets. By leveraging blockchain technology, Virtuals Protocol enables the creation, co-ownership, and interaction with AI agents, expanding their potential across various applications.
AI agents are software programs that can interact with their environment, collect data, and use the data to perform self-determined tasks to meet predetermined goals. Humans set goals, but an AI agent independently chooses the best actions it needs to perform to achieve those goals. See “What are AI Agents?” for more information.
How Virtuals Protocol Works
The Virtuals Protocol integrates AI agents, blockchain infrastructure, and tokenization to create a scalable, decentralized ecosystem. Here’s a breakdown of how it operates:
Agent Tokenization: AI agents are minted as ERC-20 tokens with fixed supplies, paired with $VIRTUAL in locked liquidity pools. These tokens are deflationary through buyback-and-burn mechanisms.
G.A.M.E Framework: Agents utilize multimodal AI capabilities, such as text generation, speech synthesis, gesture animation, and blockchain interactions. This framework allows agents to adapt in real-time.
Revenue Routing: Agents earn revenue through inference fees, app integrations, or user interactions. The proceeds flow into their on-chain wallets for buybacks or treasury growth.
Memory Synchronization: Agents retain cross-platform memory through a Long-Term Memory Processor, ensuring user-specific, contextual continuity.
Decentralized Validation: Contributions and model updates are governed by a Delegated Proof of Stake (DPoS) system, ensuring agent performance aligns with community standards.
On-Chain Wallets: Each agent operates an ERC-6551 wallet, enabling autonomous transactions, asset management, and financial independence.
What Virtuals Do
The Virtuals Protocol redefines digital engagement across gaming, entertainment, and decentralized economies. By simplifying AI adoption, rewarding contributors, and lowering barriers for non-experts, it creates a scalable ecosystem that delivers value for stakeholders. The platform’s agents collectively hold a valuation of over $850 million at the time of publishing, led by Mentigent and aidog_agent. Ownership of these two tokenized AI agents is fractionalized; each is held by more than 200 owners who receive a share of the revenue generated.
Sample Legal Issues Associated with Virtuals
As with any emerging technology, Virtuals Protocol faces several legal challenges:
Intellectual Property Rights: The creation and use of AI agents raise questions about the ownership and protection of intellectual property. Ensuring that creators and users have clear rights and protections is crucial;
Data Privacy: AI agents collect and process vast amounts of user data, raising concerns about data privacy and security. Robust safeguards are necessary to protect user information;
Liability and Safety Standards: Ensuring the safety and reliability of AI agents is essential. Legal frameworks must address potential liabilities and establish safety standards to protect users; and
Regulatory Compliance: As AI and blockchain technologies evolve, regulatory compliance becomes increasingly complex. Virtuals Protocol must navigate various legal requirements to ensure its operations remain lawful and ethical.
Securities Laws: The tokenization of AI agents as ERC-20 tokens and the fractionalized ownership of high-value AI agents may attract scrutiny under securities laws. If the SEC deems these tokens to be investment contracts under the Howey Test, the project could face enforcement actions, requiring registration. See here for our discussion on the SEC’s gameplan for crypto under Trump.
Consumer Finance Laws: The collection and processing of user data by AI agents could subject the project to data privacy and consumer protection regulations. Furthermore, if promotional efforts are perceived as deceptive or unfair to users or investors, this could lead to enforcement actions under federal or state consumer protection laws. To the extent revenue-sharing models are subject to consumer protection laws, this could trigger requirements for fair and clear disclosures to fractionalized owners.
AI-Specific Regulations: The Federal Trade Commission (FTC) has issued guidance emphasizing the importance of transparency and honesty in the use of AI, and cautioning against deceptive practices such as making misleading claims about AI capabilities or results. Overstating the capabilities or revenue generating potential of AI agents to attract users or investors could lead to increased regulatory scrutiny and enforcement. Proposed federal legislation, such as the Algorithmic Accountability Act, would require projects like Virtuals to assess the impacts of bias and discrimination on automated decision-making systems, including AI. AI agents may require audits for bias, transparency, and accountability, particularly given their use in user interactions and decision-making.
Despite the novel legal issues Virtuals Protocol presents, the project represents an exciting and significant advancement in the integration of AI and blockchain technologies. By transforming AI agents into tokenized assets, it creates new opportunities for digital engagement and revenue generation. However, addressing the associated legal issues is essential to ensure user trust and the platform’s sustainable growth.
