Texas Court Stays CAT Class Action, But Reporting Must Continue
On July 7, Judge Alan Albright of the US District Court for the Western District of Texas granted the Securities and Exchange Commission’s (SEC) motion to stay a class action by industry groups that challenges the constitutionality and tracking capabilities of the Consolidated Audit Trail (CAT). The stay extends through January 15, 2026, by which date the SEC must report the results of its ongoing internal review of CAT governance, cybersecurity and cost‑allocation.
In its motion, the SEC referenced its current consideration of CAT National Market System plan amendments by self-regulatory organizations (SROs) that would prohibit the reporting of personal customer information to CAT entirely and eliminate all personal customer information stored in CAT. Importantly, CAT reporting obligations remain in full force during the stay. Judge Albright’s order provides the SEC with time to complete its review but does not suspend the operation of CAT or alter compliance deadlines.
For additional background on CAT and the underlying litigation, see Katten’s prior Quick Reads posts here and here.
Healthcare Practice Transitions: Capitalizing on the Perfect Storm
Highlights
Demographic Shift: Nearly 47% of physician practice owners are over age 55 and actively exploring retirement options, opening the door for widespread practice transitions.
Abundant Capital: Private equity firms and institutional buyers are deploying significant capital into healthcare platforms, driving record-high valuations.
Accelerated Consolidation: Sectors like dental (expected to hit 25% group ownership) and medical aesthetics (growing at 13%+ annually) are undergoing rapid consolidation, benefiting both sellers and strategic buyers.
The healthcare practice landscape is undergoing a once-in-a-generation transformation. For practice owners who have built their careers around the traditional “lifestyle business” model — prioritizing work-life balance and personal control — the market is signaling that the window to maximize practice value has never been wider. At the same time, for private equity firms, Dental Service Organizations (DSOs) and other institutional investors, the highly fragmented healthcare sector presents fertile ground for strategic consolidation.
Demographics Driving Deal Flow
The numbers tell a compelling story. Approximately 10,000 baby boomers turn 65 every day, and this generation owns roughly 2.3 million businesses with a combined valuation of $10 trillion (Snider and Weinberger). In healthcare specifically, nearly 47% of physician practice owners are over age 55 and actively considering transition options within the next decade (Association of American Medical Colleges).
For dental practices, the average retirement age has settled around age 69, but the wave of retirements is accelerating as practice ownership becomes increasingly complex and capital-intensive (American Dental Association).
These trends reflect more than age — they represent a generational shift in mindset. Today’s healthcare graduates demonstrate different career preferences than their predecessors. Female dentists now represent a growing percentage of graduates, and research consistently shows that they prioritize work-life balance over practice ownership (American Dental Education Association). Meanwhile, recent graduates face unprecedented challenges in securing banking relationships and managing the escalating regulatory and administrative burdens that come with independent practice ownership.
The Capital Revolution
What makes this moment unique isn’t just the supply of sellers, but the explosion of available capital on the buy side. Healthcare M&A activity surged in late 2024, fueled by institutional investors bringing unprecedented resources to practice acquisitions (Healthcare Finance News). Valuations for high-performing practices reached record heights in 2023, partly due to this large influx of capital driving consolidation across multiple healthcare sectors (Morrison).
Dental is a prime example: industry-wide group ownership has climbed from 10% to nearly 18% since 2022 and is projected to reach 25% over the next decade (Dental Group Practice Association). About one-third of dental practices are now consolidated — a trend that began in 2010 but has accelerated dramatically since 2015 (ADA Health Policy Institute). For practice owners, this represents a unique arbitrage opportunity: the ability to maximize financial outcomes by transitioning to well-capitalized institutional buyers rather than traditional individual successors.
The MedSpa Parallel
The consolidation trend extends well beyond dental practices. The medical spa industry presents a particularly compelling parallel opportunity. The global medical spa market is projected to reach approximately $25.9 billion by 2026, growing at a robust compound annual growth rate of over 13% (Grand View Research). Like dentistry a decade ago, the sector remains highly fragmented, with significant private equity investment activity in aesthetic medicine over the past two years (PitchBook Healthcare Services Report).
For aesthetic medicine practice owners, this fragmentation represents a fruitful opportunity. For institutional buyers, it represents a chance to establish platform companies in a rapidly growing sector that combines healthcare delivery with consumer-driven demand.
The Buyer’s Advantage
From the institutional buyer perspective, this market presents exceptional opportunities for several reasons:
Market Fragmentation: Both dental and MedSpan markets remain significantly fragmented compared to other healthcare sectors, providing ample acquisition targets for roll-up strategies.
