SEC Staff Declares Certain Protocol Staking Not a Security Transaction
On May 29, 2025, the U.S. Securities and Exchange Commission’s Division of Corporation Finance issued a statement clarifying its view that certain types of protocol staking—a process used in proof-of-stake (PoS) blockchain networks—do not involve the offer and sale of securities under federal law. The statement, which applies to staking activities involving “Covered Crypto Assets,” concludes that these activities are administrative or ministerial in nature and therefore fall outside the scope of the Howey test for investment contracts.
The Division’s position covers three common staking models: self-staking, self-custodial staking with a third party, and custodial staking through a service provider. In each case, the Division emphasized that the rewards earned are not derived from the entrepreneurial or managerial efforts of others, but rather from the protocol’s rules and the participant’s own actions.
To support its conclusion, the Division applied the Howey test, which asks whether there is an investment of money in a common enterprise with an expectation of profits from the efforts of others. According to the statement, protocol staking fails this test because participants retain ownership of their assets, rewards are earned by complying with protocol rules, not third-party management, and services like slashing protection or early unbonding are considered “ancillary” and not indicative of managerial effort.
The statement also notes that it does not address more complex staking models like liquid staking or restaking, nor does it carry legal force.
SEC Commissioner Caroline A. Crenshaw issued a dissent, arguing that the staff’s analysis misrepresents both the law and the facts. She pointed to recent court decisions that upheld the SEC’s enforcement actions against staking-as-a-service providers, where courts found that such services involved entrepreneurial efforts—including asset pooling, technical infrastructure, and liquidity enhancements—that satisfied the Howey test. Crenshaw criticized the staff’s framing of these features as “ancillary,” noting that courts have previously found similar features to be hallmarks of investment contracts. She also raised concerns about the use of terms like “custodian,” which may imply regulatory protections that do not exist in the crypto space. Crenshaw warned that the SEC’s current approach, which relies on staff statements and enforcement dismissals, sows confusion and undermines investor protection. As the crypto industry awaits a more comprehensive regulatory framework, stakeholders should remain cautious. The legal status of staking services may still depend on how they are structured and marketed, and whether courts continue to view them as investment contracts under existing law.
Stay on Alert: CFTC Staff Reminds Registered Exchanges and Clearinghouses to Evaluate and Calibrate Their Volatility Control Mechanisms
The Commodity Futures Training Commission’s (“CFTC”) Division of Market Oversight and Division of Clearing and Risk issued an advisory (the “Staff Advisory”) reminding designated contract markets (“DCMs”) and derivatives clearing organizations (“DCOs”) of their regulatory obligations under the Commodity Exchange Act (“CEA”) and CFTC regulations to implement and consistently evaluate the efficacy of their controls designed to address market volatility. These controls—referred to as volatility control mechanisms (“VCMs”) by the Committee on Payments and Market Infrastructure and the International Organization of Securities Commissions—are especially important in today’s environment, where global events such as pandemics, wars, sanctions, political instability, and abrupt policy changes can drive extreme volatility.
The May 22 Staff Advisory reflects the most recent development in the industry related to VCMs. In September 2023, the Futures Industry Association (“FIA”) published a paper supporting VCMs, noting their effectiveness in preserving market integrity by mitigating disruptions from sudden price swings, erroneous orders, and feedback loops under stress (“FIA Best Practices”). FIA also advocated for a principles-based approach to VCM design to ensure adaptability across asset classes and changing market conditions.
The FIA Best Practices recommended that DCMs implement robust, flexible controls such as circuit breakers, price bands, and pre-trade risk checks that are tailored to their specific markets and trading conditions. For DCOs, the Staff Advisory underscores the potential impact of VCMs on clearing functions, particularly around variation margin and settlement pricing during volatile periods. DCOs must exercise discretion in ensuring settlement prices reflect market reality when normal pricing methods are disrupted, and should transparently communicate such deviations to clearing members and end-users.
In November 2023, the CFTC’s Global Markets Advisory Committee (“GMAC”), chaired by Acting Chairman Caroline Pham, played a pivotal role in advancing these best practices. Composed of a broad cross-section of market infrastructures, participants, end-users, and regulators, GMAC recommended that the CFTC leverage the FIA Best Practices to deepen its understanding of exchange-level risk controls and as a foundation for engagement with global regulators and international standard setters.
In line with this recommendation, the Staff Advisory reinforces that DCMs and DCOs are expected to fulfill their existing responsibilities and incorporate best practices to maintain fair, orderly, and resilient markets during times of elevated volatility.
The Staff Advisory is available here. FIA’s Best Practices is available here.
Investment Management Client Alert May 2025
ESMA Publishes Final Reports on Liquidity Management Tools
On 15 April 2025, the European Securities and Markets Authority (ESMA) published its final reports on the Regulatory Technical Standards (RTS) and the Guidelines on Liquidity Management Tools (Guidelines). The liquidity management tools (LMTs) were significantly amended by the Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD) review. ESMA has a mandate to develop the regulatory technical standards and guidelines and initiated a consultation on this in July 2024.
The RTS are intended to specify the characteristics of the nine LMTs that have been introduced by the AIFMD review. The Guidelines, which are to be read together with the RTS, also concern the selection, activation, and adjustment of the LMTs.
The Guidelines contain a breakdown of the LMTs into three categories: quantitative-based tools (e.g., redemption suspension and restriction), anti-dilution tools (e.g., redemption fees), and other tools (e.g., separating illiquid investments into so-called side pockets). Management companies should assess which LMTs are suitable for which fund types and in which (normal or stressed) market situations and provide a number of examples.
Compared to the consultation, the RTS provide for greater flexibility in the design of the activation limits for redemption restrictions. The requirement for LMTs to be applied uniformly across all share classes has been removed (except for the case of suspension). The organizational requirements for a so-called LMT policy to be drawn up have also been removed from the Guidelines.