A More Business-Friendly Approach to Innovation, Risk Management and Derivatives Regulation: What to Expect From Incoming CFTC Chairman Brian D. Quintenz
President Donald Trump’s nomination of Brian D. Quintenz to serve as Chairman of the Commodity Futures Trading Commission (CFTC or Commission) portends a potential shift towards a more business-friendly regulatory approach to overseeing US derivatives markets and CFTC-regulated products. Informed by his years of private sector and public service experiences,1 Mr. Quintenz will return to the CFTC with helpful insights into how regulations practically impact market participants.
As a CFTC commissioner from 2017 to 2021 under the first Trump administration, Mr. Quintenz consistently focused on addressing actual market risks while promoting innovation and technology. Mr. Quintenz’s record suggests that he will be a chairman who embraces technological innovation while insisting on practical safeguards, seeks targeted rather than sweeping regulatory solutions, and works closely with other regulators both domestically and abroad. In each area, he has emphasized that the CFTC should seek to address real market impacts and consider the practical implications of the agency’s rulemakings and guidance. Drawing from his past public statements both while he was a CFTC commissioner and in the years following his government tenure, this advisory briefly examines how Mr. Quintenz’s regulatory worldview will likely influence several key CFTC initiatives, from market innovation to international harmonization efforts.
Following President Trump’s February 12 nomination, Mr. Quintenz will need to secure Senate confirmation before assuming the chairmanship. While the Senate has not yet scheduled confirmation hearings, the process typically extends several weeks or months after nomination as the Senate conducts its review.
Innovation and Technology
Mr. Quintenz’s approach to innovation and technology reflects a pro-business, pro-innovation stance moderated by practical risk management considerations. Rather than supporting blanket or vague regulations that inadvertently engulf a wide array of technologies, Mr. Quintenz has advocated for a more tailored approach that first identifies specific risks, then examines existing market-based solutions, and finally determines whether additional regulation can effectively address remaining concerns.2 Mr. Quintenz has argued “the Commission should not adopt . . . regulations to address amorphous, hypothetical concerns or simply for the sake of having them on the book.”3
Mr. Quintenz’s philosophy aligns with the CFTC’s mandate as set forth in the Commodity Exchange Act (CEA) for the agency to promote responsible innovation.4 Mr. Quintenz has consistently followed this mandate in his various leadership roles at the agency. For instance, as sponsor of the CFTC’s Technology Advisory Committee, he demonstrated this balanced approach by driving the broader integration of financial technology in derivatives markets while seeking appropriate safeguards through state-of-the-art risk control mechanisms and scalable cybersecurity programs.5
In the context of his record on supporting or challenging Commission rulemaking, his stance on the ultimately withdrawn Regulation Automated Trading (Reg AT) further illustrates his philosophy regarding innovation and risk management. Mr. Quintenz opposed the various iterations of Reg AT because in his view each proposal departed from promoting responsible innovation, arguing that the proposals would have imposed rigid, one-size-fits-all risk controls while failing to address specific market risks posed by automated trading.6 He particularly criticized one of Reg AT’s requirements to disclose proprietary source code without a subpoena, viewing this as an example of unnecessary regulatory overreach that would stifle innovation without providing corresponding regulatory benefits.7
Digital Assets. Drawing on his experience as both a CFTC commissioner and private fund advisor, Mr. Quintenz has demonstrated that he is a strong advocate for functional and well-regulated digital asset markets. He also has pushed for the agency to take a balanced and pragmatic perspective towards fraud concerns. In his public statements, Mr. Quintenz highlighted how digital assets can reduce settlement times from days to minutes and enable 24/7 market access — innovations he has argued could reduce costs for market participants while expanding global market accessibility.8
Notably, Mr. Quintenz has advocated for equal regulatory treatment for all financial products at the CFTC, arguing that regulators should focus on enforcing market integrity and preventing fraud rather than deciding which new products are worthy of investment through the adoption of additional regulatory requirements. He has maintained that federal regulators should avoid adopting regulations and imposing requirements with the goal of influencing investment decisions. In his view, investment decisions are best left to markets, investors, and consumers.9 At the same time, Mr. Quintenz has taken a firm stance on fraud and market manipulation, supporting enforcement actions to significantly penalize market misconduct by bad actors.10