Defensive Healthcare Spending: These sectors tend to be more recession-resistant than other healthcare specialties, as they often combine essential care with elective procedures that maintain steady demand.
Operational Efficiency: Consolidation allows for shared administrative functions, centralized procurement, standardized protocols and enhanced technology implementation, all of which drive improved margins.
Regulatory Navigation: Institutional buyers can better manage the increasingly complex regulatory environment that burdens individual practice owners.
The Perfect Storm for Transactions
Several factors are converging to create optimal conditions for healthcare practice transactions:
Motivated Sellers: Practice owners facing retirement, increased regulatory complexity and administrative burdens are increasingly motivated to explore exit strategies.
Available Capital: Private equity firms, DSOs and other institutional buyers have significant dry powder and are actively seeking healthcare platform investments.
Valuation Premiums: Current market conditions support premium valuations for quality practices with strong patient bases and operational systems.
Interest Rate Environment: While financing costs have fluctuated, institutional buyers with strong balance sheets maintain significant advantages in the current market.
Navigating the Complexity
Despite the opportunity, these transactions are not simple. Healthcare practice transactions involve intricate regulatory compliance requirements, including corporate practice of medicine considerations, supervision requirements for non-physician providers, and multi-state compliance issues for expanding platforms. For MedSpa transactions specifically, FDA requirements and state-specific aesthetic procedure regulations add additional layers of complexity.
Additionally, many healthcare practice owners have never navigated a business sale, particularly to institutional buyers with sophisticated due diligence processes and complex transaction structures. The disconnect between lifestyle business owners and institutional buyers can create significant friction without experienced guidance.
Successfully capitalizing on this market opportunity — whether as a seller seeking to maximize practice value or as a buyer pursuing consolidation strategies—requires sophisticated legal counsel with deep healthcare industry experience. The convergence of demographic trends, capital availability and regulatory complexity demands attorneys who understand both the business realities of healthcare practice ownership and the strategic objectives of institutional buyers. The perfect storm is here. The question is not whether healthcare practice consolidation will continue, but whether you have the right legal partner to help you make the most of it.
Sources
ADA Health Policy Institute. (2023). Distribution of Dentists in the United States by Region and State: Ownership Models and Practice Structures. HPI Research Brief.
American Dental Association. (2023). Survey of Dental Practice: Practice Ownership and Retirement Trends. ADA Health Policy Institute Research Brief. Available at: https://www.ada.org/resources/research/health-policy-institute.
American Dental Education Association. (2024). Trends in Dental Education and Practice Demographics: 2024 Annual Report. ADEA Survey of Dental School Seniors.
Association of American Medical Colleges. (2023). 2023 Physician Workforce Data Report.
Dental Group Practice Association. (2024). State of Group Practice Ownership Report: Consolidation Accelerates Across All Market Segments. DGPA Annual Survey.
Healthcare M&A Report. (2024). Year-End Healthcare Transaction Analysis: Private Equity and Strategic Acquisitions. Healthcare Finance News, Q4 2024.
Morrison, K. (2023). Practice Valuation Trends and Market Analysis: Record Values Drive Consolidation. Dental Economics, Vol. 113, No. 8.
Snider, J., & Weinberger, R. (2023). The coming wave of business transitions. Bain & Company Insights.
SEC Hosts Compensation Disclosure Roundtable in Advance of Potential Rule Changes
On June 26, 2026, the Securities and Exchange Commission (“SEC”) hosted a roundtable to discuss whether executive compensation disclosure rules produce information material to investors and if not, how they should be amended. The roundtable consisted of representatives from public companies and investors, as well as other experts in this field. Remarks were made by SEC Chair Paul S. Atkins and the other sitting commissioners. A recording of the roundtable is available on the SEC’s website here. Chair Atkins noted in his remarks that one might describe the SEC’s current compensation disclosure requirements as a “Frankenstein patchwork of rules.” He suggested that the compensation disclosure rules have become unwieldy, are not cost-effective and result in disclosure that a reasonable investor struggles to understand. Commissioners Hester Peirce and Mark Uyeda echoed his views. We expect that the SEC will issue one or more rule proposals amending executive compensation disclosure requirements, possibly later this year.
Prior to the roundtable, on May 16, 2026, Chairman Atkins issued a statement, including questions for the SEC staff to consider, and invited the public to submit comments on executive compensation disclosure. A number of comments were submitted prior to the roundtable, which are available on the SEC’s website here. At the roundtable on June 26, Chairman Atkins indicated that any further comments should be submitted in the next several weeks to be considered in any rule proposal that is issued.