In principle, the European Commission has three months to adopt the RTS or submit proposals for amendments (15 July 2025). The RTS will enter into force 20 days after adoption by the European Commission, although no explicit date is specified for the applicability of the regulations in the RTS and Guidelines (the AIFMD review itself must be implemented by 16 April 2026). A 12-month transitional period applies to investment funds that already exist prior to the date of applicability of the RTS and Guidelines.
ESMA Publishes Final Report on MiFID II Best Execution Requirements
On 10 April 2025, ESMA published its final report on the RTS on best execution. The best execution requirements in the EU Markets in Financial Instruments Directive (MiFID II) were amended as part of the MiFID II review. ESMA has a mandate to develop the technical regulatory standards and initiated a consultation on this in July 2024.
Investment firms executing client orders must monitor the effectiveness of their order execution policy and arrangements and assess, among other things, whether execution venues are providing the best possible result for clients. The RTS should specify criteria to be taken into account when determining and assessing the effectiveness of the order execution policy.
The RTS stipulate that the selected trading venue must be regularly reviewed on the basis of alternative trading venues to ensure that the best possible result is achieved for the client. Compared to the consultation, the requirements for selecting the trading venue have been simplified (e.g., fewer selection criteria).
The European Commission generally has three months to adopt the RTS or submit proposals for amendments (10 July 2025). The RTS enter into force 20 days after adoption by the European Commission. The RTS are applicable 18 months after entry into force.
ESMA Consults RTS on ESG Rating Regulation
On 2 May 2025, ESMA published a consultation paper on draft RTS regarding various aspects of the European Environmental, Social, and Governance (ESG) Rating Regulation.
The ESG Rating Regulation aims to contribute to the transparency and quality of ESG ratings by improving the integrity, transparency, comparability, responsibility, reliability, good governance, and independence of ESG ratings.
The draft RTS defines information that ESG rating providers should provide in applications for authorization and recognition. In addition, the draft details the measures and safeguards that should be put in place to mitigate the risks of conflicts of interest for ESG rating providers when they also engage in activities other than issuing ESG ratings. Finally, the draft proposes information that ESG rating providers should disclose to the public, rated entities, and issuers of rated entities, as well as users of ESG ratings.
ESMA will review the consultation feedback received by 20 June 2025 and plans to publish a final report in October 2025.
ESMA Publishes New Consolidated PRIIPs Q&A
On 5 May 2025, ESMA published an updated version of its Consolidated Questions and Answers (Q&A) on the PRIIPs Key Information Document (KID). Compared to the last version dated 15 March 2024, the document contains further clarifications regarding the definition of the class for the market risk measure (MRM class), the performance scenarios, and the calculation of the summary cost indicator. Regarding entry costs (e.g., issue premiums), for example, it is clarified that these are included in the assumed investment amount of EUR 10,000 (as per point 90 of Annex VI of Delegated Regulation (EU) 2017/653) and are not added on top.
BaFin Consults on “Circular on Members of the Management Board and of Administrative and Supervisory Bodies pursuant to the German Banking Act (KWG)”
On 14 May 2025, the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, or BaFin) published a draft of a “Circular on Members of the Management Board and of Administrative and Supervisory Bodies pursuant to the German Banking Act” (also known as the “Fit and Proper” Circular) for consultation. The final circular is intended to replace the existing “Guidance Note on Managers in accordance with the KWG, ZAG and KAGB” and the “Guidance Note on Members of Administrative and Supervisory Bodies in accordance with the KWG and KAGB”. The aim of the new circular is to summarize the currently existing individual guidance notes for the future in order to avoid duplication and to implement common European guidelines, insofar as BaFin adopts these in its administrative practice. It also contains completion and administrative instructions and takes into account requirements from the German Risk Reduction Act (Risikoreduzierungsgesetz). The consultation is open for comments until 13 June 2025.
BaFin Consults on Ordinance to Simplify Holder Control Procedures and Certain Personal Notifications
On 20 May 2025, BaFin published a draft of an “Ordinance on the Simplification of Holder Control Procedures and Certain Personal Disclosures” for consultation. This ordinance is intended to simplify the holder control procedure in relation to credit institutions, financial services institutions, insurance companies, pension funds, and insurance holding companies in accordance with the German Holder Control Regulation Ordinance (Inhaberkontrollverordnung – InhKontrollV) and in relation to other financial companies to which the InhKontrollV applies accordingly with regard to the documents (e.g., certificates of good conduct) and declarations (e.g., CVs) to be submitted. Indirect acquirers who are not at the top of the acquiring group should, as a rule, no longer have to submit any documents beyond the notification of their intention to acquire, and, in the case of holder control proceedings relating to leasing and factoring institutions in liquidation, the submission of documents may be waived if necessary. Further simplifications focus on natural persons and the documents relating to their reliability. The consultation is open for comments until 5 June 2025.
BaFin Plans Product Intervention With Regard to Trading in Turbo Certificates
BaFin announced on 21 May 2025 that it intends to restrict trading in turbo certificates by issuing a general ruling due to significant concerns for investor protection, and that it is now launching a consultation with affected market participants. Accordingly, the marketing, distribution, and sale of the products shall only be permitted under certain conditions in the future. In particular, a standardized risk warning is to be included, bonuses (e.g., reduced order fees) are no longer to be granted, and an extended appropriateness test is to be carried out. This was preceded by a market investigation by BaFin, which found that 74.2% of investors had suffered losses when trading these leveraged derivative products. The legal bases for this supervisory measure are Art. 42 of the European Markets in Financial Instruments Regulation (MiFIR) and § 15 (1), sentence 2, of the German Securities Trading Act (Wertpapierhandelsgesetz) in conjunction with Art. 42 MiFIR. Responses to the planned measure can be submitted to BaFin until 3 July 2025.
A Gap in the Market for Corruption Enforcement
This article will examine the evolving attitudes of the United Kingdom (“UK”), European Union (“EU”) and United States (“US”) toward corruption enforcement and will assess whether the UK and EU will be able to plug the potential enforcement gap created by President Trump’s recent Executive Order.