Event Contracts. With respect to other innovative products, Mr. Quintenz has raised concerns about the current regulatory framework of CEA section 5c(c)(5)(C) and CFTC Regulation 40.11 covering event contracts,11 which are a type of swap that allow market participants to take positions on the outcomes of specific events. Under this regulation, the CFTC may prohibit a CFTC-regulated contract market or swap execution facility from offering certain event contracts if the contract:(1) involves terrorism, assassination, war, gaming, or an activity that is unlawful under any state or federal law; and (2) the CFTC determines that offering the contract would be against the public interest.12 The CFTC may also prohibit contracts involving similar activities that it determines by rule or regulation to be contrary to the public interest.13
In his March 2021 statement on the CFTC’s consideration of certain sports futures contracts, Mr. Quintenz argued that Congress, not the CFTC, must either ban these contracts outright or establish clear criteria for their review and approval.14 His dissent specifically challenged the CFTC’s decision-making process in the case, questioning both the Commission’s methodologies and statutory authority in evaluating whether the contracts are contrary to the public interest.15
Risk Management
Mr. Quintenz’s views on risk management have centered on targeted approaches rather than broad-sweeping regulations. He has advocated for “smart regulation” that diverges from one-size-fits-all proposals, instead prioritizing thoughtful analysis of policy goals, regulatory costs and impacts on incentives.16 Mr. Quintenz has applied this same principle to regulatory relief, supporting the codification of no-action relief in specific cases to enhance transparency and simplify compliance.17 This strategy reflects his broader commitment to creating clear, practical regulatory frameworks that address real rather than theoretical risks.
Enforcement
Mr. Quintenz has emphasized that “enforcement is not a substitute for guidance” in financial regulation.18 While supporting targeted action against clear violations, he has argued that using enforcement cases to establish regulatory policy — particularly for emerging technologies like digital assets — fails to provide market participants with the clarity they need.19 As he stated in June 2023, “Litigating whether specific tokens are securities through enforcement actions against third parties . . . is inappropriate and does little to protect consumers or provide markets with clarity.”20 To the contrary, Mr. Quintenz has advocated for a collaborative approach where regulators work with market participants to develop clear rules before pursuing enforcement actions.21
Collaboration on Domestic and International Issues
A central tenet of Mr. Quintenz’s regulatory approach has been his emphasis on enhanced coordination among domestic and international regulators. His previous work with Securities and Exchange Commission (SEC) Commissioner Hester Peirce reinforces his commitment to interagency coordination.22 It is likely that Mr. Quintenz will seek to collaborate with incoming SEC Chairman Paul Atkins and other SEC commissioners (including Commissioner Peirce) on areas of overlapping jurisdiction between the agencies, including digital asset classification and the regulation of joint registrants.
On the international front, Mr. Quintenz has advocated for regulatory deference and respect for sovereign regulatory frameworks.23 He has supported a robust deference regime that would limit duplicative regulation while protecting US interests, as evidenced by his support for exemptive relief for non-US derivatives clearing organizations.24 During his time as a CFTC commissioner, he consistently reiterated Congress’s statutory directive that the CFTC has authority to only regulate those foreign activities that have “a direct and significant connection with activities in, or effect on commerce, of the United States.”25
Mr. Quintenz also has advocated for increased reliance on substituted compliance and mutual recognition between jurisdictions as key tools to prevent market fragmentation.26 As a CFTC commissioner, Mr. Quintenz argued that mutual recognition between jurisdictions would preserve market liquidity while respecting different regulatory frameworks. Moreover, he supported a flexible, outcomes-based framework for future comparability determinations that will evaluate the goals of the CFTC’s regulations against the standards of its foreign counterparts’ regimes, as opposed to a rigid prescriptive comparison.27
Conclusion
With the proliferation of new and emerging technologies in US financial markets (such as digital assets, event contracts and generative artificial intelligence (Gen AI)), Mr. Quintenz’s vision for the CFTC will likely result in more pragmatic regulatory policy and enforcement. His support for innovation, emphasis on targeted risk management, and commitment to regulatory coordination will likely shape his approach as CFTC chairman. Under his leadership, the CFTC is likely to pursue a regulatory agenda that balances innovation with investor protection, emphasizing practical, actionable solutions. This approach, combined with his commitment to working with market participants and other regulators, will help guide the Commission through an increasingly complex and interconnected global financial system. For financial services firms, Mr. Quintenz’s chairmanship may signal a period of more pragmatic and targeted regulation, with an emphasis on addressing specific and identifiable risks.
