Private Market Talks: Navigating Turbulence with Adams Street Partners’ Bill Sacher [Podcast]
With over $62 billion of AUM, Adams Street is a global investor in private equity and private credit. It invests in over 450 global general partners in private equity and directly invests in private credit. As such, Adams Street has a unique window into these private markets. Bill Sacher sits on the firm’s Investment Committee and is Global Head of Private Credit. During our conversation, Bill discusses how Adams Street is navigating today’s rapidly changing market dynamics.
Trump Administration Issues America First Investment Policy
Positive Development for Investors from Allied Nations
In a further solidification of the Administration’s efforts to isolate identified adversaries and strengthen U.S. leadership key strategic technologies, the Administration issued the America First Investment Policy Memorandum with the stated aims to maintain the country’s “open investment environment” towards allies and partners, while also protecting it from “new and evolving threats” arising from foreign adversaries. Id.
The policy comes in the context of prior actions that have curtailed certain outbound investment, including the Biden Administration’s Executive Order 14105 and the final regulations issued on October 28, 2024, targeting outbound investment in specific technologies and products in “countries of concern” (mainly, the People’s Republic of China (PRC), The Special Administrative Region of Hong Kong, and The Special Administrative Region of Macau). For more information, see U.S. Department of the Treasury issues final regulations implementing Executive Order 14105 Targeting Tech Investment in China – Insights – Proskauer Rose LLP.
America First Investment Policy aims to expand the scope of the Outbound Investment Security Program by outlining more intensive and aggressive restrictions on so-called “foreign adversaries or threat actors”, while also facilitating investment by “United States allies and partners” in the interest of ensuring continued U.S. leadership in the development of artificial intelligence and other emerging technologies.
The following key strategies and tools outlined in the policy are noteworthy:
Facilitators to U.S. “allies and partners”:
The loosening of restrictions on foreign investors’ access to U.S. assets where investors can establish a sufficient lack of ties to “the predatory investment and technology-acquisition practices of the PRC and other foreign adversaries or threat actors”;
The creation of an expedited “fast-track” process to facilitate greater investment from allied and partner sources in U.S. businesses involved with U.S. advanced technology and other important areas;
The expedition of environmental reviews for any investment over $1 billion in the U.S.;
Obstacles to “foreign adversaries”:
The reduction of exploitation of public and private sector capital, technology, and technical knowledge by foreign adversaries such as the PRC;
The restriction of PRC-affiliated persons from investing in U.S. technology, critical infrastructure, healthcare, agriculture, energy, raw materials, or other strategic sectors;
The use of legal instruments to further deter U.S. persons from investing in the PRC’s military-industrial sector and the review of Executive Order 14105.
General strategies:
The cease of the use of overly bureaucratic, complex, and open-ended “mitigation agreements” for U.S. investments from foreign adversary countries, with more administrative resources being directed toward facilitating investments from key partner countries;
The welcoming and encouragement of passive investments from all foreign persons;
The consideration of new or expanded restrictions on U.S. outbound investment in the PRC in sectors such as semiconductors, artificial intelligence, quantum, biotechnology, hypersonics, aerospace, advanced manufacturing, directed energy, and other areas implicated by the PRC’s national Military-Civil Fusion strategy;
The review of whether to suspend or terminate the 1984 United States-The People’s Republic of China Income Tax Convention;
The determination of whether adequate financial auditing standards are upheld for companies covered by the Holding Foreign Companies Accountable Act;
The revision of the variable interest entity and subsidiary structures used by foreign-adversary companies to trade on U.S. exchanges;
The restoration of the highest fiduciary standards as required by the Employee Retirement Security Act of 1974, seeking to ensure that foreign adversary companies are ineligible for pension plan contributions.
The Policy is to be implemented through the actions of agents such as the Secretary of the Treasury, in consultation with fellow Secretaries and heads of other executive departments and agencies, as well as the Administrator of the Environmental Protection Agency, the Securities and Exchange Commission and the Public Company Accounting Oversight Board.
The policy includes as “foreign adversaries” the PRC (including the Hong Kong Special Administrative Region and the Macau Special Administrative Region); the Republic of Cuba; the Islamic Republic of Iran; the Democratic People’s Republic of Korea; the Russian Federation; and Venezuela. While some of the policy pronouncements will require legislation to move forward, others, such as streamlining of CFIUS reviews with respect to investment from closely allied nations, can be implemented in the short term, saving time and cost in the review process for many investors.
Delaware Law on Fiduciary Duties and Stockholder Agreements
Delaware corporate law is renowned for its balance between flexibility in business arrangements and the fundamental principles of fiduciary accountability. One of the areas where this balance is most evident is in the treatment of fiduciary duties and their modification through stockholder agreements. These agreements enable shareholders to manage their rights and obligations within a corporation while still operating within the parameters of Delaware law.
The natural inquiry, then, is “how far is too far?” or “what agreements are enforceable?” The Delaware Court of Chancery addressed these questions in New Enterprise Associates 14, L.P. v. Rich, C.A. No. 2022-0406-JTL (Del. Ch. May 2, 2023) (Laster, V.C.), where it upheld a covenant not to sue in a drag-along provision. The court found the provision was narrowly tailored, clearly written, negotiated among sophisticated parties, negotiable at the time the agreement was made, and part of a “bargained-for exchange.” Id. at 589-90. However, it refused to extend the covenant to claims involving intentional misconduct, reinforcing the notion that Delaware law does not allow private agreements to shield fiduciaries from liability for bad faith. Id. at 591-93.
Stockholder Agreements and Their Role
Stockholder agreements are private contracts among shareholders or between shareholders and the corporation that govern specific rights, obligations, and operational structures. These agreements often are negotiated among sophisticated parties and are crafted with the aim of reducing conflicts and enhancing operational efficiency within the company. Delaware law generally respects such agreements, provided they meet three specific criteria:
Explicit Terms: The terms of the agreement must be clear and unambiguous, leaving no room for confusion. Id. at 589.
Voluntary Negotiation: The agreement must be entered into knowingly and voluntarily, particularly in cases involving sophisticated parties like venture capitalists or institutional investors. Id. at 589-90.
Compliance with Public Policy: The agreement cannot contravene the public policy of Delaware corporate law or statutory mandates. Id. at 591-93.
While stockholder agreements can vary widely, depending on the needs and structure of the company, they often include provisions on:
Voting Arrangements: These provisions specify how shareholders will vote on certain matters, potentially bypassing the usual voting mechanisms in the company’s charter or bylaws.
Information Rights: Shareholders may be granted rights to specific financial or operational information from the company.
Transfer Restrictions: These restrictions can limit a shareholder’s ability to sell or transfer their shares under certain conditions.
Drag-Along Rights: This provision allows majority shareholders to compel minority shareholders to sell their shares in a company sale, streamlining the sale process.
Fiduciary Duty Tailoring: Particularly in private equity and venture capital, these agreements may include clauses that limit fiduciary claims, often by including covenants not to sue.
Waivable vs. Non-Waivable Fiduciary Duties
Delaware law recognizes that some fiduciary duties may be modified or waived through stockholder agreements, providing companies with greater flexibility in managing their internal affairs. However, Delaware imposes limitations to preserve core principles of corporate governance.
Waivable Duties
Corporate Opportunity Doctrine: Under Section 122(17) of the Delaware General Corporation Law (DGCL), directors and officers may waive the corporate opportunity doctrine. This allows them to pursue business opportunities without offering them to the corporation, a critical flexibility in complex corporate structures and relationships.
Duty of Loyalty: Certain aspects of the duty of loyalty, particularly those related to conflicts of interest, may be tailored through stockholder agreements. For example, drag-along rights often include waivers of fiduciary claims, allowing transactions to proceed without the risk of litigation. New Enterprise Associates 14, L.P.,C.A. No. 2022-0406-JTL.
Duty of Care: Stockholder agreements also may limit the monetary liability associated with breaches of the duty of care. However, Delaware law distinguishes between direct and derivative claims in this regard. While direct claims for breaches of the duty of care can be waived, derivative claims — those involving the corporation itself — cannot be easily negated. Id. at 549.
Non-Waivable Duties
While Delaware law permits the modification of certain fiduciary duties, there are critical areas where fiduciary obligations cannot be waived, as they are essential to maintaining trust and accountability in corporate governance:
Bad Faith and Intentional Misconduct: Fiduciaries cannot contract out of liability for bad faith or intentional wrongdoing. Delaware courts have consistently held that these breaches of duty are so serious that they cannot be shielded by private agreements. Id. at 591-93.
