Breaking News: SEC Withdraws Its Defense of Climate Disclosure Regulations
On March 27, the US Securities and Exchange Commission (SEC) announced that it will no longer defend Biden-era regulations requiring large corporations to disclose the impacts of climate change on their businesses. This announcement follows a vote by the SEC’s three-member governing body to end its defense of the rule and comes amid industry complaints that the rule was an overstep of the SEC’s authority.
Read the press release here.
This news follows significant shifts in the United States’ approach to climate change under the Trump Administration, including the deregulation of the US Environmental Protection Agency as discussed in our prior alert. The SEC’s acting chair described the climate disclosure mandates as “costly” and “unnecessarily intrusive.”
The Enhancement and Standardization of Climate-Related Disclosures for Investors (the Rule) was the first federal sustainability disclosure requirement in the United States and sought to inform investors by requiring registrants to provide information on greenhouse gas emissions, severe weather-related financial statement disclosures, and climate-related governance, targets, and risks disclosures. Among other mandates, the Rule required publicly traded companies to discuss climate-related risks that materially impacted, or were reasonably likely to materially impact, their companies when filing registration statements and annual reports.
However, the Rule never saw the light of day as it was quickly challenged and stayed following its adoption in March 2024, and has since been the subject of ongoing litigation consolidated in the Eighth Circuit.[1] In February, the SEC indicated its reluctance to defend the Rule before the Eighth Circuit, with the acting chairman calling it “deeply flawed.”
Though publicly traded companies will have less compliance burdens related to climate change as a result of the SEC’s decision, companies and investors alike should bear in mind the growing awareness of how climate impacts investment performance on a global level. In addition, the California climate disclosure laws (discussed here) and the European Union’s Corporate Sustainability Reporting Directive (though proposed to be pared back) will continue to drive disclosure of climate-related information for the time being.
Our team will continue to monitor developments and provide updates as they become available.
[1] Iowa v. Securities Exchange Commission, No. 24-1522 (8th Cir.)
Additional Authors: Jeffrey J. Kennedy and Maria Ortega Castro
SEC Whistleblower Reform Act Reintroduced in Congress
Last Wednesday, March 26, 2025, Senator Grassley (R-IA) and Senator Warren (D-MA) reintroduced the SEC Whistleblower Reform Act. First introduced in 2023, this bipartisan bill aims to restore anti-retaliation protections to whistleblowers who report their concerns within their companies. As upheavals at government agencies dominate the news cycle, whistleblowers might feel discouraged and hesitant about the risks of coming forward to report violations of federal law. This SEC Whistleblower Reform Act would expand protections for these individuals who speak up, and it would implement other changes to bolster the resoundingly successful SEC Whistleblower Program.
The SEC Whistleblower Incentive Program
The SEC Whistleblower Incentive Program (the “Program”) went into effect on July 21, 2010, with the adoption of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). The Program has since become an essential tool in the enforcement of securities laws. The program benefits the government, which collects fines from the companies found in violation of federal securities laws; consumers, who benefit from the improvements companies must make to ensure they refrain from, and stop, violating federal law; and the whistleblowers themselves, who can receive awards for the information and assistance they provide. Since its inception, the SEC Whistleblower Program has recouped over $6.3 billion in sanctions, and it has awarded $2.2 billion to 444 individual whistleblowers. In FY 2024 alone, the Commission awarded over $255 million to forty-seven individual whistleblowers.
Under the Program, an individual who voluntarily provides information to the SEC regarding violations of any securities laws that leads to a successful civil enforcement action that results in over $1 million in monetary sanctions is eligible to receive an award of 10–30% of the fines collected. Since the SEC started accepting tips under its whistleblower incentive program in 2010, apart from a dip in 2019, the number of tips submitted to the SEC has steadily increased. In Fiscal Year 2024, the SEC received more than 24,000 whistleblower tips, the most ever received in one year.
Restoring Protections for Internal Whistleblowers
While the SEC Whistleblower Program has been successful by any measure, in 2018, the Supreme Court significantly weakened the Program’s whistleblower protections in Digital Realty Trust v. Somers, 583 U.S. 149 (2018). The Court ruled in Digital Realty that the Dodd-Frank Act’s anti-retaliation protections do not apply to whistleblowers who only report their concerns about securities violations internally, but not directly to the SEC. The decision nullified one of the rules the SEC had adopted in implementing the Program. Because many whistleblowers first report their concerns to supervisors or through internal compliance reporting programs, this has been immensely consequential. The decision has denied a large swath of whistleblowers the protections and remedies of the Dodd-Frank Act, including double backpay, a six-year statute of limitations, and the ability to proceed directly to court.
The bipartisan SEC Whistleblower Reform Act, reintroduced by Senators Grassley and Warren on March 26, 2025, restores the Dodd-Frank Act’s anti-retaliation protections for internal whistleblowers. In particular, the Act expands the definition of “whistleblower” to include:
[A]ny individual who takes, or 2 or more individuals acting jointly who take, an action described . . . , that the individual or 2 or more individuals reasonably believe relates to a violation of any law, rule, or regulation subject to the jurisdiction of the Commission . . . .
. . .
(iv) in providing information regarding any conduct that the whistleblower reasonably believes constitutes a violation of any law, rule, or regulation subject to the jurisdiction of the Commission to—
(I) a person with supervisory authority over the whistleblower at the employer of the whistleblower, if that employer is an entity registered with, or required to be registered with, or otherwise subject to the jurisdiction of, the Commission . . . ; or
(II) another individual working for the employer described in subclause (I) who the whistleblower reasonably believes has the authority to—
(aa) investigate, discover, or terminate the misconduct; or
(bb) take any other action to address the misconduct.