The United States
On February 10, 2025, President Trump issued an Executive Order titled, ‘Pausing Foreign Corrupt Practices Act Enforcement to Further American Economic and National Security’ (the “EO”). As discussed in our previous article, this directs the US Department of Justice (“DOJ”) to pause enforcement of the Foreign Corrupt Practices Act (“FCPA”) for 180 days, while the Attorney General reviews the guidelines and policies governing FCPA investigations and enforcement actions.
The EO does not remove all bribery and corruption risks because, among other things and notwithstanding the temporary pause, it does not apply to civil actions brought by the US Securities and Exchange Commission, it does not repeal the FCPA, and the FCPA’s statute of limitations remains five years, which could run longer that the current enforcement pause. However, the EO, in addition to numerous other Executive Orders (which can be found here), highlights a shift in enforcement priorities under the Trump administration, the full effects of which are yet to be seen.
European Union
While the US has signalled that it is scaling back on enforcement that “actively harms American economic competitiveness,”[1] the EU is demonstrating an increased commitment to robust bribery and corruption enforcement.
On May 3, 2023, the European Commission put forward an anti-corruption package, which included a proposal for a directive focused on tackling corruption. The proposal’s explanatory memorandum described corruption as an “impediment to sustainable economic growth, diverting resources from productive outcomes”. The Council of the EU approved the general approach for the directive on June 14, 2024, and noted that the EU’s current instruments are “not sufficiently comprehensive, and the current criminalisation of corruption varies across Member States hampering a coherent and effective response across the Union.” The Council of the EU said the directive will establish “minimum rules concerning the definition of criminal offences and criminal and non-criminal penalties in the area of corruption, as well as measures to better prevent and fight corruption.”
In addition to potential legislative changes, on March 20, 2025, the creation of the International Anti-Corruption Prosecutorial Taskforce (the “Taskforce”) was announced. The Taskforce, which includes the UK’s Serious Fraud Office (“SFO”), the Office of the Attorney General of Switzerland and France’s Parquet National Financier, issued a Founding Statement, recognizing “the significant threat of bribery and corruption and the severe harm it causes.”[2] The Taskforce seeks to deliver a Leaders’ Group for exchanging insight and strategy, a Working Group for devising proposals for co-operation, increased best practice sharing, and a strengthened foundation to seize opportunities for operational collaboration.
United Kingdom
The UK has also taken positive action to ameliorate its corruption detection and enforcement strategy.
First, the Economic Crime and Corporate Transparency Act 2023, introduced the failure to prevent fraud offence (“FTPFO”), which means that large organizations, wherever located, can be held criminally liable if a fraud offence is committed by an “associated person” for, or on behalf of, the organisation with the intention of benefitting the organization or its clients. The SFO’s Business Plan 2025-26, emphasized that the “deployment of the failure to prevent fraud offence in September will be a landmark moment which will widen the reach and breadth of prosecutions.”[3]
Also included in the SFO Business Plan was an intention to “progress whistleblower incentivisation reform.” Whistleblower incentivization increases the likelihood of reports being made which first reduces corruption by acting as a deterrent but also aids enforcement as an information gathering tool. The Financial Conduct Authority and Prudential Regulatory Authority have previously cautioned against providing financial incentives for whistleblowers, due to concerns over entrapment, malicious reporting, the quality of reports, and the cost-effectiveness of such schemes.[4] This position is at odds with that adopted by the US where, for example, the US Department of the Treasury’s Financial Crimes Enforcement Network has implemented a whistleblower program that incentivizes individuals to report anti-money laundering or sanctions violations. A report by RUSI highlights that US incentivization schemes are so effective, “that US regulators are consistently benefiting from information provided by Canadian and UK citizens.”[5] At his first public speech as director of the SFO, Nick Ephgrave QPM attributed the UK’s change of direction to his intention to concentrate efforts on evidence gathering routes that would lead straight to the evidence and find “smoking guns.” Mr Ephgrave’s intention to adopt a US-style approach suggests the UK may be well-placed to plug any potential enforcement gap left by the US.
On April 24, 2025, the SFO published Guidance on Corporate Co-Operation and Enforcement in relation to Corporate Criminal Offending. This guidance outlines the SFO’s key considerations under the public interest stage of the Full Code Test for Crown Prosecutors when deciding whether to charge a corporate or invite it to enter negotiations for a deferred prosecution agreement. The guidance will make it simpler for corporates to report suspected wrongdoing by a direct route to the SFO’s Intelligence Division via a secure reporting portal.
Finally, on December 12, 2024, the UK Security Minister, Dan Jarvis MP MBE, announced the introduction of a pilot Domestic Corruption Unit (the “Unit”), set up by the City of London Police and the Home Office. The Unit will “bring together the different pieces of the system, such as national agencies, local forces [and] devolved policing bodies” and “lead proactive investigations, providing much needed capacity and a dedicated response in areas where previously this has been lacking”. [6]
Conclusion
The fate of bribery and corruption enforcement in the US is unclear. Instead of spearheading prosecution sand compliance efforts globally, the US appears, at least for the time being, to have taken a step back. However, since before President Trump took office, the EU and UK have been sharpening their enforcement capabilities. Therefore, while Nick Ephgrave QPM has been clear that the Taskforce was not in response to the EO, companies cannot rely on a period of relaxed enforcement on either side of the Atlantic.
[1] The White House, Pausing Foreign Corrupt Practices Act Enforcement to Further American Economic and National Security – The White House ((February 10, 2025)
[2] International Anti-Corruption Prosecutorial Taskforce, International_Anti-Corruption_Prosecutorial_Taskforce.pdf (March 20, 2025)
[3] Serious Fraud Office, SFO_2025-26__Business_Plan.pdf (April 3, 2025)
[4] Financial Conduct Authority, Prudential Regulation Authority, Financial Incentives for Whistleblowers (July, 2014)
[5] Royal United Services Institute, The Inside Track: The Role of Financial Rewards for Whistleblowers in the Fight Against Economic Crime (December, 2024)
[6] Home Office, Working with partners to defeat economic crime – GOV.UK (December 12, 2024)
Executive Use of Corporate Aircraft: Navigating Tax, SEC Disclosure and Other Key Considerations
Companies are increasingly allowing their chief executive officers and, in certain circumstances, other executives to use corporate jets (which may be chartered flights or fractionally or fully owned aircraft) for personal use due to various reasons. Although this benefit may be a relatively small percentage of an executive’s overall compensation package, it is still likely significant to the executive and may assist companies in attracting and retaining top talent. Further, commercial travel can pose security risks for high-profile executives; some companies permit these executives to use corporate jets due to safety and privacy concerns. Lastly, flying private may allow executives to save time and work more productively while traveling. For example, while traveling for personal reasons, executives may be able to conduct meetings and attend to any pressing business matters that arise mid-flight.