Duty of Oversight: Under Delaware law, directors are responsible for overseeing the corporation’s activities and ensuring the company complies with legal requirements. Claims related to gross neglect of fiduciary oversight, such as those arising from Caremark duties, remain actionable even if other fiduciary duties are waived. See In re Caremark Int’l Inc. Deriv. Litig., 698 A.2d 959, 970 (Del. Ch. 1996).
The Role of Covenants Not to Sue
A common mechanism for modifying fiduciary duties within stockholder agreements is the inclusion of covenants not to sue. These provisions prohibit stockholders from bringing claims against fiduciaries under certain circumstances, streamlining the resolution of potential disputes. However, for such covenants to be enforceable, Delaware courts impose several requirements:
Specificity: The covenant must be narrowly tailored, applying only to specific transactions or actions to avoid overreach. New Enterprise Associates 14, L.P.,C.A. No. 2022-0406-JTL, at 589.
Reasonableness: Courts evaluate whether the parties to the agreement were sufficiently sophisticated, whether they had legal counsel, and whether the covenant respects Delaware’s fundamental principles of corporate governance. Id. at 589-90.
Balancing Flexibility and Accountability
Delaware’s approach to stockholder agreements reflects its broader commitment to balancing flexibility with accountability. While these agreements offer valuable tools for aligning fiduciary duties with business objectives, Delaware law remains steadfast in ensuring certain fiduciary principles are upheld. Stockholder agreements can:
Tailor Fiduciary Duties: They provide parties with the flexibility to define and limit fiduciary responsibilities, aligning them with business objectives. This is especially important in venture capital and private equity contexts, where companies may wish to streamline governance and reduce the risk of litigation.
Clarify Stockholder Rights: While the DGCL permits stockholder agreements to determine stockholder rights, it makes clear that these agreements cannot override provisions in the corporate charter or bylaws. Delaware courts have ruled that any provision in a stockholder agreement that conflicts with the corporate charter or the DGCL is ineffective. In W. Palm Beach Firefighters’ Pension Fund v. Moelis & Co., C.A. No. 2023-0309-JTL (Del. Ch. Feb. 23, 2024), the court emphasized that any attempt to alter the governance structure mandated by the DGCL or corporate charter is void.
Ensure Judicial Oversight: Delaware courts rigorously review stockholder agreements to ensure they do not undermine public policy or statutory protections. While these agreements are respected, courts remain vigilant in ensuring their enforcement does not lead to outcomes that would undermine the integrity of corporate governance.
Conclusion
Delaware law allows for a dynamic approach to corporate governance, balancing the need for flexibility with the necessity of maintaining fiduciary responsibility. Stockholder agreements, when carefully crafted, offer a useful framework for resolving disputes and establishing clear governance structures. However, the law’s safeguards against the waiver of non-waivable fiduciary duties, like the duty of oversight and prohibitions against bad faith conduct, ensure that the integrity of corporate governance is preserved. In this way, Delaware remains committed to fostering innovation in business practices while ensuring trust and accountability remain at the heart of corporate operations.
AIFMD 2.0 – Draft RTS and Final Guidelines Published on Liquidity Management Tools
On 15 April 2025, the European Securities and Markets Authority (“ESMA”) published draft regulatory technical standards (the “Draft RTS”) and final guidelines (the “Guidelines”) on Liquidity Management Tools (“LMTs”), as required under the revised Alternative Investment Fund Managers Directive (EU/2024/927) (“AIFMD 2.0”).
Under AIFMD 2.0, ESMA is required to develop:
regulatory technical standards to specify the characteristics of the liquidity management tools set out in Annex V of AIFMD 2.0; and
guidelines on the selection and calibration of liquidity management tools by alternative investment fund managers (“AIFMs”) for liquidity risk management and mitigating financial stability risk.
The Draft RTS and Guidelines have been published following a consultation period by ESMA. The amendments introduced following the consultation are broadly seen as positive developments from ESMA, introducing greater flexibility for alternative investment funds (“AIFs”) in several cases.
Draft RTS
Some of the key provisions set out in the RTS include:
Redemption Gates
Redemption gates must have an activation threshold and apply to all investors. In the Draft RTS, ESMA has introduced flexibility in expressing activation thresholds for redemption gates. For AIFs, thresholds can be expressed in a percentage of the net asset value (“NAV”), in a monetary value (or a combination of both), or in a percentage of liquid assets. In addition, either net or gross redemption orders shall be considered for the determination of the activation threshold.
ESMA has also introduced a new alternative method for the application of redemption gates – redemption orders below or equal to a certain pre-determined redemption amount can be fully executed while orders above this amount are subject to the redemption gate. The purpose of this mechanism is to avoid small redemption orders being affected by larger redemption orders, that drive the amount of orders above the activation threshold.
Side Pockets
ESMA did not include any provisions in the Draft RTS relating to the management of side pockets, as ESMA concluded there was no mandate within the empowerment of the Draft RTS to allow them to do so.
Applicability of LMTs to Share Classes
The previously published version of the Draft RTS included provisions on the application of LMTs to share classes, requiring the same level of LMTs to be applied to all share classes (e.g. when AIFMs extend the notice period of a fund, the same extension of notice period shall apply to all share classes). ESMA has removed these provisions from the Draft RTS.
Use of other LMTs
Recital 25 of the Draft RTS clarifies that additional LMTs not selected in Annex V of AIFMD 2.0 may be used. These may include, for example, “soft closures” that consist of suspending only subscriptions, only repurchases or redemptions of the AIF.
Other Provisions
Other topics covered in the Draft RTS include swing pricing, dual pricing and anti-dilution levies, as well as redemptions in kind.
Guidelines
Some of the key provisions set out in the Guidelines include:
Selection of LMTs
In the selection of the two minimum mandatory LMTs in accordance with AIFMD 2.0 (set out in Annex V of AIFMD 2.0), ESMA states that AIFMs should consider, where appropriate, the merit of selecting at least one quantitative-based LMT (i.e. redemption gates, extension of notice period) and at least one anti-dilution tool (i.e. redemption fees, swing pricing, dual pricing, anti-dilution levies), taking into consideration the investment strategy, redemption policy and liquidity profile of the fund and the market conditions under which the LMT could be activated.
Governance Principles
AIFMs should develop an LMT policy, which should form part of the broader fund liquidity risk management process policy document, and should document the conditions for the selection, activation and calibration of LMTs. AIFMs also should develop an LMT plan, that should be in line with the LMT policy, prior to or immediately after the activation of suspensions of subscriptions, repurchases and redemptions and prior to the activation of a side pocket.
Disclosure to investors
AIFMs should provide disclosures to investors on the selection, activation and calibration of LMTs in the fund documentation, rules or instruments of incorporation, prospectus and/or periodic reports.
Depositaries
Depositaries should set up appropriate verification procedures to check that AIFMs have in place documented procedures for LMTs.
Other Provisions
The Guidelines also include certain other provisions that impose restrictive obligations on the selection, activation and calibration of LMTs (for example, preventing the systematic activation of redemption gates for funds marketed to retail investors).
Next Steps
The European Commission has three months (i.e. until 15 July 2025) to adopt the Draft RTS, although this period can be extended by one month. The European Commission also has the ability to amend the Draft RTS as required.
Once adopted by the European Commission, the Draft RTS will come into force 20 days following publication in the Official Journal of the European Union.
The Guidelines will be applicable from the day after the Draft RTS comes into force, although AIFMs of funds existing before the date of application of the Guidelines will have a 12-month grace period.
Fourth Circuit Rejects the Use of Short-Seller Report as a Basis for Satisfying Loss Causation Element in Securities Fraud Action
The United States Court of Appeals for the Fourth Circuit recently joined a growing consensus among federal appellate courts: short-seller reports, without more, rarely suffice to plead loss causation under the federal securities laws. In Defeo v. IonQ, Inc., 2025 U.S. App. LEXIS 8216, ___ F.4th ___ (4th Cir. Apr. 8, 2025), the Court held that a report by activist short-seller Scorpion Capital — which coincided with a significant stock price drop — did not constitute a corrective disclosure revealing previously concealed fraud to the market. The opinion aligns the Fourth Circuit with decisions from the Ninth Circuit, which have similarly found that loss causation cannot rest on short-seller publications that are speculative, anonymously sourced and heavily disclaimed.
IonQ is a publicly traded company operating in the quantum computing space. In Defeo, shareholder plaintiffs filed a complaint for violation of Sections 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934 accusing IonQ and certain insiders of the Company of making misstatements concerning the prospects for IonQ’s technology and the Company’s financial performance. Plaintiffs’ loss causation theory was premised on a May 3, 2022 report by a pseudonymous short-seller, which allegedly revealed the purported misrepresentations and caused the Company’s share price to fall from $7.86 to $4.34.
