Securities & SEC

SEC Policy Shift and Recent Corp Fin Updates–Part 3 SEC Issues New Guidance on Exclusion of Shareholder Proposals

Exchange Act Rule
Staff Guidance

Relevance Exclusion – 14a-8(i)(5)

The Corp Fin Staff will focus on a proposal’s significance to the business of the company when the shareholder proposal relates to operations that are less than 5% of its total assets, net earnings, and gross sales.
This means that even if a shareholder proposal raises a significant policy issue, it may still be excludable if the proposal, based on the particular circumstances of the company, is not “otherwise significantly related to the company.”
To avoid exclusion, a shareholder proposal that raises a significant policy issue must also demonstrate a significant impact on the company’s business.

Management Functions Exclusion – Rule 14a-8(i)(7)

This rule permits the exclusion of shareholder proposals that deal with a company’s ordinary business operations. If a shareholder proposal raises a significant policy issue, such as climate change or human rights, it will no longer necessarily be included in a proxy statement simply due to the significance of the policy issue. Instead, the Corp Fin Staff will evaluate the shareholder proposal considering how the proposal impacts the company’s business operations rather than focusing solely on the significance of the policy issue it raises.
Under SLB 14L, the Corp Fin Staff rescinded guidance that it could consider any limit on a company’s or board’s discretion in a shareholder proposal to constitute micromanagement. Under SLB 14M, the Corp Fin Staff returned to guidance in place prior to SLB 14L in which a proposal would be found to constitute micromanagement by probing “too deeply into matters of a complex nature if it ‘involves intricate detail, or seeks to impose specific time-frames or methods for implementing complex policies.’”

Board Analysis – under Rules 14a-8(i)(5) and 14a-8(i)(7)

The Corp Fin Staff will no longer expect a board analysis of the particular policy issue raised by a shareholder proposal and its significance to the company.
SLB 14M noted that this is due to the board analysis not having a dispositive effect and frequently not including the information needed for the Corp Fin Staff’s analysis of the no-action request.

Use of Images – Rule 14a-8(d)

Exchange Act Rule 14a-8(d) does not prohibit the inclusion of images or graphs in proposals, but they may be excluded under other portions of Exchange Act Rule 14a-8 if they make the proposal misleading, vague or indefinite, impugn character or make charges concerning conduct, or are irrelevant to consideration of the proposal.
If the proposal, including any language in an image or graphic, exceeds 500 words, exclusion would still be appropriate.

Proof of Ownership Letters – Rule 14a-8(b)

The Corp Fin Staff encourages a plain meaning approach to interpreting proof of ownership letters and discourages exclusion based on technical variances.
2020 amendments to the rule do not contemplate a change in how brokers or bankers fulfill their role. They still only need to provide confirmation as to how many shares a proponent held continuously and are not required to calculate share valuation.
The rule does not require a company to send a second deficiency note if it previously sent one prior to receiving a deficient proof of ownership.

Use of Email

The Corp Fin Staff recommends that when a sender seeks to prove delivery of an email for purposes of Exchange Act Rule 14a-8, the sender should seek a reply email from the recipient with an acknowledgement.
The Corp Fin Staff also recommends that companies and proponents reach out using another method of communication or emailing another contact if available.
Screenshots or photos of emails on the sender’s device are not proof of delivery.

Impact of SLB 14M
Even though it was not a surprise that the Corp Fin Staff provided new shareholder proposal guidance, the timing of the issuance of SLB 14M was such that many companies had the opportunity to amend their no-action requests in response to the new guidance while shareholder proponents could not revise their proposals. The significance of the policy shift brought by the issuance of SLB 14M can be seen in a higher number of shareholder proponents withdrawing ESG-related proposals due, at least in part, to a diminished likelihood of a successful outcome with respect to the Corp Fin Staff’s review of the no-action request.
The Corp Fin Staff also found in several no-action requests after the issuance of SLB 14M that a proposal that implicated a significant policy issue sought to micromanage the company. Many of those shareholder proposals requested the company adopt a policy, issue or create a plan, or produce an impact assessment and highlights that shareholder proponents need to be crisper in proposals asking for such an action to be taken by a company. Additionally, the Corp Fin Staff found in a few no-action requests that the company had not explained whether the policy issue implicated by the shareholder proposal was significant to the company and, as a result, could not exclude the proposal from its proxy materials. This highlights the need for companies to make sure all aspects of the new guidance in SLB 14M are addressed in a no-action request.
Conclusion
As there are still many more no-action requests for the Corp Fin Staff to review under this new guidance, there is still more to be gleaned as to how the policy shift ushered in by SLB 14M will play out with respect to shareholder proposals and the overall operations of the Division of Corporation Finance. The timing of the issuance of SLB 14M demonstrates that the Corp Fin Staff will not necessarily keep with tradition when publishing new guidance. This highlights the need for companies to continue to stay on top of the new and revised guidance coming out of the Division of Corporation Finance and the SEC and be ready to respond to both anticipated and unexpected policy shifts.