Despite these benefits, executive use of corporate jets may have complex implications, including tax consequences, SEC disclosure (publicly traded companies only) and other key considerations. As discussed in a separate Proskauer blog post, the IRS also recently announced a new audit campaign targeting the use of corporate jets, although it is unclear whether this will remain a focus of the new administration.
Tax Considerations for Private and Public Companies
Private and public companies, including private equity sponsors and other investment managers, and their employees must consider the tax consequences of allowing an executive or investment professional to use corporate jets for personal use. Specifically, under IRS rules, the value of an executive’s personal use of a corporate aircraft is treated as imputed income to the executive and is taxable compensation, subject to tax reporting and withholding. The most common method for calculating the value of the imputed income is by using the Standard Industry Fare Level (SIFL) method, which is based, among other things, on the distance flown, aircraft weight and number of passengers on a private jet. The value calculated under the SIFL method is reported as W-2 income to the executive and is subject to payroll taxes, although this amount is often significantly less than the fair market value of the benefits provided to the executive or the actual cost to the company of operating the jet. Additionally, although an employer’s cost of operating a non-commercial aircraft is generally deductible as an ordinary business expense, employers may not be able to deduct any entertainment expenses associated with personal travel under the Tax Cuts and Jobs Act (TCJA).
In order to determine the potential tax consequences of allowing an executive to use a corporate jet for personal use, companies must separately evaluate whether each passenger on a corporate jet is flying for a valid business purpose (e.g., while an executive may have a valid business purpose for flying on a corporate jet, the executive’s spouse may be traveling for entertainment in certain circumstances). If certain passengers (but not others) are traveling for entertainment, the portion of flight expenses allocated to those guests traveling for entertainment may be considered a taxable fringe benefit to the executive hosting the guests and, as an entertainment-related expense, may not be deductible to the employer under the TCJA. Importantly, these tax implications would apply even if a corporate jet has empty seats available for use at no additional cost.
SEC Disclosure Obligations for Public Companies
In addition to the foregoing tax implications, with respect to public companies only, personal use of company aircraft by the company’s named executive officers (NEOs) must also be disclosed in the company’s proxy statement under SEC rules. In particular, Item 402 of Regulation S-K requires disclosure of perquisites and other personal benefits if the total value exceeds $10,000 in a fiscal year. Importantly, the incremental cost to the company of providing this benefit, and not the value imputed to the executive, is used for purposes of this disclosure. As a result, this disclosure typically includes the cost of fuel, maintenance of the aircraft, crew costs, landing fees and in-flight catering and services, although fixed costs like the depreciation of the aircraft or any base salaries paid to staff generally are not required to be disclosed unless these costs are increased due to the executive’s personal use. In addition, if any single perk exceeds the greater of $25,000 or 10% of total perks, its specific value must be itemized, which may result in increased scrutiny from investors and regulators.
Other Key Considerations
In addition to the tax and SEC disclosure considerations, other key considerations should be analyzed. For example, internal policies and recordkeeping procedures should be established and monitored and, from a corporate governance perspective, appropriate approvals from the board or its committees (e.g., audit or compensation) should be obtained. Once approved, periodic reporting and monitoring may be advisable. Further, other regulatory considerations should be reviewed, particularly, where corporate-owned aircraft is used (e.g., FAA rules).
Proskauer Perspectives
Given these considerations, companies that permit executives to use their private aircraft should carefully track and retain information relating to their use. It is also best practice for companies to establish clear policies and guidelines regarding using aircraft for personal travel, including the process for obtaining pre-approval for any personal use. A company’s finance, tax, legal and human resources functions should also coordinate to ensure an executive’s imputed income is correctly tracked and reported and any personal use by an executive is properly disclosed in accordance with the SEC disclosure rules. Companies may also consider requiring executives to reimburse them for the costs associated with any personal use, which may mitigate some of the issues discussed in this blog post.
Although allowing executives to use a company’s private aircraft can be an attractive benefit for executives, businesses should proactively manage any associated tax, governance and operational issues and, for public companies, SEC disclosure obligations as well. By addressing these issues in a thoughtful and comprehensive manner, companies can support their management team by avoiding unnecessary surprise tax consequences and also reinforce investor confidence through consistent governance practices that contribute to long-term corporate stability and trust.
SEC Signals Reevaluation of CAT Reporting Amid Broader Transparency and Regulatory Reform Efforts
Securities and Exchange Commission (SEC) Chairman Paul S. Atkins recently directed SEC staff to conduct a review of the Consolidated Audit Trail (CAT), focusing on the escalating costs, reporting requirements, and cybersecurity risks stemming from sensitive data collection.[1] This directive aligns with Chairman Atkins’ expressed priorities to return to principled regulation, support market innovation and evolution, and reduce unnecessary compliance burdens. Among other things, Chairman Atkins cited CAT’s “appetite for data and computing power,” noting annual costs approaching $250 million, ultimately borne by investors, as the rationale for this reevaluation.[2] He supported Commissioner Mark T. Uyeda’s efforts behind the granting of an exemption from the requirement to report certain personally identifiable information (PII) to CAT for natural persons.[3]
This CAT reevaluation is part of a broader market-friendly agenda at the SEC. For example, Chairman Atkins has identified a goal of his tenure is to develop a rational regulatory framework for crypto asset markets, covering the issuance, custody, and trading of crypto assets all the while discouraging bad actors from violating the law. Chairman Atkins continues to emphasize the importance of regulatory frameworks that are “fit-for-purpose” with “clear rules of the road” for market participants to facilitate capital formation and protect investors.