Defendants moved to dismiss the complaint arguing, among other things, that plaintiffs failed to adequately plead loss causation because plaintiffs loss causation allegations relied almost entirely on a short-seller report that was speculative, anonymous, and heavily disclaimed. The district court granted defendants’ motion to dismiss with prejudice, concluding that the report did not plausibly reveal new facts to the market sufficient to satisfy the standards necessary for pleading loss causation. After unsuccessfully seeking reconsideration and leave to amend, plaintiffs appealed the district court’s dismissal of their complaint.
On appeal, the Fourth Circuit affirmed the district court’s order dismissing plaintiffs’ complaint. In short, the short-seller report did not plausibly disclose new facts to the market because the report’s authors, held a short position in IonQ stock, expressly disclaimed the accuracy of their information, admitted to paraphrasing anonymous sources and conceded they could not verify the truth of their claims. The Court reiterated that a shareholder plaintiff seeking to plead loss causation must allege new facts — not mere allegations — entered the market and caused the decline in stock price.
The Fourth Circuit found the Ninth Circuit’s decisions in In re BofI Holding, Inc. Securities Litigation, 977 F.3d 781 (9th Cir. 2020), and In re Nektar Therapeutics Securities Litigation, 34 F.4th 828 (9th Cir. 2022), persuasive. In BofI, the Ninth Circuit held that blog posts authored by anonymous short-sellers who expressly disclaimed the accuracy of their content could not plausibly be understood by the market as revealing the truth of a company’s alleged misstatements. In Nektar, the Ninth Circuit extended the reasoning in BofI and held that a short-seller report relying on anonymous sources and speculative inference and without presenting new, independently verifiable facts failed to qualify as a corrective disclosure sufficient to satisfy the standard for pleading loss causation. The Fourth Circuit concluded that Scorpion Capital’s report on IonQ shared the same deficiencies highlighted by the Ninth Circuit in BofI and Nektar.
The Fourth Circuit also held that IonQ’s own response to the Scorpion report — a press release issued the next day — did not salvage plaintiffs’ theory of loss causation. IonQ expressly denied the report’s accuracy, warned investors not to rely on the report and underscored the short-seller’s financial motivation for tarnishing the Company. The Court rejected plaintiffs’ contention that IonQ had a duty to specifically refute each allegation in the short-seller report. The Court further held that the handful of media articles cited by plaintiffs discussing the short-seller report did not affect the conclusion that plaintiffs failed to adequately plead loss causation. The articles merely noted the stock drop and the existence of the report, without confirming or endorsing the short-sellers’ claims.
Defeo confirms that courts will look past market reaction and instead focus on whether a disclosure plausibly revealed verifiable, new information to the market when evaluating whether a securities fraud action adequately pleads loss causation. The Fourth Circuit’s opinion does not impose a categorical bar on the use of short-seller reports to establish loss causation, but it makes clear that plaintiffs relying upon such reports must ensure that those reports meet a high standard of reliability. That standard is not met where the report disclaims its own accuracy, relies upon anonymous sources and offers only general accusations without offering independently verifiable facts. Allegations, even if market-moving, do not become revelations simply by appearing in a headline. For loss causation to be adequately pled, the law still requires facts, not just fallout.
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The Possible Securities Act Implications Of Harvard’s “Nyet” To Government Civil Rights Reform Demands
Last week, the United States General Services Administration, Department of Education, and Department of Health and Human Services sent a letter to Alan M. Garber, the President of Harvard University, and Penny Pritzker, Lead Member of the Harvard Corporation. The letter asserts that “Harvard has in recent years failed to live up to both the intellectual and civil rights conditions that justify federal investment”. The letter outlined an agreement in principle so that Harvard could maintain its “financial relationship with the federal government”. Harvard responded a few days later through its outside counsel with an unequivocal nyet: “Harvard will not accept the government’s terms as an agreement in principle”. Yesterday, President Trump raised the stakes even higher by posting the following:
Perhaps Harvard should lose its Tax Exempt Status and be Taxed as a Political Entity if it keeps pushing political, ideological, and terrorist inspired/supporting “Sickness?” he wrote on Truth Social. “Remember, Tax Exempt Status is totally contingent on acting in the PUBLIC INTEREST!
In the midst of this donnybrook, Harvard is offering $750 million in bonds. According to the offering memorandum, the offer and sale has not been registered under the Securities Act of 1933 in reliance upon Section 3(a)(4). That statute exempts:
Any security issued by a person organized and operated exclusively for religious, educational, benevolent, fraternal, charitable, or reformatory purposes and not for pecuniary profit, and no part of the net earnings of which inures to the benefit of any person, private stockholder, or individual, or any security of a fund that is excluded from the definition of an investment company under section 3(c)(10)(B) of the Investment Company Act of 1940.
The exemption does not expressly refer to tax exempt status under the Internal Revenue Code, but the Offering Memorandum does state that the issuer is “exempt from federal income tax pursuant to Section 510(c)(3) of the Internal Revenue Code”. Loss of that tax exemption likely would call into question the availability of the Section 3(a)(4) for future offerings. With respect to the current offering, it is also possible that the Securities and Exchange Commission could question whether any part of the net earnings Harvard inure to the benefit of any person.
The Section 3(a)(4) exemption does not exempt Harvard from liability under Section12(a)(2) or Section 17 of the Securities Act. Thus, it is possible that the SEC may take an interest in the adequacy of disclosures in Harvard’s Offering Memorandum, as was recently suggested on a LinkedIn post by Professor Steven Davidoff Solomon at the University of California, Berkeley School of Law.
Finally, it should be noted that Harvard’s bond offering is not necessarily exempt from state qualification/registration requirements or antifraud provisions. State qualification/registration requirements may also apply to resales of the bonds. Thus, one or more states may decide to take a look at Harvard’s bond offering as well.
Brussels Regulatory Brief: March 2025
Antitrust and Competition
European Commission Launches Evaluation of the Geo-Blocking Regulation
On 11 February 2025, the European Commission launched a call for evidence to seek stakeholders’ views on the Geo-Blocking Regulation (EU) 2018/302 to assess its effectiveness. The Geo-Blocking Regulation prohibits geography-based restrictions that limit online shopping and cross-border sales within the European Union.
Financial Affairs
Commission Proposes to Amend CSDR and Shorten Settlement Cycle, ESMA Consults on Technical Amendments to Settlement Standards
The Commission is proposing to shorten the settlement cycle under the Central Securities Depository Regulation (CSDR) while the European Securities and Market Authority (ESMA) is consulting on technical amendments to standards in relation to settlement discipline.
Omnibus Simplification Package: Parliament and Council Start Internal Discussions
Member States and Members of the European Parliament (MEPs) started examining the simplification proposal put forward by the European Commission (Commission), outlining next steps and indicative timeline for its adoption.
Other
European Commission Proposes Simplification CBAM Ahead of Full Entry into Force
The European Commission has proposed a series of measures to simplify the implementation of the EU Carbon Border Adjustment Mechanism (CBAM), which is set to take full effect in January 2026.
ANTITRUST AND COMPETITION
European Commission Launches Evaluation of the Geo-Blocking Regulation
On 11 February 2025, the European Commission (Commission) launched a call for evidence on the Geo-Blocking Regulation (EU) 2018/302 (Geo-Blocking Regulation) aimed at evaluating its effectiveness. Geo-blocking refers to the practice used by online sellers to restrict online cross-border sales based on nationality, residence, or place of establishment. This type of conduct can be implemented in different forms, such as blocking access to websites, redirecting users to country-specific sites, or applying different prices and conditions based on the user’s location.
The Geo-Blocking Regulation, which entered into force on 3 December 2018, lays down provisions that aim at preventing these practices. It implements the “shop-like-a-local” principle, under which customers from other Member States should be able to purchase under the same conditions as those applied to domestic customers. Thus, the Geo-Blocking Regulation aims at eliminating unjustified geo-blocking and other forms of discrimination based on nationality, place of residence, or establishment within the European Union (EU).
The call for evidence seeks feedback from stakeholders, including consumers, businesses, and national authorities, to assess whether the Geo-Blocking Regulation has met its objectives and to identify any remaining barriers to cross-border trade or whether further measures are needed to enhance its effectiveness. In particular, the evaluation will cover issues raised by stakeholders, such as territorial supply constraints and cross-border availability of (and access to) copyright-protected content. The call for evidence is based on the review clause set forth in Article 9 of the Geo-Blocking Regulation, which requires the Commission to report on its evaluation to the European Parliament, the Council of the EU, and the European Economic and Social Committee. The scope of the evaluation includes the period running from 3 December 2018 to 31 December 2024 and will cover the entire European Economic Area (EEA) which comprises the EU 27 Member States and Liechtenstein, Iceland, and Norway.
