SEC Grants Further Relief From Including Personally Identifiable Information in CAT Reporting
On February 10, the Securities and Exchange Commission (SEC) granted relief exempting industry members from reporting a natural person’s name, address, and year of birth to the Consolidated Audit Trail (CAT). Industry members must still report transformed social security numbers (SSNs) or individual taxpayer identification numbers (ITINs) for natural persons and, to the extent applicable, Larger Trader IDs (LTIDs) and Legal Entity Identifiers (LEIs). This exemptive relief builds on the SEC’s 2020 relief that exempted industry members from reporting actual SSNs/ITINs and full birth dates to CAT (but then requiring year-of-birth reporting) and developed the system for transforming SSNs/ITINs, which are then used to generate CAT Customer-ID (CCIDs).
The SEC’s relief acknowledges the ongoing concerns of industry members and trade associations that the wholesale collection of customer information created cybersecurity risks, as such sensitive customer information was vulnerable to hacking by cybercriminals. Particularly when such customer information could be paired with the full inventory of historical securities transactions effected by that customer maintained in the CAT transaction database, cybercriminals could further use compromised information to impersonate customers or regulators, take over or otherwise compromise customer accounts, or otherwise engage in fraud or other bad acts affecting customers or the markets. The SEC’s action largely tracks a recommendation from FINRA President and CEO Robert Cook last month (https://www.finra.org/media-center/blog/cat-should-be-modified-to-cease-collecting-personal-information-on-retail-investors), perhaps anticipating inevitable CAT reform by a Republican-led Commission.
Regulators will still be able to obtain customer-specific information regarding individual transactions, but they will have to do so by requesting do so by requesting such information from broker-dealers through Bluesheet and other regulatory requests. Both the SEC’s exemptive order and FINRA’s proposal highlighted reverting to such a “request-response” system.
The SEC’s exemptive order is available at https://www.sec.gov/files/rules/sro/nms/2025/34-102386.pdf.
CLOs and Material Nonpublic Information: Key Takeaways from the SEC’s Settlement with Sound Point
In this alert, we present the key lessons to be learned from the U.S. Securities and Exchange Commission’s (the SEC) settlement with Sound Point Capital Management, LP (Sound Point), and discuss whether a similar enforcement action would be possible under the EU and UK market abuse regimes. Fund managers trading in collateralized loan obligations (CLOs) should take note of the SEC’s decision, review their material nonpublic information (MNPI) policies, and closely monitor the SEC’s increased focus on transparency in private credit markets.
Settlement
On August 26, 2024, the SEC announced settled charges against a New York-based investment adviser, Sound Point, for failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of MNPI concerning its trading in CLOs. The settlement follows a similar enforcement action brought by the SEC against another investment adviser in 2020.
CLOs and Sound Point
CLOs are securities that typically consist of a series of bonds collateralized by a pool of corporate loans, loan participations, or credit default swaps tied to corporate liabilities. The bonds differ in terms of subordination or, in other words, the priority for receiving cash flow distributions from the underlying loans. The most junior tranche (also called the equity tranche) is subordinate to the remaining tranches and, as a result, is the first to absorb losses if any of the loans default.
Sound Point is an SEC-registered investment adviser that manages its own CLOs and CLOs issued by third parties. In addition, Sound Point often participates in ad hoc lender groups or creditors’ committees, where it explores potential debt restructuring opportunities with companies on the edge of bankruptcy filings or restructuring.
Sound Point and MNPI about Company A
According to the SEC, in June 2019, as a member of such an ad hoc group of lenders, Sound Point became aware of the likely need for rescue financing of a media services company (Company A) – information which constituted MNPI about that company. Given that Sound Point owned and managed CLOs collateralized by loans issued to Company A, it began to explore the possibility of reducing its exposure to such CLOs. Sound Point decided to sell portions of its equity tranches several weeks later, and its compliance department approved the sale despite being aware of MNPI about Company A.
When MNPI concerning Company A became public the day following the sale, the prices of loans issued to Company A immediately dropped by more than 50%, with the value of the tranches sold by Sound Point declining by approximately 11%, or $685,000.
SEC’s Charges
Although Sound Point had in place a general MNPI policy, it did not require Sound Point’s compliance personnel to consider the impact of MNPI relating to a corporate borrower on the value of a CLO tranche containing a loan to that borrower, when evaluating a proposed sale of that tranche.
In the SEC’s view, this gap constituted a violation of Sections 204A and 206(4) of the Investment Advisers Act of 1940 (the Advisers Act) and Rule 206(4)-7 promulgated thereunder, which require investment advisers to, among other things, “establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of such investment adviser’s business, to prevent […] the misuse of material, nonpublic information” and have “policies and procedures reasonably designed to prevent” violations of the Advisers Act.
After accounting for the subsequent reviews and investigations conducted by Sound Point, as well as the implementation of the revised MNPI policies in 2022 and 2024, the SEC accepted Sound Point’s offer to settle for $1.8 million in a civil penalty. (Sound Point neither admitted nor denied the SEC’s findings.) The SEC did not, however, charge Sound Point with violating SEC Rule 10b-5 relating to trading in securities based on MNPI.
Lessons for Fund Managers
The Sound Point enforcement action demonstrates the SEC’s increased focus on the activities of fund managers in the context of insider trading and the specificity of written policies and procedures.
The Sound Point enforcement action is not the first action brought by the SEC against a fund manager in relation to MNPI. In 2020, the SEC settled charges with another private equity adviser for the lack of sufficient policies and procedures to prevent the misuse of MNPI obtained through employees who had been appointed to the boards of portfolio companies. Although the firm had a general MNPI policy, the SEC concluded that the policy was not specific enough to account for the types of MNPI obtained in the context of the firm’s unique business lines.
Both settlements clearly signal the need for fund managers to review their MNPI policies and update them accordingly. When managers deal with complex derivative products, they should consider whether their policies accurately reflect the MNPI risks related to these products, including loans behind them. Generally restricting trades on the basis of MNPI may not be sufficient, and fund managers should holistically address exposure of their business operations to MNPI, and actively maintain and enforce their policies.
BROADER CONTEXT
Could a similar action be brought on the other side of the Atlantic? The European MNPI regime is based on EU Regulation 596/2014 on market abuse (MAR) that applies directly in every EU Member State. The UK decided to retain the provisions of MAR following Brexit with very limited amendments.
Competent authorities of the EU Member States and, in the UK, the Financial Conduct Authority (the FCA) have broad powers to investigate infringements of MAR, including infringements of its Article 16(2), which requires any person professionally arranging or executing transactions to “establish and maintain effective arrangements, systems and procedures to detect and report suspicious orders and transactions” involving insider dealing and market manipulation.