Executive compensation is perennially a hot topic. Issuer panelists and investor panelists were not always on the same page on potential disclosure reform. Issuer panelists generally sought rationality and flexibility in compensation disclosure. Investor panelists were interested in improved navigability and comparability of compensation disclosure. Some of the executive compensation disclosure topics covered during the roundtable include:
Alignment of compensation disclosure with compensation decision-making. Chair Atkins and certain roundtable panelists wondered if there was a way to better align compensation disclosure with how compensation decisions are actually made by a company. Panelists inquired whether compensation disclosure should reflect information reviewed by boards and committees in making compensation decisions.
Perquisites. Under a 2006 rulemaking,[1] an item is not a perquisite (perk) or personal benefit if it is integrally and directly related to the performance of the executive’s duties. The concept of a benefit that is “integrally and directly related” to job performance is a narrow one. Otherwise, an item is a perquisite or personal benefit if it confers a direct or indirect benefit that has a personal aspect, without regard to whether it may be provided for some business reason or for the convenience of the company, unless it is generally available on a non-discriminatory basis to all employees. In the 2006 rulemaking, the SEC specifically indicated security provided at a personal residence or during personal travel is perquisite. The existing SEC rules and guidance on perquisites also lead most companies to conclude that the provision of technology to an executive to facilitate working from home is a perquisite. These perspectives seem antiquated now, given the experience with COVID and increased threats against executives. There was support among panelists for a more facts and circumstances determination regarding whether an item provided by the company to an executive is a perquisite, and modification or elimination of the SEC guidance on items that are presumptively perquisites.
Pay-for-performance. Many panelists expressed frustration with the SEC’s implementation of the Dodd-Frank Act[2] mandated pay versus performance rules,[3] requiring companies to disclose both quantitatively and qualitatively, in both tabular and narrative formats, how the compensation actually paid to executives relates to company financial performance over a five-year time horizon. Panelists thought “compensation actually paid” requires a complex calculation that makes it hard to both produce and interpret the disclosure. A panelist indicated there is enough experience that suggests the costs to prepare the disclosure are much greater than any benefit of the rule.
CEO pay ratio. The SEC’s implementation of the CEO pay ratio rules[4] required by the Dodd-Frank Act is also looked upon with disfavor by issuer panelists. Certain investor panelists did not see much value in the disclosure because of the lack of comparability among issuers. However, some investor panelists saw potential value in tracking this ratio over time. Panelists generally considered the cost of preparing the disclosure as exceeding any benefit of the rule.
Clawback rules. In 2022, the SEC adopted new executive compensation “clawback” rules,[5] fulfilling its 2010 mandate under Dodd-Frank. Notably, unlike many existing clawback policies that only apply to officers who actually engaged in fraud or misconduct related to financial statements and provide companies with some degree of discretion in determining when and whether to pursue enforcement, the Dodd-Frank clawback rules generally require (subject to very limited exceptions) companies to clawback compensation erroneously received by any executive officer in connection with any “Little r” restatements (i.e., financial restatements that are not deemed material errors and do not require a full restatement of previously issued financial statements), as well as “Big R” restatements (i.e., financial restatements that are deemed material errors and do require a full restatement of previously issued financial statements, as well as immediate Form 8-K disclosure to the effect that the previously issued financial statements can no longer be relied upon). These clawback rules were described by a panelist as a trainwreck waiting to happen, offering a hypothetical of an executive who has engaged in no misconduct who decides to resign and fight the company for loss of prior compensation rather than return the compensation under the clawback rules.
XBRL. Certain investor panelists expressed an interest in XBRL tagging of the summary compensation table and supplemental compensation tables. The only proxy disclosures that currently require XBRL tagging are pay versus performance, equity grant policy disclosure, insider trading policy disclosure, and disclosure of a registrant’s action to recover erroneously awarded compensation.
Say-on-pay. There was little appetite among panelists to change say-on-pay requirements, although it was noted that this requirement may distort compensation decision-making. Panelist indicated that say-on-pay generates some amount of investor engagement and can result in more thoughtful narrative compensation disclosure than might otherwise be produced. However, some panelists identified as a downside that say-on-pay drives companies to adopt the current “best practices” on executive compensation programs, even if aspects of such programs are ill-fitted to certain adopting companies. Proxy advisory firms’ voting guidelines tend to further drive adoption of one-size fits all compensation programs.
While the scope of potential executive compensation disclosure reform is unclear, we expect reform is coming.
[1] Executive Compensation Disclosure, Release No. 34-55009 (Dec. 22, 2006).
[2] Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010).
[3] Pay Versus Performance, Release No. 34-95607 (August 25, 2022).
[4] Pay Ratio Disclosure, Release No. 34-75610 (August 5, 2015).
[5] Listing Standards for Recovery of Erroneously Awarded Compensation, Release No. 34-96159 (October 26, 2022).