The evaluation should help the Commission to determine whether further measures are needed to address perceived barriers and strengthen cross-border trade in the EU. Therefore, based on the feedback received during the call for evidence, the Commission may consider changes to the current Geo-Blocking Regulation to enhance consumer protection, promote cross-border trade, and foster a more integrated and dynamic EU economy. Stakeholders were invited to provide feedback until 11 March 2025. Subsequently, the Commission will launch a public consultation consisting in the form of a questionnaire.
Geo-blocking is also relevant from a competition law enforcement perspective. In 2021, the Commission imposed a fine on Valve and five video game publishers of €7.8 million for bilaterally agreeing to geo-block video games within certain EEA Member States in breach of Article 101 of the Treaty on the Functioning of the European Union. The Commission found that the agreement between Valve and each publisher inadmissibly partitioned the EEA market. Likewise, in May 2024, the Commission fined one of the world’s largest producers of chocolate and biscuit products €337.5 million for engaging in anticompetitive agreements or concerted practices aimed at restricting cross-border trade of various chocolate, biscuit, and coffee products.
The continued focus on geo-blocking practices confirms the Commission’s strong stance against any perceived restrictions to the detriment of the EU single market.
FINANCIAL AFFAIRS
Commission Proposes to Amend CSDR and Shorten Settlement Cycle, ESMA Consults on Technical Amendments to Settlement Standards
On 12 February, the Commission adopted a proposal to amend the Central Securities Depositories Regulation (CSDR) to shorten the securities settlement cycle from two business days to one.
This initiative builds on the European Securities and Markets Authority (ESMA) report, which assessed the feasibility, impact, and implementation roadmap for the transition to a shorter settlement cycle. The Commission’s proposal amends Article 5 of the CSDR, mandating that transactions in transferable securities be settled no later than the first business day after trading. Following ESMA’s recommendations, the Commission proposes that the new cycle take effect on 11 October 2027. The proposal is now under review by the European Parliament’s Economic and Monetary Affairs Committee (ECON), with Johan Van Overtveldt (European Conservatives and Reformists Group (ECR), Belgium) serving as leading rapporteur, and by Member States at the Council of the EU. Once both institutions agree on their positions, negotiations will take place with the Commission to finalize the legislative text.
In a related development, on 13 February, ESMA launched a public consultation on amendments to the regulatory technical standards on settlement discipline, addressing key operational challenges in settlement efficiency. The amendments propose stricter requirements for timely trade confirmations, automation through standardized electronic messaging formats, and improved reporting mechanisms for settlement failures. ESMA welcomes feedback and comments on the amendments by 14 April 2025.
Omnibus Simplification Package: Parliament and Council Start Internal Discussions
On 10 and 11 March, Members of the European Parliament (MEPs) and Member States representatives at the Council of the EU started internal discussions on the proposed Omnibus simplification package, which aims to (i) postpone the entry into force of the requirements under the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D)—renamed “Omnibus I,” and (ii) simplify sustainability requirements under CSRD, CS3D, the Taxonomy Regulation and specific provisions of the Carbon Border Adjustment Mechanism (CBAM)—renamed “Omnibus II.”
European Parliament
During a plenary session on 10 March, MEPs held an initial exchange of views on the package highlighting the positioning of each party on the proposal. MEPs from the European People’s Party (EPP) strongly support the package and advocate for a swift adoption of the first part of the proposal postponing the application of CS3D and CSRD. For that, on 3 April, MEPs approved a request for urgent procedure introduced by the EPP.
MEPs from Renew Europe Group (Renew) expressed only limited support for the Omnibus II proposal and, while they recognize the need for simplification to foster economic growth, they emphasized the importance of ensuring that the rules remain effective through negotiations. Representatives from the Socialists & Democrats and the Greens largely opposed the proposal, expressing strong concerns about the potential dilution of previously agreed requirements. Other MEPs from the far-right ECR Patriots for Europe and Europe of Sovereign Nations supported the package but called for further deregulation, while representatives from The Left were entirely opposed to the proposal and rejected the Commission’s approach to simplification in this context.
In a related development, on 19 March, the European Parliament Committee on Legal Affairs, the Committee responsible for the Omnibus package, appointed MEP Jörgen Warborn (EPP, Sweden) as lead negotiator for the Omnibus II proposal. Pascal Canfin (France) has been appointed as shadow rapporteur for Renew, while other political groups are expected to shortly communicate shadow rapporteurs involved on the file. Other committees involved (Foreign Affairs; International Trade; ECON; Employment and Social Affairs; and Environment, Climate and Food Safety) are expected to also announce whether they will provide an opinion on the file. The next meeting on this part of the proposal has been set for 23 April 2025.
Council of the EU
On 11 March, Member States in the Economic and Financial Affairs configuration of the Council of the EU also discussed the proposal. All governments showed strong support for the postponement of the rules and welcomed the Commission’s approach in this area. However, not all Member States agreed on the substantial amendments introduced to CSRD and CS3D; France opposes eliminating civil liability rules, while the Czech Republic, Italy, and Hungary push for deeper deregulation to boost competitiveness. Trade and business ministers further examined the package on 12 March during a Competitiveness Council meeting, showing general support for the amendments put forward. While it seems that an agreement will be quickly reached for the Omnibus I, Member States will need to further negotiate on the substantial amendments introduced by the second part of the proposal (so called “Omnibus II”).
Timeline
For both proposals, Member States and MEPs will need to negotiate the final content of the directives through interinstitutional negotiations. The Omnibus I will likely be adopted in the next three to six months, with transposition into national law by end of this year, meaning that the postponement will presumably happen before an additional wave of companies would have been obliged under the directives in their current form. The substantial amendments introduced by Omnibus II will likely involve lengthier negotiations within the Council of the EU and the Parliament.
OTHER
Commission Proposes Simplification of CBAM Ahead of Full Entry Into Force
CBAM, the world’s first carbon border tariff, is set to come into full force in January next year. This means that importers of goods covered by CBAM legislation (iron and steel, cement, fertilizers, aluminum, electricity, and hydrogen) will be required to declare the emissions embedded in their imports and surrender corresponding certificates, and be priced based on the EU Emissions Trading System (ETS). However, even before CBAM is fully implemented, the Commission has already proposed changes to the legislation in response to economic competitiveness and geopolitical challenges.
As part of the Omnibus simplification package announced on 26 February, the Commission proposed several changes to streamline CBAM implementation.
Firstly, the Commission aims to simplify CBAM requirements for small importers, primarily small and medium-sized enterprises and individuals, by introducing a new CBAM de minimis threshold exemption of 50 tons per shipment. This will exempt over 182,000 or 90% of importers from CBAM obligations, while still covering over 99% of emissions in scope.
Secondly, for importers that remain within the scope of CBAM, the proposed changes aim to simplify compliance with its obligations. Specifically, the proposal simplifies the calculation of embedded emissions for certain goods, clarifies the rules for emission verification, and streamlines the process for calculating the financial liability of authorized CBAM declarants.
These changes will now have to be approved by the European Parliament and EU Member States before they come into force.
Additionally, a comprehensive review of CBAM is expected later this year to assess the potential extension of the mechanism to additional ETS sectors (potentially including aviation and maritime shipping), downstream goods, and indirect emissions. As part of this review, the Commission will also explore measures to support exporters of CBAM-covered products facing carbon leakage risks. A legislative proposal is anticipated to follow in early 2026.
Covadonga Corell Perez de Rada, Simas Gerdvila, Antoine de Rohan Chabot, Kathleen Keating, Lena Sandberg, and Sara Rayon Gonzalez contributed to his article.
CFTC Clarifies that FX Window Forwards are Not “Swaps”
On April 9, 2025, the Markets Participants Division and the Division of Market Oversight (collectively, the “Divisions”) of the Commodity Futures Trading Commission (the “CFTC”) published a Staff Letter (the “Staff Letter”) clarifying the Divisions’ views on the regulatory treatment of certain foreign exchange products. The Divisions clarified that certain foreign exchange window forwards (“Window FX Forwards”) should be considered “foreign exchange forwards” under the CFTC’s regulations and, as a result, exempt from most CFTC regulations relating to swaps. The Divisions also clarified that package foreign exchange spot transactions that settle within T+2 are to be treated as “spot” transactions and outside the scope of most of the CFTC’s swap regulations.
Background
All “swaps” as defined in the Commodities Exchange Act and the CFTC’s regulations are subject to regulation by the CFTC. There are a number of products that either fall outside the scope of, or are otherwise exempted from, the definition of “swap” and therefore exempted from most CFTC regulations as they relate to swaps. These include “spot” transactions and “foreign exchange forwards”, among others. A spot transaction is an agreement to physically exchange currencies within the customary timeline for the relevant spot market (generally T+2). A “foreign exchange forward” is an agreement to exchange currencies at an agreed price on a specific future date.