With these changes to the definition of a “whistleblower,” the Act would codify the Program’s anti-retaliation protections for an employee who blows the whistle by reporting only to their employer, and not also to the SEC. Notably, the Act would apply not only to claims filed after the date of enactment, but also to all claims pending in any judicial or administrative forum as of the date of the enactment.
Ending Pre-Dispute Arbitration Agreements for Dodd-Frank Retaliation Claims
Additionally, the SEC Whistleblower Reform Act would render unenforceable any pre-dispute arbitration agreement or any other agreement or condition of employment that waives any rights or remedies provided by the Act and clarifies that claims under the Act are not arbitrable. In other words, retaliation claims under the Dodd-Frank Act must be brought before a court of law and may not be arbitrated, even if an employee signed an arbitration agreement. This would bring Dodd-Frank Act claims into alignment with the Sarbanes-Oxley Act of 2002 (“SOX”), another anti-retaliation protection often applicable to corporate whistleblowers. While the Dodd-Frank Act eliminated pre-dispute arbitration agreements for SOX claims, it included no such arbitration ban for Dodd-Frank claims. As a result, two claims arising from the same underlying conduct often need to be brought in separate forums—arbitration for Dodd-Frank and court for SOX—or an employee must choose between the two remedies.
Reducing Delays in the Program
The SEC Whistleblower Reform Act would also benefit whistleblowers by addressing the long delays that have plagued the Program, which firm partners Debra Katz and Michael Filoromo have urged the SEC to remedy and have written publicly on to raise awareness on this topic In particular, the Act sets deadlines by which the Commission must take certain steps in the whistleblowing process. The Act provides that:
(A)(i) . . . the Commission shall make an initial disposition with respect to a claim submitted by a whistleblower for an award under this section . . . not later than the later of—
(I) the date that is 1 year after the deadline established by the Commission, by rule, for the whistleblower to file the award claim; or
(II) the date that is 1 year after the final resolution of all litigation, including any appeals, concerning the covered action or related action.
These changes are important because SEC whistleblowers currently might expect to wait several years for an initial disposition by the SEC after submitting an award application, and years more for any appeals of the SEC’s decision to conclude. The Act’s amendments set clearer deadlines and expectations for the Commission and would speed up its disposition timeline—and the provision of awards to deserving whistleblowers.
While the Act does provide for exceptions to the new deadline requirements, including detailing the circumstances under which the Commission may extend the deadlines, the Act specifies that the initial extension may only be for 180 days. Any further extension beyond 180 days must meet specified requirements: the Director of the Division of Enforcement of the Commission must determine that “good cause exists” such that the Commission cannot reasonably meet the deadlines, and only then may the Director extend the deadline by one or more additional successive 180-day periods, “only after providing notice to and receiving approval from the Commission.” If such extensions are sought and received, the Act provides that the Director must provide the whistleblower written notification of such extensions.
Conclusion
The SEC Whistleblower Reform Act, which would reinstate anti-retaliation protections for whistleblowers and ensure that the Program runs more efficiently, would be a significant step forward for the enforcement of federal securities laws and for the whistleblowers who play a vital role in those efforts. The bipartisan introduction of the Act is a testament to the crucial nature of the Program.
SEC Ends Defense of Climate Disclosure Rules
In March of 2024, we reported on the US Securities and Exchange Commission’s adoption of a comprehensive set of rules governing climate-related disclosures. The rules would require public companies to disclose climate-related risks, including their impact on financial performance, operations, and strategies, along with greenhouse gas emissions data, governance structures and efforts to mitigate climate impacts. To no one’s surprise, the adopted rules were met with a flurry of court challenges from states and private parties, which led the SEC to issue a stay of the rules pending resolution of the litigation.
Also unsurprisingly, on March 27, 2025, the SEC, under the new administration, voted to end its defense of the climate-related disclosure rules in court. SEC Acting Chairman Mark T. Uyeda stated, “The 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’s decision to end its defense of the rules very likely means that companies will never be required to comply with the rules. Despite this decision, however, the rules will remain in effect until a court rules them invalid or the SEC rescinds them through the rulemaking process (although the stay remains in effect for now). For that reason, there is currently some uncertainty regarding the rules’ future, and we will continue to follow developments. But, in any case, given the SEC’s recent statements, it seems unlikely that the SEC and its staff would seek to enforce compliance with the rules while they remain in effect.
Although it probably is safe for public companies to assume that they do not need to continue planning for compliance with the climate-related disclosure rules adopted in 2024, companies should remember that climate-related disclosures may be required under other SEC rules and guidance and, in certain cases, climate disclosure requirements of states or non-US jurisdictions. In particular, the SEC’s 2010 guidance on climate-related disclosures remains in effect, requiring public companies to report the impact of climate change on their financial performance, operations, and risks, particularly when such factors are material. While it remains unclear to what extent the SEC under the current administration will enforce, or perhaps even revise, this guidance, companies would be well-advised to be consistent with their climate-related disclosures from period to period.
Additionally, companies may still be required to disclose climate-related risks and greenhouse gas emissions in other jurisdictions, such as California or the European Union, where climate-related disclosure rules are already in place. Other states are also considering similar regulations, potentially expanding the scope of companies subject to such disclosure requirements. Notwithstanding the SEC’s recent action, climate-related disclosures appear to be here to stay.