While no immediate changes to CAT reporting obligations are effective beyond the PII exemption, market participants should prepare for shifts in how the SEC approaches data collection and cost allocation.
Footnotes
[1] Paul S. Atkins, Chairman, SEC, “Prepared Remarks Before SEC Speaks” (May 19, 2025), https://www.sec.gov/newsroom/speeches-statements/atkins-prepared-remarks-sec-speaks-051925.
[2] Id.
[3] Paul S. Atkins, Chairman, SEC, “Testimony Before the United States House Appropriations Subcommittee on Financial Services and General Government” (May 20, 2025), https://www.sec.gov/newsroom/speeches-statements/atkins-testimony-fsgg-052025. See Katten’s Quick Reads post on the exemptive relief for reporting personally identifiable information here.
SEC Expands the Ability of Registered Closed-End Funds to Invest in Private Funds
Since 2002, the staff of the US Securities and Exchange Commission (SEC) consistently issued comments during the registration statement review process to closed-end funds (CEFs) registered under the Investment Company Act of 1940 (1940 Act) that required CEFs either (1) to limit investing in private funds1 to no more than 15 percent of a CEF’s net assets, or (2) restrict sales of a CEF’s shares to investors who are accredited investors2 and impose a minimum initial investment requirement of $25,000 per investor. As a result of this informal position, which was not based on a statute or rule, the SEC staff typically would not accelerate the effectiveness of a CEF’s registration statement without a commitment by the CEF to implement these restrictions.
At the “SEC Speaks in 2025” conference held on May 19-20, 2025, SEC Chairman Paul Atkins called upon the SEC to expand retail investor access to private markets. Following on this theme, on the second day of this conference, SEC Director of Investment Management Natasha Vij Greiner indicated in her prepared remarks that the SEC staff will no longer issue these comments during the registration statement review process of CEFs. Instead, the SEC staff will focus on ensuring that appropriate disclosures around conflicts of interest, liquidity and fees are included in registration statements of CEFs.
We expect that this change will expedite the registration statement review process of CEFs and meaningfully facilitate retail investor access to private investment strategies by allowing sponsors of CEFs to invest more than 15 percent of a CEF’s net assets in private funds without imposing restrictions on the investor base or the minimum investment amount. Moreover, this should expand the potential investor base for private fund managers by allowing more CEFs to invest alongside traditional institutional investors in private funds.
1 Private funds have generally been defined for this purpose as those that would be investment companies but for the exceptions provided in sections 3(c)(1) or 3(c)(7) of the 1940 Act. Thus, this did not preclude investments in underlying private issuers relying on other exemptions from investment company status, including real estate funds relying on section 3(c)(5) of the 1940 Act. Recently, the SEC staff agreed to allow certain infrastructure funds relying on section 3(c)(1) or 3(c)(7) of the 1940 Act to be excluded from this limitation.
2 As such term is defined in Regulation D’s Rule 501(a) under the Securities Act of 1933.
Mind the Gap: How Shifting Federal Priorities Are Reshaping Parallel Investigations
As federal enforcement priorities shift, the balance of investigative power is beginning to change. This alert is the first in a series examining how evolving dynamics are reshaping the enforcement landscape. Here, we focus on the growing role of state and regulatory agencies in parallel investigations. A forthcoming alert will explore how the SEC is recalibrating its insider trading enforcement strategy under the Atkins Commission.
A New Era in Enforcement
In 2025, the federal government has enacted sweeping changes to its law enforcement and regulatory priorities, fundamentally altering the landscape for parallel criminal, civil, and regulatory investigations. Traditionally, federal agencies such as the Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI) have played a central role in white-collar enforcement. However, a marked shift in focus toward immigration, transnational crime, and narcotics trafficking has redirected significant federal resources away from white-collar matters. As a result, state authorities and regulatory agencies are stepping in to fill the enforcement gap, creating a more complex and dynamic environment for companies and individuals facing government scrutiny.
Federal Realignment: The Galeotti Memo
As a panel of experts recently discussed at the Securities Enforcement Forum West 2025, federal criminal authorities have undertaken a dramatic realignment of resources. Recent remarks by Matthew R. Galeotti, the new Chief of DOJ’s Criminal Division, underscore this strategic pivot. The DOJ is now “laser-focused” on the most urgent threats to the nation—namely, fraud targeting individuals, taxpayers, and government programs, as well as cases involving transnational criminal organizations and hostile actors. This realignment means that many traditional white-collar cases are now falling outside the DOJ’s core priorities. Notably, up to 40% of FBI resources in major field offices have reportedly been redirected to immigration enforcement, significantly constraining federal capacity to pursue white-collar investigations.
State Attorneys General and the SEC Step Forward
This evolving federal posture has not gone unnoticed. State attorneys general are increasingly asserting their authority, leveraging consumer protection statutes and state analogs to federal securities laws to pursue complex fraud and securities matters. Recent examples include California Attorney General’s announcement to use the State’s Unfair Competition Law to police Foreign Corrupt Practices Act (FCPA) violations, Oregon’s legal action against a prominent cryptocurrency platform, and continued activity by New York and Massachusetts regulators in the digital asset space.
Simultaneously, the U.S. Securities and Exchange Commission (SEC) has restructured its Division of Enforcement to prioritize investor protection, with a renewed focus on safeguarding retail investors. As federal law enforcement resources are diverted elsewhere, the SEC is poised to play an even more prominent role in investigating and prosecuting securities fraud.
Practical Implications and Best Practices
Given this rapidly changing enforcement landscape, companies and their counsel must adapt to a new reality—one where state investigations are more likely, less predictable, and potentially more volatile. The following best practices are essential for navigating this environment:
1. Act Decisively in the First 48 HoursImmediately secure all potential sources of data, including emails, messaging apps, and mobile devices. Early control over evidence is critical to establishing credibility with regulators and investigators.