Blockchain+ Bi-Weekly; Highlights of the Last Two Weeks in Web3 Law: May 8, 2025

Senate Moves Forward with “GENIUS” Stablecoin Bill: May 2, 2025
Background: A revised version of the Senate’s bipartisan stablecoin bill — the “GENIUS Act” — has been introduced, with a floor vote expected before the Memorial Day recess. Key changes include a prohibition on stablecoin issuers offering “a payment of yield or interest” on their issued payment stablecoins, along with enhanced illicit finance provisions. The bill also bars the sale of stablecoins in the U.S. by non-U.S. entities and allows for issuance under state regimes, provided the regime “meets or exceeds” federal standards, as determined by a three-member review panel consisting of the Treasury Secretary, Federal Reserve Chair and FDIC Chair.Changes aimed at addressing concerns about DeFi were also included, though they appeared only in an unpublished draft. Possibly in response to those revisions or other outstanding concerns, a group of nine Democrats — generally considered supportive of crypto — sent a letter indicating they could not support the bill in its current form.
Analysis: The GENIUS Act represents the closest Congress has come to passing meaningful legislation on crypto in the U.S. However, challenges remain. One potential obstacle is the push by some lawmakers to link the stablecoin bill to broader market structure legislation, which is advancing in Congress but is not as far along. Industry advocates have pushed back on this proposed combination, warning that tying the two together could stall momentum — and, given the limited window for congressional action this session, could result in no bill being passed at all. Another hurdle is the apparent erosion of support among key Democrats. With 60 votes needed in the Senate to overcome procedural hurdles, bipartisan support is essential. A delay — or worse, the failure — of even this relatively “vanilla” legislation risks letting political dysfunction once again derail progress in the digital asset space.
Coinbase Files Amicus to SCOTUS Over IRS John Doe Subpoenas: April 30, 2025
Background: Coinbase has filed an amicus brief in support of a petition challenging the IRS’s use of John Doe summonses — which compel platforms to disclose user data without individualized suspicion. The case was brought by a Coinbase customer over the IRS seeking to compel Coinbase to turn over a broad swath of “John Doe” customer information without any probable cause that any particular user broke the law. This follows a similar brief filed earlier by the DeFi Education Fund. If the Court agrees to hear the case, it could have broad implications for financial privacy — not just in digital assets — and may lead the Court to revisit the scope of the Third-Party Doctrine.
Analysis: In the digital age, sharing financial or location data with a third party is often not voluntary, but required for basic participation in modern life. The Third-Party Doctrine, a legal rule that allows the government to access data you’ve shared with third parties without a warrant, was developed in an era before modern financial technology and many argue it no longer fits how people transact today. With a more privacy-sensitive court, this case presents a real opportunity to revisit the boundaries of government surveillance over financial data.
Briefly Noted:
Richard Heart SEC Matter Over: The SEC has announced it will not be amending its complaint against Hex founder, Richard Heart, after the case was previously dismissed on jurisdictional grounds. Regardless of views on project, there should be broad agreement that giving a podcast interview in the U.S. and using open-source code developed here are not sufficient grounds for asserting global regulatory jurisdiction.
Federal Reserve Retracts Supervisory Guidance: The Federal Reserve Board has retracted guidance that required banks to obtain their approval before implementing any activity that involved crypto, including basic or low-risk use cases. If stablecoin legislation passes, banks are expected to become more active in digital asset custody, providing safer options for customers, which should be in everyone’s best interest.
FTC Goes After “Crypto Trading” Venture: The FTC is going after a series of multi-level-marketing businesses that sold “crypto-trading” courses. Fraud of this type has always been more appropriate within the FTC’s domain, rather than what we’ve seen over the last few years with the SEC attempting to broaden its jurisdiction by classifying crypto assets as securities simply to bring them under the purview of the SEC’s anti-fraud powers.
Stablecoin Updates: A number of relatively minor stablecoin-related developments surfaced last week in addition to the Senate updates discussed above, including SoFi exploring its own issuance, Tether posting $1 billion in Q1 profits (with a U.S. expansion in the works), an expected vote in the Senate on the GENIUS Act before Memorial Day, and Visa working with Bridge for a stablecoin-backed payment card. Although each of these updates may seem incremental on their own, collectively they underscore the central role stablecoins now play in the digital asset ecosystem and the growing attention they’re receiving from both industry and regulators.
Treasury Presentation on Digital Money: Buried on page 98 of the Department of Treasury’s update to the Treasury Borrowing Advisory Committee was a surprisingly thoughtful primer on stablecoins and their potential impact on traditional banking. The timing is notable, as this update comes on the heels of Tornado Cash securing at least a partial victory with a federal court rejecting Treasury’s attempt to dismiss the Tornado Cash lawsuit on the grounds that the case was moot following revisions to the sanctions made after the lawsuit was filed. On this topic it’s worth listening to this Miachel Mosier chat about how Tornado wasn’t a complete victory.
Solana Policy SEC Submission: One of the first big published projects from the Solana Policy Institute is its recent submission to the SEC, “Proposing the Open Platform for Equity Networks” which is worth a read. Also recommended is this industry submission to the SEC regarding staking.
SEC Chair’s First Public Remarks on Crypto: In his first public comments since taking over, Chair Atkins emphasized the need for “practical, durable” rules and a more constructive relationship with the digital asset industry. While delivered at a roundtable hosted by the SEC’s Crypto Task Force, the remarks mark a notable shift in tone from the agency’s prior enforcement-first approach.
Galaxy Digital Moves for Public Listing: Galaxy Digital has confirmed plans to go public on Nasdaq, marking a major step for the firm, which originally filed an S-1 back in 2022. The move signals renewed confidence in both the regulatory environment for digital assets and broader public market conditions.
Digital Chamber Initial SEC Submission in Response to Request for Information: As previously discussed, the SEC’s Crypto Task Force has requested industry feedback on a wide range of questions related to the regulation of digital assets. The Digital Chamber of Commerce is coordinating a major response effort in partnership with leading law firms to provide detailed answers to each question. Polsinelli Blockchain+ attorneys are involved in several of these responses. The first response, led by Sidley Austin, was published last week.
Updated FIT21 Market Structure Bill Released: House Financial Services and Agriculture Committees have published an updated discussion draft of the crypto market structure bill, previously known as the Financial Innovation and Technology for the 21st Century Act (FIT21). We will have a larger update on the proposed legislation and a failed attempt at a joint hearing on digital assets in the House in our next Bi-Weekly update.
Conclusion:
The last two weeks suggest that while momentum is building toward a more structured regulatory environment for digital assets, there’s still a real risk that this historic opportunity could be squandered. We’ll be watching closely as these developments unfold and continuing to engage where it matters. We look forward to seeing many of you at Consensus.