Recent NYSE and Nasdaq Regulatory Updates Regarding Reverse Stock Splits
Reverse stock split is a common corporate action taken by public companies to improve market perception, maintain compliance with certain stock exchange listing requirements or help keep stock prices at levels where certain investors can buy shares. Indeed, Hunton has recently assisted a number of clients with reverse stock splits in light of the market turmoil. Companies that are contemplating reverse stock splits should be reminded of the recent regulatory updates involving the use of reverse stock splits by companies listed on NYSE or Nasdaq.
Limitations on the Use of Reverse Stock Splits
Nasdaq
In October 2024, the US Securities and Exchange Commission (“SEC”) approved the proposed amendment to Nasdaq Rule 5810(c)(3)(A), submitted by Nasdaq in July 2024, which modifies the compliance periods for companies seeking to regain compliance with Nasdaq listing requirements in connection with reverse stock splits. Nasdaq rules generally require that a listed security maintain a minimum bid price of $1.00 (the “Minimum Price Requirement”). Under the prior rules, if a Nasdaq-listed company’s stock price fails to meet the Minimum Price Requirement for 30 consecutive business days, the company would typically be granted an initial 180-day period to regain compliance (the “Initial Compliance Period”), often by doing a reverse stock split. However, a reverse stock split may cause the company to fall below the numeric threshold for another listing requirement (such as minimum number of publicly held shares) (a “Secondary Deficiency”). In the event of a Secondary Deficiency, under the prior rules, Nasdaq would notify the company about the new deficiency and the company could be granted an additional period of up to another 180 days to cure the deficiency and regain compliance (the “Additional Compliance Period”) if it satisfies certain conditions. Under the amended rules, however, companies will no longer be afforded the Additional Compliance Period. If a company effects a reverse stock split to regain compliance with the Minimum Price Requirement but the reverse stock split results in a Secondary Deficiency, the company will not be considered to have regained compliance with the Minimum Price Requirement. To avoid delisting, the company must, within the Initial Compliance Period, (i) cure the Secondary Deficiency and (ii) thereafter meet the Minimum Price Requirement for 10 consecutive business days.
In addition, the amended Nasdaq Rule 5810(3)(A) imposes limitations on how many times a company can effect reverse stock splits within a certain period of time. If a company’s stock fails to meet the Minimum Price Requirement but such company has (i) effected a reverse stock split over the prior one-year period or (ii) effected one or more reverse stock splits over the prior two-year period with a cumulative ratio of 250 shares or more to 1, then the company will not be eligible for any compliance period (including the Initial Compliance Period) to cure the price deficiency, but will be issued a listing determination instead.
NYSE
In January 2025, the SEC approved the proposed amendment to Section 802.01C of the NYSE Listed Company Manual, submitted by the NYSE in September 2024 with subsequent amendments, which, similar to the amended Nasdaq rules, limits the circumstances under which NYSE-listed companies could use reverse stock splits to regain compliance with the price requirements for continued listings. The NYSE requires listed companies to maintain an average closing price of at least $1.00 over any consecutive 30-trading-day period (the “Price Criteria”). Under the prior rules, if a company’s stock fails to meet the Price Criteria, the NYSE will notify the company of its noncompliance; the company must, within 10 business days of receipt of the notification, notify the NYSE of its intent to cure the deficiency or be subject to suspension and delisting procedures. The company will then have a six-month period (the “Cure Period”) to regain compliance with the Price Criteria, typically by effecting a reverse stock split; the company will be deemed to have regained compliance if on the last trading day of any calendar month during the Cure Period, the company has a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the 30-trading-day period ending on the last trading day of that month. Under the amended rules, however, if a company’s stock has failed to meet the Price Criteria and the company has (i) effected a reverse stock split over the prior one-year period or (ii) effected one or more reverse stock splits over the prior two-year period with a cumulative ratio of 200 shares or more to 1, then the company will not be eligible for the Cure Period; instead, the NYSE will immediately commence suspension and delisting procedures.
In addition, under the amended Section 802.01C, an NYSE-listed company who fails to comply with the Price Criteria will be prohibited from effecting any reverse stock split if doing so would result in the company falling below the continued listing requirements set forth under Section 802.01A, such as the number of publicly-held shares. If a company effects a reverse stock split notwithstanding the prohibition, the NYSE could immediately commence suspension and delisting procedures.
Halt of Trading in Stock Undergoing Reverse Stock Splits
In November 2023 and May 2024, the SEC approved the proposed amendments to Nasdaq and NYSE rules, respectively, which set forth specific requirements for halting and resuming trading in a security that is subject to a reverse stock split. The amended NYSE Rule 123D provides that the NYSE will halt trading in a security before the end of post-market trading on other markets (generally at 7:50 pm) on the day immediately before the market effective date of a reverse stock split. Trading in the security will resume with a Trading Halt Auction (as defined in NYSE Rule 7.35(a)(1)(B)) starting at 9:30 am, on the effective date of the reverse stock split. The NYSE believes that this halt and delayed opening “would give sufficient time for investors to review their orders and the quotes for the security and allow market participants to ensure that their systems have properly adjusted for the reverse stock split.”[1] Similarly, under the amended Nasdaq Rule 4120(a), Nasdaq generally expects to initiate the halt of trading at 7:50 pm,[2] prior to the close of post-market trading at 8 pm on the day immediately before the split in the security becomes effective, and resume trading at 9 am on the day the split is effective.