2. Ensure Investigative IndependenceThe independence and expertise of the investigative team are paramount. Regulators will scrutinize not only the findings but also the process and personnel involved. Engaging experienced, independent counsel and forensic experts can facilitate effective engagement with authorities and inform strategic decision-making.
3. Structure Information FlowTo maintain the integrity of the investigation and preserve privilege, management should be insulated from factual findings until the investigation concludes. A disciplined approach to information management minimizes witness contamination and credibility risks.
4. Be Proactive, Consistent, and CoordinatedWith federal and state agencies operating independently, proactive engagement and consistent messaging are vital. Where appropriate, encourage coordination among agencies to ensure fairness and reduce exposure.
5. Recognize the Central Role of State EnforcementState agencies are no longer peripheral players. Understanding the priorities and remedies available to each enforcement authority is now a core component of any effective defense strategy.
Conclusion
As federal priorities shift and state and regulatory agencies assume a more prominent role, companies must be prepared to respond to a new and evolving enforcement landscape. Retaining experienced and credible advisors is not just prudent—it is essential. Navigating parallel investigations now requires a nuanced understanding of both federal and state mandates, as well as the agility to respond to multiple authorities with differing objectives and tools. In this environment, readiness and expertise are your best defense.
The SEC’s Latest Agenda
In December of last year we posted on Hunton’s Retail Law Resource Blog about the changing of the guard at the Securities and Exchange Commission (“SEC”) with the new administration. Paul Atkins was nominated by President Donald J. Trump on January 20, 2025, confirmed by the U.S. Senate on April 9, 2025, and sworn in as the 34th Chairman of the SEC on April 21, 2025.
The Practicing Law Institute annually presents a conference titled “SEC Speaks” in cooperation with the SEC, and Chairman Atkins spoke on his agenda at this year’s program on May 19, 2025. Chairman Atkins began by stating his intent to discuss innovation and how the SEC should “embrace and champion it” rather than fear it. He provided a recent history lesson of progress that has come from a proactive SEC. His timeline started with the computerization of securities in the 1970s, highlighted other innovation such as the earliest exchange-traded fund launching in the 1990s, and led us to his first agenda point titled “Crypto Innovation” in his written remarks. Chairman Atkins announced that Commission staff across policy divisions has been directed to begin drafting crypto proposals and to “maintain transparent interactions with the public” to help provide useful insights. We should expect the SEC to provide clear rules related to crypto under this administration, but an anticipated date for such was not provided.
Continuing with his theme of innovation, the second point of Chairman Atkins’s agenda was to integrate the functions of the SEC’s Strategic Hub for Innovation and Financial Technology (“FinHub”) into other parts of the agency. Chairman Atkins explained that FinHub was created during a critical time of emerging technologies but believes it is too small to be efficient for more than its current focus. Congress has to approve the reprogramming, but integrating the priorities FinHub was founded under into the culture of the SEC will be key for Chairman Atkins.
The third point of Chairman Atkins’s agenda was on investing in private funds. Specifically, to reconsider the practice and 23-year position of the SEC that investments by closed-end funds of 15% or more of their assets in private funds should impose minimum initial investment requirements and restrict sales that satisfy the accredited investor standard. Chairman Atkins noted that important disclosure issues need to be considered and resolved, but we should expect to see more on this. Finally, Chairman Atkins announced that he had instructed the SEC staff to undertake a comprehensive review of the Consolidated Audit Trail (“CAT”). He requested the costs of the system be examined, as well as reporting requirements and the scope of what is collected by the CAT.
From beginning to end, the new Chairman highlighted promoting innovation. We will continue to watch for the written and spoken guidance of the SEC to see how they “embrace and champion” these above agenda points.
Senate Advances Stablecoin Bill
On May 20, the U.S. Senate voted 66-32 to move forward with the Guardrails and Enforcement for Neutral Issuers of United States Stablecoins (GENIUS) Act (the “Act”), pushing the stablecoin bill past a major procedural hurdle. The vote sets the stage for full Senate debate and potential passage of the Act as early as next week.
The GENIUS Act aims to establish a regulatory framework to expedite the integration of stablecoins into the broader banking system by setting up requirements for issuance, backing, and supervision of payment stablecoins. The Act also delineates the authority of state and federal regulators and restricts certain firms from engaging in stablecoin issuance.
Several key provisions from the Act include the following:
Federal and state regulatory roles. Stablecoin issuers may be licensed by state regulators or directly by a federal payment stablecoin regulator, with standards coordinated under the Act. Issuers with over $10 billion in market capitalization fall under federal oversight, while issuers with $10 billion or less in market capitalization would have the option of state regulation by the relevant state banking agency (provided the state regulation satisfies certain federal standards).
Definition of payment stablecoins. The Act defines “payment stablecoin” as a digital asset that maintains a fixed value through backing by fiat currency or other secure reserves. While the Act does not explicitly prohibit interest-bearing stablecoins, recent SEC guidance (previously discussed here) indicates that stablecoins offering yield may be treated as securities—making it likely that, to circumvent regulatory complexity, payment stablecoins will primarily be used as a medium of exchange in practice.
Reserve asset requirements. Issuers must maintain one-to-one reserves in high-quality liquid assets, such as U.S. dollars, Treasury bills, or central bank reserves. Issuers must also avoiding rehypothecation (i.e., the use of reserves for purposes other than backing the stablecoin) and complete monthly certifications attesting to the sufficiency of reserves, among other reserve requirements.
Supervisory authority and enforcement. The Act gives federal banking agencies enforcement authority over permitted payment stablecoin issuers that is analogous to the authority in section 8 of the Federal Deposit Insurance Act over insured depository institutions and their holding companies. The Act authorizes the Federal Reserve, OCC, and FDIC to take enforcement action against payment stablecoin issuers, including – in certain circumstances – those issuers that are subject to regulation by a state banking agency.