SEC Enforcement in the Second Quarter of 2025
In May 2025, we summarized the U.S. Securities and Exchange Commission’s (SEC) Division of Enforcement activity during the first quarter of the new presidential administration. With the second quarter now concluded, and Paul S. Atkins hitting his stride as the new Chairman of the SEC, we summarize below the types of SEC enforcement actions filed during the second quarter of 2025.
The Stats
The SEC publicly discloses each new enforcement action it files in federal district court or as an administrative proceeding. Although the SEC recently has received much attention for old cases it dismissed, rather than new cases it brought, we focus here on the latter. And a review of the cases shows that, at a high level, the SEC brought the following types of actions from April 1, 2025, through June 30, 2025.
The SEC filed 31 stand-alone enforcement actions, consisting of:
24 actions in federal district court; and
Seven administrative proceedings.
The subject matter of those actions included:
27 cases alleging fraudulent conduct (other than insider trading);
Nine cases involving investment advisers;
Six cases with parallel criminal proceedings;
Two cases alleging unregistered municipal advisors; and
One case alleging that a broker-dealer failed to file Suspicious Activity Reports (SARs).
The SEC also brought eight 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.)
Takeaways
As SEC observers seek to discern the direction of enforcement under Chairman Atkins, several points may be gleaned from the second quarter of 2025:
First, every case filed in district court alleged fraud. Last year, the U.S. Supreme Court held that, when the SEC seeks civil penalties for securities fraud, the defendant is entitled to a jury trial. See SEC v. Jarkesy, 603 U.S. 109, 120-21 (2024). So, it is no surprise that the SEC now files all of its fraud cases in district court (where a jury is available) and not in its administrative forum (where cases are decided by administrative law judges). But it is notable that the SEC did not bring any non-fraud cases in district court. Perhaps this reflects that the SEC has refocused its limited enforcement resources on fraud cases involving more egregious conduct, rather than non-fraud cases involving technical violations. Time will tell.
Second, the SEC remains active in the investment adviser space, policing violations involving fee disclosures and conflicts of interest, among other things. Thus, investment advisers should anticipate scrutiny from the SEC and proactively ensure that their disclosures are accurate and their compliance functions operate effectively.
Third, the SEC continues to bring actions against broker-dealers for failing to file SARs. The Bank Secrecy Act, together with Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-8 thereunder, require broker-dealers to file SARs in connection with certain suspicious transactions. Bringing enforcement actions against broker-dealers for failing to file SARs was an area of emphasis before Chairman Atkins took the helm of the SEC, and it appears to remain a focus. Broker-dealers should thus ensure that their policies and procedures relating to SARs are effective.
Fourth, the SEC continues to coordinate with criminal enforcement authorities, typically at the U.S. Department of Justice (DOJ), on parallel investigations. One area where the SEC and DOJ often bring parallel actions is insider trading. Interestingly, the SEC did not bring any insider trading cases during the second quarter of this year, even though DOJ brought several. Whether that indicates a trend or a statistical blip remains to be seen. Notably, on July 10, 2025, after the quarter ended, the SEC brought an insider trading case in parallel with DOJ, so perhaps the dearth of SEC insider trading cases in the second quarter was simply an anomaly.
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Expanded QSBS Tax Benefits: Shorter Holding Periods, Higher Exclusions and Broader Eligibility
The recent passage of new federal legislation known as One Big Beautiful Bill (OBBB, formally House Bill 1 of the 119th Congress) brings significant changes to several material programs and tax laws. While some provisions — such as 100% bonus depreciation for certain business aircraft — have received attention, one major update has gone largely unnoticed: significant changes to the treatment of Qualified Small Business Stock (QSBS) under Section 1202 of the Internal Revenue Code (the Code).
These changes will have a major impact on the venture capital ecosystem, which include enhancements to QSBS incentives for founders and investors while expanding the number of companies eligible to issue QSBS.
At a high level, the changes allow:
A pro-rated tax exclusion benefit for a shorter holding period.
An expanded asset threshold, allowing larger companies to issue QSBS-eligible stock.
A higher, inflation-indexed exclusion cap on the sale of QSBS eligible stock beginning in 2027.
QSBS Background
Section 1202 of the Code provides significant tax benefits to individuals and certain entities that receive stock directly from certain early-stage companies if the stock and the issuing entity meet certain requirements. Before these changes, if the shareholder held that stock for more than five years after issuance (and certain other requirements were met), the shareholder generally would be entitled to entirely exclude a certain amount of gain from federal income taxation.
At a high level, QSBS eligibility required that:
The issuer of the stock must be a “C” corporation (i.e., not an S-corporation or a limited partnership).