1 Mengqi Sun, Trump Picks Brian Quintenz to Be CFTC Chairman, Wall St. J. (Feb. 13, 2025, 1:47 PM), https://www.wsj.com/articles/trump-picks-brian-quintenz-to-be-cftc-chairman-3e23352d.
2 Brian D. Quintenz, Comm’r, CFTC, “Statement of Commissioner Brian D. Quintenz on the End of His Term and Future Plans” (Aug. 19, 2021), available at: https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatement081921.
3 Brian D. Quintenz, Comm’r, CFTC, “Opening Statement of Commissioner Brian D. Quintenz before the Technology Advisory Committee” (Feb. 14, 2018), available at: https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatement021418.
4 7 U.S.C. § 5(b).
5 See Press Release, CFTC, “Commissioner Quintenz Named Sponsor of the Technology Advisory Committee” (Sept. 18, 2017), available at: https://www.cftc.gov/PressRoom/PressReleases/7611-17.
6 Supra note 3.
7 Brian Quintenz, Comm’r, CFTC, “Keynote Remarks Before the Symphony Innovate 2017 Conference” (Oct. 4, 2017), https://www.cftc.gov/PressRoom/SpeechesTestimony/opaquintenz1.
8 Supra note 6.
9 Brian D. Quintenz, Comm’r, CFTC, “Remarks at the Technology and Standards: Unlocking Value in Derivatives Markets Conference” (Nov. 30, 2017), https://www.cftc.gov/PressRoom/SpeechesTestimony/opaquintenz4.
10 Brian D. Quintenz, Comm’r, CFTC, “Statement of Commissioner Brian D. Quintenz Regarding the Commission’s Enforcement Action against BitMEX” (Oct. 1, 2020), available at: https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatement100120.
11 Brian D. Quintenz, Comm’r, CFTC, “Statement of Commissioner Brian D. Quintenz on ErisX RSBIX NFL Contracts and Certain Event Contracts” (Mar. 25, 2021), available at: https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatement032521.
12 7 U.S.C. § 7a-2(c)(5)(C).
13 Id.
14 Brian D. Quintenz, Comm’r, CFTC, “Statement of Commissioner Brian D. Quintenz on ErisX RSBIX NFL Contracts and Certain Event Contracts” (Mar. 25, 2021), available at: https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatement032521.
15 Id.
16 Brian D. Quintenz, Comm’r, CFTC, “Keynote Address of Commissioner Brian D. Quintenz before the Smart Financial Regulation Roundtable” (Nov. 2, 2017), available at: https://www.cftc.gov/PressRoom/SpeechesTestimony/opaquintenz3.
17 Id.
18 Brian D. Quintenz, Comm’r, CFTC, “Statement of Commissioner Brian D. Quintenz Regarding the Commission’s Enforcement Action against BitMEX” (Oct. 1, 2020), available at: https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatement100120.
19 Id.
20 Former CFTC Commissioner: Enforcement Is Not a Substitute for Guidance, N.M. Sun (June 8, 2023), https://newmexicosun.com/stories/644420239-former-cftc-commissioner-enforcement-is-not-a-substitute-for-guidance.
21 Id.
22 Supra note 2.
23 Id.
24 Id.
25 Brian D. Quintenz, Comm’r, CFTC, “Supporting Statement of Commissioner Brian D. Quintenz Regarding the Cross-Border Application of the Registration Thresholds and Certain Requirements Applicable to SDs and MSPs – Final Rule” (July 23, 2020), available at: https://www.cftc.gov/PressRoom/SpeechesTestimony/quintenzstatement072320.
26 Id.
27 Id.
Updated: The Future of Gender-Affirming Care – New Legal and Regulatory Considerations for Hospitals Providing These Services
As legal and policy developments continue to evolve, hospitals and health care professionals that provide gender-affirming care face new uncertainties regarding federal funding, compliance, and patient access. While these changes may not impact health care organizations that do not offer gender-affirming services, those that do must stay informed to navigate the rapidly changing legal landscape.