Other Considerations
Companies contemplating reverse stock splits should also note the advance notice requirements of NYSE and Nasdaq, currently requiring notification at least 10 calendar days in advance of the reverse stock split effectiveness date. The NYSE or Nasdaq may also request to review other documents (press release, amendment to the articles of incorporation, etc.) and companies should keep the representatives at the NYSE or Nasdaq engaged throughout the process so that their requests and questions will be addressed in a timely manner. We encourage companies to work closely with legal counsel to coordinate each step of a reverse stock split and ensure compliance with all applicable rules and regulations, which may be constantly changing.
[1] SEC Release No. 34-99974, April 17, 2024.
[2] SEC Release No. 34-98878, November 14, 2023.
The SEC Effectively Ends Climate Disclosure Requirements Under Trump Administration
On Thursday, March 27, 2025, the U.S. Securities and Exchange Commission announced via letter to the U.S. Court of Appeals for the Eighth Circuit that SEC attorneys would no longer defend its climate change disclosure rules. These disclosure obligations were established by the SEC’s “Enhancement and Standardization of Climate-Related Disclosures for Investors” Rule, adopted by the Commission on March 6, 2024.
According to the SEC’s current acting chair, Mark Uyeda, the disclosure requirements are “costly and unnecessarily intrusive.”
Disclosure Rule Background
The Disclosure Rule targeted material risks that companies face related to climate change and how those companies are managing that risk. The Disclosure Rule required companies to disclose certain climate-related information in their registration statements and annual reports including:
Climate-related risks that have or may impact business strategy, results of operation, or financial condition;
Actions to mitigate or adapt to material climate-related risks;
Management’s role in assessing and managing material climate-related risks;
Processes used by the company to assess or manage these risks;
Any targets or goals that have materially affected or are likely to affect the company’s business; and
Financial statement effects of severe weather events and other natural conditions, including costs and losses.
Following multiple petitions seeking review of the final Rule, the SEC stayed the Disclosure Rule pending judicial review before the Eight Circuit. In February, Uyeda provided some indication that its position was changing when he directed staff to notify the court not to schedule the case for argument to provide the Commission time to deliberate and determine appropriate next steps. The reason cited for the notice was “changed circumstances.” As such, the March 27 announcement is not all that surprising.
Impact of SEC Announcement
While the SEC has not officially repealed the Disclosure Rule, by no longer defending the Rule, the SEC will allow the stay to continue indefinitely and/or allow the Eighth Circuit to remand the rule to the SEC. This sequence of events indeed creates “changed circumstances,” as it means the SEC will likely take no further action to effectuate a new Rule. As a result, the March 27, 2025, announcement by the SEC effectively terminates the Disclosure Rule.
What Does this Development Mean for You?
While the SEC’s announcement means that public companies operating in the United States are not required to make publicly available disclosures concerning greenhouse gas emissions and climate-change risks and impacts, the impact of this action may be quite limited in reality. Many U.S. companies already report climate-related risks voluntarily in response to investor demand and this action has done nothing to change the requirements imposed by individual states like California or elsewhere around the globe. And, despite this limited reprieve, companies should consider potential changes to SEC rules under future administrations. While the “pendulum” of regulatory focus has swung wide under the Trump administration, there is a strong possibility that there will be a reciprocal swing in the future. As a result, companies should consider maintaining documentation of climate-related risks and management strategies should a similar rule be promulgated.
These events are developing rapidly and will continue to move at a fast pace.
Involved With a Delaware Corporation? Three Major Changes to Know
On March 25, 2025, Delaware Governor Matt Meyer signed Senate Bill 21 into law, effecting significant changes to the General Corporation Law of the State of Delaware (DGCL), the statutory law governing Delaware corporations. With over two-thirds of Fortune 500 companies domiciled in Delaware, it continues to be the preferred state of incorporation for businesses drawn to its modern statutory law, renowned Court of Chancery, and developed case law.
Consequently, below are three major takeaways for businesses incorporated in Delaware or individuals involved with a Delaware corporation—as a director, officer, or stockholder—here are three major takeaways:
1. Procedural Safe Harbor Cleansing Related Party Transactions
Under Delaware corporate law, related party transactions involving a fiduciary, such as where a director of a corporation stands on both sides of a transaction, are potentially subject to the entire fairness standard of review. This onerous standard of reviewing a fiduciary’s actions in certain conflicted transactions places the burden on the fiduciary to prove that the self-dealing transaction was fair—both in terms of the process (fair dealing) and substantive (fair price)—given corporate law theory that the fiduciary’s interests may not be aligned with maximizing stockholder value.
Senate Bill 21 establishes a safe harbor pursuant to Section 144 of DGCL for these conflicted transactions (other than take-private transactions) if the transaction is approved by either:
A majority of the disinterested members of the board or
A majority of the votes are cast by the disinterested stockholders—in each case, subject to certain additional requirements. Consequently, if transactional planners and corporations follow the new procedural safe harbor when entering certain related party transactions, they greatly minimize the likelihood of a successful challenge of any breach of fiduciary duty claim against the corporation’s board.
2. Limiting Who Qualifies as a Controlling Stockholder
Prior to the enactment of Senate Bill 21, whether a stockholder was a “controlling stockholder” and was therefore subject to certain rules under Delaware corporate law, was not set forth in DGCL. Rather, Delaware case law helped transactional planners to determine if a stockholder would be treated as such.
Senate Bill 21 codifies the definition of this term in Section 144 of DGCL. Under the revised Section 144, a “controlling stockholder” is a stockholder who:
Controls a majority in voting power of the outstanding stock entitled to vote generally in the election of directors;
Has the right to control the election of directors who control the board; or
Has the functional equivalent of majority control by possessing at least one-third in stockholder voting power and power to exercise managerial authority over the business of the corporation. This update provides transactional planners and corporations with clear guidelines over who qualifies as a controlling stockholder.
