Gibson Dunn

Hart Energy (subscription required) reported on comments made by partner James Hays at the publication’s 2026 Energy Capital Conference. James said secondary funds that raise capital from retail investors are steadily growing larger. Bigger funds are “able to do much larger transactions.”

“And, you have a single lead investor that’s able to stand behind the entirety of the transaction,” James said.

From the Derivatives Practice Group: This week, the CFTC rescinded a policy stating that it will not accept settlement offers where the defendant continues to deny the allegations in the complaint or administrative order.

New Developments

CFTC Rescinds Policy Regarding Denials of Settlements in Enforcement Actions. On June 3, the CFTC rescinded a policy, codified in Appendix A to Part 10, stating that it will not accept settlement offers where the defendant continues to deny the allegations in the complaint or administrative order. According to the CFTC, rescinding this policy aligns the Commission with the overwhelming majority of federal agencies and gives the Commission more flexibility in settling enforcement actions, which conserves resources, provides certainty, and potentially expedites the return of money to injured investors. [NEW]

CFTC Staff Issues No-Action Position Related to Designated Contract Market Procedures. On June 3, the CFTC’s Division of Market Oversight announced it has issued a no-action letter to Cboe Digital Exchange, LLC, a designated contract market, which addresses certain procedures related to dormancy. The no-action position is time-limited and subject to the terms and conditions in the letter. [NEW]

CFTC Implements Technical Enhancements to Streamline Product Self-Certification Process. On June 1, the CFTC announced the launch of enhancements to its electronic filing system for product self-certifications. According to the CFTC, Exchanges are now able to submit a single set of product certification documents applicable to multiple closely related contract certifications in one consolidated submission. Updated submission instructions regarding this new functionality are available here. [NEW]

CFTC Chairman Selig Announces Dr. Patrick J. Schorno as Chief Economist. On June 1, CFTC Chairman Michael S. Selig announced that Dr. Patrick J. Schorno has been named the agency’s chief economist to serve as economic adviser to the Commission and integrate rigorous economic analysis, regulatory cost-benefit analysis, and research into the CFTC’s mission. Dr. Schorno joins the CFTC from the Public Company Accounting Oversight Board where he served as the deputy chief economist. [NEW]

CFTC Issues Policy Statement Concerning the Listing of Perpetual Contracts. On May 29, the CFTC issued a policy statement describing the views of the Commission concerning the listing of perpetual contracts. This policy statement was issued contemporaneously with an order permitting the listing of a perpetual contract, which references the spot price of bitcoin, by a DCM as a futures contract.

Commission Staff Confirms the Categorization of Certain Crypto Asset Perpetuals as Foreign Futures and Issues No-Action Letter Regarding FCM Transfers of Customer Crypto Assets to Foreign Brokers as Margin. On May 29, the CFTC’s Market Participants Division announced it has issued an interpretation and a no-action position in response to a request from Coinbase Financial Markets, Inc., a registered futures commission merchant. The positions relate to CFM’s plan to offer certain digital commodity derivatives products listed on CFM’s affiliated foreign board of trade, Deribit FZE.

CFTC Approves BTCPERP Contract Submitted by KalshiEX, LLC. On May 29, the CFTC announced it has issued an Order for Approval to KalshiEX, LLC, a designated contract market, for the listing of the BTCPERP Contract, a perpetual contract that references the spot price of bitcoin, as a futures contract. Kalshi submitted the BTCPERP Contract pursuant to Commission Regulation 40.3 for Commission review and approval on May 29, 2026.

CFTC Staff Issues Advisory on 24/7 Trading, Clearing, and Settlement. On May 29, the CFTC’s Division of Clearing and Risk, Division of Market Oversight, and Market Participants Division issued a staff advisory regarding 24/7 trading, clearing, and settlement. According to the CFTC, the divisions seek to encourage responsible innovation in these markets while reminding designated contract markets, swap execution facilities, derivatives clearing organizations, and futures commission merchants of their regulatory obligations pursuant to the Commodity Exchange Act and Commission regulations thereunder.

CFTC Sues to Block State Enforcement in Rhode Island Amid Ongoing Efforts to Preserve Jurisdiction. On May 28, the CFTC moved to intervene in a lawsuit in the U.S. District Court for the District of Rhode Island to halt the state’s efforts to apply state gambling laws against CFTC-registered contract markets. In response to a complaint filed by a CFTC-registered designated contract market threatened with impending unlawful enforcement by the state, Rhode Island filed a complaint of its own in a parallel state case seeking significant civil penalties.

CFTC Joins Gemini Trust Company LLC in Motion for Relief from Judgment. On May 27, the CFTC announced it has joined Gemini Trust Company LLC in a motion for relief from judgment in CFTC v. Gemini Trust Company LLC, originally filed in the U.S. District Court for the Southern District of New York in June 2022. The parties entered into a consent order in January 2025.

CFTC and National Hockey League Sign MOU Related to Integrity in Professional Hockey. On May 21, the CFTC and the National Hockey League (NHL) announced their signing of a Memorandum of Understanding (MOU) intended to protect the integrity of professional hockey and maintain fair and transparent prediction markets. According to the CFTC, under the terms of the MOU, the CFTC and NHL have solidified their intent to share information and coordinate to protect the integrity of both professional hockey and related event contracts offered on CFTC-regulated exchanges.

New Developments Outside the U.S.

ESAs Publish the First Report on DORA Major ICT-related Incidents. On June 3, the European Supervisory Authorities (ESAs) published their first annual overview of major information and community technology (ICT) incidents in the EU financial sector based on a reporting mechanism established by the Digital Operational Resilience Act (DORA). ESMA said that the report shows that ICT risks are increasingly borderless and interconnected. The ESAs also noted that the recent evolution of highly capable AI-driven tools should encourage financial entities to strengthen cybersecurity measures going forward. [NEW]

GMTF Presents its Findings on EU Gas and Gas Derivative Markets. On June 2, the Gas Market Task Force (GMTF) published a report on the functioning of EU gas and gas derivatives markets. ESMA said that the report suggests further work in several areas to ensure that European gas and gas derivatives markets continue performing as expected and to the benefit of European competitiveness and consumers. [NEW]

ESMA’s Annual Data Report Shows Increased Quality, Wider Use, and Digital Progress. On May 29, ESMA published its annual report on the quality and use of regulatory data. According to ESMA, the report shows that improvements in data quality and data use reinforce each other in a virtuous cycle, and supports more effective supervision and market monitoring across the EU.

ESMA Consults on Revised Guidelines to Support Smoother Allocations and Confirmations under T+1. On May 26, ESMA launched a consultation on the updated guidelines on standardized procedures and messaging protocols. According to ESMA, this review is part of ESMA’s work to support market participants in preparing for the transition to a T+1 settlement cycle.

ESMA Publishes Shortlist of Candidates for Position of Chair. On May 20, ESMA published the shortlist of candidates for the position of Chair: Karen Dortea and Abelskov Carlo Comporti. ESMA has sent the shortlist to the Council of the European Union and the European Parliament. The Council will appoint the Chair following confirmation by the Parliament.

New Industry-Led Developments

ISDA and the Credit Derivatives Governance Committee Select S&P Global as DC Administrator. On June 4, ISDA and the Credit Derivatives Governance Committee announced that S&P Global Market Intelligence has been selected as the administrator for the Credit Derivatives Determinations Committees (DCs). According to ISDA, the DCs were introduced in 2009 as a centralized decision-making body to enable a standardized auction settlement process and ensure central clearing could be implemented for credit derivatives. [NEW]

ISDA, GDF Respond to the Central Bank of Ireland on DLT and Tokenization. On June 3, ISDA and Global Digital Finance responded to the Central Bank of Ireland’s discussion paper on distributed ledger technology (DLT) and tokenization in financial services. ISDA said the response focused on the potential role of DLT and tokenization within wholesale markets, including their use in collateral and liquidity management, and that the paper also emphasized that any regulatory framework for DLT and tokenization should be assessed through the lens of prudent risk management, with particular attention to liquidity, credit risk, operational resilience and legal certainty. [NEW]

IOSCO Publishes Final Report on Valuing Collective Investment Schemes. On June 1, IOSCO published its Final Report on Valuing Collective Investment Schemes (CIS). According to IOSCO, the paper sets out a comprehensive and updated set of recommendations to further enhance the reliability, consistency, and transparency of valuation practices across global investment funds and updates and consolidates IOSCO’s earlier principles on valuation for collective investment schemes and hedge funds. [NEW]

ISDA, AFME Respond to Dutch Ministry of Finance Consultation on Dividend Stripping. On May 28, ISDA and the Association for Financial Markets in Europe (AFME) responded to the Dutch Ministry of Finance’s consultation on additional anti-dividend stripping measures. ISDA said the associations argued that some proposed measures would add uncertainty, duplicate existing protections, and risk harming liquidity and efficiency in the Dutch equity market. [NEW]

ISDA Letter to EC and ESMA on Technical Issues with Revised Derivatives Transparency Framework. On May 27, ISDA sent a letter to the European Commission and ESMA to highlight several technical issues arising from the interaction between the delegated regulation 2025/1003 on identifying reference data to be used for over-the-counter derivatives for the purposes of public transparency and the draft regulatory technical standards for derivatives transparency (RTS 2) and from areas of the draft RTS 2 that lack clarity.

IOSCO Publishes AI Supervisory Toolkit. On May 25, IOSCO published a Supervisory Toolkit for AI Use in Capital Markets. IOSCO stated that this report provides regulators with a practical toolkit to support the supervision and oversight of AI based systems used by regulated entities.

ISDA, GFXD Respond to ASIC on Proposed Changes to Derivative Transaction Rules. On May 22, ISDA and the Global Foreign Exchange Division (GFXD) of the Global Financial Markets Association submitted a joint response to the Australian Securities and Investments Commission’s (ASIC) consultation on proposed changes to the ASIC Derivative Transaction Rules 2024.

IOSCO Publishes Reports on Market Liquidity for Equity Markets and on Extended Trading Hours for Equity Venues. On May 21, IOSCO published its Consultation Report regarding Regulatory Considerations and Good Practices on the Evolution of Market Liquidity during the Trading Day and its Report on Extended Trading Hours.

ISDA, FIA and SIFMA Submit Joint Letter on Sunset of Swaps LTR Rules. On May 20, ISDA, the Futures Industry Association (FIA), and the Securities Industry and Financial Markets Association (SIFMA) submitted a joint letter to the CFTC to request the CFTC to sunset large trader reporting rules (LTR) rules for physical commodity swaps pursuant to Regulation 20.9.