To date, the FCA has published three enforcement actions for violations of this provision (see here, here, and here). The last enforcement, published in August 2022, imposed a financial penalty of £12,533,800 on an international broker-dealer, part of one of the world’s largest banks, for failures in control systems resulting in a number of erroneous orders being executed across various European exchanges.
However, unlike the SEC, the FCA has not published the results of any investigation into MAR policies of fund managers operating in the UK, nor has it announced any specific focus on this type of enforcement action.
SEC Begins Process of Eliminating Climate Disclosure Rule
In a development that could hardly be termed unexpected, the Trump Administration SEC has begun the process of unraveling the climate disclosure rule promulgated by the SEC under the Biden Administration. Specifically, the Acting Chair of the SEC–Mark Uyeda, who had dissented from the adoption of the climate disclosure last year–issued a statement signaling that the SEC would soon reverse its position on the climate disclosure rule. Highlighting “the recent change in the composition of the Commission, and the recent Presidential Memorandum regarding a Regulatory Freeze,” Uyeda announced that he would ask the Eighth Circuit–where all of the legal challenges to the climate disclosure rule have been consolidated–to take no action until “the Commission [] deliberate[s] and determine[s] the appropriate next steps.” Such “next steps” could likely involve the SEC no longer defending the validity and legality of the climate disclosure rule.
Despite the significance of this development–effectively, the beginning of the end of one of the Biden Administration’s signature regulatory achievements–this move was widely expected and is unlikely to have much practical impact. Ever since the election of President Trump in 2024, it was anticipated that the SEC climate disclosure rule would not long survive the changed administration. And even before then, due to the substantive legal challenges to the regulation, a number of scholars had opined that the climate disclosure rule was imperiled. Further, the impact of Uyeda’s announcement is even further diminished since the enforcement of the climate disclosure rule had already been voluntarily stayed by the SEC pending the resolution of the legal challenges–so there was not any currently binding regulation applicable to reporting entities.
However, despite the likely demise of the SEC climate disclosure rule, there are mandatory climate disclosure regulations that will apply to many U.S. companies still on the books–as both California and the European Union have issued such regulatory requirements.
The SEC’s interim leader on Tuesday began unraveling the agency’s legal defense of Biden-era climate reporting rules for public companies. Mark Uyeda, acting chairman of the US Securities and Exchange Commission, announced the agency would ask the US Court of Appeals for the Eighth Circuit not to schedule arguments in the case brought by business interests and Republican state attorneys general. The commission needs time to “deliberate and determine the appropriate next steps,” Uyeda said.
www.bloomberglaw.com/…
Trump Pauses FCPA Enforcement and Resets Priorities
On February 10, 2025, President Donald Trump issued an executive order titled, “Pausing Foreign Corrupt Practices Act Enforcement to Further American Economic and National Security” (“FCPA EO”) that directs the Department of Justice (“DOJ”) to pause enforcement of the Foreign Corrupt Practices Act (15 U.S.C. 78dd-1 et seq.) (“FCPA”) for 180 days until new Attorney General (“AG”) Pam Bondi issues new FCPA guidelines and policies on enforcement. The FCPA EO seeks to eliminate “excessive barriers to American commerce abroad,” states that current FCPA enforcement has been “stretched beyond proper bounds and abused in a manner that harms the interests of the United States,” and states that “overexpansive and unpredictable FCPA enforcement against American citizens and businesses . . . actively harms American economic competitiveness and, therefore, national security.”
For the uninitiated, the FCPA is a criminal statute enacted in 1977, which the DOJ and U.S. Securities & Exchange Commission (“SEC”) have employed to impose over $31 billion in penalties over the last 48 years, as well as secure scores of criminal convictions. During the Biden Administration alone, the DOJ and SEC imposed total penalties over $4 billion under the FCPA, so the fact that President Trump just stopped the DOJ from enforcing the FCPA with a stroke of a pen was a change in the enforcement landscape to say the least.
Trump’s FCPA EO follows a wave of fourteen memoranda issued by AG Bondi last week, aimed at overhauling the DOJ’s enforcement priorities. As part of her first day directives, AG Bondi issued a memorandum titled, “Total Elimination of Cartels and Transnational Criminal Organizations,” (“Total Elimination Memo”) which outlines the DOJ’s “fundamental change in mindset and approach” with the goal of the “total elimination” of Cartels and Transnational Criminal Organizations (“TCOs”).[1] The Total Elimination Memo immediately ends the kleptocracy task forces and shifts the DOJ’s enforcement priority to Cartels and TCOs, including redirecting the DOJ’s FCPA Unit and Money Laundering and Asset Recovery Section (“MLARS”) to prioritize cases involving Cartels and TCOs.
Key Takeaways from the FCPA EO and Total Elimination Memo
The FCPA still remains a valid statute, even though the DOJ is pausing criminal enforcement of it for at least 180 days.
The FCPA’s statute of limitations is 5 years, and the EO does not provide violators any legal defense.
It is unclear if the SEC will follow the DOJ’s lead or continue to enforce the civil provisions of the FCPA against US issuers.
Private lawsuits with an FCPA nexus (typically shareholder suits) are not impacted.
The overall risk of FCPA criminal enforcement under the new Trump Administration just decreased significantly. The many pundits who opined that FCPA enforcement would continue unabated in 2025 were wrong.
After AG Bondi issues the new FCPA guidelines, companies should review and revise their compliance programs to comport with the new DOJ guidance.
Given Trump’s stated view that the FCPA “actively harms American economic competitiveness,” the door may be open for a “Trump discount” on penalties, and companies should seriously consider whether to attempt to resolve any potential FCPA liabilities during the current administration once the new guidelines are issued.
Detailed summaries of the FCPA EO and Total Elimination Memo are below.
FCPA EO
The FCPA EO specifically orders the following:
For a period of 180 days following the date of this order, the Attorney General shall review guidelines and policies governing investigations and enforcement actions under the FCPA. During the review period, the Attorney General shall:
cease initiation of any new FCPA investigations or enforcement actions, unless the Attorney General determines that an individual exception should be made;
review in detail all existing FCPA investigations or enforcement actions and take appropriate action with respect to such matters to restore proper bounds on FCPA enforcement and preserve Presidential foreign policy prerogatives; and
issue updated guidelines or policies, as appropriate, to adequately promote the President’s Article II authority to conduct foreign affairs and prioritize American interests, American economic competitiveness with respect to other nations, and the efficient use of Federal law enforcement resources.