The stockholder acquired the stock via an original issuance directly from the company (not as part of a secondary offering or another acquisition method).
The issuing company must be actively engaged in certain types of qualifying businesses (excluding many services-based businesses).
The issuing company must have avoided certain types of transactions and continue to abide by certain transactional limits, like certain stock redemptions. Note that this is one of the trickiest prongs for the issuing company to manage, as it requires historical analysis and forward-looking compliance.
The issuer’s aggregate gross assets must be below $50 million through the date the QSBS eligible stock is issued.
What’s New
While many baseline requirements (such as entity type and business activity) remain unchanged, the legislation introduces several investor-friendly revisions.
Important Note: These changes are not retroactive and only apply to newly acquired stock on or after July 4, 2025. QSBS acquired before that date will continue to be governed by the previous rules.
Shorter Holding Periods to Access Benefits
Stockholders can now begin to receive prorated QSBS tax benefits after holding qualified stock for as little as three years at the time of sale, instead of waiting for five years to receive the full benefit, as was previously required. The new sliding-scale benefit is as follows:
Stock held for at least 3 years: 50% of gain excluded from federal income tax
Stock held for at least 4 years: 75% of gain excluded from federal income tax
Stock held for at least 5 years: 100% of gain excluded from federal income tax
While early sales mean a reduced benefit, the shorter period, coupled with the other benefits detailed below, is a promising development for investors and founders alike.
Larger Companies Can Issue QSBS-Eligible Stock
What is a “qualified small business?” Before the legislation, an issuing company had to have gross assets below $50 million (as determined under Section 1202). That threshold is now $75 million (adjusted for inflation starting in 2027), measured before and immediately after the issuance of QSBS shares.
As a result, more companies — particularly those in mid- and later-stage rounds — can now issue QSBS-eligible stock.
QSBS Benefits Can Exempt More from Taxes
Stockholders can exclude up to $15 million (adjusted for inflation starting in 2027), up from the previous limit of $10 million.
Importantly, the $15 million limit is only one prong of the potential gain exclusion. QSBS rules state that a stockholder can exclude the greater of (A) $15 million or (B) 10x their basis in the QSBS eligible stock. Because the 10x basis limitation often can result in a larger exclusion and the law did not change this limitation or the “greater of” calculation, the exemption rules overall improved for stockholders under the legislation.
While these changes expand the potential benefits of QSBS, the rules remain complex. Engaging experienced tax advisors can help ensure eligibility is preserved and opportunities are fully realized. Our team regularly supports clients in navigating the nuances of Section 1202.
Key Takeaways
The recent legislation significantly enhances QSBS rules for founders and investors. Larger companies can now issue QSBS-eligible stock, which can be held for a shorter period to receive preferential QSBS tax treatment. Additionally, those QSBS benefits increase the amount of gain that can be excluded from taxation. These substantial changes are poised to reshape investment dynamics across the venture ecosystem.
Big Changes for QSBS: What the 2025 Trump Tax Bill Means for Founders and Investors
On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBA), a sweeping tax reform package that includes major updates to the Qualified Small Business Stock (QSBS) rules under Section 1202 of the Internal Revenue Code. These changes are poised to reshape how founders, early-stage investors, and startup employees think about equity and exit strategies.
Key Changes to QSBS
1. Tiered Gain Exclusion Based on Holding Period Previously, QSBS had to be held for at least five years to qualify for a 100% capital gains exclusion (if acquired after 2010). The new law introduces a tiered system for stock acquired after July 4, 2025:
3 years: 50% exclusion
4 years: 75% exclusion
5+ years: 100% exclusion
This gives investors more flexibility and earlier access to tax benefits.
2. Increased Gain Exclusion Cap The per-issuer cap on excludable QSBS gain has been raised:
From $10 million to $15 million for stock acquired after July 4, 2025
The new cap will be adjusted for inflation starting in 2027
3. Higher Company Asset Threshold To qualify as a QSBS issuer, a company’s gross assets must now be under $75 million (up from $50 million), expanding eligibility to more mature startups.
4. AMT Relief Gains excluded under the new 50%, 75%, and 100% rules are not considered tax preference items for Alternative Minimum Tax (AMT) purposes
What This Means for You
These changes make QSBS even more attractive for startup founders, employees, and investors. The shorter holding periods and higher caps could influence how equity is structured, when stock is issued, and how exits are timed.
If you’re involved in startup formation, fundraising, or planning a liquidity event, now is the time to revisit your QSBS strategy.