Window FX Forwards
Window FX Forwards are transactions where the parties enter into an agreement to exchange two currencies at an agreed price on one or more dates during a set period or “window”, sometimes specific identified dates and sometimes any date within the specified window. The Window FX forward will settle on the last day of the window if the electing party does not elect an earlier date for settlement.
Market participants have been uncertain as to the regulatory treatment of Window FX Forwards because the definition of “foreign exchange forward” requires that the transaction be settled on a “specific future date.” Some market participants have been treating Window FX Forwards as “swaps” subject to CFTC regulations and others treating them as exempted “foreign exchange forwards.” The Staff Letter clarified that the Divisions interpret “specific future date” to mean a “clearly identified future date.” Since the exchange under a Window FX Forward will take place on one or more dates clearly identified upon entering into the transaction, they fall within the definition of “foreign exchange forward” and are exempt from the definition of “swap.” As a result, most regulatory requirements applicable to “swaps”, including the exchange of regulatory margin, will not apply to these transactions.
Package FX Spot Transactions
Package foreign exchange spot transactions (“Package FX Spot Transactions”) are two transactions where, in the first transaction, the parties agree to physically exchange two currencies on the next business day after the trade date (T+1) and, in the second transaction, agree to exchange the same two currencies in the opposite direction on the second following business day after the trade date (T+2). There can be variations where the parties exchange currencies on the same day they agree to the trade (T+0) under the first transaction and the next business day (T+1) for the second transaction, or a “roll” where the parties agree to exchanges over a series of consecutive days. While each transaction is documented separately, they are entered into as a “package”, meaning both parties agreeing to the first transaction is contingent on both parties agreeing to the second transaction and both transactions are priced together as a “package.” However, because each transaction is documented separately, they are separate legal obligations and performance under the second transaction is not linked to, or dependent upon, performance under the first transaction. The Staff Letter clarifies that these Package FX Spot Transactions should be treated as individual spot transactions outside the scope of the definition of “swap” and applicable CFTC regulations, provided that they are executed, confirmed and settled as individual transactions within the customary timeline for the relevant spot market (generally T+2).
What does this mean for Window FX Forwards and Package FX Spot Transactions?
As a result of being exempted or excluded from the definition of “swap” Window FX Forwards and Package FX Spot Transactions are not subject to most of the CFTC’s swap regulations. These products are not required to be traded on a registered exchange or cleared through a registered clearinghouse. Swap Dealers are not required to post or collect regulatory margin on these products, making them more affordable to market participants. It is important to note that foreign exchange forwards, and therefore Window FX Forwards, remain subject to certain trade reporting requirements and business conduct standards.
Regulatory Update and Recent SEC Actions: April 2025
Recent SEC Administration Changes
Senate Confirms Paul Atkins as SEC Chairman
The Senate, on April 9, 2025, confirmed Paul Atkins as the Chairman of the Securities and Exchange Commission (“SEC”). Atkins takes over the Chairman role from the current Acting Chair, Mark T. Uyeda, who was appointed in January 2025 to serve in the interim until Atkins was confirmed. Atkins previously served as a Commissioner from 2002 to 2008, and most recently served as CEO and founder of risk-management firm Patomak Global Partners. He also served as co-chairman of the Digital Chamber’s Token Alliance, where he led industry efforts to develop best practices for digital asset issuances and trading platforms.
Recent SEC Staff Departures
In addition to the departures of SEC Chairman Gary Gensler and Commissioner Jaime Lizarriga on January 20 and January 17, respectively:
Paul Munter, Chief Accountant;
Jessica Wachter, Chief Economist and Director of the Division of Economic and Risk Analysis;
Sanjay Wadhwa, Acting Director of the Division of Enforcement;
Scott Schneider, Director of the Office of Public Affairs;
Amanda Fischer, Chief of Staff;
YJ Fischer, Director of the Office of International Affairs; and
Megan Barbero, General Counsel.
SEC Restructuring and Hiring Freeze
The Trump administration, on January 20, 2025, issued a memorandum that implemented a federal hiring freeze across the executive branch, including the SEC. Further, the SEC plans to restructure the Enforcement and Exams divisions by removing the top leaders at its 10 regional offices across the country and replace them with deputy directors, Katherine Zoladz, Nekia Jones, and Antonia Apps, who will oversee one of three regions–West, Southeast, and Northeast. There will also be a deputy director for specialized units. Additionally, the SEC announced the closures of Los Angeles and Philadelphia offices and a review of the lease for the SEC’s Chicago Regional Office.
SEC Rulemaking
SEC Issues Temporary Exemption from Exchange Act Rule 13f-2 and Related Form SHO
The SEC announced on February 7, 2025, it was providing a temporary exemption from compliance with Rule 13f-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and from reporting on Form SHO, which generally requires certain institutional investment managers to report short positions and daily trading activity for equity securities exceeding certain thresholds. The effective date for Rule 13f-2 and Form SHO was January 2, 2024, and the compliance date for such rule and form was January 2, 2025, with initial Form SHO filings originally due by February 14, 2025. The exemption, for certain institutional investment managers that meet or exceed certain specified thresholds, pushes the due date for the initial Form SHO reports to February 17, 2026.
SEC Announces Exemption from Reporting of Certain Personally Identifiable Information to Consolidation Audit Trail
The SEC, on February 10, 2025, announced it was providing an exemption from the requirement to report certain personally identifiable information (“PII”) – names, addresses, and years of birth – to the Consolidated Audit Trail (“CAT”) for natural persons. CAT was established by the SEC to track trading activity for National Market System securities including stocks and options, allowing regulators to monitor trading activity. The SEC has justified the exemption because the inclusion of this information may allow bad actors to impersonate a customer or broker-dealer and gain access to a customer’s account.
SEC Extends Compliance Dates for Funds Name Rule Amendment and Updates FAQ
The SEC announced, on March 14, 2025, a six-month extension of the compliance dates for amendments adopted in September 2023 to the “Names Rule” (Rule 35d-1) under the Investment Company Act of 1940, as amended (the “Investment Company Act”). The compliance date for larger fund groups is extended from December 11, 2025 to June 11, 2026, and the compliance date for smaller fund groups is extended from June 11, 2026 to December 11, 2026. The SEC indicated that the extension is designed to balance the investor benefit of the amended Names Rule framework with funds’ needs for additional time to implement the amendments properly, develop and finalize their compliance systems, and test their compliance plans. The Commission further indicated that the compliance dates have been aligned with the timing of certain annual disclosure and reporting obligations that are tied to the end of a fund’s fiscal year in order to help funds avoid additional costs when coming into operational compliance with the Names Rule amendments.
Additionally, the SEC has updated the Names Rule FAQ, releasing a new 2025 Names Rule FAQ on January 8, 2025. Key clarifications include:
Shareholder approval is not required for a fund to add or revise a fundamental 80 percent investment policy unless the change would permit a “deviation from the existing policy or some other existing fundamental policy;”
The 2025 FAQ expanded the SEC staff’s note that the term “tax-sensitivity” indicates a fund’s strategy instead of a focus on particular types of investments to terms “similar” to tax-sensitive (such as “tax-advantaged” or “tax-efficient”); and
The use of the term “income” in a fund’s name does not refer to “fixed-income” securities, and instead is used to emphasize an investment goal of generating current income. As such, the use of the term “income” in a fund’s name would not alone require the adoption of an 80 percent investment policy.
SEC Votes to End Defense of Climate Disclosure Rules
The SEC, on March 27, 2025, voted to end its defense of the rules requiring disclosure of climate-related risks and greenhouse gas emissions. The rules, adopted by the SEC on March 6, 2024, required registrants to provide certain climate-related information in their registration statements and annual reports. Following the SEC’s vote, the SEC staff sent a letter to the Eighth Circuit (who was hearing Iowa v. SEC, No 24-1522 (8th Cir.) evaluating the legality of the rules) stating that the SEC withdraws its defense of the rules and that the SEC counsel are no longer to authorized to advance the arguments in the brief filed on behalf of the SEC. SEC Acting Chairman Mark T. Uyeda stated that “[t]he goal of today’s Commission action and notification to the court is to cease the Commission’s involvement in the defense of the costly and unnecessarily intrusive climate change disclosure rules.”
The SEC did not, however, withdraw the actual climate disclosure rules. Commissioner Caroline Crenshaw issued a statement challenging the decision, that if the SEC chose not to defend the rules, then it should ask the court to stay the litigation while the agency comes up with a rule that it is prepared to defend and that if not, the court should hire counsel to defend the rules. Although the SEC is no longer defending the rules, 20 democratic attorney generals (the “AGs”) have intervened in the lawsuit to defend them. In April 2025, the court ruled that the AGs, led by those from Massachusetts and the District of Columbia, can themselves defend the rules.