Further, the FCPA EO provides that the AG may extend the review period for an additional 180 days and that any FCPA investigations and enforcement actions initiated or continued after the revised guidelines or policies are issued under subsection (a) must be governed by such guidelines or policies and specifically authorized by the AG. The FCPA EO mandates that after the revised guidelines or policies are issued, the AG must determine “whether additional actions, including remedial measures with respect to inappropriate past FCPA investigations and enforcement actions, are warranted and shall take any such appropriate actions or, if Presidential action is required, recommend such actions to the President.”
Total Elimination Memo
AG Bondi mandates that for a period of 90 days—to be renewed or made permanent thereafter—the FCPA Unit must prioritize investigations related to foreign bribery that facilitates criminal operations of Cartels and TCOs (e.g., bribery of foreign officials to facilitate trafficking of narcotics and firearms) and “shift focus away from investigations and cases that do not involve such a connection.” The memorandum also suspends the FCPA Unit’s exclusive requirement to authorize, prosecute, and try these bribery FCPA cases and opens the door for U.S. Attorney’s Offices (“USAOs”) nationwide to bring such cases. USAOs need only to provide the FCPA Unit with a “24-hours’ advance notice of the intention to seek charges” and provide any existing memoranda to the FCPA Unit in advance of seeking charges.
Similarly, under the same 90-day constraint, AG Bondi directed MLARS to prioritize investigations, prosecutions, and asset forfeiture actions that target Cartels and TCOs. The memorandum also disbands the Department’s Task Force KleptoCapture, the Department’s Kleptocracy Team, and the Kleptocracy Asset Recovery Initiative within MLARS and redirects their resources towards the total elimination of Cartels and TCOs. Recently, the Task Force KleptoCapture and Kleptocracy Asset Recovery Initiative targeted Russian oligarchs’ assets and enforced sanctions following Russia’s invasion of Ukraine.
The memorandum also:
Elevates two joint task forces, Joint Task Force Vulcan and Joint Task Alpha, to the Office of the AG to focus efforts on enforcing against Cartels and TCOs, such as Tren de Aragua and La Mara Salvatrucha;
Proposes legislative reforms to control the manufacture and distribution of fentanyl and counterfeit pills; and
Suspends approval or authorization requirements for capital-eligible offenses, terrorism and International Emergency Economic Powers Act charges, and racketeering charges related to Cartels and TCOs for a period of 90 days, potentially to be renewed or made permanent thereafter.
[1] The memorandum incorporates elements of President Donald Trump’s January 20, 2025, Executive Order, “Organizations as Foreign Terrorist Organizations and Specially Designated Global Terrorists,” which designates certain Cartels as Foreign Terrorist Organizations or Specially Designated Global Terrorists, finding that Cartels “institute a national-security threat beyond that posed by traditional organized crime.” See generally, The White House, Executive Order: Designating Cartels And Other Organizations As Foreign Terrorist Organizations And Specially Designated Global Terrorists (Jan. 20, 2025), https://www.whitehouse.gov/presidential-actions/2025/01/designating-cartels-and-other-organizations-as-foreign-terrorist-organizations-and-specially-designated-global-terrorists/?utm_source=sfmc&utm_medium=email&utm_campaign=701cx000002bYOAAA2&utm_content=Alert&utm_id=101800&sfmc_id=00Q4W00001dLmZJUA0&subscriber_id=6548422.
Prospects for Latin American Finance Under a Second Trump Administration
Latin American economies are uniquely positioned due to their geographical proximity to the United States, extensive economic integration, significant immigration patterns and potential for growth. The U.S. serves as the dominant market for exports from the region, while millions of Latin American migrants contribute substantial remittance flows to their countries of origin. As the region prepares for potential changes under a second Trump administration, there could be profound implications for Latin American economies, regional trade, and financing available from international sources.
One of the primary concerns surrounding Donald Trump’s return to the White House is the resurgence of high tariffs that characterized his previous administration. These tariffs, often imposed on key trading partners, could disrupt Latin American economies by increasing the cost of exporting goods to the U.S. But beyond that, the new administration has begun to make significant changes that will have considerable effects on the financial markets and the access to capital in Latin America.
Banking Markets
Under President Trump, the expected revival of U.S. banking sector deregulation might have ripple effects on Latin American banks. If the Trump administration continues to emphasize its expansionist view and priorities, Latin American banks could see increased competition, especially from U.S. institutions looking to expand their footprint in the region. This could lead to more favorable lending conditions for Latin American borrowers, provided they meet stringent compliance and creditworthiness standards that may be utilized by U.S.-based banks.
U.S. banks could see renewed interest in Latin America as they seek to diversify their portfolios and tap into emerging markets. The potential for infrastructure projects, especially in countries like Brazil and Mexico, should attract U.S. bank financing. This scenario could also lead to increased lending activity, particularly for sectors such as energy, agriculture and technology. The ability to navigate regulatory challenges and foster relationships with U.S. banks could unlock new avenues for financing.
Additionally, international credit providers might be more inclined to engage in syndicated loans with Latin American banks, particularly those demonstrating resilience in their financial metrics. This may well result in a more robust banking market and tighter spreads available to Latin American borrowers.
Bond Markets
The second Trump presidency could have both negative and positive implications for Latin American issuers in the bond markets. On one hand, a strong dollar policy may deter Latin American issuers from accessing international markets as it would be more expensive for Latin American countries to issue bonds in U.S. dollars. In addition, the levels of uncertainty that in many ways characterized the first as well as the current Trump administration could have a chilling effect on the financial markets, where stability typically favors more robust issuance levels. However, if the Trump administration pursues policies that favor economic growth, commodity prices could increase, thereby enhancing the scenario for commodity-dependent Latin American nations. This could also lead to a resurgence in demand for sovereign bonds, especially from more frequent issuers such as Mexico and Brazil.
The bond markets may experience a surge in issuance from Latin American sovereigns and corporates looking for capital from international investors. A favorable U.S. interest rate environment could encourage more capital flow into Latin American bonds, especially if U.S. yields remain low. Furthermore, an increase in the issuance of project bonds could result from increased interest by U.S. authorities or, in the absence of U.S. interest, multilateral institutions, in prioritizing infrastructure projects in the region. This trend could also see increased participation from ESG-focused investors, as Latin American issuers adapt to global sustainability trends while U.S. based issuers move away from ESG in line with the administration’s priorities.
As Latin American economies seek to grow, there may be increased opportunities for securitization of various cash flows—such as those from infrastructure, real estate, and consumer finance. This could attract international investors seeking higher yields. A robust structured finance market may be available to potential borrowers when there are less than favorable financial terms available in the more traditional debt and credit markets. These types of transactions are typically executed in the bank market or as a private placement of securities to a small group of investors, although in some instances where the deal size exceeds $100 million, sponsors have chosen to tap the Rule 144A market for a wider distribution to investors and increased liquidity.