Putting It Into Practice: The GENIUS Act would, if enacted, establish the first comprehensive federal framework for governing payment stablecoins. While competing stablecoin proposals such as the STABLE Act (previously discussed here) remain pending, the Senate’s passage of the GENIUS Act represents a significant step toward its codification. Stablecoin issuers and fintech companies should evaluate licensing pathways and reserve management models in anticipation the GENIUS Act’s enactment.
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SEC Issues Guidance on Accredited Investor Verification
The staff of the U.S. Securities and Exchange Commission (SEC) recently released a no action letter addressing when accredited investor status for purposes of Rule 506(c) of Regulation D can be established by a representation from the investor without further verification by the issuer. This new guidance will streamline processes for issuers raising funds through a private placement, meeting the conditions of the no-action letter.
Rule 506(c) was added to Regulation D with the passage of the Jumpstart Our Business Startups (JOBS) Act of 2012 to provide an exemption from registration for securities offerings that involve general solicitation of potential investors. Traditionally, Regulation D exemptions had been conditioned upon there being no general (i.e., public) solicitation of potential investors. Under Rule 506(c), an issuer may broadly solicit and advertise an offering that otherwise meets the relevant conditions of Regulation D so long as (1) all purchasers are accredited investors and (2) the issuer takes “reasonable steps” to verify that all purchasers are accredited investors. By contrast, other Regulation D exemptions from registration, such as Rule 506(b), permit an issuer to rely upon a representation by the potential investor as to accredited investor status without taking further steps to verify so long as the issuer has no information to the contrary. As an example, prior to the issuance of this SEC guidance, issuers would have to obtain from purchasers a variation of the following information in order to verify that a person was an accredited investor: tax forms, certification from an attorney or CPA or a third-party verification.
The SEC had previously stated in Securities Act Release No. 9415 (July 10, 2013) that “if the terms of the [Rule 506(c)] offering require a high minimum investment amount and a purchaser is able to meet those terms, then the likelihood of that purchaser satisfying the definition of accreditor purchaser may be sufficiently high that, absent any facts that indicate that the purchaser is not an accredited investor, it may be reasonable for the issuer to take fewer steps to verify or, in certain cases, no additional steps to verify accredited investor status other than to confirm that the purchaser’s cash investment is not being financed by a third party.” In response to the no-action letter, the SEC staff confirmed that when the minimum investment amount in a Rule 506(c) offering is sufficiently high and cannot be financed in whole or in part by a third party, then additional steps to verify accredit investor status may not be required.
The key points that the SEC staff pointed out in the no-action letter for verifying that a purchaser is an accredited investor were as follows:
High Minimum Investment Amounts: In the no action request, the purchaser’s minimum investment was $200,000 for natural persons and $1 million for legal entities (for entities relying on Rule 501(a)(8) because all of the entity’s equity owners are accredited investors, this would equate to $200,000 in annual income or a net worth of $1,000,000 million or more for each of the equity owners), including pursuant to a binding commitment to invest in one or more installments when requested by the issuer. The SEC staff agreed that requiring a high minimum investment amount is a relevant factor in verifying accredited investor status, and if a purchaser meets these terms, it may be reasonable for the issuer to take fewer steps to verify the status, provided the investment is not financed by a third party.
Written Representations: The issuer should obtain written representations from the purchaser regarding their accreditation status under Rule 501(a) and that the investment will not be financed by a third party.
No Actual Knowledge of Contrary Facts: The issuer must have no actual knowledge of any facts indicating that a purchaser is not an accredited investor or that an investment is financed by a third party.
Impact on Issuers
Issuers conducting an offering under Rule 506(c) have the option to avoid investor verification requirements through minimum investment conditions consistent with the no-action letter. This may streamline the offering process and appeal to large investors.
Blockchain+ Bi-Weekly; Highlights of the Last Two Weeks in Web3 Law: May 22, 2025
Congress has been active over the past few weeks, with much of the focus on the Senate stablecoin bill, which recently cleared the cloture hurdle—a critical procedural step and arguably the closest Congress has come to enacting meaningful crypto legislation. The House also saw developments, including the release of a market structure proposal and the last-minute cancellation of a planned joint committee hearing due to concerns raised by some representatives about the President’s business ties to the digital asset space. In parallel, several administrative agencies issued updates on federally regulated banks’ permitted involvement in digital assets, and there were notable developments in ongoing litigation.
These developments and a few other brief notes are discussed below.
Senate “GENIUS” Stablecoin Bill Passes Cloture: May 19, 2025
Background: After weeks of political jockeying, the GENIUS Act received more than the 60 votes needed for cloture (with 16 Democrats voting in favor) and now proceeds to limited floor debate in the Senate. The Senate Banking Committee released a fact sheet outlining what the bill does and does not do with respect to stablecoin issuance and use in the United States. Senate Democrats also circulated their own summary highlighting what they saw as wins from negotiations between the bill’s committee passage and the recent vote.
Analysis: Senator Warner (D-VA) issued a statement supporting the bill, saying: “Many senators, myself included, have very real concerns about the Trump family’s use of crypto technologies… But we cannot allow that corruption to blind us to the broader reality: blockchain technology is here to stay. If American lawmakers don’t shape it, others will – and not in ways that serve our interests or democratic values.” It is refreshing to see a senior member of Congress prioritize the importance of this technology and the need for the U.S. to take a leadership role, even while holding legitimate concerns about other aspects of the industry. As such, this bill marks a major milestone for digital asset regulation in America. Several amendments were added during the negotiation process. Notably, the bill prohibits stablecoin issuers from paying interest directly to holders, and from most public companies that are not otherwise in the banking business from issuing stablecoins without clearing certain additional requirements.
Joint House Agriculture and Financial Services Committee Roundtable for Market Structure: May 6, 2025
Background: The day after the Market Structure 2.0 draft was released (discussed below), a joint House Agriculture and Financial Services Committee meeting was scheduled to occur. Witnesses included industry representatives and former CFTC Chair Rostin Behnam. However, the proceeding did not become an official “hearing” because unanimous consent was required, and Ranking Member Maxine Waters objected. Instead, it continued as a “roundtable” discussion with the witnesses who had traveled to D.C. to testify. Meanwhile, those opposing the hearing held their own separate “roundtable” down the hall, focused largely on concerns regarding President Trump’s family’s involvement in digital assets.