Gender-affirming care, which includes medical and psychological interventions for transgender and nonbinary individuals, is a service endorsed by the American Medical Association, the American Academy of Pediatrics, and the Endocrine Society. New federal guidance and pending legal disputes raise questions about how hospitals and health care professionals that offer these services may continue to do so while maintaining compliance with evolving regulations.
A key concern for these institutions is the potential impact on federal funding for hospitals that provide gender-affirming care, particularly for minors. Recent executive actions and policy statements have signaled that certain federal funding streams—such as Medicare and Medicaid reimbursements, medical education grants, and research funding—could be subject to additional scrutiny. While the full extent of enforcement remains unclear, agencies such as the Department of Health and Human Services and the Centers for Medicare & Medicaid Services are expected to issue further guidance that could affect reimbursement policies and institutional funding structures.
Late last week two federal courts granted temporary restraining orders (“TROs”) enjoining parts of President Trump’s Executive Order 14187, related to gender affirming care, and Executive Order 14168, related to recognition of gender identity.
On February 13, a federal court in Maryland granted a nationwide TRO prohibiting the U.S. Department of Health and Human Services (“HHS”), Health Resources and Services Administration, National Institutes of Health, National Science Foundation, and any subagencies of HHS from conditioning or withholding federal funding based on the fact that a healthcare entity or health professional provides gender affirming medical care to a patient under the age of nineteen. The TRO will be in effect for 14 days. The order also requires the federal agencies to file a status report by February 20 to inform the court about their compliance with the order. The TRO only enjoins the provisions of Executive Orders 14187 and 14168 related to federal funding and grant conditions. The other provisions of EO 14187, including those directing the Secretary of HHS to take appropriate regulatory and sub-regulatory actions in the Medicare and Medicaid programs and in health insurance coverage offered through Exchanges to end gender affirming care for children, remain in effect.
On February 14, a federal court in Washington granted a second TRO related to EO 14187, temporarily blocking enforcement and implementation of both the EO provision related to conditions on federal funding and the provision redefining the term “female genital mutilation” under a U.S. criminal statute. The TRO will also be in effect for 14 days and applies only within the states of Washington, Oregon and Minnesota.
The temporary restraining orders have paused some of the executive order’s effects, but they are only short-term measures. If they expire without further legal intervention, hospitals and health care professionals that provide gender-affirming care could once again face challenges related to federal funding, compliance risks, and regulatory enforcement. While the funding restrictions are currently blocked, the executive order also directs federal agencies to take broader action against gender-affirming care in federal programs, which could lead to further administrative and regulatory hurdles.
For hospitals and health care professionals that provide gender-affirming care and rely on Medicare and Medicaid reimbursements, federal research grants, or medical education funding, this uncertainty makes it difficult to plan ahead. There is also the question of how federal agencies will interpret and apply these policies once the TROs expire, particularly in states with existing protections for gender-affirming care.
Hospitals and health care professionals that provide gender-affirming care need to assess their financial risk, legal position, and potential compliance strategies now rather than waiting for additional court rulings. Being proactive in understanding the risks and preparing for different scenarios will help institutions navigate what remains a highly fluid and unpredictable regulatory environment.
Given the shifting regulatory environment, hospitals and health care professionals that continue to offer gender-affirming care should take proactive steps to mitigate risks and ensure compliance. Conducting a thorough review of federal funding sources will be essential in assessing exposure to potential funding restrictions. Performing an inventory of the types of gender-affirming care being provided as well as gender-affirming mental health support and research is also advisable. Engaging with legal and policy experts to develop compliance strategies will help institutions navigate changing regulations while maintaining patient care commitments.
Additionally, in states where gender-affirming services remain protected, hospitals and health care professionals may still face federal scrutiny but could have stronger legal grounds to continue offering care. In states with restrictive policies, exploring out-of-state partnerships or telehealth models may provide alternative pathways for patient access.
As this issue continues to develop, healthcare institutions and professionals that provide gender affirming care must remain agile and prepared for further policy changes. The next several months are likely to bring additional legal challenges, agency directives, and potential legislative responses that could further shape the landscape. Hospitals and health care professionals providing gender-affirming care should actively assess their institutional risk, consult legal and policy experts, and remain engaged in broader policy discussions to ensure they can continue to deliver these services while staying compliant with applicable laws.