Finally, the potential for increased U.S.-Latin America trade agreements could bolster confidence among international investors, resulting in more favorable yields for bond issuers. Regional governments may capitalize on this by issuing longer-term bonds to finance infrastructure projects, thus attracting more foreign capital.
Equity Markets
In the equity markets, Latin American companies could benefit from a favorable investment climate if the Trump administration takes steps to foster a business-friendly approach. Increased foreign direct investment from the U.S. could lead to a surge in initial public offerings (IPOs) and secondary offerings for issuers in the region. Sectors that could see significant interest include technology, renewable energy, and agribusiness, as investors seek to diversify their portfolios.
However, equity markets in Latin America could face volatility under a second Trump presidency, driven by fluctuating U.S.-Latin America relations. Despite and as a result of the volatility, international investors could find investment opportunities in emerging tech companies and renewable energy initiatives, especially in countries like Chile and Colombia, which are positioning themselves as leaders in these sectors. The Brazilian markets have been particularly slow after a flurry of activity during the COVID pandemic, although penned up need for capital and investor interest are expected to contribute to a more active market in 2025.
Geopolitical tensions, particularly between the U.S. and China, could further complicate matters for Latin American companies that rely heavily on export markets. A number of tariffs have been levied on various countries and industries during the early days of the second Trump administration, demonstrating that the administration will continue to use tariffs and the threat thereof as a foreign policy tool. Potential equity issuers and investors will certainly monitor how the Trump administration’s policies influence trade relationships and the macroeconomic environment.
ESG Finance
The return of Donald Trump to the White House has resulted in concerns about significant shifts in U.S. climate policy. Although the green bond market for Latin American corporate issuers is expected to grow, diminished political support for ESG investing in Washington could challenge the lending strategies of U.S.-based banks. President Trump has openly criticized ESG regulations, and his administration has advocated for the reversal of climate-related disclosure mandates. The administration is also anticipated to reduce the regulatory authority of federal agencies on issues like air quality, potentially resulting in increased greenhouse gas emissions. Signing a presidential executive order withdrawing the United States from the Paris Agreement was one of President Trump’s first actions as President, which could impact the decarbonization goals of the world’s largest economy.
While climate policy might not be prioritized under President Trump, Latin American companies’ investments in decarbonization and sustainability efforts are likely to ensure a consistent supply of green and other labeled bonds from the region. Global investor demand is expected to remain strong, particularly from investors located outside of the United States. European portfolio managers often have mandates to incorporate ESG fixed income into their portfolios. However, this does not preclude investors—whether in the U.S. or Europe—without such mandates from investing in green bonds, especially if they foresee long-term returns. The demand for these bonds is expected to continue, with a robust buyer base potentially enhancing their performance in secondary markets.
Expectations of inflation under President Trump, partly due to protectionist trade policies, could exert upward pressure on U.S. Treasury yields, affecting Latin American issuers of both ESG and conventional bonds. While rising yields may slightly increase funding costs, they are not anticipated to close the market for Latin American issuers.
One area of concern is the potential impact on multilateral development banks (MDBs) from an anticipated shift away from climate finance under the Trump administration. Given the significant influence of the U.S. on major multilateral lenders, these institutions may face pressure to reduce their focus on ESG strategies. Many market participants have suggested that priorities may shift away from climate issues towards other areas, such as poverty alleviation. This shift would likely reflect changes in priorities from the U.S. Treasury, which holds substantial voting power at institutions like the International Monetary Fund and the World Bank, as well as the Inter-American Development Bank (IDB), where it possesses 30% of the voting shares.
Despite these potential changes, the World Bank Group and the IDB are looking to enhance their role in mobilizing private-sector support for climate-friendly infrastructure projects in the region. However, challenges such as contingent risks associated with infrastructure projects may hinder public-private financing arrangements. These risks raise concerns about repayment flows, which can deter private sector participation in these initiatives.
Finally, Wall Street banks are likely to remain engaged in the ESG market despite potential political shifts in the U.S. This suggests that regardless of the political climate, the financial sector may continue to facilitate the growth of the green bond market in Latin America, driven by global investor interest in sustainable investments.
Securities Law Considerations
Under a second Trump administration, changes in U.S. trade and economic policies could significantly impact the securities markets in Latin America. U.S. federal securities laws, primarily governed by the Securities Act of 1933 and the Securities Exchange Act of 1934 regulate the issuance and trading of securities. Latin American issuers seeking to raise capital from U.S. investors must navigate these regulations, including registration requirements and exemptions such as Rule 144A for private placements to qualified institutional buyers and Regulation D for less widely distributed private placements.
The Trump administration’s expected emphasis on deregulation could lead to a more favorable environment for cross-border investments, potentially easing regulatory constraints for Latin American companies accessing U.S. capital markets. Additionally, the U.S. Securities and Exchange Commission (SEC) might adopt a more lenient stance on compliance requirements, encouraging more Latin American companies to seek U.S. listings or engage in debt offerings to U.S. investors. In the early days of the Trump administration, the SEC has shifted resources away from crypto enforcement and has taken steps to dramatically reduce staff which should result in less regulatory overview with respect to the securities markets. These initiatives, as well as others, highlight the dynamic pace of change within the SEC and should result in a shifting regulatory landscape for issuers and market professionals.
Banking Law Considerations
In the banking sector, U.S. federal laws like the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Bank Holding Company Act regulate the operations of U.S. banks and their international transactions. A deregulatory approach under the Trump administration could reduce compliance burdens, making it easier for U.S. banks to operate and extend credit in Latin America. This may enhance competition and lead to more dynamic banking relationships between U.S. and Latin American financial institutions. Since assuming office in January 2025, Trump has signed a number of executive orders that indicate an aggressive agenda that will have significant effects on the banking industry. The administration has focused on rescinding diversity, equity and inclusion (DEI) initiatives within federal agencies, sought to ease the use of digital assets in the financial system and implemented a freeze on regulatory rulemaking while the administration evaluates its regulatory priorities. These various initiatives could affect the landscape applicable to Latin American borrowers seeking to access the credit markets.
Latin American banks looking to partner with U.S. entities must carefully consider compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations, which are likely to remain stringent regardless of broader deregulatory trends. These regulations ensure the integrity of international banking operations and prevent illicit financial activities.
Conclusion
The return of Donald Trump to the U.S. presidency has already introduced significant shifts in trade, economic, and financial policies affecting Latin America. While increased tariffs and restrictive immigration policies may pose challenges, opportunities in banking, securities, and structured finance could arise from a deregulatory environment and a renewed focus on U.S.-Latin American relations.