The following Gibson Dunn attorneys assisted in preparing this update: Jeffrey Steiner, Adam Lapidus, Karin Thrasher, and Alice Wang.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Derivatives practice group, or the following practice leaders and authors:

Jeffrey L. Steiner, Washington, D.C. (202.887.3632, jsteiner@gibsondunn.com)

Michael D. Bopp, Washington, D.C. (202.955.8256, mbopp@gibsondunn.com)

Michelle M. Kirschner, London (+44 (0)20 7071.4212, mkirschner@gibsondunn.com)

Darius Mehraban, New York (212.351.2428, dmehraban@gibsondunn.com)

Jason J. Cabral, New York (212.351.6267, jcabral@gibsondunn.com)

Adam Lapidus, New York (212.351.3869, alapidus@gibsondunn.com )

Stephanie L. Brooker, Washington, D.C. (202.887.3502, sbrooker@gibsondunn.com)

William R. Hallatt, Hong Kong (+852 2214 3836, whallatt@gibsondunn.com )

David P. Burns, Washington, D.C. (202.887.3786, dburns@gibsondunn.com)

Marc Aaron Takagaki, New York (212.351.4028, mtakagaki@gibsondunn.com )

Karin Thrasher, Washington, D.C. (202.887.3712, kthrasher@gibsondunn.com)

Alice Yiqian Wang, Washington, D.C. (202.777.9587, awang@gibsondunn.com)

Attorney Advertising: These materials were prepared for general informational purposes only based on information available at the time of publication and are not intended as, do not constitute, and should not be relied upon as, legal advice or a legal opinion on any specific facts or circumstances. Gibson Dunn (and its affiliates, attorneys, and employees) shall not have any liability in connection with any use of these materials. The sharing of these materials does not establish an attorney-client relationship with the recipient and should not be relied upon as an alternative for advice from qualified counsel. Please note that facts and circumstances may vary, and prior results do not guarantee a similar outcome.

Sripetch v. Securities and Exchange Commission, No. 25-466 – Decided June 4, 2026

Today, the Supreme Court unanimously held that the SEC may obtain an order directing a defendant to disgorge ill-gotten gains to investors without proving that investors suffered pecuniary harm.

“Whatever else traditional equitable principles demand, they do not require a showing of pecuniary loss before a court may issue an award of unjust profits.”

Justice Gorsuch, writing for the Court

Background:

The Securities and Exchange Commission (SEC) brought a civil enforcement action against Petitioner Ongkaruck Sripetch for securities-law violations arising from schemes involving penny-stock companies. The SEC alleged that Sripetch and his associates obtained shares, promoted the companies without disclosing their roles or planned stock sales, engaged in manipulative-matched trading, and obtained millions of dollars in proceeds from the schemes. Sripetch ultimately entered into a consent judgment on liability. The SEC then sought approximately $4 million in disgorgement to the investors involved in Sripetch’s schemes. The district court awarded the disgorgement over Sripetch’s objection.

The Ninth Circuit affirmed the disgorgement order. The court held that the SEC is not required to show pecuniary loss to investors as a precondition to a court ordering disgorgement. In doing so, the Ninth Circuit joined the First Circuit and disagreed with the Second Circuit, which had required such a showing.

Issue:

Whether the SEC must show that an investor suffered a pecuniary loss before it may secure a disgorgement remedy under either 15 U.S.C. §78u(d)(5) or 15 U.S.C. §78u(d)(7).

Court’s Holding:

No. The SEC need not prove investor pecuniary harm to obtain disgorgement of a defendant’s net profits or unjust enrichment in a civil enforcement action, because equitable remedies have long permitted stripping wrongdoers of ill-gotten gains without a showing of pecuniary loss to victims.

What It Means:

The decision preserves one of the SEC’s most powerful monetary remedies. The SEC may continue to seek disgorgement tied to a defendant’s net profits even where identifying individual investors or quantifying their losses would be difficult.
The Court’s ruling limits defendants’ ability to resist disgorgement by arguing that the SEC must prove the same type of economic loss required in private securities-fraud suits. The focus remains on whether the defendant received unjust enrichment as a result of the securities-law violation and whether the disgorgement award is properly limited to that enrichment.
Because the Court only assumed without deciding that disgorgement under Section 78u(d)(7) is an equitable remedy, defendants can still challenge SEC disgorgement requests seeking to provide the funds to the U.S. Treasury, instead of to investors, on the grounds that they constitute a penalty that implicates Seventh Amendment jury-trial concerns—a concern highlighted in Justice Thomas’s concurrence.

The Court’s opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact the following practice group leaders:

Appellate and Constitutional Law

Thomas H. Dupree Jr. +1 202.955.8547 tdupree@gibsondunn.com	Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com	Julian W. Poon +1 213.229.7758 jpoon@gibsondunn.com	Jeffrey B. Wall +1 202.955.8533 jwall@gibsondunn.com
Lucas C. Townsend +1 202.887.3731 ltownsend@gibsondunn.com	Bradley J. Hamburger +1 213.229.7658 bhamburger@gibsondunn.com	Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com

Related Practice: Securities Enforcement

Mark K. Schonfeld
+1 212.351.2433
mschonfeld@gibsondunn.com

This alert was prepared by Salah Hawkins, Benjamin Rice, and Rebecca Roman.

Hikma Pharmaceuticals USA Inc. v. Amarin Pharma, Inc., No. 24-889 –
Decided June 4, 2026

The Supreme Court unanimously held today that a pharmaceutical company failed to plausibly allege that a generic manufacturer had actively induced patent infringement, rejecting the argument that active inducement may be shown based on neutral statements that may be understood as instructions to infringe.

“[T]he key question is whether a defendant actively encouraged infringement through its statements, not merely how others may understand those statements.”

Justice Jackson, writing for the Court

Background:

Patents often protect some but not all of a drug’s uses rather than the entire drug. Under the Hatch-Waxman Act, generic drug manufacturers may obtain approval to sell such drugs only for their unpatented uses (in what is often called “skinny” labeling). The generic manufacturers are not liable if third parties use their generic drugs off-label for patented indications unless the manufacturers “actively induc[e]” the third parties to do so. 35 U.S.C. § 271(b).

Amarin Pharma holds patents that protect some uses of icosapent ethyl, which Amarin sells under the brand name Vascepa. Generic manufacturer Hikma Pharmaceuticals obtained approval to sell icosapent ethyl for unpatented uses under a “skinny” label. Amarin sued, claiming that Hikma had actively induced third parties to infringe Amarin’s patents by prescribing Hikma’s generic version of icosapent ethyl for patented uses. The district court granted Hikma’s motion to dismiss, ruling that Amarin had not plausibly alleged that Hikma actively encouraged third parties to infringe Amarin’s patents. But the Federal Circuit reversed, emphasizing that Hikma’s skinny label did not expressly disclaim using the drug for patented uses; that Hikma publicly described its drug as “generic Vascepa”; and that Hikma’s marketing materials touted the total sales of Vascepa, the vast majority of which derive from patented uses.

The Supreme Court granted certiorari to resolve whether a plaintiff can plausibly plead active inducement of patent infringement where a drugmaker “calls its product a ‘generic version’” and “cites public information about the branded drug” but does not expressly “encourag[e], or even mentio[n], the patented use.”

Issue:

Whether a company plausibly alleges that a generic drug manufacturer actively induced patent infringement without expressly mentioning or encouraging the patented use.

Court’s Holding:

Generally no: Although active inducement may be implicit as well as explicit, a party claiming active inducement must plausibly allege that the defendant took clear, affirmative steps to encourage infringement, not merely that the defendant’s statements plausibly could be understood that way.

What It Means:

The Court’s opinion emphasizes that active inducement of patent infringement, at the motion-to-dismiss stage, requires allegations that the defendant took affirmative steps to encourage others to infringe the patent.
Although the Court cautioned that active inducement need not be express, “the necessary inducement must be ‘clear’ to the relevant audience and ‘affirmative.’” Knowledge that others will employ a product for infringing uses, omissions or inaction, and suggestive statements that are merely consistent with inducing infringement do not suffice.
In directing dismissal of the complaint, the Court underscored that the “well-established federal pleading standards” from Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), were enough to resolve the case. The Court’s opinion provides a helpful datapoint for litigation on Rule 12(b)(6) motions to dismiss, illustrating how Twombly and Iqbal should be applied and reinforcing that allegations must nudge the complaint across the line from possible to plausible.
The Court also reiterated recent decisions, including Twitter, Inc. v. Taamneh, 598 U.S. 471 (2023), in which it has cautioned that ordinary business activities should not lightly give rise to legal liability. Here, for instance, the Court emphasized that patent law should avoid “trenching on regular commerce” and afford generic manufacturers “breathing room” when they comply with skinny-labeling laws and undertake “‘ordinary acts incident to product distribution.’”
The Court’s opinion illustrates that, both in active-inducement patent-infringement cases and more broadly, motion-to-dismiss analysis is highly fact-specific and requires close attention to all the allegations and the broader context.

The Court’s opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact the following practice group leaders:

Appellate and Constitutional Law

Thomas H. Dupree Jr. +1 202.955.8547 tdupree@gibsondunn.com	Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com	Julian W. Poon +1 213.229.7758 jpoon@gibsondunn.com	Jeffrey B. Wall +1 202.955.8533 jwall@gibsondunn.com
Lucas C. Townsend +1 202.887.3731 ltownsend@gibsondunn.com	Bradley J. Hamburger +1 213.229.7658 bhamburger@gibsondunn.com	Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com

Related Practice: Intellectual Property

Kate Dominguez +1 212.351.2338 kdominguez@gibsondunn.com	Josh Krevitt +1 212.351.2490 jkrevitt@gibsondunn.com	Jane M. Love, Ph.D. +1 212.351.3922 jlove@gibsondunn.com	Robert W. Trenchard +1 212.351.3942 rtrenchard@gibsondunn.com
Charlotte Jacobsen +1 212.351.3961 cjacobsen@gibsondunn.com

This alert was prepared by Matt Aidan Getz, Aaron Gyde, and Noah Delwiche.

Writing for The Texas Lawbook, partner Brad Hubbard and Ben Barnes, with contributions from associates Jack DiSorbo and Jed Greenberg, discuss a recent challenge to the constitutionality of the Texas Business Court. They recount the legal history underlying statutory courts like the Business Court, and explain that the “constitutional arguments overlook Texas’s long history of creating statutory courts with special powers, and the Legislature’s broad authority to create them.” They then analyze each of the specific arguments against the court, concluding that “if the question ever reaches the Texas Supreme Court, it’s highly unlikely that we’ll see a departure from the Court’s century-long line of decisions consistently blessing the constitutionality of statutory courts just like this one.”

Gibson Dunn continues to be a leading firm on representing clients in the newly created Business Court and Fifteenth Court of Appeals, and on publishing legal analysis and commentary on developing issues in this field.

The article was published in The Texas Lawbook on June 4, 2026.

Gibson Dunn has announced two new leadership appointments within the firm’s globally recognized Antitrust and Competition Practice Group.