Regulatory Scrutiny on Potential MNPI in the Credit Markets

Over the past year, regulatory scrutiny of the credit markets has intensified, with the SEC investigating the potential use of material nonpublic information (“MNPI”) relating to credit instruments. The SEC brought a number of enforcement actions against investment advisers involving the failure to maintain and enforce written MNPI policies involving trading in distressed debt and collateralized loan obligations, even in the absence of insider trading claims. We anticipate that these investigations of trading in private credit instruments and related MNPI policies will continue, as SEC enforcement staff has increased their focus on these markets.
Although insider trading investigations typically involve equity securities, in 2024 the Commission scrutinized ad hoc creditor committee participants and took action against distressed debt managers relating to MNPI. Many fund managers investing in distressed corporate bonds collaborate with financial advisors to form ad hoc creditors’ committees, aiming to explore beneficial debt restructuring opportunities prior to bankruptcy. Managers often avoid receiving MNPI to avoid prolonged trading restrictions on company bonds. For example, a manager may wish to remain unrestricted until formally entering a non‑disclosure agreement (“NDA”) with the company and will notify external financial advisors and other committee members that it should only receive material prepared on the basis of public information. In other cases, managers will rely on information barriers, organizing their businesses into “public” and “private” sides. The SEC Staff has identified these situations as involving a heightened MNPI risk, emphasizing the need for clear written procedures to handle MNPI and mitigate risks of leakage or inadvertent receipt. While industry participants may struggle to draw specific compliance guidelines from these cases, the key takeaway is that the SEC expects heightened procedures for creditor committee participation and, more generally, consultants or advisers who may have access to MNPI.
The SEC also focused on MNPI when trading securities issued by collateralized loan obligation vehicles (“CLOs”). Last year the SEC settled a case against a New York‑based private fund and CLO manager targeting the steps it took to ensure its analysts and advisers were not themselves misusing MNPI. The fund manager traded tranches of debt and equity securities issued by CLOs it directly managed as well as those managed by third parties. The SEC alleged that as a participant in an ad hoc lender group, the fund manager had become aware of negative developments that concerned a particular borrower, and privately sold CLO equity tranches while in possession of this confidential information. The CLO manager allegedly failed to consider the materiality of the negative information to the sold tranches before trading. While the SEC did not specifically allege insider trading, in part due to the firm obtaining internal compliance approval pre‑sale, the matter led to a settlement focusing on the fund manager’s failure to establish and enforce appropriate policies on the use and misuse of MNPI. As emphasized in other distressed debt and similar MNPI cases, MNPI policies and practices should be tailored to the nature of a firm’s business. The failure to address information flow in these situations may lead to SEC scrutiny of the trading itself and the adviser’s policies under Section 204A of the Advisers Act, which requires investment advisers to establish, maintain and enforce written policies to prevent misuse of MNPI, as well as Section 206(4) and Rule 206(4)-7 (the Compliance Rule). The SEC has been investigating trading in the credit markets and shown a willingness to bring these cases even in the absence of any alleged insider trading, although the Commission recently voted to dismiss the one litigated matter. Interestingly, both Republican SEC Commissioners, despite philosophical objections to enforcement settlements under the Compliance Rule, voted to approve the Section 204A charges in the creditors committee matter, and one voted to approve such claim in the CLO matter. Even with the change in administration, the SEC staff will continue to scrutinize these issues and look at similar risks in the credit markets.
Read more of our Top Ten Regulatory and Litigation Risks for Private Funds in 2025.
Robert Pommer, Seetha Ramachandran, Nathan Schuur, Robert Sutton, Jonathan M. Weiss, William D. Dalsen, Adam L. Deming, Adam Farbiarz, and Hena M. Vora contributed to this article

Delaware Court Rejects Facial Challenge to Advance Notice Bylaw

Delaware Court Rejects Facial Challenge to Advance Notice Bylaw
In Siegel v. Morse, the Delaware Court of Chancery rejected a stockholder’s challenge to an advance notice bylaw where there was no pending director nomination or proxy contest. Relying on the Delaware Supreme Court’s decision in Kellner, the Court of Chancery dismissed the action, finding that it did not present a ripe controversy for adjudication. The decision is important because the plaintiffs’ bar has recently brought a number of facial challenges to bylaws.
Take-Aways

A stockholder challenged the validity of an advance notice bylaw even though there was no director nomination or proxy contest under consideration.
Similar lawsuits have been brought against numerous other companies.
The Court held that a facial challenge to a bylaw requires a plaintiff to show that the bylaw cannot operate equitably under any set of circumstances.
Because plaintiff’s “hypothetical” challenge could not satisfy that standard, the Court dismissed the complaint for failing to present a ripe controversy.
The decision is significant because it should discourage further lawsuits targeting corporate charters and bylaws in the absence of a real dispute.

Overview
In Siegel, the board of directors amended the corporation’s advance notice bylaw following a presentation from outside counsel to address the SEC’s universal proxy rule and make other changes with respect to the informational and procedural requirements for stockholders to nominate directors. The amendment was done on a so-called “clear day” when the company was not facing a known activist or takeover threat. Almost a year later, a stockholder filed a lawsuit in Delaware challenging the amended bylaw. The plaintiff did not plan to nominate a director and could not identify any other stockholder who was deterred from doing so. Nevertheless, the complaint argued that the bylaw was facially invalid and that the board breached its fiduciary duties in amending the bylaw.
Relying on the Delaware Supreme Court’s decision last year in Kellner v. AIM ImmunoTech Inc., the Court granted the defendants’ motion to dismiss. The Court explained that “[t]o succeed in bringing a facial validity claim, a plaintiff ‘must demonstrate that the bylaw cannot operate lawfully under any set of circumstances.’” It continued that “Delaware law does not permit challenges to bylaws based on hypothetical abuses.” Because there was no specific challenge to the operation of the advance notice bylaw, the Court dismissed this challenge as “hypothetical.”
The Court also rejected the plaintiff’s attempt to recharacterize the litigation solely as a fiduciary duty challenge to the board’s alleged defensive adoption of the bylaw. The Court reiterated that there was no present challenge to the application of the bylaw and that “a few slides [from counsel] with generic references to stockholder activism do not transform this dispute from an ‘imagined’ one to a ‘real-world’ one.” As a result, there was no “genuine, extant controversy.” The Court also distinguished the claim from a challenge to a poison pill, noting that an advance notice bylaw does not present potentially “devastating equity dilution.”
Over the past 18 months, stockholders have filed numerous complaints in the Court of Chancery asserting facial challenges to advance notice and proxy access bylaws. Kellner established a high standard for bringing those claims. As an early application of Kellner to an advance notice bylaw, Siegel is important and indicates that Delaware courts will not conduct an equitable review of a bylaw in the absence of a real controversy.

Is Bullock v. Rivian the Nail in the Coffin for California State 1933 Act Claims?