Latin American economies will need to strategically navigate these changes to optimize their financial and trade engagements with the U.S. Enhanced cooperation with U.S. financial institutions, coupled with a focus on sectors aligned with global sustainability trends, could create opportunities for Latin American issuers and borrowers.
Ultimately, the ability of Latin American economies to adapt to evolving U.S. policies will be crucial in maintaining economic stability and fostering long-term development in the region. International investors and Latin American issuers and borrowers should remain vigilant, balancing the benefits of increased capital access and investment opportunities with the potential risks posed by geopolitical shifts and regulatory changes. By leveraging strategic partnerships and maintaining robust compliance frameworks, Latin American companies and financial institutions can position themselves to capitalize on emerging trends and mitigate the anticipated challenges.
Executive Order 14173: How Public Companies’ DEI Initiatives May Be Targeted and Key Actions to Take Now
On January 21, 2025, President Trump signed Executive Order 14173, titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (the “Order”), which, among other actions,[1] directs all executive departments and agencies “to combat illegal private-sector [diversity, equity, and inclusion (DEI)] preferences, mandates, policies, programs and activities.”
The Order requires the heads of all agencies, assisted by the U.S. Attorney General (USAG), to “take all appropriate action with respect to the operations of their agencies, to advance in the private sector the policy of individual initiative, excellence and hard work.” The Order also directs the USAG, in consultation with the heads of relevant agencies and in coordination with the Director of the Office of Management and Budget, to submit a report within 120 days of the Order, including a proposed strategic enforcement plan identifying “(i) key sectors of concern” within the jurisdiction of each agency, (ii) the “most egregious and discriminatory DEI practitioners” in each sector, (iii) a plan to deter DEI programs or principles that “constitute illegal discrimination or preferences,” (iv) strategies to encourage the private sector to end such discrimination or preferences, (v) potential litigation, and (vi) potential regulatory action and guidance.
Of particular importance to public companies is the directive that, as part of the deterrence plan (described in clause (iii) above), and so as to “further inform and advise [the President] so that [his] Administration may formulate appropriate and effective civil-rights policy,” each agency “shall identify to up to nine potential civil compliance investigations of publicly traded corporations,” as well as large nonprofit organizations and foundations, state and local bar and medical associations, and higher-education institutions with endowments in excess of $1 billion.
As of the date of this publication, the Order remains in effect but is subject to a lawsuit brought by the City of Baltimore and other plaintiffs seeking a declaratory judgment that the Order is unlawful and unconstitutional and a preliminary and permanent injunction against its enforcement.[2]
Aligned with the Order: The New USAG Memorandum on DEI
In a February 5, 2025, memorandum issued to all employees of the Department of Justice (DOJ) (the “Memorandum”), the USAG warned that public companies could face criminal investigations relating to DEI programs or policies. The Memorandum, consistent with the Order, directs the Civil Rights Division and the Office of Legal Policy to jointly submit a report by March 1, 2025, to the Associate Attorney General with recommendations for enforcing federal civil rights laws and taking other “appropriate measures to encourage the private sector to end illegal discrimination and preferences,” including policies relating to DEI and diversity, equity, inclusion, and accessibility (DEIA). The Memorandum states that the report should identify:
“key sectors of concern” within DOJ’s jurisdiction;
the most “egregious and discriminatory” DEI and DEIA practitioners in each such sector;
a plan with specific steps or measures to “deter the use of DEI and DEIA programs or principles that constitute illegal discrimination or preferences, including proposals for criminal investigations and for up to nine potential civil compliance investigations” of the entities meeting the criteria enumerated in section 4(b)((iii) of the Order (which includes publicly traded corporations);
additional potential litigation activities, regulatory actions, and sub-regulatory guidance; and
“other strategies to end illegal DEI and DEIA discrimination and preferences and to comply with all federal civil-rights laws.”
The Potential Impact of the Order
While the Order may be enjoined temporarily or permanently, it has—in the three weeks since its signing—had a significant impact on the DEI initiatives and programs of well-known public companies. Meta Platforms, Inc. (Facebook’s parent) and Alphabet Inc.’s Google have reportedly ended their goals of hiring employees from historically underrepresented groups, and Target Corporation has stated that it would end its DEI initiatives this year.[3] Bloomberg reported that a number of other public companies, including Sirius XM Holdings Inc. and Paypal, have revised or removed references to DEI initiatives in their annual reports filed with the Securities and Exchange Commission since the Order was signed.[4]
Even if the Order is enjoined or struck down, public companies may nevertheless continue to be targets of a wide array of investigations, enforcement actions, and litigation relating to their DEI initiatives or programs, such as:
civil compliance investigations regarding alleged violations of existing anti-discrimination laws launched by DOJ or other federal agencies, which may include issuing Civil Investigative Demands that require the production of documents and responses to written interrogatories and/or oral testimony;
investigations and lawsuits instituted by state attorneys general alleging violations of state anti-discrimination laws;
shareholder litigation, including class actions, alleging violations of securities laws, including alleged false or misleading statements in public companies’ annual and quarterly reports or proxy statements relating to risks associated with DEI initiatives;
EEOC Commissioner Charges for alleged violations of Title VII of the Civil Rights Act of 1964 (“Title VII”); and
individual lawsuits, class actions, and whistleblower complaints filed by current or former employees for alleged violations of federal or state laws prohibiting unlawful discrimination and retaliation.
Challenges to Public Companies’ DEI Initiatives
Two recent examples show that public companies may continue to be targeted for their DEI initiatives even if the Order is struck down. On January 27, 2025, a group of 19 state attorneys general, led by Kansas Attorney General Kris Kobach and Iowa Attorney General Brenna Bird, issued a letter to Costco Wholesale Corporation urging it to “end all unlawful discrimination imposed by the company” through its DEI policies and giving Costco 30 days to respond. Although these state attorneys general mention the Order in their letter, they cite recent U.S. Supreme Court decisions as authority for their efforts to stop unlawful discriminatory practices.[5] Only a few days later, on January 31, 2025, a proposed shareholder class action was filed against Target Corporation and its directors, alleging that the company violated securities laws, including by failing to disclose material risks of consumer boycotts in response to the company’s environmental, social, and governance (ESG) and DEI mandates and its 2023 Pride Campaign.[6]
On the same day that the complaint against Target was brought, U.S. Steel Corporation filed its 2024 annual report on Form 10-K with an expanded ESG risk factor referring to the Order and acknowledging the current negative perception of, and increased focus on, DEI initiatives:
In addition, in recent years, “anti-ESG” sentiment has gained momentum across the U.S., with several states and Congress having proposed or enacted “anti-ESG” policies, legislation, or initiatives or issued related legal opinions, and the President having recently issued an executive order opposing diversity equity and inclusion (“DEI”) initiatives in the private sector. Such anti-ESG and anti-DEI-related policies, legislation, initiatives, litigation, legal opinions, and scrutiny could result in U.S. Steel facing additional compliance obligations, becoming the subject of investigations and enforcement actions, or sustaining reputational harm.