Attila Borsos will serve as Head of Cross-Border Merger Control and Foreign Investment. In this role, Attila will help lead and further expand the firm’s global capabilities advising clients on complex multijurisdictional merger reviews, foreign investment screening, and related regulatory matters. Steve Weissman, Gibson Dunn partner and former Deputy Director for the U.S. Federal Trade Commission’s Bureau of Competition, said: “Attila’s deep experience, strategic judgment, and longstanding work with clients and colleagues across offices make him exceptionally well suited for this position.” Attila is based in Gibson Dunn’s Brussels office.

Additionally, Jeremy Robison will serve as Head of Antitrust Investigations, a practice recognized as Band 1 by Chambers for 17 consecutive years with a global reach spanning clients across the Americas, Europe, and Asia. Kristen Limarzi, Global Co-Chair of the firm’s Antitrust and Competition Practice, said: “Jeremy has built an outstanding reputation representing clients in high-stakes antitrust investigations and enforcement matters, and he will play a key role in continuing to strengthen our practice in this rapidly evolving area.” Jeremy is based in Gibson Dunn’s Washington, D.C. office.

Gibson Dunn is a leading antitrust firm globally, serving clients across a broad array of industries with world-class practitioners in every significant area of antitrust and competition law. The practice encompasses high-stakes litigation against government agencies and private parties, securing regulatory clearance for complex transactions, defending against large-scale global government investigations, and providing general compliance counseling.

The New York Law Journal [PDF] has reported on a “potentially game-changing” immigration habeas decision won by a Gibson Dunn pro bono team in Manhattan federal court where local police officers’ misconduct towards a migrant was found to be so unlawful that his later custodian, U.S. Immigration and Customs Enforcement (ICE), had to immediately release him.

Attorneys representing Olvin Castillo Chaver, who was arrested on February 13, 2026, during a traffic stop after police found a yellow pill they asserted was cocaine, “believe the decision marks the first time that any federal court has forced ICE to release an immigration detainee over Fourth Amendment violations committed by local police—and they think the order provides a roadmap for advocates who represent people who lack any means under the Immigration and Nationality Act to challenge their detention, and must instead rely on the U.S. Constitution.”

After the arrest, ICE reinstated a prior removal order against Castillo Chaver, who came to the U.S. unlawfully when he was 11. During an April 16 hearing, Gibson Dunn partner David Salant argued that the arrest was unlawful in a number of ways — that no one would have mistaken the yellow pill for cocaine and that, even if the pill was enough to support an arrest, the officers couldn’t have stopped Castillo Chaver for a pill they couldn’t see from outside his car — and was pretextual. Pointing to a phone call that the Nassau County Police Department made to ICE an hour before the arrest, David argued that local authorities made a determination about Castillo Chaver’s ability to stay in the U.S., advised ICE, and then made sure to encounter and arrest Castillo Chaver later.

David argued that this represented “a seriously violative Fourth Amendment stop and arrest” and that “the illegal arrest by local police infected ICE’s subsequent detention.”

David told the publication that ICE’s removal order forced the team to develop a new legal strategy. “He was detained under Section 1231 of the INA, which is this very harsh provision that calls for mandatory detention … and gives [Department of Homeland Security] and ICE extensive authority to detain,” David said. “It was exciting … to offer up a novel legal theory. It was also totally nerve-wracking. We were transparent to the court about that.”

The Gibson Dunn team, led by partner David Salant and including associates Beshoy Shokralla and Stephanie Chen, worked on the case with LatinoJustice, Make the Road NY, and the Robert & Ethel Kennedy Human Rights Center.

Washington, D.C. partners Sanford Stark, Saul Mezei, and Terrell Ussing and of counsel Brad McCormack have authored the USA chapter of the Chambers Tax Controversy 2026 Global Practice Guide, which addresses a range of tax controversy issues and trends.

In its 2026 edition, Chambers USA awarded Gibson Dunn 146 top-tier rankings, of which 49 are for practice areas and 97 are for individual lawyers.

Overall, the firm earned 456 rankings — 127 practice group rankings and 329 individual lawyer rankings.

Gibson Dunn earned top-tier rankings in the following practice areas:

Antitrust	California
Insurance: Insurer	California
Labor & Employment: The Elite	California
Litigation: Appellate	California
Litigation: General Commercial: The Elite	California
Litigation: Securities	California
Litigation: White-Collar Crime & Government Investigations	California
Media & Entertainment: Litigation	California
Outsourcing	California
Real Estate: Zoning/Land Use	California
Real Estate	California: Northern
Real Estate	California: Southern
Tax	California: Southern
Litigation: White-Collar Crime & Government Investigations	Colorado
Antitrust	District of Columbia
Corporate/M&A & Private Equity	District of Columbia
Labor & Employment	District of Columbia
Litigation: General Commercial: The Elite	District of Columbia
Litigation: Securities	District of Columbia
Litigation: White-Collar Crime & Government Investigations	District of Columbia
Accountant and Auditor Liability	Nationwide
Antitrust	Nationwide
Antitrust: Cartel	Nationwide
Appellate Law	Nationwide
Artificial Intelligence	Nationwide
Corporate Crime & Investigations: The Elite	Nationwide
Corporate Governance	Nationwide
Energy: Oil & Gas (Transactional)	Nationwide
False Claims Act	Nationwide
FCPA	Nationwide
Intellectual Property	Nationwide
Intellectual Property: Trade Secrets	Nationwide
Law Firm Defense	Nationwide
Litigation: General Commercial: The Elite	Nationwide
Outsourcing	Nationwide
Privacy & Data Security: Litigation	Nationwide
Product Liability & Mass Torts: Highly Regarded	Nationwide
Products Liability: Toxic Torts	Nationwide
Projects: PPP	Nationwide
Real Estate	Nationwide
Securities: Litigation	Nationwide
Securities: Regulation: Advisory	Nationwide
Intellectual Property: Patent	New York
Litigation: General Commercial: The Elite	New York
Litigation: White-Collar Crime & Government Investigations: The Elite	New York
Real Estate: Mainly Corporate & Finance	New York
Real Estate: Mainly Dirt	New York
Outsourcing	New York
Litigation: General Commercial	Texas (Dallas, Fort Worth & Surrounds)

The following partners achieved top-tier rankings:

Chair and Managing Partner Barbara Becker

Aaron Beim

Allyson Ho

Amy Forbes

Anita Girdhari

Barry Berke

Brian Lane

Brian Lutz

Collin Cox

Cromwell Montgomery

Dani James

Daniel Swanson

Debra Wong Yang

Dennis Arnold

Douglass Rayburn

Elizabeth Ising

Eric Feuerstein

Eric Sloan

Eric Stock

Eugene Scalia

George Stamas

Greg Kerwin

Helgi Walker

Hillary Holmes

James Farrell

Jason Mendro

Jason Schwartz

Jeff Wall

Jeffrey Chapman

Jeffrey Krause

Jeffrey Steiner

Jesse Sharf

Jessica Brown

Joe Warin

Jonathan K. Layne

Jonathan Phillips

Joseph West

Josh Krevitt

Kevin Rosen

Khalil Yearwood

Krista Hanvey

Lauren Giovannone

Lori Zyskowski

Mary Murphy

Michael Bopp

Michael Darden

Michael Weinberger

Nicola Hanna

Noam Haberman

Orin Snyder

Patrick Dennis

Patrick Stokes

Rachel Brass

Rachel Kleinberg

Rahim Moloo

Raymond Ludwiszewski

Robert Blume

Robyn Zolman

Ronald Mueller

Ryan Bergsieker

Ryan Murr

Scott Greenberg

Scott Hammond

Sean Feller

Stephen Fackler

Stephen Glover

Stephen Nordahl

Stephen Weissman

Steven Klein

Ted Boutrous Jr.

Theane Evangelis

Thomas Dupree Jr.

Thomas Kim

Tomer Pinkusiewicz

Trey Cox

Vivek Mohan

William Peters

The Circular follows the SFC’s review of account opening practices at 12 licensed securities brokers, highlighting key deficiencies identified in the Review and setting out the SFC’s expected standards, particularly in relation to the opening and managing accounts of Chinese Mainland investors.

On 22 May 2026, the Securities and Futures Commission of Hong Kong (the SFC) issued a circular to licensed corporations outlining its expected controls for account opening and the maintenance of client relationships (the Circular).[1] The Circular follows the SFC’s review of account opening practices at 12 licensed securities brokers (the Review), highlighting key deficiencies identified in the Review and setting out the SFC’s expected standards, particularly in relation to the opening and managing accounts of Chinese Mainland investors.

I. Background

The Circular was issued on the same day the announcement by China Securities Regulatory Commission (CSRC) of its high-profile enforcement action to penalize three securities brokers and their related domestic and offshore affiliates for offering mainland Chinese investors trading access to overseas securities without licenses. On the same day, the CSRC and seven other government departments issued the Implementation Plan for the Comprehensive Rectification of Illegal Cross-border Securities, Futures and Fund Business Activities (the Implementation Plan). The Implementation Plan expressly targets offshore institutions conducting securities, futures and fund business in Mainland China without approval, as well as onshore affiliates, cooperating entities, internet platforms and other intermediaries that facilitate such activities in Mainland China. Under the Implementation Plan, firms are required to wind down existing illegal businesses, and all existing non-compliant accounts may not undertake new purchases or inward transfers during this two-year period. Firms are also required to remove Mainland-targeted websites, trading applications, and supporting servers.

The SFC’s Circular specifically reminds licensed corporations to take note of the Implementation Plan, and not engage in or facilitate any illegal activities when providing services to investors outside Hong Kong. Licensed corporations which fail to comply with all relevant legal and regulatory requirements in jurisdictions outside Hong Kong may constitute non-compliance with the Code of Conduct, and may result in supervisory or enforcement actions taken by the SFC.

II. Key findings from the SFC’s Review

The SFC’s review identified a range of deficiencies among brokers in their due diligence and ongoing monitoring of the account opening process and cross‑border correspondent relationships (CBCR) with overseas intermediaries. Notably, the SFC found that some brokers accepted questionable or forged client documentation during account opening.[2] The SFC has expressed serious concerns over these practices and indicated that it will take supervisory or even enforcement action against non-compliant brokers.