SEC Enforcement Actions and Other Cases
Airline Faulted for ESG Focus in 401(k) Plan
A Texas judge issued a 70-page finding of fact and conclusion of law that an international airline company (the “Defendant”) violated federal benefits law by emphasizing environmental, social, and governance factors (“ESG”) in its 401(k) plan decisions. The judge found that the Defendant’s corporate commitment to ESG, the influence and conflicts of interests with the investment manager, and the lack of separation between the corporate and fiduciary roles all attributed to the fiduciary lapse. Despite finding the Defendant breached the Employee Retirement Income Security Act’s (“ERISA”) duty of loyalty, the judge determined the Defendant had not breached ERISA’s fiduciary duty of prudence because the practices fell within the prevailing industry standards.
12 Firms to Pay More Than $63 Million Combined to Settle SEC’s Charges in Connection with Off-Channel Communications
In its continued focus on off-channel communications, the SEC announced charges against nine investment advisers and three broker-dealers (each a “Firm” and collectively, the “Firms”) on January 13, 2025. The charges are for failures by the Firms and their personnel to maintain and preserve electronic communications, in violation of recordkeeping provisions of the federal securities laws. The Firms admitted to the facts set out in their respective SEC orders and have begun implementing improvements to their compliance policies and procedures to address these violations. One Firm self-reported and, as a result, paid significantly lower civil penalties.
“In order to effectively carry out their oversight responsibilities, the Commission’s Examinations and Enforcement Divisions must, and indeed do, rely heavily on registrants complying with the books and records requirements of the federal securities laws. When firms fall short of those obligations, the consequences go far beyond deficient document productions; such failures implicate the transparency and the integrity of the markets and their participants, like the firms at issue here,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement. “In today’s actions, while holding firms responsible for their recordkeeping failures, the Commission once more recognized and credited a registrant’s self-report, demonstrating yet again that there are tangible benefits to be gained from proactive cooperation.”
SEC Charges Advisory Firm with Misrepresenting its Anti-Money Laundering Procedures to Investors
The SEC charged a Connecticut-based investment adviser (the “Adviser”) with making misrepresentations about its anti-money laundering (“AML”) procedures and related compliance failures. The SEC’s order finds that the Adviser’s offering documents stated that the Adviser was voluntarily complying with AML due diligence laws despite those laws not applying to investment advisers. However, according to the order, the Adviser did not always conduct due diligence with respect to an entity owned by an individual who was publicly reported to have suspected connections to money laundering activities. The order further found that the Adviser failed to adopt and implement written policies and procedures reasonably designed to ensure the accuracy of offering and other documents provided to prospective and existing investors.
“This case reinforces the fundamental duty of investment advisers to say what they do and do what they say,” said Tejal D. Shah, Associate Regional Director of the SEC’s New York Regional Office. “Here, [the Adviser] failed to follow the AML due diligence procedures that it said it would, thus misleading investors about the level of risk they were undertaking.”
SEC Charges Two Affiliated Investment Advisers for Failing to Address Known Vulnerabilities in its Investment Models
The SEC announced, on January 16, 2025, that it had settled charges against two affiliated New York-based investment advisers (the “Advisers”) for breaching their fiduciary duties by failing to reasonably address known vulnerabilities in their investment models and for related compliance and supervisory failures, as well as violating the SEC’s whistleblower protection rule. According to the SEC’s order, around March 2019, the Advisers’ employees identified and recognized vulnerabilities in certain investment models that could negatively impact clients’ investment returns, but did not take any action to remedy the situation until August 2023. The Advisers failed to adopt and implement written policies and procedures to address these vulnerabilities and failed to supervise an employee who made unauthorized changes to more than a dozen models. Further, the Advisers required departing individuals to state as a fact—in separate written agreements—that they had not filed a complaint with any governmental agency. The SEC’s order finds that the Advisers willfully violated the antifraud provisions of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), the Advisers Act’s compliance rule, as well as Rule 21F-17(a) under the Exchange Act.
SEC Charges Advisory Firms with Compliance Failures Relating to Cash Sweep Programs
The SEC, on January 17, 2025, settled charges against two affiliated registered investment advisers and a third unaffiliated investment adviser (collectively, the “Advisers”) for failing to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder relating to the Advisers’ cash sweep programs. According to the SEC’s order, the Advisers offered their own bank deposit sweep programs as the only cash sweep options for most advisory clients and received a significant financial benefit from advisory client cash in the bank deposit program. The order finds that the Advisers failed to adopt and implement reasonably designed policies and procedures (1) to consider the best interest of clients when evaluating and selecting which cash sweep program options to make available to clients and (2) concerning the duties of financial advisors in managing client cash in advisory accounts.
SEC Charges Dually Registered Broker-Dealer/Investment Adviser with Anti-Money Laundering Violations
The SEC announced charges against a firm that is registered as both a broker-dealer and investment adviser (the “Firm”) with multiple failures related to its AML program. According to the SEC’s order, from at least May 2019 through December 2023, the Firm experienced longstanding failures in its customer identification program, including a failure to timely close accounts for which it had not properly verified the customer’s identity. Furthermore, the Firm failed to close or restrict thousands of high-risk accounts that were prohibited under the Firm’s AML policies.
Financial Institution to Pay More than $100 Million to Resolve Violations Related to Target Date Funds
The SEC announced on January 17, 2025, that an institutional investment management company (the “Company”) has agreed to settle charges for misleading statements related to capital gains distributions and tax consequences for retail investors who held the Company’s Investor Target Retirement Funds (“Investor TRFs”) in taxable accounts. The SEC’s order finds that in December 2020, the Company announced that the minimum initial investment amount of the Company’s Institutional Target Retirement Funds (“Institutional TRFs”) would be lowered from $100 million to $5 million. A substantial number of plan investors redeemed their Investor TRFs and switched to Institutional TRFs due to the latter having lower expenses. The retail investors of the Investor TRFs who did not switch and continued to hold their fund shares in taxable accounts, faced historically large capital gains distributions and tax liabilities due to the large number of redemptions. The order also finds that the Investor TRFs’ prospectuses, effective and distributed in 2020 and 2021, were materially misleading because they failed to disclose the potential for increased capital gains distributions resulting from redemptions of fund shares by newly eligible investors switching from the Investor TRFs to the Institutional TRFs.
“Materially accurate information about capital gains and tax implications is critical to investors saving for their retirements,” said Corey Schuster, Chief of the Division of Enforcement’s Asset Management Unit. “Firms must ensure that they are accurately describing to investors the potential risks and consequences associated with their investments.”
SEC Charges Investment Adviser and Two Officers for Misuse of Fund and Portfolio Company Assets
The SEC filed settled charges on March 7, 2025, against a registered investment adviser (the “Adviser”), former managing partner (the “Managing Partner”) and its former chief operating officer and partner (the “COO”) for breaches of the fiduciary duties for their misuse of fund and portfolio company assets. According to the SEC’s orders, from at least August 2021 through February 2024, the COO misappropriated approximately $223,000 from portfolio companies of a private fund managed by the Adviser. This included transactions for vacations, personal expenses, and the payment of compensation in excess of the COO’s salary. The SEC order states that the Managing Partner failed to reasonably supervise the COO despite red flags of misappropriation and that they caused the fund to pay a business debt that should have been paid by an entity the Managing Partner and COO controlled, resulting in an unearned benefit to the entity of nearly $350,000. Additionally, the order finds the Adviser failed to adopt and implement adequate policies and procedures and to have the fund audited as required.
SEC Charges New Jersey Investment Adviser and His Firm with Fraud and Other Violations
The SEC, on March 17, 2025, announced it filed charges against an individual investment adviser and his advisory firm (collectively, the “Adviser”) for misconduct and for investing more than 25 percent of a mutual fund’s assets in a single company over multiple years, causing losses of $1.6 million. In November 2021, the Adviser settled charges that the Adviser violated its policy by investing more than 25 percent of a fund’s assets in one industry between July 2017 and June 2020, committing fraud and breaching its fiduciary duties. Despite being ordered to stop the conduct, the Adviser continued violating its 25 percent industry concentration limit and making associated misrepresentations about it between November 2021 and June 2024. The SEC’s complaint alleges the defendant Adviser engaged in further misconduct during this same period by operating the fund’s board without the required number of independent trustees and misrepresenting the independence of one board member in filings. The complaint also alleges that the Adviser failed to provide or withheld key information from the board and hired an accountant for the fund without the required vote by the board.