Last month in Bullock v. Rivian Automotive, California’s Fourth District Court of Appeal became the latest to enforce a federal forum provision (FFP) embedded in a Delaware corporation’s charter and affirmed dismissal of a putative class action brought under the Securities Act of 1933 (1933 Act) in California state court. The court’s reasoning tracks closely with an earlier California appellate decision in Wong v. Restoration Robotics [Cal.App.5th 48 (2022)], and together these cases cement that Delaware corporations that adopt well-drafted federal forum provisions can meaningfully reduce the risk and cost of 1933 Act litigation by keeping those claims in federal court.
Plaintiffs are taking notice, too. Even before Bullock, there had been a sharp decline in state court 1933 Act filings. According to Cornerstone Research’s 2024 Securities Class Action Filings Year in Review, the number of state 1933 Act filings dropped to just five in 2024 (three in California, two in New York), which represents a more than 90% falloff from their recent peak in 2019. This stark decline signals that plaintiffs are finding state court a shrinking battlefield for 1933 Act claims, in large part because of FFP enforcement.
This moment offers an opportunity — especially for companies incorporated in Delaware and that have connections to California — to manage litigation risks with regard to future securities offerings. And for companies considering an IPO, merger, or spinoff sometime in the future, there may be no better time to build in protections that help ensure future 1933 Act claims are litigated in federal court.
Background: FFPs and the Dual Forum Problem
The 1933 Act provides a private right of action for investors alleging material misstatements or omissions in a registration statement. Thanks to the 2018 landmark Supreme Court decision in Cyan v. Beaver County Employees Retirement Fund [583 U.S. 416 (2018)], plaintiffs are free to bring these claims in either state or federal court — and defendants cannot remove them to federal court. The result: companies began to regularly find themselves defending the same offering in parallel proceedings — one in federal court, and one or more in state court — involving overlapping class periods and claims. That means litigation costs for 1933 Act claims rose significantly, and so did the proliferation of those types of filings by the plaintiff’s bar. The year after Cyan, 52 1933 Act cases were filed in state court—up from 35 the year prior.
In response to the increased risk brought about by Cyan, many Delaware corporations began adopting FFPs that designate the federal courts as the exclusive forum for 1933 Act claims. This practice was endorsed in Sciabacucchi v. Salzberg [227 A.3d 102 (2020)], when the Delaware Supreme Court held that such provisions are valid under Delaware law when included in a corporation’s certificate of incorporation. But enforceability in other jurisdictions — including plaintiff-friendly California — remained an open question.
Enter Wong and Bullock: California Enforces Delaware FFPs
In Wong v. Restoration Robotics, California’s First District Court of Appeal became the first to enforce a Delaware FFP over constitutional and statutory objections. The plaintiff had filed suit in California state court under the 1933 Act after the company’s IPO. The defendant, a Delaware corporation, successfully moved to dismiss in the trial court based on the FFP in its charter. On appeal, the plaintiff argued that the FFP violated the 1933 Act’s anti-removal and anti-waiver provisions, conflicted with the Commerce and Supremacy Clauses, and was unenforceable under California contract law. The court rejected each of these arguments, holding that FFPs do not waive substantive rights under the 1933 Act but simply designate that those rights must be asserted in a federal court.
Two years later, in Bullock, the Fourth District Court of Appeal reached the same result. The FFP in Rivian’s Delaware charter was substantially similar to the one upheld in Wong, and plaintiffs — represented by the same firm as in Wong — raised many of the same arguments. The court repeatedly cited Wong in its decision and again rejected arguments under the 1933 Act, the Supremacy and Commerce clauses, and contract law.
Together, Wong and Bullock leave little doubt: validly adopted FFPs will be enforced by California courts. That makes California state court a far riskier venue for plaintiffs seeking to assert 1933 Act claims.
Why Forum Matters
Litigating 1933 Act claims in federal court isn’t just a matter of preference — it can meaningfully affect outcomes. Here’s why:

Stronger procedural protections: The Private Securities Litigation Reform Act (PSLRA) applies in federal court, providing heightened pleading standards, discovery stays, and lead plaintiff procedures. While defendants frequently urge state courts to apply the PSLRA’s protections in 1933 Act cases, courts across the country have issued inconsistent and sometimes conflicting rulings on the issue.
Consistency and predictability: Federal courts have more experience applying the 1933 Act and tend to produce more uniform rulings, reducing the risk of contradictory decisions.
Cost: Avoiding parallel litigation in state and federal court reduces defense costs, settlement pressure, and the risk of inconsistent outcomes.

What Companies Should Do Now
Whether your company (or one you are advising) is public or contemplating going public, now is the time to evaluate your exposure and take steps to mitigate it. Here are concrete steps companies should consider:
1. Review your charter and bylaws
If you’re a Delaware corporation and don’t currently have an FFP in your governing documents, you’re potentially leaving yourself exposed to state court litigation risk.
2. Draft provisions that will withstand challenge
An effective FFP should:

Clearly designate federal district courts as the exclusive forum for 1933 Act claims.
Define the covered claims precisely (e.g., under the 1933 Act).
State that shareholders consent by acquiring shares.

The Rivian articles of incorporation at issue in Bullock provide a tested template:
Unless the Corporation consents in writing to the selection of an alternative forum,… the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder….
Any person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article Tenth
3. Disclose clearly
Proper disclosure in offering materials and SEC filings reduces the risk of procedural challenge and helps ensure the provision is enforceable in litigation.
4. Monitor incorporation law in other jurisdictions
The Bullock decision comes amid a broader trend of companies reassessing their incorporation choices. In recent years, a growing number of businesses have explored reincorporating outside of Delaware — a phenomenon sometimes referred to as “DExit” — with Nevada and Texas emerging as popular alternatives. While Delaware’s legal framework for FFPs is well developed, and California courts have now reinforced their applicability, the law in other states remains comparatively unsettled and is likely to be tested by future plaintiffs. Companies weighing a move should closely track how courts in these states approach FFPs and related litigation risk.
Conclusion
The sharp decline in state 1933 Act filings is a testament to the success of FFPs in steering litigation into federal court — where companies benefit from clearer rules, reduced costs, and lower risk. The Bullock decision confirms that courts in California will enforce these provisions when properly adopted and disclosed.
For any company that may issue a security, especially those contemplating a large public offering, the takeaway is simple: Review your governance documents now, and make sure you’re protected before the next offering — or the next lawsuit.

Issuer Retreats From Racial Share Allocation Scheme

In February, I wrote about a proposed offering that involved a racially based share allocation scheme. See May Corporations Allocate Shares Based On Race, Gender, Or Ethnicity? Last month, it appeared that the offering was stalled at the Securities and Exchange Commission. See Intentionally Discriminatory Public Offering Stalled At The SEC. Recently, the company, Bally’s Chicago, Inc., disclosed that it intends to proceed with the offering. However, now the company says in an amended registration statement that it intends” to provide preferential allocations of Class A Interests to City of Chicago residents and Illinois residents during this offering”.
The company’s change of plans appears to be in response to litigation, which it describes in Note 14 to its Consolidated Financial Statements:
On January 29, 2025, the American Alliance for Equal Rights and certain other individuals filed a complaint against the City of Chicago, certain members of the Illinois Gaming Board, and the Company, alleging that the Class A Qualification violates federal laws and seeking, among other remedies, permanent injunctions to prevent the Illinois Gaming Board members from enforcing 230 ILCS 10/6(a-5)(9), to allow shareholders to sell their Class A Interests to white males, to mandate the rescission of the Host Community Agreement (“HCA”), and to require the rescission of shares sold under the Class A Qualification Criteria. In addition, on January 30, 2025, a complaint was filed against the City of Chicago (including the Mayor and Treasurer in their official capacities), certain members of the Illinois Gaming Board, and the Company, also alleging that the Class A Qualification violates federal laws and seeking, among other remedies, permanent injunctions to prevent the implementation of the HCA’s requirements for minority and woman ownership in the Company, and to prevent the exclusion of “otherwise qualified individuals” from participating in the Company’s ownership, Board, or employment. On January 31, 2025, an emergency motion was filed for preliminary injunction and temporary restraining order, seeking to preclude the closing of the offering while the case proceeds on the merits. On February 6, 2025, the court denied the plaintiffs’ request for a temporary restraining order to enjoin this offering.
The Company expects to incur substantial costs defending this lawsuit and if any person were to bring such a lawsuit against the Company in the future, the Company could incur additional substantial costs defending against any additional lawsuits. In addition, the time and attention of the Company’s management could be diverted from the business and operations. Furthermore, in the event that a court were to find the Class A Qualification Criteria to be invalid or unconstitutional, the Company could be found liable for monetary damages against the plaintiffs and the HCA could be terminated, which could adversely affect our ability to operate our casinos and could materially adversely affect our business, financial condition and results of operations.