Key deficiencies identified	Expected standards
Inadequate due diligence on account opening documentation: The Review identified weaknesses in conducting adequate due diligence on documents collected from clients during the account opening process. Certain brokers accepted account opening applications despite irregularities in know-your-client (KYC) documentation (such as utility bills) such as impossible dates, or discrepancies in asset movements. These applications should have been rejected.	The SFC expects licensed corporations to implement procedures to prevent and detect record falsification. In particular: account opening should only be approved only after completion of all KYC and customer due diligence (CDD) procedures and a comprehensive management review; licensed corporations should not establish, or should promptly terminate, business relationships where KYC and CDD procedures cannot be satisfactorily completed, or where document authenticity is in doubt; licensed corporations should warn prospective clients of the serious consequences of submitting forged documents.
Deficiencies in due diligence and ongoing monitoring of CBCR with overseas intermediaries: The Review found that some brokers relied on overseas introducers or agency arrangements without conducting adequate due diligence or maintaining effective ongoing oversight. In some cases, brokers relied on responses provided by overseas intermediaries for assessing the intermediary’s KYC and AML/CFT controls, despite discrepancies between the responses and the actual circumstances of the intermediary.	The SFC expects licensed corporations to mitigate risks arising from incomplete information on overseas intermediaries’ underlying clients and transactions by applying additional, risk‑based due diligence measures, such as requesting information about underlying transactions or clients, imposing limits on or restricting certain transactions. All CBCRs must be subject to ongoing monitoring.
Deficiencies in client identity verification process: The SFC observed that some brokers failed to conduct adequate client identity verification for online onboarding via initial deposits from Hong Kong bank accounts or through remote onboarding of overseas clients. For example, one broker relied solely on initial deposits from overseas bank accounts and did not deploy appropriate technologies to authenticate identification documents or verify client identities, as required for remote onboarding.	Licensed corporations are reminded to take all reasonable steps to establish the true and full identity of each client, and comply with the SFC’s requirements for acceptable account opening approaches.
Inadequate controls in collecting client identification data: The Review identified failures to implement adequate controls to comply with the “waterfall” requirements for collecting client identification data, which prioritize Hong Kong identity cards, followed by other identification documents and passports. For example, some brokers permitted account openings using passports even where clients were from jurisdictions that issue national identification documents.	Licensed corporations are expected to implement proper controls to ensure full compliance with waterfall requirements, including obtaining representations and warranties from clients to confirm that no identification documents of a higher priority in the waterfall are in their possession.
Deficiencies in review of client address: The Review found that brokers generally lacked controls to assess the reasonableness of clients’ residential addresses and to identify anomalies, such as commercial or government addresses or multiple clients sharing the same address.	The SFC expects licensed corporations to obtain and verify clients’ residential addresses, assess their reasonableness, and follow up on any identified anomalies.

III. Additional measures for opening and managing investment accounts of Chinese Mainland Investors

The SFC observed that most of the questionable or forged documents identified in the Review related to accounts held by Mainland Chinese investors — namely, individuals who use either or both a People’s Republic of China (PRC) resident identity card and passport as identification documents in a licensed corporation’s records or when opening an investment account.

In light of this, and the associated business, regulatory, and reputational risks faced by licensed corporations, the SFC has introduced additional requirements for licensed corporations when opening and managing such accounts, as summarized below. These measures should be read in conjunction with the SFC’s published frequently asked questions.[3]

Measure 1: Closure of investment accounts that were opened using questionable or forged documents

Upon the SFC’s request, licensed corporations are required to conduct a review of account opening activities to:

identify accounts opened since January 2023 (or such period specified by the SFC) that involved questionable or forged documents, including proof of identity and account statements from other licensed corporations;
for each such account, identify the party(ies) responsible for providing the documents and the individual(s) responsible for control failings;
ensure the review is carried out by an independent external consultant in accordance with SFC‑prescribed scope and methodology, and completed within three months;
review the transactions in the identified accounts for any red flags of suspicious activities and make appropriate reports to law enforcement agencies where necessary;
prohibit the clients of the identified accounts from opening any investment accounts with the licensed corporation or any of its affiliated firms in the future;
act in accordance with client agreements and ensure that all client assets (if any) are properly safeguarded until the accounts are formally closed; and
allocate sufficient resources to handle any client enquiries and complaints

(the Account Opening Review).

Licensed corporations are expected to close any accounts identified as involving questionable or forged documents within six months of completing the Account Opening Review. They should also provide advance written notice to affected clients of (i) the suspension of any new client‑initiated transactions (other than those necessary to close existing positions or reduce account balances for settlement purposes) and (ii) the intended closure of the accounts.

Licensed corporations should allow reasonable time for clients to manage the assets in their accounts, such as unwinding their positions and transferring funds to their bank accounts. Once all client assets have been withdrawn or disposed of, licensed corporations should close the accounts as soon as practicable.

Measure 2: Closure of zero-balance dormant investment accounts

A zero-balance dormant investment account refers to an investment account held by a Chinese Mainland investor that has no asset balance as at 22 May 2026 or any other date specified by the SFC (Reference Date) and has had no client-initiated activity in the 12 months preceding the Reference Date. Upon the SFC’s request, licensed corporations should implement measures to mitigate risks associated with the zero-balance dormant investment accounts, including:

conducting a review to identify all such accounts within three months of the SFC’s request (Dormant Account Review);
providing advance notice to affected clients and suspending all new transactions unless and until the licensed corporation (a) confirms that the client’s KYC and due diligence information is current and relevant, and (b) completes the applicable declaration and bank account verification measures under Measure 3, as explained below;
closing the identified accounts within six months of the SFC’s request if these steps cannot be satisfactorily completed, unless exceptional circumstances apply (e.g. client‑specific extenuating factors);
acting in accordance with client agreements and ensure that all client assets (if any) are properly safeguarded until the accounts are formally closed; and
allocating sufficient resources to handle any client enquiries and complaints.

If the client accounts identified in the Dormant Account Review involved the use of questionable or forged documents, licensed corporations should terminate the business relationship with these clients by following steps set out under Measure 1 above for the closure of accounts.

Measure 3: Opening new investment accounts

Effective immediately, where Chinese Mainland investors approach licensed corporations for opening investment accounts, licensed corporations should implement the following measures, irrespective of the account opening approaches used by licensed corporation for onboarding them:

obtain a written declaration from the Chinese Mainland investor:
- confirming that all funds which support the investment activities and related settlements are from lawful sources outside of the Chinese Mainland;
- confirming that the investor does not have an account that was previously closed or suspended by any licensed corporations or banks due to the use of questionable or forged documents;
- undertaking that the investor will notify the licensed corporation within 7 business days in the event of any changes in the information in the investor’s written declaration; and
- confirming that the investor understands that upon requests from law enforcement agencies or regulatory authorities, the licensed corporation may disclose the investor’s personal and other relevant information.
require the investor to use bank accounts held in the investor’s own name with banks licensed in Hong Kong or supervised by banking regulators in eligible jurisdictions[4] for settlement purposes, and ensure all future deposits and withdrawals are made exclusively through such accounts.
close the client investment account if the client’s funding sources are subsequently found to be unlawful or in violation of Mainland China’s capital control regulations, in accordance with Measure 1.
maintain proper records for each client’s account opening process in a manner that is readily accessible for compliance checks and audit purposes.
provide information to the SFC upon request, including the number and details of new accounts opened during a specified period and the corresponding client declarations.

IV. Conclusion

The SFC highlighted that senior management are ultimately responsible for ensuring appropriate standards of conduct and robust internal control systems for account opening and maintaining relationships with clients. Both licensed corporations and their senior management should take note of the issues raised in the SFC’s Circular. Failure to fulfil these responsibilities may call into question the fitness and properness of the licensed corporation and its senior management, and may result in supervisory or enforcement action taken by the SFC.

[1] “Circular to licensed corporations – Expected controls for account opening and maintaining relationships with clients” published by the SFC on May 22, 2026, available here.

[2] The provision of securities dealing services (including subscription for initial public offerings), futures contracts dealing, or leveraged foreign exchange trading to investors through overseas intermediaries, whether affiliated or unaffiliated, constitutes a CBCR.

[3] See here.

[4] See here.

The following Gibson Dunn lawyers prepared this update: William Hallatt, Becky Chung, and Jane Lu.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. If you wish to discuss any of the matters set out above, please contact any member of Gibson Dunn’s Financial Regulatory team, including the following members in Hong Kong:

William R. Hallatt (+852 2214 3836, whallatt@gibsondunn.com)

Emily Rumble (+852 2214 3839, erumble@gibsondunn.com)

Arnold Pun (+852 2214 3838, apun@gibsondunn.com)

Becky Chung (+852 2214 3837, bchung@gibsondunn.com)

Jane Lu (+852 2214 3735, jlu@gibsondunn.com)

It will be important to the comment process for commenters to submit their views on the Proposal. A well-developed administrative record—including from those who support the Proposal—helps inform the Commission’s deliberations and supports the durability of any final action.

Background

On May 29, 2026, the Securities and Exchange Commission (SEC or Commission) formally proposed (the Proposal) to rescind the Commission’s climate-related disclosure rules adopted in March 2024, the Enhancement and Standardization of Climate-Related Disclosures for Investors (the Climate Rules or the Final Rules).[1] The Climate Rules were among the Gensler Commission’s most consequential rulemakings, both in terms of their breadth and the litigation they generated.

The Climate Rules were first proposed on March 21, 2022 and finalized on March 6, 2024.[2] As adopted, the Climate Rules established a climate-related disclosure framework for registration statements and annual reports, including disclosures regarding climate-related risks, governance and oversight, and risk-management processes, as well as financial statement requirements for recording the effects of severe weather events and other natural conditions.[3]

The Climate Rules have been highly contentious and have generated significant litigation.[4] Litigation challenging the validity of the Climate Rules began almost immediately following their adoption, and in April 2024, the Commission stayed the effectiveness of the rules pending completion of consolidated litigation in the U.S. Court of Appeals for the Eighth Circuit.[5] In March 2025, the Commission voted to abandon its defense of the rules. The Eighth Circuit then issued an order holding the case in abeyance until the SEC either “reconsider[ed] the challenged [rules] by notice-and-comment rulemaking or renew[ed] its defense of the [rules].”[6] On May 7, 2026, the SEC notified the Eighth Circuit of its decision to propose rescission of the Climate Rules by notice-and-comment rulemaking.[7]

The Proposal itself does not terminate the Climate Rules. Instead, since the Proposal is subject to the Administrative Procedure Act’s notice-and-comment requirements, the Proposal initiates a comment process through which the Commission will consider public input on whether to rescind the Climate Rules in the manner proposed by the Commission. The Proposal was published in the Federal Register on June 3, 2026, and comments are due on or before August 3, 2026.[8]

Proposed Rescission and Rationale

The Proposal reflects the Commission’s view of the scope of its rulemaking and disclosure authority under the federal securities laws. In support of the proposed rescission, the Commission identifies concerns that had been raised by commenters and litigants challenging the Climate Rules. The Proposal also notes that “[t]he court has not made any decision on the merits of any arguments presented by any petition for review of the Final Rules.”[9]

The Commission identifies the following principal rationales for proposing rescission of the Climate Rules in their entirety:

the Climate Rules exceed the Commission’s statutory authority;
the Climate Rules are unnecessary and inconsistent with a registrant-specific, materiality-based approach to disclosure, which serves the interests of registrants and investors;
the Climate Rules stray beyond the policy concerns of the federal securities laws and address divisive social or political issues;
the Climate Rules would impose significant costs on public companies and their shareholders that are not justified by the informational benefits they provide to some investors; and
the high costs of the Climate Rules are inconsistent with the Commission’s policy objectives of facilitating capital formation and promoting public company status.