What Public Companies Should Do Now
Public Disclosures
With the beginning of the 2025 proxy season, public companies should:
carefully review disclosures in their annual reports on Form 10-K that address, directly or indirectly, DEI initiatives, programs, policies, or objectives and:
refine required disclosures regarding human capital management, which may refer to employee recruitment, engagement, retention, training, and turnover, and
consider adding a new (or updating an existing) risk factor addressing DEI, including the risk of potential enforcement or litigation resulting from the Order and the Memorandum;
review and refine disclosures in their proxy statements that may touch upon DEI, including:
ESG initiatives and objectives;
diversity of directors and director nominees, including reference to any policy of the Board or the nominating committee with regard to the consideration of diversity in identifying director nominees;
executive compensation with performance metrics linked to DEI or ESG metrics; and
shareholder proposals relating to DEI or ESG matters;
monitor proxy voting guidelines from proxy advisory firms and mutual fund managers for changes with respect to guidance addressing the diversity of board members and other relevant topics;[7]
review other disclosures regarding DEI on their websites, in social media, and in communications with employees and candidates; and
monitor developments in the litigation to set the Order aside, as well as enforcement actions and litigation targeting DEI initiatives, and revise risk factors relating to DEI to reflect “material changes” in upcoming quarterly reports on Form 10-Q.
Compliance Review and Risk Assessment
Like other private-sector employers, public companies should undertake a thorough review and risk assessment of their DEI plans, programs, policies, and initiatives. During this process, public companies should:
promptly review any DEI plans, programs, and policies to determine whether they contain any aspect that could be deemed unlawful under Title VII[8] or any other federal, state, or local civil rights laws, and consider whether to take any action to modify such plans, programs, or policies, including the names of such plans, programs, or policies, in consultation with employment counsel;
extend such review to include:
programs for employee inclusion;
programs for talent management and leadership training, including initiatives to increase representation of particular groups in management;
hiring and recruitment practices that include DEI considerations;
compensation programs and policies utilizing metrics based on DEI factors;
codes of business conduct;
supplier diversity policies; and
federal contracting affirmative action programs (for further guidance on reviewing and winding down affirmative action programs for federal government contractors, please refer to our prior Insight titled “DEI and Affirmative Action Programs Blitzed, While Executive Order 11246 Is Revoked”);
evaluate the risks and impact of changes in DEI-related initiatives and activities going forward on various stakeholders (including employees and customers), as well as business and financial objectives and strategies;
consider the Board’s role in overseeing the compliance review and risk assessment of DEI plans, programs, policies, and initiatives and whether the Board (or a committee of the Board) should receive a report on the status of the review and risk assessment at the next meeting;
ensure that Human Resources (HR) and Compliance teams are familiar with procedures for handling and investigating whistleblower complaints and closely monitor hotlines and emails for DEI-related complaints or reports; and
ensure that Legal, HR, Compliance, and Investor Relations teams are prepared to handle inquiries, complaints, and potential investigations involving DEI-related matters.
As noted above, developments relating to the Order and reactions to it are evolving quickly, and the guidance in this Insight is provided with the caveat that events may occur soon after publication that may impact it. We will update you as related litigation moves forward and further developments unfold.
ENDNOTES
[1] For information regarding other actions under the Order, see the Epstein Becker Green Insight titled “DEI and Affirmative Action Programs Blitzed, While Executive Order 11246 Is Revoked” (Jan. 28, 2025).
[2] See National Association of Diversity Officers in Higher Education v. Donald J. Trump, Civil Action No. Case1:25-cv-00333-ABA (D. Md. filed Feb. 3, 2025).
[3] See Miles Kruppa, Google Kills Diversity Hiring Targets, Wall Street Journal (Feb. 5, 2025, 3:48 p.m. ET), https://www.wsj.com/tech/google-kills-diversity-hiring-targets-04433d7c; Jonathan Stempel and Marguerita Choy, Target is sued for defrauding shareholders about DEI, Reuters Legal (Feb. 3, 2025).
[4] See Clara Hudson, David Hood and Andrew Ramonas, Netflix, McCormick Uphold DEI to Investors After Trump Directive, Bloomberg Law (Jan. 30, 2025, 1:39 p.m. EST); Clara Hudson, Paypal Cuts Diversity Language in New Report to Shareholders, Bloomberg Law (Feb. 5, 2025, 3:18 p.m. EST).
[5] See Letter from B. Bird, Att’y General of Iowa, and K. Kobach, Att’y General of Kansas, et al. to R. Vachris, President and Chief Executive Officer of Costco Wholesale Corporation.
[6] See City of Riviera Beach Police Pension Fund v. Target Corporation, Civil Action No. 2:25-cv-00085 (M.D. Fla. filed Jan. 31, 2025).
[7] See, e.g., The Vanguard Group, Inc.’s Proxy voting policy for U.S. portfolio companies effective February 2024, which has revised some of its prior guidance for U.S. companies relating to women and minority directors.
[8] Title VII remains the law of the land. Under Title VII, all employment decisions should continue to be made without consideration of race, color, religion, sex, or national origin, as well as other factors protected by federal, state, and local law. (42 U.S.C. § 2000e).
Beyond the Deal: How Do You Expect SEC Exams and Enforcement to Evolve in 2025?
As we head further into 2025, the landscape of SEC exams and enforcement is poised for significant shifts. How will the SEC adapt to emerging trends and evolving market dynamics? In the first issue of Beyond the Deal in 2025, four of our regulatory lawyers weigh in on what to expect. From new regulatory priorities to potential enforcement challenges, they offer key insights into how the SEC’s approach to private fund manager exams and enforcement may evolve in the year to come.
Joshua Newville
Partner, Securities Litigation
“Although the exam staff will aim to maintain their coverage of registered firms, they may be more willing to provide guidance compared to prior years. Enforcement resources and staff may shift away from labor-intensive crypto registration cases, reallocated to investigations involving individual investor fraud. Some types of matters may be deprioritized, such as off-channel text messaging sweeps and strict enforcement of the SEC’s pay-to-play rule. In settlement negotiations, I expect a more collaborative approach, including greater transparency into the Staff’s evidence and testimony record, increased flexibility in penalty discussions, and more credit for remediation and cooperation.”