Plain Speaking Wins the Day with D.C. Court of Appeals: Proxy Advisors Are Not Subject to SEC Rule 14(A) Solicitation Prohibition
The United States Court of Appeals for the District of Columbia Circuit recently held that the Securities and Exchange Commission (“SEC”) and the securities industry were effectively “separated by a common language.” Giving heed to the plain meaning rule when interpreting legislative intent, the Court in Institutional Shareholder Services, Inc. v. SEC, No. 24-5105, —F.4th —, 2025 WL 1802786 (D.C. Cir. July 1, 2025), affirmed an order of the United States District Court for the District of Columbia (see Institutional Shareholder Services, Inc. v. SEC, 718 F. Supp. 3d 7 (D.D.C. 2024)), granting summary judgment to plaintiff Institutional Shareholder Services, Inc. (“ISS”), holding that the SEC’s definition of the term “solicit” went beyond the meaning Congress contemplated when enacting Section 14(a) of the Securities and Exchange Act of 1934 (“Exchange Act”). The decision analyzed the SEC’s 2020 amendment to its rules regulating proxy advice to define the term “solicit” / “solicitation” to include the provision of client requested proxy voting advice (“2020 Rule”). The Court struck down the 2020 Rule as unlawful, reasoning that the meaning of “solicit” as Congress intended when it enacted the Exchange Act is to actively seek to obtain proxy authority or votes. The Court concluded that “the ordinary meaning of ‘solicit’ does not include entities that provide proxy voting recommendations requested by others, even if those recommendations influence the requestors’ eventual votes.” Proxy advisory firms like ISS were therefore in the clear when it comes to Section 14(a).
Section 14(a) of the Exchange Act — the bedrock for SEC regulations governing proxy solicitations — prohibits “any person” from “solicit[ing] . . . any proxy” regarding registered securities. In creating the statute, the term “solicit” / “solicitation” was not defined by Congress, however prior to the 2020 Rule, the SEC had described the term to include any “communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy.” Thus, the SEC has long held the view that proxy voting advice generally constitutes a “solicitation” under the Exchange Act requiring compliance with proxy rules and regulations.
In September 2019 the SEC distributed guidance suggesting that proxy advisory services constituted “solicitation” under the proxy rules. ISS — a proxy advisory firm which provides recommendations to institutional investors on how to vote on corporate matters at shareholder meetings, and a major player in the proxy advisory market — quickly filed suit disputing whether the SEC could properly classify proxy advisory firms such as ISS as a “solicitation.” The case however was initially stayed pending completion of the SEC’s related rulemaking.
The SEC subsequently issued the final 2020 Rule in September 2020, thus expressly codifying the viewpoint from the 2019 guidance, defining “solicit” and “solicitation” to mean:
Any proxy voting advice that makes a recommendation to a security holder as to its vote, consent, or authorization on a specific matter for which security holder approval is solicited, and that is furnished by a person that markets its expertise as a provider of such proxy voting advice, separately from other forms of investment advice, and sells such proxy voting advice for a fee.
The SEC’s codified definition required that proxy advisory firms must file proxy recommendations with the SEC as proxy solicitations unless they could claim an exemption. Following the SEC’s completion of its guidance, the court proceedings were restarted, and the National Association of Manufacturers (“NAM”) — the largest manufacturing industrial trade association in the nation and an advocate for the September 2020 Rule — intervened on behalf of the SEC. The case was stayed again from June 2021 through March 2022 pending the SEC’s decision to revisit the 2020 Rule. However, in 2022 when the SEC adopted new amendments to the proxy advisor rules, only some, and not all of ISS’s claims became moot because the 2022 amendments still included the same definition of the term “solicit” / “solicitation.”
Subsequently, SEC, NAM and ISS each moved for summary judgment. The district court granted ISS’s motion, rejecting the SEC’s expanded regulatory definition of “solicit” that included disinterested proxy voting advice and finding that the September 2020 Rule was invalid.
NAM appealed arguing that the district court defined “solicit” too narrowly, and also that even if the district court defined “solicit” correctly, because “solicit” can mean “endeavor to obtain,” advisory firms like ISS “solicit” proxies by seeking to obtain votes aligned with their recommendations. The Court exercised independent judgment under Loper Bright Enters v. Raimondo, 603 U.S. 369 (2024), to consider whether the SEC’s interpretation of its governing statute was contrary to law. First, looking to the ordinary definition of the word “solicit” at the time the Exchange Act was enacted, the Court found that the term entails “seeking to persuade another to take a specific action.” Based upon this interpretation, the Court held that the SEC’s definition of the term was inconsistent with Section 14(a) of the Exchange Act. The Court found a proxy advisor is not soliciting a client’s vote when the proxy advisor gives advice that the client solicited. Even if those recommendations eventually are influential to the voting process, the proxy advisors are not seeking to persuade any particular outcome.