3. Narrowing Stockholder Information Rights
Over the past years, many Delaware corporations have been subject to an increasing number of “Section 220 demands” and related litigation that is often expensive for corporations to handle. Section 220 of DGCL provides stockholders with a statutory right to inspect a corporation’s books and records if the stockholder satisfies certain requirements.
Senate Bill 21 amends Section 220 of DGCL by narrowing what books and records of a corporation the stockholder is generally entitled to review after satisfying certain requirements. Specifically, the term “books and records,” as defined in Section 220 of DGCL, is now limited to certain organizational and financial documents of the corporation, including its annual financial statements for the preceding three years, board minutes, stockholder communication, and other formal corporate documents. Additionally, a stockholder’s demand must describe with “reasonable particularity” its purpose and requested books and records, and such books and records must be “specifically related” to the proper purpose.
In summary, Senate Bill 21’s amendments to DGCL give transactional planners and corporations additional clarity over cleansing conflicted transactions, who qualifies as a controlling stockholder, and the books and records a stockholder may access under Section 220.
SEC’s Approach to Artificial Intelligence Begins to Take Shape
On 27 March 2025, the US Securities and Exchange Commission (SEC) hosted a roundtable on Artificial Intelligence (AI) in the financial industry that was designed to solicit feedback on the risks, benefits and governance of AI.
The roundtable served, in part, to “reset” the SEC’s approach to AI after the prior administration’s highly-criticized attempt to regulate the use of predictive data analytics by broker-dealers and investment advisers. Acting Chair Uyeda emphasized the importance of fostering a “commonsense and reasoned approach to AI and its use in financial markets and services.”
The Roundtable discussion focused on a few common themes:
The Commissioners as well as many panel participants emphasized the need to take a technology-neutral approach to regulation and to avoid placing unnecessary barriers on the use of innovative technology.
While generative AI presents tremendous opportunities, there are various risks, including around fraud, market manipulation, authentication, privacy and data security, and cybersecurity. Many of the benefits of generative AI (e.g., the ability to access and synthesize enormous amounts of data and to hyper-personalize content) also make it an effective tool for fraud.
Governance and risk management of AI is critical and there are different approaches to managing and mitigating risk, including through data management, sensitivity analysis, bias testing, and keeping a “human in the loop” to validate the output of generative AI models.
Any control structure should be risk-based and should take into consideration the type of AI and the specific use cases. In particular, advisers should consider the risks of employing “black box” algorithms, where it’s not always clear how inputs are weighed or outputs derived.
This is the first public engagement regarding AI under the current administration and although the SEC is taking a deliberative approach, Commissioners Uyeda’s and Peirce’s statements suggest that the SEC will act if it sees gaps in current regulation or the need for guidance in this area.
The SEC Votes to “End its Defense” of Climate Change Rules
As previously reported, SEC Asks Court to Put Climate Change Litigation on Hold, the SEC had asked the court to suspend litigation in the U.S. Court of Appeals for the 8th Circuit challenging its new climate change disclosure rules. Last week, the Commission announced that it had voted to “end” its defense of the rules. It is unclear what its action will ultimately mean.
While it seems unlikely that the court will issue a ruling, it could simply dismiss the case once the Commission formally withdraws its rules. Once the new SEC Chairperson is confirmed, which should occur very shortly, he may in due course consider replacing the current climate change rules with a scaled-down version, or more detailed interpretive guidance for companies significantly impacted by climate change.
Climate disclosure rules in California remain on schedule, and other states such as New York are considering the adoption of similar rules, and of course the EU rules are also still on the books. Climate Reporting in 2025: Looking Ahead.
SEC’s Marketing Rule Updates May Provide Relief for Investment Managers
Go-To Guide
On March 19, 2025, the U.S. Securities and Exchange Commission issued new FAQs on “performance” under the Marketing Rule (Rule 206(4)-1) of the U.S. Investment Advisers Act.
Investment advisers can now present gross returns for individual investments if prescribed disclosure is included.
Certain investment characteristics (like Sharpe ratio, yield, and sector returns) can be presented on a gross basis alone.
Investment characteristics can be presented gross without net-of-fees measurements if clearly labeled and shown alongside total portfolio’s gross and net performance.
These changes allow more flexibility while maintaining transparency for investors.
Background
The SEC adopted the Marketing Rule in 2021 and in January 2023 adopted an FAQ requiring that gross performance of a private fund or subset of its investments be accompanied by the corresponding net-of-fees performance. Private fund managers in particular found it challenging to present a net-of-fees performance on individual investments because fees are typically charged at the fund level.
Updated Guidance
With the new FAQs, an adviser may display the performance of one investment or a group of investments (i.e., an “extracted performance” or an “extract”) on a gross-performance basis without including a corresponding “net” performance for the same time period if:
1.
the adviser makes it clear that the performance of the extract is gross performance;
2.
the extract is accompanied by a presentation by the adviser of the total portfolio’s gross and net performance;
3.
the gross and net performance of the total portfolio is presented with at least equal prominence to, and in a manner that facilitates comparison with, the extract; and
4.
The gross and net performance of the total portfolio is calculated over a period that includes the entire period for which the extract is calculated.
Put simply, the new guidance permits a return to common industry practice prior to the 2023 FAQ adoption.