Additionally, the Proposal estimates that the annualized cost savings if the Climate Rules are rescinded is approximately $4.9 billion per year over 10 years across all affected registrants.[10]

What’s Next and What to Do

Comments on the Proposal are due on or before August 3, 2026.

Companies and other affected market participants should consider whether to submit comments addressing the practical, legal, and economic implications of the Proposal to help inform the Commission’s deliberative process.[11]

Comments may be particularly useful where they provide quantitative and qualitative data on the effects associated with the Climate Rules.

Commenters may wish to address, among other things:

the costs and burdens associated with preparing for, implementing, and maintaining compliance with the Climate Rules;[12]
whether the Climate Rules would have required disclosures beyond information material to investors under traditional securities-law principles;
the extent to which existing SEC disclosure requirements, voluntary disclosures, investor engagement, or other regulatory regimes already address climate-related information considered material by registrants and investors;
the reasons for or against a full rescission of the Climate Rules and any alternatives;[13] and
whether compliance burdens associated with the Climate Rules could affect decisions about whether to become or remain a public company.[14]

Conclusion

It will be important to the comment process for commenters to submit their views on the Proposal. A well-developed administrative record—including from those who support the Proposal—helps inform the Commission’s deliberations and supports the durability of any final action. Gibson Dunn’s Securities Regulation and Corporate Governance team is available to assist companies and other market participants in evaluating the Proposal, assessing potential implications, and preparing comments.

[1] See The Enhancement and Standardization of Climate-Related Disclosures for Investors, available at https://www.sec.gov/rules-regulations/2024/03/s7-10-22#33-11275final.

[2] See, e.g., Summary of and Considerations Regarding the SEC’s Proposed Rules on Climate Change Disclosure – Gibson Dunn (April 15, 2022), and Energy Industry Reacts to SEC Proposed Rules on Climate Change – Gibson Dunn (August 10, 2022), available at https://www.gibsondunn.com/summary-of-and-considerations-regarding-the-sec-proposed-rules-on-climate-change-disclosure/ and https://www.gibsondunn.com/energy-industry-reacts-to-sec-proposed-rules-on-climate-change/.

[3] See, e.g., SEC Adopts Sweeping New Climate Disclosure Requirements for Public Companies – Gibson Dunn (March 8, 2024), available at https://www.gibsondunn.com/sec-adopts-sweeping-new-climate-disclosure-requirements-for-public-companies/.

[4] See generally our March 2025, April 2025, June 2025, and August 2025 ESG Updates, which outline the history of the SEC’s posture regarding the climate disclosure rules as well as developments domestically and abroad.

[5] See Securities and Exchange Commission, In the Matter of the Enhancement and Standardization of Climate-Related Disclosures for Investors (Order Issuing Stay), Release No. 33-11280 (Apr. 4, 2024), available at https://www.sec.gov/files/rules/other/2024/33-11280.pdf.

[6] See Iowa v. SEC, No. 24-1522 (8th Cir. Sept. 12, 2025).

[7] See Letter from the SEC to the Clerk of Court, U.S. Court of Appeals for the Eighth Circuit, Iowa v. SEC, No. 24-1522 (8th Cir. May 7, 2026). See also Securities Regulation and Corporate Governance Monitor blog posts: Long-Awaited SEC Rule Proposal on Climate Change Disclosure (March 22, 2022); Fifth Circuit Stay of the SEC’s Climate Disclosure Rule Dissolved (March 22, 2024); Eighth Circuit Establishes Briefing Schedule for SEC Climate Disclosure Rules Litigation (May 24, 2024); SEC Signals Potential Strategy Shift in Climate Disclosure Rule Litigation (February 14, 2025).

[8] See Rescission of Climate-Related Disclosure Rules, 91 FR 33296 (proposed June 3, 2026), available at https://www.federalregister.gov/documents/2026/06/03/2026-11091/rescission-of-climate-related-disclosure-rules.

[9] See Proposal at 15.

[10] See Proposal at 43.

[11] See Proposal at 67.

[12] See, e.g., our alert outlining developments in various US and foreign jurisdictions regarding sustainability reporting and GHG emissions reporting, available at https://www.gibsondunn.com/gibson-dunn-esg-monthly-update-april-2026.

[13] See Proposal at 67.

[14] See generally Proposal, Request for Comment, Part IV.F for more specific questions.

The following Gibson Dunn lawyers prepared this update: Mellissa Campbell Duru, Elizabeth Ising, Thomas J. Kim, Ronald O. Mueller, Lori Zyskowski, and Jack Strachan.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding the SEC’s proposal, or federal securities laws and regulations more generally. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any member or leader of the firm’s Securities Regulation & Corporate Governance practice group:

Securities Regulation & Corporate Governance:
Aaron Briggs – San Francisco (+1 415.393.8297, abriggs@gibsondunn.com)
Mellissa Campbell Duru – Washington, D.C. (+1 202.955.8204, mduru@gibsondunn.com)
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com)
Thomas J. Kim – Washington, D.C. (+1 202.887.3550, tkim@gibsondunn.com)
Brian J. Lane – Washington, D.C. (+1 202.887.3646, blane@gibsondunn.com)
Julia Lapitskaya – New York (+1 212.351.2354, jlapitskaya@gibsondunn.com)
Ronald O. Mueller – Washington, D.C. (+1 202.955.8671, rmueller@gibsondunn.com)
Michael Scanlon – Washington, D.C.(+1 202.887.3668, mscanlon@gibsondunn.com)
Michael A. Titera – Orange County (+1 949.451.4365, mtitera@gibsondunn.com)
Geoffrey E. Walter – Washington, D.C. (+1 202-887-3749, gwalter@gibsondunn.com)
Lori Zyskowski – New York (+1 212.351.2309, lzyskowski@gibsondunn.com)

Gibson Dunn is representing Macquarie Asset Management as U.S. counsel in the sale of its interest in Corredor Logística e Infraestrutura, Brazil’s leading independent agri-bulk port terminal operator (jointly owned with IG4 Capital), to AD Ports Group at an enterprise value of $835 million.

The Gibson Dunn team representing Macquarie is led by partners Tomer Pinkusiewicz and Jamal Lama and includes associate Sarah Sperling.

Preston v. Nationstar Mortgage LLC (In re Preston), Case No. 24-21009 (JJT), Adv. No. 24-02016 (JJT) (Bankr. D. Conn. Apr. 16, 2025) – Decided April 16, 2025

The Connecticut Bankruptcy Court has held that a properly conducted, court-approved judicial foreclosure sale may be avoidable as a preference in a subsequent bankruptcy case by the borrower if the amount bid by the secured lender is less than the fair market value of the property—even though the U.S. Supreme Court has unequivocally held that such sales cannot be avoidable as fraudulent transfers.

The U.S. Supreme Court’s decision in BFP v. Resol. Tr. Corp., 114 S. Ct. 1757 (1994) “does not present an unequivocal, per se bar to a claim that foreclosure may be a preference under § 547.”

Caselaw Context:

In 1994, the U.S. Supreme court held that properly conducted mortgage foreclosure sales cannot be avoided as constructively fraudulent transfers under section 548 of the Bankruptcy Code[1] because such sales inherently cannot be for “less than a reasonably equivalent value” as required by section 548. The court reasoned that “a fair and proper price, or a ‘reasonably equivalent value,’ for foreclosed property, is the price in fact received at the foreclosure sale, so long as all the requirements of the State’s foreclosure law have been complied with.”[2] In so holding, the court recognized that the “fair market value” of the property “cannot—or at least cannot always—be the benchmark” for the “reasonably equivalent value” analysis in the forced sale context, because “‘fair market value’ presumes market conditions that, by definition, simply do not obtain in the context of a forced sale.”[3] Underpinning the court’s holding was a consideration of policy interests regarding the rights of secured lenders and the balance of state and federal law: The court was concerned that that allowing bankruptcy courts to avoid properly conducted foreclosure sales after their conclusion would “disrupt” the “harmony” of state foreclosure law and bankruptcy law and generate a “federally created cloud” on the title to real property purchased at foreclosure sales.[4].

In the decades since BFP, courts across the United States have been asked to apply the reasoning of BFP to prohibit the avoidance of foreclosure sales and analogous forced sales[5] as preferential transfers under section 547 of the Bankruptcy Code. Although section 547 does not require an assessment of whether the debtor received “reasonably equivalent value” in exchange for the transfer as in section 548, in order to be preferential a transfer must enable the creditor “to receive more than such creditor would receive” in a chapter 7 liquidation bankruptcy case.[6] Section 547’s comparison of the value the creditor received from the transfer to the value of the distribution the creditor would have received in the context of a hypothetical chapter 7 bankruptcy invites consideration of essentially the same question posed in the “reasonably equivalent value” analysis: Did the foreclosing secured lender obtain a windfall at the expense of the debtor’s other creditors?

Courts have reached differing conclusions as to whether BFP’s reasoning applies in the preference context. Some courts have held that BFP is inapplicable in the preference context because section 547 does not contain the “reasonably equivalent value” language interpreted by the U.S. Supreme Court in BFP.[7] However, other courts have found that BFP is controlling and that its underlying policy rationale—that allowing bankruptcy courts to avoid properly conducted foreclosure sales would create an untenable level of uncertainty in title to foreclosed properties—applies equally in the preference context.[8] In Preston, the Connecticut Bankruptcy Court weighed in on this split of authorities.

Facts:

In December 2023, Nationstar Mortgage LLC filed a foreclosure action against individual Erica Preston in the Superior Court of Connecticut.[9] After Ms. Preston failed to appear, the Superior Court authorized a foreclosure auction sale of Ms. Preston’s residential property in Woodstock, Connecticut.[10] In accordance with the requirements of Connecticut’s foreclosure statute, a court-appointed appraiser filed an appraisal asserting that the property’s value was $285,000.[11]

At the auction, Nationstar’s winning bid for the property was for $146,853—just over half of the property’s appraised value.[12] The Superior Court entered an order approving the sale in July 2024 and Nationstar acquired title to the property shortly thereafter.[13] Several months later, on October 21, 2024, Nationstar filed a motion in the Superior Court requesting entry of a supplemental judgment order ratifying and confirming the sale in accordance with Connecticut’s judicial foreclosure procedures.[14]

Just two days after Nationstar filed a motion seeking the supplemental judgment,[15] Ms. Preston filed for chapter 13 bankruptcy protection and commenced an adversary proceeding seeking avoidance of the foreclosure sale as a preferential transfer.[16] Nationstar sought dismissal of the adversary complaint for failure to state a claim based on the Supreme Court’s reasoning in BFP, asserting that debtors cannot avoid properly conducted prepetition mortgage foreclosure sales because such sales establish the property’s “forced sale” value—meaning that creditors cannot receive more as a result of the foreclosure sale than they would have received in a hypothetical chapter 7 liquidation.[17]

Issue:

Does the U.S. Supreme Court’s decision in BFP categorically bar claims asserting that a foreclosure is an avoidable a preference under section 547 of the Bankruptcy Code?