The structure of Section 14(a) reinforced the Court’s reasoning which presupposes that proxy solicitation involves parties actively seeking to secure votes or voting authority. Proxy advisors do not themselves seek votes or act on behalf of those who do. Thus, Section 14(a) is not intended to reach proxy advisors, who simply might influence proxy votes or provide recommendations. Therefore, the Court concluded that proxy voting advice does not fall under the legal definition of solicitation and the SEC’s attempt to regulate proxy advisory firm’s provision of advice as “solicitation” under the proxy rules exceeds its authority.
This decision significantly narrows the SEC’s regulatory power under Section 14(a) and has broad implications for the proxy voting process. No longer will proxy advisors be subject to burdensome Section 14(a) requirements when responding to requests for advice from their clients. Although Congress could move to enact legislation to clarify the SEC’s authority over proxy advisors, the probability is low with the current Washington climate forecasts. At the same time, it is a good bet that NAM and its 14,000 member companies will be looking at ways to challenge the impact of the Court’s opinion and limit proxy firm influence in shareholder decision making when votes are tallied at the all-important annual shareholder meeting. However, in the meantime the Court has “blown away the foam” on the SEC’ Section 14(a) strained interpretation and proxy advisors can get back to business with their clients knowing they can get to “the real stuff” that matters.[1]
FOOTNOTES
[1] Telling it Like it is, Boone Pickens His Life. His Legacy.
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House of Lords Launches Inquiry into Growth of UK Private Markets
On 2 July 2025, the House of Lords Financial Services Regulation Committee launched an inquiry into the growth of private markets in the UK.
The inquiry will assess whether post‑2008 capital and liquidity requirements have constrained traditional bank lending, thereby shifting financial activity and risk toward private markets. Key areas of focus of the inquiry include:
the impact of regulatory reforms on banks’ capacity and willingness to lend;
the extent to which risk has migrated from the banking sector to private markets; and
the visibility the Bank of England has over private market activities and their interconnections with the banking sector.
The Committee’s ten questions aim to explore the differing regulatory approaches applied to the banking sector and private markets, and to assess any systemic risks that may arise as financial activities increasingly move beyond the scope of traditional banking regulation.
Next Steps
Stakeholders are invited to submit their responses and any verifiable data to inform their answers by 18 September 2025.
We recommend monitoring developments closely and considering participation in the call for evidence.
Tokenized Securities Are Still Securities
In a brief but remarkable statement issued July 9, 2025, SEC Commissioner Hester Peirce, leader of the SEC’s Crypto Task Force, warned that “Tokenized securities are still securities.”
Commissioner Peirce’s statement seems directed at several recently-publicized projects to tokenize and create trading markets in both publicly-listed equities as well as shares of unicorn privately-held companies with no public trading markets. Peirce warned that “As powerful as blockchain technology is, it does not have magical abilities to transform the nature of the underlying asset.” She continued, “Accordingly, market participants must consider—and adhere to—the federal securities laws when transacting in these instruments.”
Peirce cautioned that creating a tokenized security may create a “receipt for a security” or a “security-based swap,” each of which is subject to regulation under the federal securities laws. She also reminded distributors of tokenized securities of their disclosure obligations under those laws, and pointed to recent staff guidance on the topic. She encouraged projects sponsors to meet with the Commission and its staff when exemptive relief is necessary.
For years, Commissioner Peirce has been critical of the SEC’s approach to regulating cryptocurrency and other digital assets, and has encouraged a lighter touch to regulation that more greatly fosters innovation. This statement seems to be a realization that there are outer limits to that approach, and serves as a reminder that sponsors of tokenization projects must still consider the regulatory implications of their efforts.
Florida CHOICE Act Takes Effect: Protections for Noncompete and Garden Leave Agreements
UPDATE: On July 3, 2025, the CHOICE Act became law without Gov. DeSantis’ signature. View the published law here.
On April 24, 2025, the Florida House and Senate passed the Florida Contracts Honoring Opportunity, Investment, Confidentiality, and Economic Growth (CHOICE) Act, designed to foster economic growth, protect business interests, and enhance the state’s investment climate by strengthening protections for covered employers with covered noncompete and garden leave agreements. If signed by Gov. DeSantis, the CHOICE Act would take effect on July 1, 2025.
Click here to read the full GT Alert.
ESMA Publishes Four Principles for Clear, Fair and Not Misleading Sustainability-Related Claims
On 1 July 2025, the European Securities and Markets Authority (“ESMA”) published a thematic note on making clear, fair and not misleading sustainability-related claims, to address greenwashing risks (the “Thematic Note”).