Another challenge for investment advisers under the 2021 Marketing Rule has been handling so-called “investment characteristics,” such as yield, coupon rate, contribution to return, volatility, sector or geographic returns, attribution analysis, Sharpe ratio, the Sortino ratio, and so forth. Concern that these could be considered “performance” caused managers to attempt to create similar metrics net of fees and expenses. The new FAQs allow an adviser to present advertisements with one or more gross characteristics to demonstrate the performance of a portfolio or single investment, even if the characteristics do not include a corresponding net-of fees measurement, if:
1.
the gross characteristic is clearly identified as being calculated without the deduction of fees and expenses;
2.
the gross characteristic is accompanied by a presentation of the total portfolio’s gross and net performance;
3.
the gross and net performance of the total portfolio is presented with at least equal prominence to, and in a manner that facilitates comparison with, the gross characteristic; and
4.
the gross and net performance of the total portfolio is calculated over a period that includes the entire period for which the characteristic is calculated.
The other Marketing Rule FAQs remain unchanged by the March 19, 2025, action. This includes the FAQ explaining the staff’s view on calculating gross and net internal rate of return. These calculations must be done over the same time period and incorporate leverage, such as fund-level subscription facilities, in the same manner for both gross and net calculations.
Takeaways
The two new FAQs present investment advisers with flexibility and the ability to use gross performance in situations that were permitted prior to the 2023 marketing rule FAQ. Before using the new flexibility, however, investment advisers should review their marketing policies and procedures as well as their disclosure language to ensure the technical requirements of the new guidance are satisfied.
SEC Extends Compliance Dates for the ‘Names Rule’ Amendments
On March 14, 2025, the Securities and Exchange Commission (SEC) issued the following press release (Release) to extend compliance with the amendments (Amendments) to Rule 35d-1 (Names Rule) under the Investment Company Act of 1940, as amended. The Amendments (as described in our prior client advisory, SEC Adopts Amendments to ‘Names Rule’ Impacting Regulated Investment Funds) require funds to refrain from naming conventions that are likely to mislead investors, with a focus on ensuring that funds with names that suggest a particular investment focus adopt an investment policy that evidences at least 80 percent of the value of the fund’s assets will be invested in the industry, type of investment, or geographic region suggested by the fund’s name. The SEC originally bifurcated compliance dates with the Amendments between larger and smaller funds, with larger funds being required to comply by December 11, 2025, and smaller funds being required to comply by June 11, 2026. However, with this most recent Release, the SEC has extended both fund groups dates of compliance by six months, with larger funds now being required to comply with the Amendments by June 11, 2026, and smaller funds being required to comply with the Amendments by December 11, 2026.
In light of this recent extension, newly established and existing funds should be aware of the following:
Compliance with the Amendments for a newly established fund will be required upon the filing of its first registration statement on or following the new compliance dates (i.e., June 11, 2026 for larger funds and December 11, 2026 for smaller funds).
In an effort to minimize costs of compliance, existing funds’ compliance dates will align with the timing of certain annual disclosure documents depending on the specific type of fund.
Existing Open-End Funds: Compliance with the Amendments will be required on the date of filing of the first on-cycle annual prospectus update on or following the new compliance dates depending on the size of the fund.
Existing Closed-End Funds: Compliance with the Amendments will be required on the date of distribution of the first on-cycle annual report to shareholders on or following the new compliance dates depending on the size of the fund.
Existing Business Development Companies: Compliance with the Amendments will be required upon the filing of the first on-cycle Form 10-K annual report on or following the new compliance dates depending on the size of the company.
Overall Impressions
This Release follows in the wake of several key SEC departures, including Chair Gary Gensler and Commissioner Jaime Lizárraga, and coincides with other recent SEC deferrals, including delayed short-sale reporting rules and paused legal proceedings on Form N-PORT amendments, signaling the extension of prior rule compliance dates with the advent of a new administration.
The SEC’s entire press release is available here.
Important New Safe Harbors and Other Clarifying Changes to Delaware Corporate Law
The governor of the State of Delaware—consistent with his pledge to protect the “Delaware franchise”—recently signed into law amendments to Section 144 of the Delaware General Corporation Law (the DGCL) relating to certain acts or transactions involving directors, officers, controlling stockholders, and members of a control group, and Section 220 of the DGCL relating to stockholder demands for inspection of corporate books and records.
The amendments to Section 144 are intended to provide greater predictability and clarity to Delaware corporations considering acts or transactions that may implicate the fiduciary duties of directors, officers, controlling stockholders, and members of a control group. The amendments to Section 220 are intended to provide clarity and certain limits on stockholder inspection of books and records given the increasing growth in volume and scope of stockholder actions for inspection brought in the Delaware Court of Chancery.
Amendments to Section 144
The amendments to Section 144 provide safe harbor procedures for acts or transactions involving one or more directors, officers, controlling stockholders, and members of a control group that might, absent compliance with the safe harbor procedures, give rise to breach of fiduciary duty claims. The amendments to Section 144 also exculpate controlling stockholders and members of a control group from liability for duty of care violations.
The safe harbor provided by amended Section 144 is protection from equitable relief or an award of damages by reason of a claim based on a breach of fiduciary duty.
Safe Harbor for Acts or Transactions Solely Involving Directors or Officers
Acts and transactions involving one or more directors or officers or in which one or more directors or officers have an interest get the benefit of the safe harbor under amended Section 144(a) if:
The material facts as to the relationship or interest and the act or transaction are disclosed or known to all members of the board or a committee of the board and the act or transaction is authorized in good faith and without gross negligence by (i) the affirmative votes of a majority of the disinterested directors (see below) on the board (except where less than a majority of directors on the board are disinterested directors) or (ii) a majority of the disinterested directors on a committee (where less than a majority of the directors on the board are disinterested directors, the committee must consist of at least two disinterested directors), even though the disinterested directors constitute less than a quorum; or
The act or transaction is approved by an informed, uncoerced, affirmative vote of a majority of the votes cast by the disinterested stockholders (see below); or
The act or transaction is fair as to the corporation and its stockholders.