Analysis: While it was disappointing that a full and balanced committee meeting did not take place, we can find some encouraging data in that members chose to walk out. One way to interpret the walkout is that opposition to crypto legislation is shifting from a partisan divide to a generational one. The average age of those who boycotted the hearing was 70.4, highlighting a potential age gap in attitudes toward the technology. Many of the opponents are at least framing their objections not as concerns about the technology itself, but as a way of expressing their discomfort with the President’s family’s involvement in space. It remains to be seen whether these concerns will stall broader legislation that would provide consumer protection regulation to the industry as a whole, including the President’s affiliated businesses, given that this same controversy already slowed, though did not appear to stop, the passage of the comparatively less controversial stablecoin bill discussed above.
Market Structure 2.0 Initial Draft Released: May 5, 2025
Background: The currently unnamed bill that replaces FIT21 as the next attempt at comprehensive market structure regulation for digital assets was released last week. It largely follows the same format as FIT21 but includes important changes that are generally seen as improvements by the digital asset community. One major revision replaces the term “decentralized systems” with “mature blockchain systems,” shifting the threshold for when a blockchain is considered decentralized to whether it is—or could be—controlled by a single entity or affiliated group. Another key change creates a baseline that digital assets are commodities, but then reiterates that they are only commodities if they are not securities (which was already the case under current law). The draft also clarifies that digital assets themselves are not securities, but rather can be sold in securities transactions.
Analysis: Gabe Shapiro, a thoughtful legal commentator and frequent critic of regulatory overreach in crypto, posted a detailed breakdown of the bill that is worth reviewing. Justin Slaughter, a former SEC and Hill staffer who often highlights the political dynamics behind crypto legislation, also shared a thread noting, among other things, that Japan passed a market structure bill before the FTX collapse—likely one reason why FTX Japan was among the few subsidiaries where customers didn’t lose funds. Given that the U.S. divides financial regulatory authority between the CFTC and SEC, it’s likely that any legislation will continue to reflect that split, which could lead to substantial compliance and legal costs for market participants, especially exchanges. Still, this draft appears well-intentioned and is a meaningful improvement over FIT21.
Briefly Noted:
DOJ Disclosure Issues in Samourai: According to recent filings in the criminal case against the Samourai Wallet privacy-preserving software creators, the DOJ failed to disclose evidence that FinCEN representatives told DOJ staff that “under FinCEN’s guidance, the Samourai Wallet app would not qualify as a ‘Money Services Business’ requiring a FinCEN license.”
Stocks On Chain: There were several updates related to on-chain stock trading. Commissioner Peirce gave a speech about allowing stocks to be issued, traded and settled on blockchains, and Compound founder’s project Superstate announced plans for bringing stocks on-chain and tradable in DeFi. Tuongvy Le and Austin Campbell released this awesome article (and Twitter threads giving summaries along with useful infographics) on how cryptographically secured addendum-only ledger technology can offer a fundamentally better way to own and trade stocks. Good timing with the SEC roundtable on this issue, the same week as well, with the new SEC Chair delivering opening remarks.
SEC FAQ Guidance: The SEC released a set of frequently asked questions (“FAQs”) relating to the application of certain broker-dealer rules to crypto activities. While the SEC said these “simply reiterate what our rules already say or do not say,” many broker-dealers were waiting for this type of guidance to go through with various crypto brokering activities.
SEC v. Ripple Deal Rejected: Judge Torres denied the parties’ joint request to rule in favor of a proposed settlement, which would finally end the SEC v. Ripple matter. It appears that the judge is just looking for the parties to do more of the required legwork to obtain the relief requested, but the ongoing delays are unlikely to please either side.
Bill to Ban Federal Officials in Crypto: Various Democrats have proposed a bill that would ban the creation and promotion of cryptocurrencies by the President, Vice President, Congress, and Senate-confirmed Cabinet members.
Yuga Sells Punks IP: It appears like the Infinite Node Foundation (NODE) has acquired the CryptoPunks IP, which was purchased by Yuga Labs a few years ago from the creators, Matt Hall and John Watkinson (who are the highest selling living artists due to $3.07B in CryptoPunk sales volume). Handing off this historic intellectual property to a full-time, non-profit steward makes sense.
CFTC Commissioner to Lead Blockchain Association: Commissioner Mersinger of the CFTC will be taking the role of Blockchain Association CEO after she steps down from her role at the CFTC at the end of this month. There were still three years left on her term, so her leaving to join one of the leading industry groups in the space is interesting timing, with market structure bills expected to get heavy congressional attention in the upcoming months.
Office of Comptroller Update: OCC-regulated banks are now permitted to provide custody services for customers as well as other services, such as record keeping and buying/selling those assets at the direction of the customer. This is long overdue. Combined with promising statements for the Treasury Secretary, we are starting to see a path for traditional financial institutions to interface with DeFi on behalf of clients.
Quoted in GlobeSt.com “Blockchain in Real Estate Moves Beyond Hype, But True Transformation Remains Elusive”: BitBlog editor Stephen Rutenberg was recently quoted in GlobeSt.com on the evolving use of blockchain in real estate. The article explores how the technology is gradually addressing longstanding inefficiencies while raising deeper questions about automation, fairness, and legal design.
Conclusion:
The last two weeks have offered a compelling snapshot of how digital asset regulation is evolving from theoretical frameworks to real-world implementation, with significant activity across all three branches of government. From the Senate’s forward momentum on the GENIUS stablecoin bill, to the House’s increasingly detailed market structure proposals, to administrative updates from the SEC, DOJ, OCC, and others, the regulatory landscape is rapidly taking shape. Meanwhile, traditional financial institutions are moving beyond the exploratory phase and actively engaging with blockchain technologies, underscoring the urgency for regulatory clarity. While political entanglements, especially those involving high-profile figures, continue to create friction, the overall trend suggests a maturing ecosystem where bipartisan and intergenerational engagement will be essential.