In the Thematic Note, ESMA sets out that sustainability information is increasingly important in investor choice, and, due to its complex nature, financial market participants making sustainability-related claims may risk making claims that are misinterpreted with investors misled, whether intentional or not. Although there are many references to retail investors in the Thematic Note, it is not exclusively for this sector, and private market fund managers are recommended to review and consider ESMA’s four principles (summarised below) and the accompanying guidance, particularly given ESMA’s repeated calls for closer regulatory supervision across the asset management sector on sustainability claims.
To support with making sustainability-related claims, ESMA has published four principles for financial market participants to consider. The principles are not a new disclosure regime, but guidance, and cover the following:
Accurate
There should be fair and accurate claims of the entity’s sustainability profile and/or the financial products’.
There should not be exaggeration, and there should be a consistent approach in the claims made.
Claims should be precise and consider all relevant positive and negative aspects. Omission and cherry-picking should be avoided.
Vagueness or excessive references to irrelevant or non-binding should also be avoided.
ESG terminology and non-textual imagery or sounds should be consistent with the sustainability profile of the entity or product.
Accessible
Sustainability claims should be based on information that is easy to access (including for institutional investors) and at an appropriate level of detail so they are understandable.
Claims should not be oversimplistic but should also be understandable.
If more information is needed, then further substantiation of sustainability claims can be presented in layers to the reader.
Substantiated
Sustainability claims should be substantiated with clear and credible reasoning, facts and processes.
Substantiation should be based on methodologies, including comparisons thresholds or underlying assumptions that are fair, proportionate and meaningful.
Limitations of information, data and metrics should be made available.
If comparisons are used it should be clear if they are “like for like”.
4. Up to date
Sustainability claims should be based on information that is up to date with any material change to be disclosed in a timely manner.
The date and perimeter of the analysis should be considered for disclosure.
Accompanying the four principles are a range of Do’s and Don’ts in the Thematic Note, with good and poor practice examples on claims on general ESG credentials, industry initiatives, labels and awards and comparisons to peers.
There is undoubtedly an overlap with the UK FCA’s anti-greenwashing guide, and asset managers with a European footprint are recommended to check that many of these commonsense approaches in the four principles are followed, particularly as the general messaging from ESMA is that financial market participants have now had several years since to adapt to the increased regulatory and investor demand for sustainability-related information.
Australia: The Regulatory Developments for FY25 That Fund Managers Can’t Afford to Ignore
As we have now said goodbye to FY25, we look back on some of the more significant regulatory developments that fund managers can’t afford to ignore.
Private markets scrutiny: Fund managers have been put on notice by ASIC throughout this year with several releases discussing the future of private markets in Australia. ASIC has conveyed a clear intention to increase regulatory surveillance of private markets including in particular private credit and has not ruled out future regulatory reform. Fund managers with private market products should ensure that ASIC’s focus areas such as fee disclosure, valuation transparency and conflicts of interest meet regulatory requirements and best practices.
Sustainability reporting: Described as a ‘once in a generation change’, Australia’s sustainability reporting regime has commenced. Larger fund managers meeting certain size thresholds are now required to disclose their climate-related risks and opportunities together with Scope 1, 2 (and in another 12 months Scope 3) emissions in their annual sustainability reports, with reporting obligations for smaller fund managers and responsible entities commencing in the next two years. Fund managers should familiarise themselves with the sustainability reporting regime and determine the applicable reporting commencement date.
AI governance: ASIC has highlighted the prevalence of AI use by licensees including fund managers and expressed concern about lagging governance policies. Inadequate AI governance can contravene general conduct obligations, consumer law provisions and directors’ duties. Fund managers implementing AI systems and processes must ensure that they have adequate policies governing the use of AI to avoid catching ASIC’s regulatory attention.
Crypto as an asset class: Digital assets are an asset class of increasing attractiveness to investors yet the regulation of digital assets in Australia continues to be unsettled. ASIC has released proposed updates to its digital asset guidance which if adopted could lead to many digital assets and businesses needing to obtain Australian Financial Services Licences (AFSL) and/or Australian Markets Licences. Fund managers should ensure they are appropriately authorised before deploying capital towards digital assets.
Foreign financial service providers (FFSPs) licensing: FFSPs who operate under the current licensing regime or those looking to enter the Australian market continue to be faced with an uncertain regulatory future. There has been no indication from Government whether the current licensing regime will be extended beyond its March 2026 sunset date, and the proposed amendments to the current licensing regime continues to sit in legislative purgatory after the Federal election earlier this year. Offshore fund managers who provide services to wholesale investors will need to monitor any future announcements from Government and if necessary consider pathways to obtaining an AFSL or another licensing exemption.