Safe Harbor for Acts or Transactions (Other Than Going Private Transactions)
Involving a Controlling Stockholder or Control Group. Acts or transactions between the corporation or one or more of the corporation’s subsidiaries on the one hand and a controlling stockholder (see below) or control group (see below) on the other hand and acts or transactions from which a controlling stockholder or control group receives a financial or other benefit not shared with the stockholders generally (each a Controlling Stockholder Transaction) get the benefit of the safe harbor under amended Section 144(b) if:
The material facts as to the Controlling Stockholder Transaction are disclosed or known to all members of a committee of the board (consisting of at least two disinterested directors) that has been expressly delegated by the board the authority to negotiate or oversee the negotiation of and reject the Controlling Stockholder Transaction and the Controlling Stockholder Transaction is approved or recommended for approval in good faith and without gross negligence by a majority of the disinterested directors then serving on the committee (Disinterested Committee Approval); or
The Controlling Stockholder Transaction is conditioned—by its terms (as in effect at the time it is submitted to stockholders for approval or ratification)—on approval or ratification by an informed, uncoerced, affirmative vote of a majority of the votes cast by the disinterested stockholders and such approval or ratification is obtained (Disinterested Stockholder Approval); or
The act or transaction is fair as to the corporation and its stockholders.
Safe Harbor for Going Private Transactions Involving a Controlling Stockholder or Control Group
A “going private transaction”—defined as a Rule 13e-3 transaction (for a corporation having a class of stock listed on a national securities exchange) or a Controlling Stockholder Transaction in which all of the capital stock held by disinterested stockholders is canceled, converted, purchased, or otherwise acquired or ceases to be outstanding (a Going Private Transaction)—gets the benefit of the safe harbor under amended Section 144(c) if:
The Going Private Transaction receives Disinterested Committee Approval and Disinterested Stockholder Approval; or
The act or transaction is fair as to the corporation and its stockholders.
Defining a “Controlling Stockholder,” “Control Group,” “Disinterested Director,” and “Disinterested Stockholder”
For purposes of applying the above safe harbor procedures, amended Section 144 defines the foregoing key terms as follows:
A “controlling stockholder” means a person that, together with affiliates and associates:
Owns or controls a majority in voting power of stock entitled to vote generally in the election of directors or in the election of directors having a majority in voting power of all directors; or
Has the right (by contract or otherwise) to cause the election of its nominees to the board and such nominees constitute a majority of all directors or a majority in voting power of all directors; or
Has the power functionally equivalent to that of a stockholder owning or controlling a majority in voting power of stock entitled to vote generally in the election of directors by virtue of ownership or control of at least 1/3 in voting power of stock entitled to vote generally in the election of directors or in the election of directors having a majority in voting power of all directors and power to exercise managerial authority over the corporation’s business and affairs.
A “control group” means two or more persons that are not controlling stockholders but by virtue of “an agreement, arrangement, or understanding” between or among them constitute a controlling stockholder.
A “disinterested director” means a director who is not party to the relevant act or transaction and does not have a material interest in, or a material relationship with a person that has a material interest in, the relevant act or transaction. Amended Section 144 also contains a rebuttable presumption as to the “disinterestedness” of directors satisfying the independence criteria of the national securities exchange (modified as provided in amended Section 144) on which a class of the corporation’s shares are listed.
A “disinterested stockholder” means a stockholder that does not have a material interest in the relevant act or transaction or a material relationship with either the relevant controlling stockholder or a member of the relevant control group or any other person with a material interest in the relevant act or transaction.
Defining a “Material Interest” and “Material Relationship”
Section 144 also defines the key terms “material interest” and “material relationship” as follows:
A “material interest” means an actual or potential benefit (including avoidance of a detriment), other than one devolving on the corporation or the stockholders generally, that (i) in the case of a director, would reasonably be expected to impair the objectivity of the director’s judgment when participating in the negotiation, approval, or authorization of the relevant act or transaction and, (ii) in the case of a stockholder or other person that is not a director or officer, would be material to the stockholder or other person.
A “material relationship” means a financial, employment, familial, professional, or other relationship that (i) in the case of a director, would reasonably be expected to impair the objectivity of the director’s judgment when participating in the negotiation, approval, or authorization of the relevant act or transaction and, (ii) in the case of a stockholder, would be material to such stockholder.
Amendments to Section 220
The amendments to Section 220 define the scope of books and records that a stockholder may demand to inspect and set forth conditions that must be satisfied for the stockholder to inspect a corporation’s books and records.
Scope of Books and Records That May Be Inspected by a Stockholder
Amended Section 220 generally defines the “books and records” of the corporation that a stockholder may inspect as the certificate of incorporation, bylaws, minutes of meetings (or consents in lieu of meetings) of stockholders (for the preceding three years) and the board or committees of the board, communications with stockholders generally (within the prior three years), materials provided to the board or committee in connection with action taken by the board or committee, annual financial statements (for the preceding three years), D&O questionnaires, and contracts made by the corporation with one or more current or prospective stockholders (or one or more beneficial owners of stock), in its or their capacity as such, entered into under Section 122(18) of the DGCL.