Robert Pommer
Partner, Securities Enforcement
“We anticipate the new SEC Chair to roll back many of the more aggressive policies of former Chair Gensler and revert to more traditional enforcement cases. While standalone compliance cases may become less frequent, investigations and examinations will still focus on a firm’s culture of compliance. Weak internal controls or inadequate policies are often viewed as “red flags,” prompting Staff to dig deeper and identify other potential problems. Despite a shift in enforcement priorities, investment advisers should continue to prioritize compliance and uphold their fiduciary obligations.”
Nathan Schuur
Partner, Private Funds
“At least in the near term, it may not be obvious that there have been many changes in the Division of Examinations. Exam planning cycles frequently extend months in the future and staff may have already been assigned to particular exams. The division is also geographically dispersed and has a very large head count, which will challenge even the most capable division director as they seek to shift priorities. Depending on the level of attrition the agency experiences, we could over time see examinations narrowing in scope. The percentage of advisers examined each year has held steady at about 15% through each of the past two administrations and there will be substantial pressure to keep this number from dropping; narrowing the scope of examinations would allow the division to examine the same percentage of advisers with fewer resources.”
Robert Sutton
Partner, Private Funds
“Burdensome new rulemaking should decrease dramatically under the new Republican administration, although the SEC will remain focused on many of the same core compliance areas as under the prior Democratic administration. As such, I expect SEC Examinations and Enforcement staff to maintain scrutiny over fees and expenses, allocations, valuations, cross-fund transactions, other undisclosed conflicts, misleading marketing practices (particularly in the retail context) and related matters. While the threshold for referring a violation from Examinations to Enforcement may rise, these focus areas will remain as central to the agency’s oversight efforts as they have been for over a decade, including under the previous Republican administration.”
United States: Unsustainable—Acting SEC Chairman Signals Reconsideration of Climate Risk Disclosure Rules
In March 2024, the SEC adopted The Enhancement and Standardization of Climate-Related Disclosures for Investors final rule, which required companies to make disclosures regarding climate risks and disclosures of Scope 1 and 2 emissions information (the Climate Risk Reporting Rule). The Climate Risk Reporting Rule was promptly challenged by several lawsuits that were ultimately consolidated in the Eighth Circuit Court of Appeals.
With the change in presidential administration, it has been widely expected that the Climate Risk Reporting Rule would be rescinded and that the SEC, under new leadership, could alter its litigation strategy. On 11 February 2025, Acting SEC Chairman Uyeda did just that. He issued a statement noting that, due to “changed circumstances,” he had directed the SEC staff to request that the Eighth Circuit delay the litigation to provide time for the SEC to “deliberate and determine the appropriate next steps in these cases.” In his statement, he noted that both he and Commissioner Peirce (who now represent a majority of the SEC Commissioners) had voted against the Climate Risk Reporting Rule, and he explained his concerns regarding whether the SEC had the statutory authority to adopt the rule, the necessity of the rule, and whether the SEC had followed the appropriate procedures required under the Administrative Procedure Act.
In response to the statement put out by Acting Chairman Uyeda, Commissioner Crenshaw released a statement that the SEC did not act outside of its remit by passing the Climate Risk Reporting Rule and that Acting Chairman Uyeda acted without the full Commission’s input in making this decision.
While Acting Chairman Uyeda’s statement does not necessarily have a practical impact on the rule itself, it is an affirmative signal that this Commission is not supportive of the Climate Risk Reporting Rule and will likely take future action to rescind it. This statement, coupled with earlier statements from Paul Atkins, the President’s nominee for SEC Chairman, that were critical of the Climate Risk Reporting Rule, likely serve as confirmation of the expectations that the Climate Risk Reporting Rule will not go into effect.
SEC Asks Court to Put Climate Change Litigation on Hold
As previously reported in our last post, The Fate of the New U.S. Climate Change Rules Under the New Republican Administration, legal challenges to the SEC’s rules mandating extensive new climate change disclosure is ongoing in the 8th Circuit U.S. Court of Appeals, and has been fully briefed and awaiting oral arguments.
Today, the Acting Chairman of the SEC reiterated his prior position that the agency lacked authority to promulgate the rules, and announced that he would ask the court to pause the litigation so that the SEC can consider its next steps. The Acting Chairman likely wishes to await Senate confirmation of the permanent Chairman before taking action. It remains unclear what the SEC will ultimately do, although today’s announcement suggests that the SEC would likely withdraw the new rules in due course. If the SEC decides to materially amend the rules, in light of international pressure, it would withdraw the current rules and re-commence the process for issuing new rules.
Doubt as to the future of the SEC’s climate disclosure rules is likely to accelerate efforts in some states to follow California’s lead and adopt their own rules. For further information on California climate change rules, please see here: Climate Reporting in 2025: Looking Ahead
A Changing Enforcement Landscape Under the New Administration
As the Trump Administration embarks on its second term, significant shifts in government enforcement priorities are quickly taking shape. Not surprisingly, this administration appears to be focusing on immigration, drug and violent crime offenses, and traditional fraud rather than more novel white-collar enforcement. Additionally, it appears as though the Department of Justice will face potential resource issues due to the efforts of the Department of Government Efficiency (DOGE). Whether that is through hiring freezes, resignations resulting from ending remote work, layoffs, and potential buyouts of federal employees, the reduction of resources could have a substantial impact on staffing for white-collar enforcement cases, which tend to be resource intensive. Nonetheless, businesses and industry professionals should be aware of these evolving trends to ensure compliance and readiness for potential government investigations. Below we highlight what we expect to see throughout this administration’s term.
Immigration: The Trump Administration has reaffirmed its commitment to stringent immigration enforcement. Prior to this administration taking office, agencies like the Department of Labor had been focused on underage labor violations and holding businesses accountable for third party staffing companies. Now, however, the focus will shift to the removal of anyone not legally in the United States, likely leading to an increase in ICE raids and I-9 audits, including in places like hospitals, schools and places of worship, all of which used to be safe havens for this type of enforcement activity.
DEI and False Claims Act Liability: President: President Trump’s executive order aimed at eliminating diversity, equity, and inclusion (DEI) policies introduces new compliance challenges for federal contractors and grant recipients. The order reverses federal contracting requirements dating back nearly 60 years, which obligated federal contractors and subcontractors to implement affirmative action programs. The January 21, 2025, executive order requires federal contractors and grant recipients to agree that their “compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions” under the False Claims Act (FCA). Second, it requires federal contractors and grant recipients to certify that they do “not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.” The new certification and materiality requirements create heightened FCA risk for clients who participate in government programs and may incentivize whistleblowers to initiate qui tam actions.