“As alleged, the defendants not only ran the fund contrary to its fundamental investment policies, but they actively misled investors and the fund’s board about their conduct,” said Corey Schuster, Chief of the Division of Enforcement’s Asset Management Unit. “Undeterred by their prior SEC settlement involving these very same issues, we allege that the defendants repeatedly violated fundamental rules designed to protect investors in mutual funds.”
Business Development Company and Directors Sued for Causing Fund’s Value to Decline
Directors of a business development company (the “BDC”) have been sued for allegedly approving fraudulent valuations, and the BDC’s investment adviser (the “Adviser”) is accused of extracting millions of dollars in fees from the BDC while its assets dipped. According to the complaint, the Adviser caused the BDC’s $200 million portfolio to decline while extracting nearly $30 million in fees and concealed the decline from shareholders through fraudulent, inflated asset valuations that the directors repeatedly approved before the fund went into liquidation in 2023. When shareholders proposed ways for the shareholders to realize value (such as a tender offer or merger), the complaint alleges that the Directors amended the BDC’s bylaws to illegally restrict shareholder voting powers. The lawsuit seeks a trial and alleges violations of Section 10(b) and Section 20 of the Exchange Act, breach of fiduciary duty by the directors, aiding and abetting a breach of fiduciary duty, and breach of contract.
Revenue Sharing Ruling Struck Down by First Circuit Court of Appeals
In 2019, the SEC initiated an enforcement action against a dually registered broker-dealer and investment adviser (the “Adviser”). The SEC alleged that, from July 2014 through December 2018, the Adviser failed to adequately disclose that its revenue sharing agreement with a national brokerage and custody service provider (the “Provider”) created a conflict of interest by incentivizing the Adviser to direct its clients’ investments (through client representatives) to mutual fund share classes that produced revenue-sharing income for the Adviser. At the close of evidence, the district court granted partial summary judgment for the SEC which included an order for the firm to pay $93.3 million (including disgorgement of nearly $65.6 million in revenue-sharing related profits), which the Adviser appealed. On April 1, 2025, the United States Court of Appeals for the First Circuit, finding that there was a material issue of fact to be decided by a jury, reversed the order and remanded it back to district court to be heard by a jury. Applying the “total mix” test from Basic Inc. v. Levinson, the Court of Appeals concluded that a “reasonable jury could find” that the additional disclosure about the Adviser’s conflict of interest would not have “so significantly altered the ‘total mix’ of information made available, that summary judgment was appropriate.” Importantly, the Court of Appeals noted that the district court relied on cases predating the U.S. Supreme Court’s decision in SEC v. Jarkesy, decision which held that the Seventh Amendment right to a jury trial applies to SEC enforcement actions of its administrative orders. Additionally, the Court of Appeals found that the SEC failed to adequately show a reasonable approximation or casual connection sufficient to support the district court’s disgorgement award.
Other Industry Highlights
SEC Announces Record Enforcement Actions Brought in First Quarter of Fiscal Year 2025
The SEC announced on January 17, 2025, that, based on preliminary results, it filed 200 total enforcement actions in the first quarter of fiscal year 2025, which ran from October through December 2024, including 118 standalone enforcement actions. This is the most actions filed in the respective period since at least 2000. The SEC filed more than 40 enforcement actions from January 1, 2025, through January 17, 2025, indicating that the Division’s high level of enforcement activity continues into the second quarter of fiscal year 2025.
DRAO Issues Observations Relating to Website Posting Requirements
The Division of Investment Management’s Disclosure Review and Accounting Office (“DRAO”) is responsible for reviewing fund disclosures. As part of this effort, the staff recently observed several issues relating to the website posting requirements under various Commission rules and certain exemptive orders, including those related to the use of summary prospectuses, exchange-traded funds (“ETFs”), and money market funds (“MMFs”). Some of the DRAO’s observations include:
Summary Prospectuses
Some summary prospectuses did not include a website address that investors could use to obtain the required online documents, while other addresses were generic links to the registrant’s homepage.
A number of registrants did not include any links from the summary prospectus to the statutory prospectus and the Statement of Additional Information, or only partially satisfied the linking requirement.
ETFs
Some ETFs failed to include their daily holdings information, expressed their premiums and discounts as a dollar figure rather than as a percentage, or used alternative terminology when referring to premiums and discounts that have potential to confuse investors.
Some ETFs did not disclose timely historic premium and discount information on their websites, or the information was not easily accessible on the website.
Some ETFs used alternative terminology when referring to the 30-day median bid-ask spread, by omitting the term “30-day,” such that the nature of the figure presented may be unclear to investors.
MMFs
Several MMFs did not post on their websites the required link to the Commission’s website where a user may obtain the most recent 12 months of publicly available information filed by the MMF on Form N-MFP.
Acting Chairman Uyeda Announces Formation of New Crypto Task Force
SEC Acting Chairman Mark Uyeda, on January 21, 2025, launched a crypto task force dedicated to developing a comprehensive and clear regulatory framework for crypto assets. The SEC announced that Commissioner Hester Peirce will lead the task force with a focus on drawing clear regulatory lines, providing realistic paths to registration, crafting disclosure frameworks, and deploying enforcement resources. With the disbandment of the Crypto Asset and Cyber Unit, the task force will be the Commissioners’ primary adviser on matters related to Crypto. On March 3, 2025, Commissioner Peirce announced the members of the Crypto Task Force staff.
Executive Order Halts All Pending Regulations
The Trump administration issued an executive order on January 20, 2025, freezing all pending regulations. The order also suggests that agencies should postpone the effective date for any regulations that have been published in the Federal Register for 60 days. Additionally, the order states that federal agencies should withdraw any regulations that have been sent to the Office of the Federal Register but have not yet been published. Finally, the order recommends that agencies should consider reopening comment periods for pending regulations and should not propose or issue any new regulations until a department or agency head appointed by President Trump has reviewed and approve such regulations.
New Executive Order Imposes Increased Presidential Oversight and Control of Independent Regulatory Agencies
The Trump administration, on February 18, 2025, issued a new Executive Order, “Ensuring Accountability for All Agencies,” (the “Executive Order”) that seeks to increase presidential oversight of independent regulatory agencies. The Executive Order imposes new constraints on independent regulatory agencies, like the SEC, including:
The independent regulatory agencies must submit “significant regulatory actions” to the White House’s Office of Information and Regulatory Affairs before publication in the Federal Register;
The Director of the White House’s Office of Management and Budget (“OMB”) will establish performance standards and management objectives of independent agency heads, like the Commissioners of the SEC, and for OMB to report to the President on the agencies’ performance and efficiency;
The Director of OMB will review the agencies’ obligations for “consistency with the President’s policies and priorities” and will change an agencies’ activity or objective, as necessary, to advance the “President’s policies and priorities;”
Chairs of independent regulatory agencies must now meet with and coordinate policies and priorities with the White House, including establishing a position of White House Liaison and submitting strategic plans to OMB for clearance; and
Members of independent regulatory agencies cannot “advance an interpretation of the law” that vary from the president and the attorney general’s authoritative interpretation of the law including, but not limited to, interpretations of regulations, guidance, and positions advanced in litigation (which may include enforcement actions).
SEC Announces Cyber and Emerging Technologies Unit
The SEC announced, on February 20, 2025, the creation of the Cyber and Emerging Technologies Unit (“CETU”) to focus on combatting cyber-related misconduct and to protect retail investors from bad actors in the emerging technologies space. Specifically, the CETU will focus on the following priority areas:
Fraud committed using emerging technologies, such as artificial intelligence and machine learning;
Use of social media, the dark web, or false websites to perpetrate fraud;
Hacking to obtain material nonpublic information;
Takeovers of retail brokerage accounts;
Fraud involving blockchain technology and crypto assets;
Regulated entities’ compliance with cybersecurity rules and regulations; and
Public issuer fraudulent disclosure relating to cybersecurity.
CETU replaces the SEC Enforcement Division’s Crypto Asset and Cyber Unit, which brought more than 100 enforcement actions. CETU’s establishment is a part of a series of initiatives highlighting the SEC’s new, more positive, approach to crypto products. See Acting Chairman Uyeda Announces Formation of New Crypto Task Force above.
ICI Issues Recommendations for Reform and Modernization of the 1940 Act
The Investment Company Institute (“ICI”), on March 17, 2025, issued key recommendations for the reform and modernization of the 1940 Act, titled Reimagining the 1940 Act: Key Recommendations for Innovation and Investor Protection. The ICI worked closely with its members and Independent Directors Council members over three years to develop their “blueprint” to reform the 1940 Act. The 19 recommendations focus on fostering ETF innovation, expanding retail investors’ access to private markets, eliminating unnecessary regulatory costs and burdens, and leveraging the expertise and independence of Fund directors. The ICI has called for the SEC to address these recommendations, including to:
Enable a new or existing fund to offer both mutual fund and ETF share classes;
Allow closed-end funds to more flexibly invest in private funds;
Create more flexibility for closed-end funds to provide repurchase opportunities to their investors;
Adopt electronic delivery of information as the default delivery option;
Update requirements for in-person voting by directors;
Permit streamlined board approval of new sub-advisory contracts and annual renewals;
Revise the “interested person” standard;
Permit fund boards to appoint a greater number of new independent directors; and
Update fund board responsibility with respect to auditor approval.