Where the corporation does not have any minutes or consents of stockholders (for the preceding three years) or the board or committee, annual financial statements (for the preceding three years), or, in the case of a corporation having a class of stock listed on a national securities exchange, D&O questionnaires, the Delaware Court of Chancery may order the corporation to produce the functional equivalent of these books and records if the stockholder has complied with the conditions to inspection set forth in Section 220(b) and only to the extent necessary and essential to fulfill the stockholder’s proper purpose.
In addition, the Delaware Court of Chancery may order the production of other specific records if and to the extent (i) the stockholder has complied with the conditions to inspection set forth in Section 220(b), (ii) the stockholder has demonstrated a compelling need for the inspection of the records to further such stockholder’s proper purpose, and (iii) the stockholder has demonstrated by clear and convincing evidence that the specific records are necessary and essential to further the proper purpose.
Conditions to Stockholder Inspection
Amended Section 220(b) requires a stockholder demanding inspection of the corporation’s books and records to:
Make its demand in good faith and for a proper purpose (e.g., a purpose reasonably related to the stockholder’s interest as a stockholder); and
Describe with reasonable particularity in its demand for inspection the stockholder’s proper purpose and the books and records sought to be inspected (which books and records must be specifically related to the stockholder’s proper purpose).
Amended Section 220(b) expressly permits the corporation to:
Impose reasonable restrictions on the confidentiality, distribution, and use of the books and records inspected;
Require that the stockholder agree to incorporate information contained in the books and records inspected by the stockholder by reference in any compliant filed by or at the direction of such stockholder relating to the subject matter of demand; and
Redact portions of the books and records not specifically related to the stockholder’s purpose.
Effective Date of the Amendments
The amendments to Section 144 and Section 220 became effective upon signature by the governor on 25 March 2025 and apply to acts and transactions occurring before, on, or after such date, except for actions or proceedings that are completed or pending, or any demands for inspection made, on or before 17 February 2025.
SEC Shows Leniency on Filing Deadline in Granting Whistleblower Award
On March 24, the U.S. Securities and Exchange Commission (SEC) granted a whistleblower award to an individual who voluntarily provided original information which led to four successful enforcement actions, despite the fact the whistleblower missed the award claim filing deadline for two of the actions.
Through the SEC Whistleblower Program, qualified whistleblowers are eligible to receive monetary awards of 10-30% of the sanctions collected in connection with their disclosure when their information contributes to an enforcement action where the SEC is set to collect at least $1 million. Based on the current collections, the whistleblower was only awarded $4,000 at this time.
According to the award order, the whistleblower “alerted the Commission to the misconduct which prompted the opening of the investigation and then provided ongoing assistance.”
To receive a whistleblower award, an individual must submit a completed Form WB-APP to the Office of the Whistleblower within 90 days of the posting of a Notice of Covered Action for the relevant enforcement action.
According to the SEC, the whistleblower submitted their award claim for one covered action 1 approximately three weeks after the filing deadline submitted their award claim for the second covered action one day after the filing deadline.
However, the SEC decided to exercise its general exemptive authority under Section 36(a) of the Exchange Act to waive the filing deadline. Section 36(a) provides the Commission with broad authority to exempt any person from a rule or regulation if such an exemption is “necessary or appropriate in the public interest” and “consistent with the protection of investors.”
“Specifically, for Covered Action 1, we find that the following facts warrant the exercise of our Section 36(a) discretionary authority to waive the 90-day deadline for filing award applications: (1) Claimant was on active military duty during the 90-day window for filing claims; (2) the circumstances of the Claimant’s military assignment limited his/her ability to effectively communicate with his/her counsel; (3) Claimant made reasonable efforts to submit an award application once he/she resumed normal communications; (4) Claimant would be otherwise meritorious; and (5) the Commission has not already issued a final order adjudicating claims in Covered Action 1.”
“We also believe that the exercise of our discretionary authority under Section 36(a) to waive the 90-day filing deadline with respect to Covered Action 2 is warranted under the unique facts and circumstances. Specifically, the record supports the conclusion that Claimant’s counsel attempted to fax the award application to OWB on the filing deadline calendar date, but that the fax failed to go through because of apparent technical issues with the Commission’s ability to receive faxes beyond a certain size. We further note that Claimant’s counsel promptly contacted the OWB regarding the failed attempt to fax the application and succeeded in filing the application the next calendar day.”
The SEC does warn, however, that they “do not expect to routinely exercise such exemptive authority to waive the requirements under Rules 21F-10(a) and (b) to timely file an award application. The filing deadline serves important programmatic interests and will be typically enforced absent the unique facts and circumstances presented here.”
Established in 2010 with the passage of the Dodd-Frank Act, the SEC Whistleblower Program has now awarded a total of more than $2.2 billion to 444 individuals.
In FY 2024, the SEC Whistleblower Program received a record 24,980 whistleblower tips and awarded over $255 million, the third highest annual amount. According to SEC Office of the Whistleblower’s annual report, the most common fraud areas reported by whistleblowers in FY 2024 were Manipulation (37%), Offering Fraud (21%), Initial Coin Offerings and Crypto Asset Securities (8%), and Corporate Disclosures and Financials (8%).
Whistleblowers looking to blow the whistle on securities fraud may do so anonymously, but must be represented by a whistleblower attorney.
“Whistleblowers play a valuable role in helping to protect the U.S. financial markets by bringing the Commission information about potential securities law violations,” Creola Kelly, Chief of the SEC Office of the Whistleblower, said in the office’s 2024 annual report.
Geoff Schweller also contributed to this article.