It will be interesting to read any SEC staff comment letter on this issue.

SEC Enforcement in the First Quarter of the New Administration

The new presidential administration began on January 20, 2025, and change came quickly to many federal agencies, including the U.S. Securities and Exchange Commission (SEC). On Inauguration Day, Paul S. Atkins was nominated to be the new Chairman of the SEC. The next day, January 21, Commissioner Mark T. Uyeda was named Acting Chairman to lead the SEC until Atkins was confirmed by the Senate. Commissioner Uyeda headed the SEC through mid-April, when Chairman Atkins was confirmed.
Many speculated about what the SEC’s Division of Enforcement would – or would not – do in the new administration. With the first quarter of 2025 completed, it seems a good time to review what occurred across the SEC enforcement landscape.
Snapshot of the Stats
Much has been said about cases the SEC moved to dismiss or stay in the first quarter, especially in the crypto asset space. But what new cases did the SEC bring?
Although the SEC typically does not publicize its enforcement statistics until after the government’s fiscal year ends in September, the SEC discloses each new case on its website. A review of those cases shows that, at a high level, the SEC brought the following actions from January 21, 2025, the day Commissioner Uyeda was named Acting Chairman, through the end of the first quarter on March 31, 2025.

The SEC filed 26 stand-alone enforcement actions, consisting of:

18 actions in federal district courts; and
Eight administrative proceedings.

The subject matter of those actions included:

19 cases alleging fraudulent conduct (other than insider trading);
Six insider trading cases;
Six cases involving investment advisers;
Five cases with parallel criminal proceedings; and
One case alleging violations of Regulation BI by a broker-dealer and several registered representatives.

The SEC also brought 19 follow-on actions, imposing various suspensions or bars based on the entry of an order in a prior civil or criminal proceeding.

(The subject matters listed above exceed the number of stand-alone actions because a single action might involve more than one subject matter. For example, one case might involve both fraudulent conduct and an investment adviser.)
Key Takeaways
Admittedly, January 21 through the end of the first quarter provides only a limited sample of cases, and a disproportionate number of SEC enforcement actions tend to be filed around September – the last month of the government’s fiscal year. But several points can be gleaned from these first few months of 2025:
First, the SEC continues to bring new cases. Any predictions that the SEC would not pursue enforcement actions in the new administration seem to be unfounded thus far. It appears that, while certain enforcement priorities have shifted, the SEC remains active in conducting investigations and filing actions.
Second, the SEC appears to be most active in traditional enforcement areas, including actions involving fraudulent offerings, misstatements, insider trading, and registered entities such as investment advisers and broker-dealers. Thus, issuers should continue to ensure that their periodic reports, disclosures, and other statements remain accurate. Similarly, registered investment advisers and broker-dealers, who are subject to examinations by the SEC, should ensure that their disclosures are accurate and that their compliance functions operate effectively.
Third, the SEC continues to coordinate with criminal enforcement authorities, often at the U.S. Department of Justice, on parallel investigations. So, parties involved in SEC investigations should be mindful of potential criminal exposure arising from the same facts.
Fourth, the SEC continues to impose follow-on remedies. Non-monetary remedies in a follow-on proceeding – such as a bar from associating with an investment adviser or broker-dealer – may be career threatening. Accordingly, potential follow-on remedies should be carefully considered when contemplating litigation or settlement with the SEC.

ESG in 2025: Finding the Sweet Spot in a Complex World

With ESG regulation now well embedded across all major jurisdictions, the trend we see for 2025 is about increasingly sophisticated triangulation by private fund managers between the regimes that apply by default (such as mandatory corporate sustainability reporting), those that apply by choice (such as becoming an Article 8 fund within the meaning of the EU’s SFDR or the new for 2024 ESMA ESG Fund Name Guidelines – see summary here) and those that apply by third party request or expectation (such as reporting obligations within side letters). As regimes evolve, the ESG-approach of any fund once identified, chosen and defined must also take into account tracking developments and monitoring compliance.
The best advice to counter claims and penalties for greenwashing remains to “say what you do and do what you say” (as the SEC has advised). This, however, requires a manager to have a full record of what was said (including in historic side letters) and done (in policies and processes, both current and historic) and to appreciate what that means in the eyes of all relevant regulators and the eyes of investors. To support this, we often recommend that managers have a tailored definitions and concepts bank to ensure compliance across all relevant jurisdictions and an in-house understanding of what, for example, “sustainability” means for them.
Greenwashing has recently come to the fore with several high-profile targeted regulatory enforcement claims and actions, including Aviva Investments which was fined in Luxembourg – see blog here. This is noteworthy because it is the first penalty under SFDR imposed by the Luxembourg Commission de Surveillance du Secteur Financier (the CSSF) with Luxembourg continuing to be a very popular location for EU fund formation. Other asset managers are finding themselves the subject of campaigns by the third sector, for example by ClientEarth, designed to capture the focus of local regulators, with the French regulator, the Autorité des marchés financiers (the AMF), being a target as it positions itself as a thought leader in the EU, including in ESG matters.
The counter temptation – to greenhush (or play down ESG credentials) – may therefore seem appealing, as ESG strategies in investment decision-making become increasingly divisive, especially in certain US jurisdictions. Alongside this, the market has grown more sophisticated in its expectations and analysis of ESG disclosures and commitments. However, it is not always an option to greenhush when advisers or investments fall within scope of mandatory corporate sustainability reporting or sustainable finance requirements. One example is the Corporate Sustainability Reporting Directive, which if in scope is a complex disclosure exercise that can attract penalties for non-compliance at Member State level – including in some cases holding individual board members liable.
While the reports of the death of ESG in the US have been greatly exaggerated, as Mark Twain might say, 2025 may well be the year in which we see increased divergence between the EU, UK and US approaches. In the US, on one hand, the dedicated ESG task force within the SEC has been disbanded, but only because the topic is now largely embedded as core within the SEC divisions so that advisers should still expect to see ESG-related disclosures as a key examination topic, and several Blue State pension funds are honing in on increased ESG-related investment criteria. On the other hand, the predicted approach of the new Republican administration could be to follow President Trump’s lead, or he has previously described ESG investing as ‘radical left garbage’. A recent finding by a Texas federal court that an American Airlines 401(k) plan breached its duty of loyalty to investors by offering ESG investments – even if participants weren’t required to invest in such investments, appears to endorse this sentiment. Conversely in the UK, Chancellor Rachel Reeves, has committed to “sustainable finance” as one of the UK’s five priorities for the country Financial Services Growth and Competitiveness Strategy. In the EU, there is further divergence of approach with momentum to deepen sustainable finance disclosures under a SFDR 2.0, yet also calls from EU leaders to streamline sustainability requirements on financial market participants and businesses more broadly.
Private fund managers operating on an international level need to assess and understand their position in this global, interlocking and overlapping – and occasionally conflicting – web of rules and politics. With advisers, LPs, the fund vehicles and portfolio companies hailing from many different jurisdictions, this assessment is not necessarily simple or available off the shelf. However, a tailored and suitable assessment of risk, and appropriate use of ESG approaches can reap significant rewards in mitigating downsides and attracting investment.
Additional Authors: Seetha Ramachandran, Robert Sutton, Jonathan M. Weiss, William D. Dalsen, Rachel Lowe, Adam L. Deming, Adam Farbiarz and Hena M. Vora