Raising the Bar: SEC Evaluating an Increase in Minimum AUM Threshold for Investment Adviser Registration
On April 8, 2025, Acting SEC Chairman Mark T. Uyeda gave a speech signaling that the SEC may revisit the current minimum assets under management (“AUM”) threshold for federal registration, potentially reducing the number of investment advisers required to register with the SEC. Though Uyeda’s time as Acting Chair has now ended due to the confirmation of Paul Atkins as SEC Chair, Uyeda’s willingness to raise the issue publicly suggests he expects Atkins will carry the initiative forward.
In his remarks at the Annual Conference on Federal and State Securities Cooperation, Uyeda stated that he had directed SEC staff to evaluate whether this threshold — unchanged since 2012 — remains appropriate given the current market and the SEC’s regulatory priorities. The specificity of the speech, and in particular the statement that he had asked the staff to evaluate the current framework, likely indicates that the proposal process has already begun.[1]
An increase in the minimum threshold could mean that currently SEC-registered investment advisers falling below the new threshold would withdraw their SEC registrations and register with state regulators or, alternatively, claim exemptions at the state level (if available). The prospect of state-level registration may be bittersweet for some investment advisers. While some advisers may be eager to escape from SEC jurisdiction, state regulators may be less familiar with the complex transactions, fund structures and terms and other market practices that are the norm across private funds. This could pose challenges, and an adviser’s experience can vary widely depending on the regulators with which it is registered.
Key Takeaways for Investment Advisers
Currently, investment advisers with more than $100 million in AUM[2] must register with the SEC unless an exemption applies (for example, exemptions are available for private fund advisers with AUM below $150 million, as well as for advisers to venture capital funds).
If the SEC were to increase the AUM threshold at which an adviser is required to register with the SEC (which it could accomplish through its current rulemaking authority under the Advisers Act), affected advisers that are currently SEC-registered or are claiming exemptions from SEC registration, but that have AUM below such new threshold, would be required to withdraw their SEC registrations or exemption filings and, if required, would register with applicable state regulatory authorities (unless an exemption applies at the state level, such as the state-level equivalents of the SEC’s “exempt reporting adviser” exemptions that have been adopted in many states).
This development is consistent with the broader theme in recent months of the SEC seeking to recalibrate certain rules to ease burdens on smaller firms.
Why the SEC may revisit the $100M AUM Threshold
Uyeda suggested that he believes that the current threshold may no longer reflect the intent behind the threshold, which aimed to reserve SEC oversight for larger investment advisers.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”)[3] increased the AUM-based registration threshold to its current level.[4] The purpose, as expressed at the time, was to decrease the number of advisers registered with the SEC. As a result of the law and associated rule changes, more than 3,000 investment advisers withdrew their SEC registration.
In his recent speech, Uyeda noted the number of SEC‑registered advisers has grown by approximately 45 percent since the last adjustment.[5] Uyeda suggested that it would be consistent with Congressional intent for certain “mid-sized” firms to be subject to registration at the state level instead of with the SEC.
Additional Proposal: Streamline Interplay of Federal and State Laws in Regulation of Securities Transactions
Uyeda also suggested re-evaluating the current system of federal pre-emption of state securities laws in connection with securities issuances, resales and other securities transactions. As he noted, the question of whether federal laws pre-empt state laws — which affects, among other things, whether an offering of securities by a private issuer must comply with state securities laws in addition to federal law — can be complicated, which can hinder capital formation. His suggestion is consistent with the theme of recalibration that has been emerging from the SEC over the past several months.[6]
Uyeda’s Remarks in Broader Context
Uyeda’s remarks are not a formal proposal but are a clear indication that this area is ripe for regulatory reform. This adds to a growing list of developments that investment advisers and issuers alike will be monitoring closely as the new administration continues to build momentum.
[1] While nothing is guaranteed, similar statements by previous Chairs have presaged later SEC actions. For example, in a 2021 speech to the Institutional Limited Partners Association, then-Chair Gensler stated that he had “asked the staff to consider” various recommendations that closely tracked the framework of the now-voided Private Fund Adviser Rules, and made similar statements that tracked the 2022 amendments to Form PF. Prior to that, Acting Chair Lee gave a speech signaling the beginning of the rulemaking process on the SEC’s Climate Rule, as well as amendments to Form N-PX that were later adopted and a proposal relating to fund and adviser ESG metrics.
[2] Or more than $25 million, for advisers whose home state would either not require them to register with the state or, if registered at the state level, would not be subject to examination by the state.
[3] There were, and remain, other reasons beyond AUM that can cause or permit an investment adviser to register with the SEC. For example, an investment adviser that would be required to register in numerous states is permitted to register regardless of AUM, and an investment adviser to a registered investment company is required to register regardless of AUM.
[4] The Dodd-Frank Act also removed the private adviser exemption, which exempted advisers with fewer than 15 clients from registration regardless of AUM. Advisers to private funds frequently were able to rely on this exemption from registration because the adviser’s clients are its funds and not the underlying investors.
[5] Though not directly noted in the speech, Uyeda has been associated with previous efforts by the SEC to update thresholds that result in additional regulatory oversight or obligations. For example, he was listed as a senior member of the team that drafted the 2020 proposal that would have raised the threshold to file Form 13F.
[6] The SEC is not the only financial regulator considering recalibration; in the UK, the Treasury Ministry recently called for input on a proposal that would significantly increase the threshold for full scope AIFM registration, as well as several related reforms.
When Do Blue Sky Laws Apply?
In my experience, many securities lawyers are well versed in the federal securities laws, but have little experience with state securities laws. This is understandable because federal law in many cases preempts state qualification/registration requirements, even with respect to offerings that are exempt from registration under the Securities Act of 1933. For those looking for a quick and easy summary of which exempt offerings are potentially subject, I recently came across the following table on the SEC’s website:
Securities Act Exemption
Under the Securities Act, is the offering potentially subject to state registration or qualification?
Section 4(a)(2)
Yes
Rule 506(b)
No
Rule 506(c)
No
Rule 504
Yes
Regulation Crowdfunding
No
Regulation A – Tier 1
Yes
Regulation A – Tier 2
No
Rules 147 and 147A
Yes
Rule 701
Yes
Note that the table uses the terminology “potentially subject”. It is possible that these offerings are also exempt under state law. For example, it is common for issuers to rely on the exemption from qualification in California Corporations Code Section 25102(o) in Rule 701 offerings. However, compliance with Rule 701 does not automatically meet the conditions of the Section 25102(o) exemption.
It is also important to understand that an offering that is not subject to state registration or qualification requirements is not subject to other state securities law requirements. For example, California and other states require a notice filing in respect of offerings made in reliance upon Rule 506. See Cal. Corp. Code § 25102.1. These offerings may also be subject to state securities fraud prohibitions.
United States: The SEC Takes Another Key Step Toward Crypto Clarity
On the heels of other guidance issued by the US Securities Exchange Commission’s (SEC) Division of Corporation Finance (Division), the Division released a statement (Statement) on 10 April 2025 addressing its views about, among other things, certain disclosure requirements for certain registration forms under the Securities Act of 1933, including Form S-1, and registration forms under the Securities Exchange Act of 1934, including Form 10. As Form S-1 is used by commodity based exchange-traded products (ETPs), including spot bitcoin and ether ETPs, the Division’s guidance will impact such ETPs and others that follow a similar registration path.
The Division cautioned that the Statement, which also includes a summary of certain observations about issuer practices, does not address all material disclosure items, that the topics covered may not be relevant for all issuers, and that each issuer should consider its own facts and circumstances when preparing its disclosures.
The Statement included, among other things, the following guidance:
Disclosure should be tailored to the issuer’s business, presented clearly and concisely, “without overly relying on technical terminology or jargon”;
Disclosure should address risks relating to a material associated network or application; and
Investors should understand what the security represents. In the context of crypto assets, the disclosure could address, as applicable, (i) supply, (ii) rights, obligations and preferences, and (iii) technical specifications.
The Division included a footnote clarifying that nothing in the Statement was intended to convey that registration or qualification is required in connection with an offering of a crypto asset if the asset is not a security and not part of or subject to an investment contract.