Healthcare Preview for the Week of: February 18, 2025 [Podcast]
President’s Day Shortened Week
After the President’s Day long weekend, the House is out of session this week. The Senate is in session, with a continued focus on nominations and potential floor action on the budget resolution that the Senate Budget Committee reported last week. This week the Senate Homeland Security & Governmental Affairs Committee will hold a hearing for Dan Bishop, nominated to be deputy director of the Office of Management and Budget. Healthcare could certainly be a topic that is raised at the hearing.
What remains to be seen this week is whether there will be additional steps toward budget reconciliation. Last week, the Senate and House budget committees passed very different budget resolutions. The Senate version is the first of two reconciliation efforts and is focused only on energy, immigration, and defense policies, while the House wants to pass one big package with all priorities, including extending the Trump tax cuts. Either version will likely include healthcare policies in order to offset spending priorities, although the magnitude of healthcare cuts, in particular for Medicaid, is far greater in the House, whose budget resolution targets a minimum of $880 billion in savings from the House Energy and Commerce Committee. With the House out this week, the Senate could advance its budget resolution to floor consideration and send it on to the House. Of course, the House is not required to then act on that bill. It is very possible that the House could move forward with its own approach. But, before either body can turn to the substantive work of developing a reconciliation package, a unified budget resolution must pass both bodies.
Last Thursday, Robert F. Kennedy (RFK) Jr. was confirmed and sworn in as secretary of the US Department of Health and Human Services (HHS). His Senate confirmation vote was 52 – 48, with Sen. McConnell (R-KY) the sole Republican to vote no. As predicted, immediately after RFK Jr.’s swearing in, President Trump took several healthcare actions. He signed an executive order establishing the Make America Healthy Again Commission, whose initial mission is to advise the president on how to address childhood chronic diseases. The order directs the commission to study contributing causes, advise the president on public education, and provide government-wide recommendations to address contributing causes. Additional executive orders on healthcare could be forthcoming.
As forecast, the Trump administration laid off thousands of HHS employees on Friday and over the weekend, including at the US Food and Drug Administration, the Centers for Medicare and Medicaid Services, and the National Institutes of Health. The Trump administration contends that the layoffs did not include essential workers. Individuals laid off primarily include those in a probationary period, but the impact of these changes is still being understood and is likely to impact the operation of Medicare, Medicaid, federal grant programs, and other HHS functions.
Today’s Podcast
In this week’s Healthcare Preview podcast, Debbie Curtis and Rodney Whitlock join Julia Grabo to recap the mass HHS layoffs over the long weekend and discuss next steps in the budget reconciliation process.
United States: SEC Issues New Guidance on Schedule 13G Eligibility
The SEC’s Division of Corporation Finance recently issued new guidance regarding when shareholders can file beneficial ownership reports on Schedule 13G. While the 11 February 2025 Compliance and Disclosure Interpretation (C&DI) maintains the same fundamental principles as before, it adopts a more nuanced approach to what constitutes “changing or influencing control of the issuer.”
What Hasn’t Changed
The basic framework remains intact: shareholders can still file on Schedule 13G if their securities weren’t acquired or held with the purpose of changing or influencing issuer control. The guidance continues to prohibit using Schedule 13G when advocating for clear “control” transactions, such as:
Sale of the issuer
Sale of significant assets
Restructuring
Contested director elections
What Has Changed
The new guidance takes a more detailed look at how shareholders engage with management. While simply discussing views or voting decisions remains acceptable, the C&DI now explicitly addresses pressure tactics. Specifically, shareholders might lose Schedule 13G eligibility if they:
Exert pressure on management to implement specific measures
Condition their support for director nominees on the adoption of particular policies
Link their voting decisions to management’s acceptance of their recommendations
Practical Impact
This interpretation represents more of a tone shift than a substantive change in policy. However, it may cause institutional investors to think twice about their engagement strategies. Those who currently file on Schedule 13G might become more cautious about how they communicate their voting policies, particularly if those policies include withholding support from directors at companies with inconsistent practices.
The guidance suggests that while engagement remains acceptable, the manner and context of that engagement matter more than previously emphasized. Shareholders will need to carefully consider how they frame their discussions with management to maintain their Schedule 13G eligibility.