What a Relief! Co-Investments Get Easier for Interval Funds, Tender Offer Funds, and Business Development Companies

The US Securities and Exchange Commission (SEC) has approved a streamlined framework for co-investments involving certain closed-end funds and business development companies (together, Regulated Funds).1 This updated approach offers a more practical path for advisers managing both private funds and Regulated Funds, easing compliance burdens—particularly for boards of trustees or directors (each, a Board and collectively, Boards)—compared to the prior co-investment framework.
While the new framework does not address every challenge associated with co-investments by Regulated Funds, it represents a significant and welcome development. The relief has been well received across the industry,2 and funds operating under existing co-investment orders should consider submitting amendments to align with the updated relief.
Background
The new co-investment framework is outlined in an exemptive application submitted by FS Credit Opportunities Corp. et al. (FS), seeking an order to permit certain joint transactions among affiliated FS funds.3 On 3 April 2025, the SEC issued a notice of its intent to grant the requested relief, which includes streamlined terms and conditions relative to prior co-investment orders. The SEC formally granted the order on 29 April 2025.4
Key Changes
As noted above, the new conditions provide for significant flexibility in connection with co-investments. Among others, some of the key changes of the relief are as follows:
Streamlined Co-Investment Transaction Procedures
Pre-Existing Investments in an Issuer No Longer Outright Prohibited
Under the prior co-investment framework, Regulated Funds and their affiliates were prohibited from participating in an initial co-investment transaction if an affiliate already held a security of the same issuer.

Under the new co-investment framework, a Regulated Fund may now participate in such a transaction where an affiliate already holds an investment in the same issuer, provided the Required Majority5 of the Board approves the investment and makes specified findings regarding the transaction. In addition, Regulated Funds may acquire securities of issuers in which affiliates already hold interests—without Required Majority approval—if the Regulated Fund already holds the same security and all affiliated entities invest on a pro rata basis.

Reduction in Frequency of Board Approvals
Previously, a Regulated Fund’s Board was required to approve: (i) each new co-investment transaction; and (ii) any follow-on investments or dispositions, unless the transaction was allocated on a pro rata basis or involved only tradable securities.

Under the new co-investment framework, Board approval is required only when an affiliate of a Regulated Fund has an existing investment in the issuer and either: (i) the Regulated Fund does not already hold an investment in that issuer; or (ii) the Regulated Fund and its affiliates are not participating in the transaction on a pro rata basis relative to their existing holdings.

Elimination of “Board-Established Criteria” and Reduced Board Reporting Requirements
Board-Established Criteria
Under the prior co-investment framework, investment advisers were required to offer all potential co-investment opportunities that aligned with a Regulated Fund’s investment objectives and any objective, “board-established criteria.”

The new co-investment framework eliminates this specific requirement. Instead, investment advisers may allocate co-investment opportunities to Regulated Funds based on their fiduciary duty and in accordance with their allocation policies. A Regulated Fund may participate in such transactions so long as the Board—including a Required Majority—has reviewed and approved the fund’s co-investment policies and procedures.

Streamlined Reporting
Under the previous co-investment framework, advisers were required to submit detailed, transaction-specific quarterly reports. These reports included information on co-investment opportunities not offered to the Regulated Fund, follow-on investments and dispositions by affiliated entities, and any declined or missed opportunities.

The new framework significantly reduces the reporting burden on advisers and chief compliance officers (CCOs). Advisers will now only need to provide periodic reports to the Regulated Fund’s Board, in the form requested by the Board, along with a summary of any significant issues related to compliance with the relief. Additionally, the CCO will deliver an annual report to the Board outlining the Regulated Fund’s participation in the co-investment program, affiliated entities’ participation, and any material changes to the investment adviser’s co-investment policies. The CCO will also be required to notify the Board of any compliance issues related to the relief.