Court’s Holdings:

No—a foreclosure sale can be a preferential transfer under section 547. In BFP, the Supreme Court interpreted the meaning of “reasonably equivalent value”—a term not appearing in section 547 and therefore not relevant to the preference analysis. Instead, “allegedly preferential transfers under § 547 require inquiry into the specific facts underlying the transfer to determine whether a creditor received more as a result of the transfer than it would have received in a hypothetical Chapter 7 liquidation, as this is the standard Congress has imposed.”[18] The bankruptcy court in Preston did not invalidate the foreclosure sale: it simply denied a motion to dismiss the preference actions.

What It Means:

The bankruptcy court in Preston joined a line of cases, most of which do not involve foreclosure auction sales, that purport to adopt a plain-language reading of section 547 of the Bankruptcy Code notwithstanding the obvious public policy concerns with allowing bankruptcy courts to invalidate properly conducted foreclosure sales ex post facto.[19]
The result in Preston is more troubling from a policy perspective, because it indicates that a procedurally compliant, court-approved foreclosure auction sale at which competing bids were permitted and the court expressly ordered the consummation of the sale to the highest bidder may be avoidable solely because of the difference between the appraised fair market value of the property and the highest bid.[20]
The Preston decision also fails to address the U.S. Supreme Court’s reasoning in BFP that the “forced sale” value of a property is inherently lower than the “fair market value” of the property.[21] Although the Supreme Court applied this reasoning for purposes of reaching the conclusion that the value received at a foreclosure sale is necessarily “reasonably equivalent value” for purposes of the fraudulent transfer analysis, the same reasoning should apply in the preference context because a sale of the property in a chapter 7 case would more closely resemble a “forced sale” at a discounted price than full “fair market value” of the property.[22]
Preston may be distinguishable in bankruptcy cases involving debtors that are special purpose entities (SPEs). It would be logically unlikely, if not impossible, for an SPE to be insolvent for purposes of the preference analysis (i.e., for the SPE’s debts to exceed the value of its property[23]) and at the same time for the secured lender to have received more from a foreclosure sale than it could have received in a chapter 7 case for the SPE. For most SPEs, the sole material debt is the mortgage and the sole material asset is the collateral. The property is either worth more than the value of the debt (in which case the SPE debtor was not insolvent), or the secured lender did not receive a windfall when it purchased the property at a foreclosure sale (in which case the creditor did not receive more than it would have in the chapter 7 bankruptcy context). Accordingly, courts analyzing forced sales of a SPE debtor’s property may hold that such foreclosures could not possibly be a preference absent very unusual facts.

[1] See 11 U.S.C. § 548.

[2] BFP v. Resol. Tr. Corp., 114 S. Ct. 1757, 1765 (1994).

[3] BFP, 114 S. Ct. at 1761. The court further explained that “‘fair market value’ could show what similar property would be worth if it did not have to be sold within the time and manner strictures of state-prescribed foreclosure. But property that must be sold within those strictures is simply worth less. No one would pay as much to own such property.” Id. at 1762 (emphasis in original).

[4] BFP, 114 S. Ct. at 1764-65.

[5] In BFP, the court noted that its opinion “covers only mortgage foreclosures of real estate” and that the “considerations bearing upon other foreclosures and forced sales (to satisfy tax liens, for example) may be different.” Id. at 1761 n.3. However, courts have been asked to apply BFP to tax lien sales, both in the context of the section 548 fraudulent transfer analysis and the section 547 preference analysis. See, e.g., In re Hackler & Stelzle-Hackler, 938 F.3d 473, 479-80 (3d Cir. 2019) (collecting cases).

[6] 11 U.S.C. § 547(b)(5). Generally, “a transfer may be voided as preferential if it (1) was made to or for the benefit of a creditor, (2) was made for an antecedent debt, (3) was made while the debtor was insolvent, (4) was made on or within 90 days before filing for bankruptcy, and (5) enabled the creditor to receive more than it would have received in a Chapter 7 liquidation proceeding.” Hackler, 938 F.3d at 477.

[7] See, e.g., In re Villarreal, 413 B.R. 633, 642 (Bankr. S.D. Tex. 2009) (“Section 547, in straightforward language, requires the avoidance of transfers that allowed the creditor to receive more than the creditor would have received in a hypothetical chapter 7 liquidation. There is nothing in § 547 equivalent to § 548’s ambiguous use of ‘value’” (quoting 11 U.S.C. § 548)); In re Andrews, 262 B.R. 299, 304 (Bankr. M.D. Pa. 2001) (determining that “BFP has absolutely no bearing on the instant issue concerning whether the Defendant in this prepetition Sheriff’s sale has received ‘more’ than that creditor would have received without the foreclosure sale and in a liquidation under Chapter 7 as contemplated by 11 U.S.C. § 547(b)(5)”); In re Whittle Dev., Inc., 463 B.R. 796, 801 (Bankr. N.D. Tex. 2011) (“the application of the Supreme Court’s reasoning in BFP to section 547 appears misplaced. The Supreme Court’s analysis of section 548(a)(2)(A) concerned what, as a matter of law, ‘reasonably equivalent value’ meant. No such legal issue presents itself in avoidance actions under section 547(b)(5)(A)” (citations omitted)).

[8] See, e.g., In re FIBSA Forwarding, Inc., 230 B.R. 334, 340-41 (Bankr. S.D. Tex.) (BFP “controls this decision because its principal rationale is applicable. . . . To hold this foreclosure to be a preferential transfer would create the same problems with state real property title records that would have been created by classifying the transaction as a fraudulent transfer”), aff’d, 244 B.R. 94 (S.D. Tex. 1999); In re Cottrell, 213 B.R. 378, 383 (Bankr. M.D. Ala. 1996) (“the court finds that [BFP] is equally applicable to both kinds of avoiding powers”); In re Pulcini, 261 B.R. 836, 844 (Bankr. W.D. Pa. 2001) (“Although BFP dealt with § 548(a), not § 547(b), we believe that the rationale of BFP applies . . . with equal force. . . . What is at stake is the essential sovereign interest in the security and stability of title to land”).

[9] Preston v. Nationstar Mortgage LLC (In re Preston), Adv. No. 24-02016 (JJT) (Bankr. D. Conn. Apr. 16, 2025) (hereinafter “Preston”) at 2.

[10] Id.

[11] Id. at 2.

[12] Id. at 2.

[13] Id. at 2-3.

[14] Id. at 3.

[15] Notwithstanding the pending adversary proceeding, the Superior Court entered the supplemental judgment ratifying and confirming the sale on November 4, 2024. Id. at 3.

[16] Id. at 1. Ms. Preston also sought avoidance of the foreclosure sale as a fraudulent transfer, but the bankruptcy court dismissed the fraudulent transfer claims for the reasons stated in BFP. See id. at 19-20. Further, Ms. Preston asserted a claim against Nationstar for unjust enrichment in connection with the foreclosure sale, but the bankruptcy court dismissed the claim on the basis that it did not have subject matter jurisdiction to review the state court’s order authorizing the foreclosure sale. See id. at 9-12.

[17] Id. at 4.

[18] Id. at 24-25.

[19] Id. at 24-25 (acknowledging “the public policy concern that permitting noncollusive foreclosures conducted in accordance with state law to be avoided as preferential transfers will result in calamity” but observing that “Congress can certainly rectify such a calamity”); see also, e.g., Villarreal, 413 B.R. at 642 (observing that “the Court may not ignore Congressional language in favor of judicial policy”).

[20] By comparison, many of the other decisions that read BFP narrowly involved nonjudicial foreclosures (which do not involve the same level of court oversight as in the Connecticut judicial foreclosure at issue in Preston) or tax foreclosure sales pursuant to state laws that do not require public auctions. See, e.g., Villarreal, 413 B.R. at 633 (nonjudicial foreclosure in which there was no appraisal of the property’s value until after the sale concluded); In re Smith, 811 F.3d 228, 238 (7th Cir. 2016) (court observing that in the context of an Illinois tax sale with bidding limited solely to the penalty interest rate on the lien, rather than the value of the property, there was no correlation between the sale price and the value of the property and so BFP was not applicable).

Additionally, judicial foreclosures should theoretically have a lower likelihood of being avoidable than other types of forced sales due to the possibility that the Rooker-Feldman doctrine or principles of res judicata and collateral estoppel would apply to prohibit the bankruptcy court from second-guessing a prior state court’s order—but the Preston court considered and rejected these arguments with respect to Ms. Preston’s fraudulent transfer and preference claims, finding that the avoidance action claims brought in Ms. Preston’s adversary proceeding were not the same claims at issue in the state court judicial foreclosure proceeding. See Preston at 9, 14, and 18.

[21] See BFP at 1762.

[22] Cf. Cottrell, 213 B.R. at 383 (Bankr. M.D. Ala. 1996) (noting that “the value at foreclosure by [the secured creditor] establishes the ‘forced sale’ price, a price which would undoubtedly be duplicated by a trustee in a ‘forced sale’ in bankruptcy” and also observing that under the circumstances a chapter 7 trustee would have elected to abandon, rather than sell, the property and the secured lender would have foreclosed anyways); but see Villareal, 413 B.R. at 639 (asserting that “a chapter 7 liquidation does not have the same constraints as a foreclosure sale. A chapter 7 liquidation affords the trustee the time to orchestrate an orderly sale that produces a greater value than would be received at a foreclosure sale.”). Villareal involved a nonjudicial foreclosure sale, however, and thus the sale was not required to follow the same level of value-preserving procedural protections as the Connecticut judicial foreclosure sale at issue in Preston.

[23] For purposes of the preference analysis, “insolvency” is defined in section 101(32)(A) of the Bankruptcy Code using a “balance sheet” test: The “sum of such entity’s debts” must be “greater than all of such entity’s property, at a fair valuation.” 11 U.S.C. § 101(32)(A); see also 5 Collier on Bankruptcy ¶ 547.03[5] (discussing the solvency analysis for preference avoidance actions). Insolvency is measured at the time of the alleged preferential transfer. See id. (“It is clear from the terms of 11 U.S.C. § 547(b) that the determination of insolvency must be directed to the time when the alleged preferential transfer was made”). By contrast, a transfer for less than reasonably equivalent value may be avoidable as a constructive fraudulent transfer if the debtor is insolvent, undercapitalized or unable to meet its debts when they come due. Therefore, a transfer by a balance sheet solvent debtor for less than reasonably equivalent value may be a constructive fraudulent transfer if the debtor possessed “unreasonably small capital” or would incur “debts that would be beyond the debtor’s ability to pay as such debts matured.” See 11 U.S.C. § 548(a)(1)(B)(ii).