Health Care: Health care enforcement, particularly those involving the FCA, is anticipated to continue at a steady pace. During President Trump’s first term, health care enforcement actions increased in his second year and remained steady thereafter, so we can likely expect a similar trend this term. Additionally, the newly established Department of Government Efficiency (DOGE) is taking steps to actively mine data for fraud, particularly in Medicare and Medicaid, which could lead to an increase in enforcement activities in the healthcare sector.
Foreign Corrupt Practices Act: While the Department of Justice (DOJ) achieved record enforcement levels for Foreign Corrupt Practices Act (FCPA) cases during the previous term, President Trump has signed an executive order directing the DOJ to pause criminal prosecutions related to the bribing of foreign government officials under the FCPA and instructing Attorney General Pam Bondi to prepare new guidelines for enforcement. The executive order comes a week after Attorney General Pam Bondi had already announced via a memo that the DOJ would be scaling back laws governing foreign lobbying transparency and bribes of foreign officials. In the memo, Attorney General Bondi also disbanded the National Security Division’s corporate enforcement unit and directed the Department of Justice’s money laundering office to prioritize cartels and transnational crime.
SEC Enforcement: We expect a major scaling back on the SEC’s focus on cryptocurrency, internal accounting and disclosure control violations. President Trump’s nominee as SEC chairman, Paul Atkins, is a known supporter of the crypto industry. Instead, we anticipate a renewed focus on traditional securities fraud cases, including like retail investor protection, Ponzi schemes, and insider trading. Under Chair Gensler, corporate penalties and disgorgement reached record highs, but with a Republican-controlled SEC we are likely to see smaller penalties and an adherence to disgorgement limitations set by the Supreme Court.
Antitrust: Antitrust enforcement is expected to pivot away from merger scrutiny towards addressing concerns related to “Big Tech” and alleged censorship. Additionally, there may be enforcement actions targeting alleged collusion on DEI issues, reflecting the administration’s executive orders and stated policy goals. Industries under high public scrutiny and foreign corporations should be particularly vigilant in preparing for potential agency scrutiny.
As the enforcement landscape continues to evolve, it will be crucial to stay informed and proactive.
May Corporations Allocate Shares Based On Race, Gender, Or Ethnicity?
Last December, Bally’s Chicago, Inc., a Delaware corporation and indirect subsidiary of Bally’s Corporation filed a registration statement with the Securities and Exchange Commission to raise funds in connection with the development and operation of a casino in the City of Chicago (Amendment No. 4 filed on January 29, 2025 is available here). Bally’s Chicago had previously entered into a Host Community Agreement with the City that, among other things, imposes minority and women ownership requirements. To meet these requirements, the registration statement contemplates a rather unusual plan of distribution in which Bally’s Chicago will determine whether investors have attested to qualification criteria (see the “Plan of Distribution” section of the prospectus).
Given that these qualification criteria are based on race, gender and ethnicity, it may be no surprise that they are being challenged as violating the Fourteenth Amendment to the U.S. Constitution and federal civil rights statutes. Last week, U.S. District Court Judge Franklin U. Valderrama declined to issue a temporary restraining order, ruling that the plaintiff had shown neither a likelihood of success nor irreparable injury. Glennon v. Johnson, U.S. Dist. Ct. Case No. 1:25-cv-01057 (N.D. Ill. Jan. 6, 2025).
Perhaps an initial question is whether stockholder qualifications of any sort are permisable under applicable state corporate laws. The California General Corporation Law expressly permits the articles of incorporation of a California corporation to include “special qualifications of persons who may be shareholders”. Cal. Corp. Code § 204(a)(3). However, “[i]t would be a rare case in which any such special qualifications were desired, but it may happen occasionally in the case of a close corporation where it is desired to restrict the ownership of the corporation only to persons with certain specified characteristics or possibly in a special type of publicly held or semipublicly held corporation”. Harold Marsh, Jr., R. Roy Finkle & Keith Paul Bishop, Marsh’s California Corporation Law § 5.14 (Fifth Edition, 2025-1 Supp. 2020-2021). The only similar authorization that I could find in the Delaware General Corporation Law is Section 342(b) which pertains to close corporations (“The certificate of incorporation of a close corporation may set forth the qualifications of stockholders, either by specifying classes of persons who shall be entitled to be holders of record of stock of any class, or by specifying classes of persons who shall not be entitled to be holders of stock of any class or both.”) I am interested in hearing from any reader who is aware of similar authority with respect to corporations that are not close corporations.
Another question might be whether such a limitation is permissible under state civil rights laws such as California’s Unruh Civil Rights Act, Cal. Civ. Code § 51(b) (” All persons within the jurisdiction of this state are free and equal, and no matter what their sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever.”) (emphasis added).
Finally, there is the question of whether the Securities and Exchange Commission will declare Bally Chicago’s registration statement effective. Late last week, one public interest firm had reportedly urged the SEC to withhold approval of the offering
SEC Announces One-Year Extension for Rule 13f-2, Form SHO Compliance
Highlights
Institutional investment managers covered by Rule 13f-2 monthly short reporting requirements now have an extra year to get ready
The SEC’s exemptive order pushes back the initial Form SHO filing deadline from Feb. 14, 2025, to Feb. 17, 2026
The extension gives managers time to digest the Form SHO technical specs and may be an opportunity for the SEC to answer questions about form’s reporting scope
Institutional investment managers who were preparing to file their initial Form SHO on Feb. 14, 2025, have been granted a one-year reprieve.
On Feb. 7, the Securities and Exchange Commission (SEC) announced a temporary exemption from compliance with Rule 13f-2 under the Securities Exchange Act and its associated Form SHO reporting requirement. Originally, a manager’s initial Form SHO was due on Feb. 14, 2025, and would have covered the January 2025 monthly reporting period. Now, the initial Form SHO will be due on Feb. 17, 2026, and will cover the January 2026 monthly reporting period.
Rule 13f-2 requires institutional investment managers that meet or exceed specified short position thresholds with regard to certain equity securities to file Form SHO with the SEC. That filing is due within 14 calendar days after the end of each calendar month.
The one-year compliance exemption is responsive to several industry groups’ requests for more time to become operationally and technologically prepared for Form SHO reporting. In particular, the SEC exemptive order recognizes that commencing reporting in February 2025 as originally planned would not have given managers much time to digest the SEC’s recent Form SHO XML technical specifications and EDGAR Filer Manual updates, which were published only in mid-December 2024.
It remains to be seen whether the SEC will use the compliance interim to provide clarity on the numerous Form SHO interpretive issues raised by market participants to date, including questions about the intended range of equity securities subject to reporting.