Expanded Flexibility for Joint Ventures, Sub-Advised Regulated Funds, and 3(c) Funds
Joint Ventures
The new co-investment framework expands eligibility for participation in co-investment transactions by including joint venture subsidiaries (i.e., an unconsolidated joint venture subsidiary of a Regulated Fund, in which all portfolio decisions, and generally all other decisions in respect of such joint venture, must be approved by an investment committee consisting of representatives of the Regulated Fund and the unaffiliated joint venture partner, with approval from a representative of each required) of a Regulated Fund, formed with an unaffiliated joint venture partner. Previous co-investment relief generally did not allow such joint venture subsidiaries to participate in negotiated co-investments in reliance on the exemptive relief.
Sub-Advised Funds
Sub-advised Regulated Funds, where the primary adviser and sub-adviser are unaffiliated, can now participate in co-investment transactions. Previously, most exemptive orders did not allow these types of entities to participate in such co-investment transactions. A Regulated Fund may rely on the relief obtained by its adviser to co-invest with adviser affiliates, as well as the relief obtained by the applicable sub-adviser to invest with sub-adviser affiliates, by indicating to the Board which relief the Regulated Fund is relying on.
Broader Range of Affiliated Private Funds
The new framework extends to a broader array of affiliated private funds, permitting any entity that would be considered an investment company but for Section 3(c) of the Investment Company Act of 1940, as amended (the 1940 Act) or Rule 3a-7 thereunder to rely on the relief, provided it is advised by an adviser affiliated with the applicant. Previously, exemptive orders were generally limited to entities relying on Section 3(c)(1), 3(c)(7), or 3(c)(5)(C). Additionally, insurance company general accounts are now treated as private funds.
Takeaways for Sponsors of Interval Funds, Tender Offer Funds and Business Development Companies
Simplified Governance
The new co-investment framework adopts a more practical approach by eliminating the requirement for Board approval for nearly every investment. This change significantly reduces the governance burden, allowing Boards to focus on strategic oversight rather than routine transaction approvals. By streamlining the approval process, advisers can make investment decisions more efficiently, minimizing delays and administrative overhead.
Clearer Roles
The updates provide greater clarity regarding the respective roles of the adviser and the Board in investment decisions. This clearer delineation of responsibilities enhances governance and ensures smoother operations. More specifically, the new relief does not require that a Regulated Fund’s Board be presented with all relevant co-investment transactions that were not made available to the Regulated Fund and an explanation of why such investment opportunities were not made available. Instead, the Regulated Fund’s Board simply must (i) review the adviser’s co-investment policies to ensure they are reasonably designed to prevent the Regulated Fund from being disadvantaged by participation in the co-investment program and (ii) approve policies and procedures that are reasonably designed to ensure compliance with the terms of the new relief.
Expanded Investment Opportunities
Regulated Funds can now participate in a broader range of investment opportunities, even if an affiliate already holds an investment in the same issuer where the Regulated Fund has not previously participated. The ability to engage in follow-on investments without requiring stringent Board approval further enhances the flexibility and appeal of co-investment opportunities, broadening access to private markets for retail investors.
Efficient Allocation
The new framework eliminates cumbersome requirements for special allocation determinations, placing the allocation process squarely within the adviser’s fiduciary responsibility.
The New Co-Investment Framework Facilitates Private Fund to Regulated Fund Conversions
The updated co-investment framework removes the “pre-boarded assets” distinction, facilitating the conversion of private funds to Regulated Funds. This change reduces the burden on converted assets, lowers associated costs, and eliminates the need for independent counsel with respect to these pre-boarded assets, further alleviating financial and administrative burdens.
If you have any questions on co-investments or want further advice on taking advantage of the new relief, please do not hesitate to contact the authors listed in this alert.
Footnotes

1 See SEC, Investment Company Act Release No. 35520; File No. 812-15706 (Apr. 3, 2025), available here.
2 See Letter from Paul G. Cellupica & Kevin Ercoline, Inv. Co. Inst., to Vanessa Countryman, SEC (Mar. 4, 2025), available here.
3 See In re FS Credit Opportunities Corp., No. 812-15706 (Feb. 20, 2025), available here.
4 See SEC, Investment Company Act Release No. 35561; File No. 812-15706 (Apr. 29, 2025), available here.
5 As defined in Section 57(o) of the 1940 Act.

Top Ten Regulatory and Litigation Risks for Private Funds in 2025

Confession: writing this in May 2025, we cannot predict with confidence what the rest of 2025 will bring. The year has already seen four months of change and upheaval – political, regulatory, and economic. The new US administration has touted a business-friendly regulatory environment, with actual and promised tax cuts and deregulation. However, geopolitical tensions, tariff trade wars and political instability have introduced new risks and created a climate of extreme unpredictability. We should expect 2025 to hold several surprises still, whether that is a breakout of peace or new political themes obtaining prominence in one or more jurisdictions.
Against this backdrop, it can be tempting to adopt the view of legendary film writer William Goldman declaring that “nobody knows anything” and that publishing our annual “Top Ten Litigation and Regulatory Risks for Private Funds” is simply a fool’s errand. We have, after all, already rewritten this introduction multiple times before new developments make it out of date again. However, whatever happens, sponsors with strong foundations and nimble mindsets will be best placed to take advantage of any new opportunities that arise and be able to pivot as needed in new, more promising directions.
We have therefore focused on two sub-themes to support those strong foundations:

Topics to ensure “your house is in order” to give those strong foundations (e.g., how to navigate ESG in 2025, the use of insurance products by sponsors, best practice with MNPI, dealing with whistleblowers and global anti-corruption compliance)
Risks arising now from the trends of 2024 (e.g., risks from the growth of the private credit market, the rise in earn out disputes in portfolio companies and navigation of end-of-life funds)

To complete our list of ten, we will engage in some tentative crystal ball gazing, including the role of the SEC in a non-regulatory environment and outward investment restrictions and tariffs, but will, like our clients and readers, seek to remain “nimble” to ensure we remain relevant.
With this backdrop, we are pleased to present the Top Ten Regulatory and Litigation Risks for Private Funds in 2025.

ESG in 2025: Finding the Sweet Spot in a Complex World
Regulatory Scrutiny on Potential MNPI in the Credit Markets
SEC Regulation in a Non-Regulatory Environment
Global Trade in 2025: Tariffs and Outbound Investment Restriction
Three Risks to Monitor in Private Credit
End Of (Fund) Life Issues and Zombies
Navigating Earn-Out Disputes: Key Considerations for Portfolio Companies
Why the DOJ’s New Whistleblower Program Remains Relevant
Protecting Sponsors from Emerging Portfolio Company Risks through Insurance
FCPA & Anti-Corruption Enforcement: Shifting Global Dynamics in Light of New US Regime

Additional Authors: Dorothy Murray, Joshua M. Newville, Todd J. Ohlms, Robert Pommer, Seetha Ramachandran, Nathan Schuur, Bryan Sillaman, Robert Sutton, John Verwey, Jonathan M. Weiss, William D. Dalsen, Rachel Lowe, Adam L. Deming, Adam Farbiarz and Hena M. Vora

SEC Chairman Atkins Speaks on Crypto

In his first public statement since being sworn in on April 21, new SEC Chairman Paul Atkins delivered remarks on April 25 at the third roundtable of the SEC’s Crypto Task Force.
Chairman Atkins began by thanking Commissioner Peirce for “her principled and tireless advocacy for common-sense crypto policy within the United States.” Referring to her by her nickname “CryptoMom,” Atkins lauded Commissioner Peirce as “the right person to lead the effort to come up with a rational regulatory framework for crypto asset markets.”
Chairman Atkins continued:
This is important work as entrepreneurs across the United States are harnessing blockchain technology to modernize aspects of our financial system. I expect huge benefits from this market innovation for efficiency, cost reduction, transparency, and risk mitigation. Market participants engaging with this technology deserve clear regulatory rules of the road. Innovation has been stifled for the last several years due to market and regulatory uncertainty that unfortunately the SEC has fostered.
We expect that reconsideration of the SEC’s approach to the regulation of digital assets will continue to be a high priority for Chairman Atkins.