The following Gibson Dunn lawyers prepared this update: Jeffrey C. Krause, Suzanne Span, and Kriti Hannon.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Business Restructuring and Reorganization practice group:

Jeffrey C. Krause – Partner, Los Angeles (+1 213.229.7995, jkrause@gibsondunn.com)

Kriti Hannon – Associate, Orange County (+1 949.451.4030, khannon@gibsondunn.com)

Suzanne Span – Associate, Orange County (+1 949.451.3863, sspan@gibsondunn.com)

Scott J. Greenberg – Global Chair, New York (+1 212.351.5298, sgreenberg@gibsondunn.com)

Partner Jason Zachary Goldstein is quoted in the Octus article “Struggling Radio Sector Cleans Up Balance Sheets Ahead of Potential Deregulation-Induced M&A Boom,” which attributes declining revenue in the radio industry to several factors including high fixed costs and audience fragmentation.

“There are so many different types of streaming content now, and traditional broadcast radio is being hit in a multitude of ways – you’re getting such a diversified set of people entering the market that it’s really created an audience issue as a result,” Jason said. “It’s creating additional revenue decline in the traditional broadcast market.”

Jason also discussed the impact of high fixed costs in the radio industry and the potential benefits of deregulation to allow for consolidation of stations within one ownership group in a local market.

“There is a narrow, but optimistic view going forward here that these are still durable assets,” he said. “These are still cash generating entities, and there could be a lot of value in some of the IP that they have, there could be a lot of value in the region that they have, particularly if you’re consolidating a bunch of local market stations under the banner of a bigger brand.”

The release of the Consultation Conclusions signal that the FSTB and SFC are moving ever closer to introducing their proposed legislative framework for a broad suite of virtual asset related activities to the Legislative Council.

On May 26, 2026, the Hong Kong Financial Services and the Treasury Bureau (FSTB) and Securities and Futures Commission (SFC) published consultation conclusions setting out the proposed licensing regime for virtual asset (VA) advisory and management regimes (Consultation Conclusions).[1] The Consultation Conclusions follow the FSTB and the SFC’s launch of a consultation on VA advisory and VA management regimes on December 24, 2025 (Further Consultation), as discussed in our previous client alert.[2]

We have set out below a detailed overview of the key takeaways for the industry from the Consultation Conclusions. Importantly, the release of the Consultation Conclusions signal that the FSTB and SFC are moving ever closer to introducing their proposed legislative framework for a broad suite of virtual asset related activities to the Legislative Council.

I. VA Advisory Regime

A. Scope and coverage

The Consultation Conclusions reaffirm the definition of “advising on VA” proposed under the Further Consultation, namely, covering any person who carries on a business in Hong Kong in:

giving advice on whether; which; the time at which; or the terms of conditions on which, VAs should be acquired or disposed of; or
issuing analyses or reports, for the purposes of facilitating the recipients of the analyses or reports to make decisions on whether; which; the time at which; or the terms or conditions on which, VAs are to be acquired or disposed of.

The Consultation Conclusions clarify that whether an activity constitutes advice on VA is assessed based on its substance rather than its form. Accordingly, an activity will fall within scope irrespective of how it is described, labelled or disguised (for instance, as educational content, general commentary or trading signals), if, in substance, it involves providing advice on the acquisition or disposal of VA. Persons carrying on a business involving such activities will therefore be required to obtain a VA advisory licence, unless an exemption applies.

The Consultation Conclusions provide important colour regarding the scope of the proposed regime, including the following:

Mirror / copy trading will generally require a VA advisory licence: Importantly for the industry, the Consultation Conclusions state clearly that mirror or “copy” trading will generally require a VA advisory licence, given that the provision of these services generally involve providing information, trading signals or alerts on when to buy, sell, or hold particular VAs for others to replicate or track trading strategies. Where the provision of copy or mirror trading services extends to executing trades in VAs on behalf of clients, this may additionally constitute dealing in VAs requiring a separate VA dealing licence. Further, where such execution is carried out on a discretionary basis, the activity may also amount to VA management, as discussed below.
The regime is intended to be “technology neutral”: The Consultation Conclusions establish that the key consideration is whether advice concerning the acquisition or disposal of VAs is provided, regardless of the means through which it is delivered. Given this, the provision of technology tools (including algorithms or AI language models) that generate specific recommendations on VA (for example, recommendations tailored to a user’s investment profile) will constitute the provision of VA advisory services. By contrast, activities confined to the provision of generic, factual information about VAs or the VA market will generally fall outside the scope of the VA Advisory Regime. This includes, for example, research tools that objectively filter such factual information. Similarly, VA custodial or dealing service providers that, in the course of their services, merely provide clients with information (such as details of voting rights attached to the clients’ VAs or notification of hard forks or airdrop events) will generally not require a VA advisory licence, notwithstanding that such hard fork or airdrop events may result in additional VAs being distributed to clients.
Relationship between “advising on VA” and “advising on securities”: As expected, the definition of ‘advising on VA’ closely mirrors the definition of ‘advising on securities’ for Type 4 regulated activity (RA4) under the Securities and Futures Ordinance (Cap. 571) (SFO). Importantly, given that securities and futures contracts are specifically excluded from the definition of VA pursuant to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO), advising solely on tokenized securities does not fall within the VA Advisory Regime, and instead, falls within RA4. The Consultation Conclusions also note that advising on derivatives and structured products referencing VA will generally fall within RA4, Type 5 regulated activity (advising on futures contracts) and/or Type 11 regulated activity (dealing in OTC derivatives products or advising on OTC derivative products) under the SFO.

B. Exemptions

The Consultation Conclusions also provide the following guidance regarding exemptions in relation to VA advisory activities:

Advice provided through a generally available publication or broadcast will be exempt: The scope of this exemption will be the same as the scope of the corresponding exemption under the SFO. However, given the increasing role of finfluencers in influencing investor behaviour, the SFC will also separately review the existing regime under the SFO as well as the proposed VA service provider licensing regime to ensure that these regimes are appropriate for current market conditions. This may lead to further consultations in the future regarding the regulation of finfluencers.
Advice provided solely to a wholly owned group company will be exempt: The scope of this exemption will similarly mirror the scope of the corresponding exemption under the SFO – i.e. a licence will not be required for a company which advises its group company which is its wholly owned subsidiary, its holding company which holds all of its issued shares, or a wholly owned subsidiary of that holding company, and only in respect of that group company’s assets and not the group company’s client assets.
Intermediaries licensed for RA4 will require a VA advisory licence where advising clients on VA: The Consultation Conclusions emphasise that where Type 4 licensed intermediaries provide advice on a client’s overall portfolio comprising both VA and securities, the advice on VAs will not be considered “wholly incidental” to the advice provided on securities. This is on the basis that VA is a wholly distinct asset class and as such Type 4 licensed intermediaries will still require a licence. This is consistent with the current position with regards to the provision of advice by firms regarding both securities and futures contracts, which require both Types 4 and 5 licences.

C. Regulatory requirements

While the SFC has signalled that it will undertake a further public consultation in relation to the proposed regulatory requirements that will apply to VA advisory licensees, the Consultation Conclusions do note that:

Financial resources requirements (FRR) will be aligned with those for RA licensees: Under the ‘same activity, same risks, same regulation’ principle, financial resources requirements to be imposed on VA advisory service providers will align with those currently imposed on RA4 licensed corporations. In other words, (i) a minimum required liquid capital of HK$100,000 for VA advisory service providers will apply to firms that do not hold client assets; and (ii) a minimum paid‑up share capital of HK$5 million and a minimum required liquid capital of HK$3 million will apply to firms that do hold client assets (with the SFC having the discretion to impose additional financial resources requirements where necessary).
Firms licensed for both RA4 and VA advisory services will not be subject to duplicative regulatory capital requirements: Instead, such a corporation should be required to meet only the highest applicable regulatory capital threshold among the regulated activities and/or VA services for which it is licensed.

Other regulatory requirements to be imposed on VA advisory service providers will be based on those currently applicable to licensed corporations or registered institutions providing VA advisory services under the Joint Circular on Intermediaries’ Virtual Asset-Related Activities issued by the SFC and the Hong Kong Monetary Authority (Joint Circular).[3] These requirements cover product due diligence, suitability obligations, disclosure requirements and assessments of client’s knowledge of VA, as summarized in our previous client alerts.[4] The SFC is actively reviewing these requirements to ensure an appropriate balance between investor protection and market development, and intends to conduct a public consultation in due course.

II. VA Management Regime

A. Scope and coverage

The Consultation Conclusions confirm that the FSTB and SFC will proceed with the definition of ‘VA management’ proposed under the Further Consultation, namely, covering any person who carries on a business in Hong Kong in providing a service of managing a portfolio of VAs for another person. Further, given industry support, there will be no de minimis threshold for the proposed licensing regime for VA management service providers (VA Management Regime). This is to align with the scope of the Type 9 (RA9) licence for asset management under the SFO.

Similar to the scope of the RA9 definition, the VA Management Regime will apply to firms that have discretionary power to make investment decisions in respect of the VAs in the portfolio of another person (including both the management of funds as well as discretionary accounts in the form of an investment mandate or pre-defined model portfolio). In particular, firms that have full investment discretion to make investment decisions on behalf of a fund or a discretionary account will require a license, even if they sub-contracts their investment management role to a third party. That third party will also require a license if it is carrying on the business of providing VA management services in Hong Kong.

The key determinant in whether a VA management licence is required is whether the fund manager has discretionary power to make investment decisions in respect of the VAs concerned (for example, decisions to convert the VAs into cash before making investments for the fund, use the VAs to invest in other assets, or hold the VAs instead of cash or other investments). Where the VAs form part of the portfolio managed by the fund manager, and the fund manager has discretionary power to make investment decisions in respect of the VAs in the portfolio, a VA management licence will be required. Notwithstanding this, the Consultation Conclusions acknowledge the possibility of an investment portfolio managed by a fund manager inadvertently acquiring VAs due to an unexpected or involuntary event. Where all reasonably practicable steps are taken to dispose of the portfolio’s holdings in VAs in a timely manner, this may not amount to carrying on a business of providing a VA management service.

Consistent with the VA Advisory Regime, the VA Management Regime is intended to be technology neutral. Providing technology tools which make investment decisions for clients on a discretionary basis (such as robo-advisers) constitutes VA management and will require a licence.