SEC Policy Shift and Recent Corporation Finance Updates – Part 2

Since the beginning of the year, the US Securities and Exchange Commission’s (SEC) Division of Corporation Finance staff (Corp Fin Staff) has issued several important statements and interpretations, including a Staff Legal Bulletin on shareholder proposals and multiple new and revised Compliance and Disclosure Interpretations (C&DIs). Given the pace and importance of these recent changes, it is critical that public companies be aware of the significant policy shift at the Division of Corporation Finance and the substance of the updated statements and interpretations.
This is the second part of an ongoing series that will discuss recent guidance and announcements from the Corp Fin Staff. This installment will review the new and revised C&DIs released by the Corp Fin Staff relating to unregistered offerings.
Securities Act Rules
On 12 March 2025, the Corp Fin Staff released a number of new and revised C&DIs relating to Regulation A and Regulation D under the Securities Act and withdrew many C&DIs that were no longer applicable.
Regulation A – Nonpublic Correspondence and State Securities Laws
Regulation A is a framework that is used primarily by smaller companies to raise capital in unregistered offerings. Regulation A has two offering tiers (Tier 1 and Tier 2) that have different eligibility requirements, offering limits, and disclosure obligations.
With respect to C&DIs regarding Regulation A, and specifically Securities Act Rules 251 to 263, the Corp Fin Staff revised three C&DIs to clarify certain filing requirements, requesting confidential treatment during a review, and certain registration requirements. The Corp Fin Staff revised Question 182.01 to specify how issuers can make previously submitted nonpublic draft offering statements publicly available at the time of the first public filing of the offering statement. It also clarifies that Corp Fin Staff will make nonpublic correspondence publicly available at the end of their review of the offering statement.
Revised Question 182.02 provides that during the review of a nonpublic draft offering statement, an issuer can request confidential treatment for correspondence by utilizing Rule 83 in the same way it would during a typical registered offering review. Additionally, Question 182.10 now clarifies that even though securities initially sold in a Tier 2 offering are exempt from registration, registration and qualification requirements under state securities laws are not preempted with respect to resales of the securities purchased in that Tier 2 offering unless separately preempted.
Regulation D – Foreign Issuers, Demo Days, and Accredited Investors
Regulation D provides an exemption from the registration requirements under the Securities Act for limited unregistered offerings and sales of securities. With respect to Regulation D, the SEC revised or issued new C&DIs regarding disclosure requirements for foreign private and Canadian issuers, the interplay between Regulation D and Regulation S for foreign offerings, when “demo days” or similar events would constitute a general solicitation, and verification of accredited investor status.
A demo day is an event in which startup companies can show their product or services to prospective investors. With respect to investor accreditation, issuers are limited in the number of nonaccredited investors they can offer and sell securities to in certain Regulation D offerings, and they have greater disclosure obligations to those nonaccredited investors.
Foreign Issuers
In revised Question 254.02, the Corp Fin Staff removed the reference to disclosure requirements for foreign private issuers being set forth in Securities Act Rule 502(b)(2)(i)(C) when using Regulation D, and this C&DI now just states “yes” to the question of whether foreign issuers can use Regulation D.
Question 255.33 provides that under Securities Act Rule 500(g), as long as a foreign offering meets the safe harbor conditions set forth in Regulations S relating to offerings made outside the United States, then the offering does not need to comply with the conditions of Regulation D (which in part limit the number of nonaccredited investors that can be included). The Corp Fin Staff revised this question to specify that the 35-person limit for the number of nonaccredited investors under Regulation D applies only within any 90-calendar-day period.
The Corp Fin Staff revised Question 256.15 to clarify that under Securities Act Rules 502(b)(2)(i)(B)(1) and (2), a Canadian issuer can satisfy the information requirements of Securities Act 502(b) using financial statements contained in a multijurisdictional disclosure system (MJDS) filing. The revision captures all financial statements rather than just the issuer’s most recent Form 20-F or Form F-1 and requires preparing the MJDS filing in accordance with International Financial Reporting Standards.
Demo Days
Question 256.27 now adds that in relation to “demo days” or other similar events, communications meeting the requirements of Securities Act Rule 148 will not constitute general solicitation or general advertising, even if the issuer does not have a pre-existing, substantive relationship with the persons in attendance. Revised Question 256.33 similarly highlights that if a demo day meeting the Rule 148 requirements is not a general solicitation, then it will also not be subject to limitations on the manner of offering by Securities Act Rule 502(c) (which sets forth limits on issuers from offering and selling securities through general solicitation or general advertising). Events that do not comply with Rule 148 will continue to be evaluated based on facts and circumstances to determine if they constitute a general solicitation or general advertisement.
Accredited Investors
Newly issued Question 256.35 establishes that, aside from the verification safe harbors in Securities Act Rule 506(c)(2)(ii), taking “reasonable steps to verify accredited investor status” first involves the issuer conducting an objective consideration of facts and circumstances of each investor and the transaction. Factors that should be considered under this analysis include the nature of the purchaser and what type of accredited investor they claim to be, the type and amount of information that the issuer has about the purchaser, and the nature of the offering. These factors should be considered interconnectedly to assess the reasonable likelihood that a purchaser is an accredited investor, which then helps the issuer determine the reasonable steps needed to verify that status.
New Question 256.36, in conjunction with Question 256.35, indicates that based on the particular facts and circumstances, a high minimum investment amount for an offering may serve to allow an issuer to reasonably conclude that it took reasonable steps to verify accredited status. This aligns with Securities Act Release No. 9415 (10 July 2013) and the recent Latham & Watkins no-action letter (12 March 2025) issued by the Corp Fin Staff that provides more detail about what conditions, along with a minimum investment amount, would evidence reasonable steps that a purchaser is accredited.
Conclusion
Many of the new and revised C&DIs discussed above are welcome changes and provide greater clarity with respect to unregistered offerings and sales of securities. These C&DIs are just a handful of the new and updated guidance issued by the Corp Fin Staff since the beginning of the year and reflect a policy shift by the SEC overall that will likely be continued in the months ahead.