B. Exemptions

The Consultation Conclusions also provide the following guidance regarding exemptions in relation to VA management activities:

VA management services provided to wholly owned group companies will be exempt: Consistent with the approach under the VA Advisory Regime, this proposed exemption applies only where a corporation provides VA management services to its wholly owned group entities (i.e. its wholly owned subsidiary, its parent holding all its shares, or a fellow wholly owned subsidiary) and solely in respect of that entity’s own VAs. Managing non-group assets (such as client assets) constitutes VA management and requires a licence.
Dealing in VAs solely for the purpose of VA management will not require a VA dealing licence: Consistent with the exemptions applicable to a RA9 license, the SFC and FSTB plan to introduce an exemption from the requirement to obtain a VA dealing licence if a VA management licensee performs dealing in VAs solely for the purpose of carrying on VA management. This means that where, for example, a fund manager licensed for VA management accepts VAs for subscribing to the fund and converts the VAs into cash prior to investing in other assets for the fund, or converts cash or other investments into VAs as part of managing the fund, it will not need to be licensed for VA dealing when performing such conversion.
Stablecoin-specific treatment: Recognising that specified stablecoins[5] issued by HKMA-licensed persons (Relevant Stablecoins) have a different risk profile from other VAs, the FSTB and SFC will introduce appropriate exemptions for SFC-licensed or registered intermediaries from obtaining relevant VA service provider licences or registrations in relation to their SFO activities involving Relevant Stablecoins.
Intermediaries licensed for RA9 will require a VA management licence where managing a portfolio consisting of both VA and investment products referencing VA: As with the VA Advisory Regime, the VA Management Regime is intended to capture “VA” as defined in the AMLO. However, managing a portfolio of investment products with exposure to or referencing VAs (e.g., derivatives and structured products referencing VAs and VA futures ETFs) will typically require an RA9 licence on the basis that such products are not VAs. Consequently, managing a portfolio consisting of both VAs and investment products referencing VAs would require both a VA management licence under the AMLO and an RA9 licence under the SFO. Similarly, managing portfolios investing in companies whose principal business is engaging in proprietary trading in VAs or managing fund of funds investing in underlying VA funds will generally require an RA9 licence rather than a VA management licence, as the management of such portfolios is the management of portfolios of securities rather than VAs.

C. Regulatory requirements

While the SFC will undertake a further public consultation in relation to the proposed regulatory requirements that will apply to VA management licensees, the Consultation Conclusions state that the regulatory requirements to be imposed on VA management service providers will be based on those currently applicable to licensed corporations or registered institutions providing VA management services under the Joint Circular as well as the terms and conditions for licensed corporations or registered institutions which manage portfolios that invest in virtual assets (VA Management Terms and Conditions). Additionally, the Consultation Conclusions note that:

FRR will be aligned with those for RA9 licensees: In keeping with the approach for VA advisory licencees, the FRR for VA management service providers will align with those currently imposed on RA9 licensed corporations, i.e., (i) a minimum required liquid capital of HK$100,000 where client assets are not held; and (ii) otherwise, a minimum paid‑up share capital of HK$5 million and a minimum required liquid capital of HK$3 million.
Firms licensed for both RA9 and VA advisory services will not be subject to duplicative regulatory capital requirements: Instead, such a corporation should be required to meet only the highest applicable regulatory capital threshold among the regulated activities and/or VA services for which it is licensed.
Staking will be allowed: The Consultation Conclusions confirm that SFC-authorised VA funds and private funds will continue to be permitted to engage in staking after the introduction of the VA Management Regime.
Experience of staff to date will be taken into consideration: As noted above, the FSTB and SFC will not introduce a de minimis threshold under the VA Management Regime. Accordingly, SFC‑licensed or registered intermediaries conducting RA9 activity under the SFO that manage portfolios with VA exposure below the current de minimis threshold will nonetheless be required to obtain a VA management licence or registration, and will be subject to the same regulatory standards as those managing portfolios with higher VA exposure. However, the Consultation Conclusions do note that the experience of staff in managing the VA portion of such portfolios will be recognised for the purposes of meeting the experience requirements under the VA Management Regime.

D. Custody of VA

The FSTB and SFC had previously proposed requiring VA management licensees to hold the VAs of the private funds they manage only with SFC-regulated VA custodians. This was the subject of ‘mixed feedback’ on the basis that this would be disproportionately restrictive to private funds, constrain execution capabilities and increase operational costs. Industry feedback also noted that this would disrupt existing private VA funds which have engaged overseas custodians for safekeeping of the funds’ VAs, and that restricting choice could disproportionately impact private equity / venture capital strategies.

Given this feedback, the SFC has indicated that it will allow private funds the flexibility of appointing qualified custodians outside of Hong Kong. However, the SFC has emphasized that investor protection still remains fundamental. Given this, where new tokens are not supported by qualified custodians and must be self‑custodied by VA management service providers, the SFC will impose robust self‑custody requirements. In addition, VA management service providers (other than authorised institutions) holding client assets will be subject to heightened financial resources requirements. VA management service providers should also be vigilant as to whether and when their custody of VAs on behalf of the funds they manage may trigger licensing requirements under the VA custodian service provider licensing regime.

III. Conclusion

Finally, the Consultation Conclusions confirm that the SFC’s current practice of imposing licensing or registration conditions on intermediaries under the SFO (e.g. those under the Joint Circular and VA Management Terms and Conditions) will be replaced by the new VA management and advisory regimes (as well as the VA dealing regime). Given this, intermediaries currently conducting VA‑related activities under the existing regime will be required to obtain a licence or registration under the new regimes once introduced, although an expedited process will be in place for firms already conducting these activities.

As stated above, we expect a legislative regime to be introduced into the Legislative Council during the course of this year. As the Consultation Conclusions also establish that there will be no deeming arrangements in place for existing VA advisory or VA management service providers, the FSTB and SFC have encouraged those industry stakeholders already engaged in or interested in providing VA advisory or VA management services are encouraged to engage with the SFC or the HKMA as soon as possible to discuss the licensing or registration process, and to provide feedback on applicable regulatory requirements.

[1] “Consultation Conclusions Legislative Proposal to Regulate Virtual Asset Advisory Service Providers and Virtual Asset Management Service Providers”, jointly published by the Financial Services and the Treasury Bureau and the Securities and Futures Commission on May 26, 2026, accessible here: https://apps.sfc.hk/edistributionWeb/api/consultation/conclusion?lang=EN&refNo=25CP12.

[2] “Hong Kong Concludes Consultations on Regulation of Virtual Asset Dealing and Custodian Services – With Yet More to Come”, published by Gibson, Dunn & Crutcher on January 5, 2026, accessible here: https://www.gibsondunn.com/hong-kong-concludes-consultations-on-regulation-of-virtual-asset-dealing-and-custodian-services-with-yet-more-to-come/.

[3] “Joint circular on intermediaries’ virtual asset-related activities” jointly published by the Securities and Futures Commission and the Hong Kong Monetary Authority on December 22, 2023, accessible here, and supplemented by the “Supplemental joint circular on intermediaries’ virtual asset-related activities” jointly published by the Securities and Futures Commission and the Hong Kong Monetary Authority on September 30, 2025, accessible at: https://apps.sfc.hk/edistributionWeb/gateway/EN/circular/doc?refNo=25EC50.

[4] “Hong Kong’s Regulators Refresh Guidance on Virtual Assets and Propose Legal Framework for Stablecoin Issuers”, published by Gibson, Dunn & Crutcher on February 2, 2024, accessible at: https://www.gibsondunn.com/hong-kong-regulators-refresh-guidance-on-virtual-asset-and-propose-legal-framework-for-stablecoin-issuers/; “Hong Kong SFC and HKMA Release Supplemental Guidance on Virtual Asset-Related Activities” published by Gibson, Dunn & Crutcher on October 9, 2025, accessible at: https://www.gibsondunn.com/hong-kong-sfc-and-hkma-release-supplemental-guidance-on-virtual-asset-related-activities/.

[5] Specific stablecoins are defined under section 4 of the Stablecoins Ordinance as stablecoins that maintain their value by referencing official currencies. See “Hong Kong Gets Ready for Stablecoin Regulation: HKMA Prepares for Enactment of the Regime” published by Gibson, Dunn & Crutcher on June 4, 2025, accessible at: https://www.gibsondunn.com/hong-kong-gets-ready-for-stablecoin-regulation-hkma-prepares-for-enactment-of-the-regime/.

The following Gibson Dunn lawyers prepared this update: William Hallatt, Emily Rumble, and Jane Lu.

William R. Hallatt (+852 2214 3836, whallatt@gibsondunn.com)

Emily Rumble (+852 2214 3839, erumble@gibsondunn.com)

Arnold Pun (+852 2214 3838, apun@gibsondunn.com)

Becky Chung (+852 2214 3837, bchung@gibsondunn.com)

Jane Lu (+852 2214 3735, jlu@gibsondunn.com)

Global Arbitration Review (subscription required) reported on comments made by Washington, D.C. partner Patrick Pearsall at London International Disputes Week. Patrick proposed inserting a mandatory requirement in arbitration agreements to conduct an early case assessment using artificial intelligence.

Patrick pointed out that we are “no longer asking whether AI case assessments are effective, the market has answered that.” The question is whether arbitration’s procedural architecture should “harness it deliberately, or continue to allow each party to use it privately and asymmetrically.”

Armando Albarrán, Gibson Dunn’s Partner in Charge in Madrid, sums up the firm’s strategy in Spain in an in-depth interview with Iberian Lawyer: “quality, quality, quality; execution; the best lawyers working for the best clients on the best deals.”

Our thesis, he added, “is that there is room for a small group of lawyers very focused on large transactions, or complex transactions, and very focused on client service.”

In the interview featured on the front page of the magazine’s Spanish edition, Armando discusses the firm’s thinking behind the recent launch in Madrid, the team he’s setting up there and the deals pipeline that has quickly emerged for Gibson Dunn, as well as the team’s transactional focus, especially cross-border, and how having an office in Spain is vital for wider European transactional work.

Read the full interview in Spanish and English (page 102).

Gibson Dunn advised KKR on its investment in Fresha.com Holding Inc., the leading marketplace and software platform for the beauty, wellness, and self-care industry, at a valuation of over $1 billion.

The Gibson Dunn corporate team in the U.K. was led by partners Wim De Vlieger and Isabel Berger and included associates Sarah Reder, Francesco Mancuso, and Lena Tarrin as well as partner Daniel Alterbaum and associate Mackenzie Alpert in the U.S. Additional support was provided by partner Sandy Bhogal and of counsel Bridget English (tax), partner Lore Leitner and associate Ioana Burtea (data privacy), partner Joel Harrison and associates Libby Pica and Elisa Wong (IP), partner James Cox and associates Georgia Derbyshire and Finley Willits (employment), partner Michelle Kirschner and associate Saad Khan (financial regulation), partner David Irvine and associates Tom Capper and Romni Ritherdon (finance), of counsel Richard Sen (real estate), and partner Valeri Bozhikov and associate Jonas Jousma (antitrust).

Partner Roger Singer is quoted in PERE’s “There’s a New Second Place in the PERE 100” (subscription required), which discusses Blue Owl Capital displacing Brookfield in the publication’s list of the world’s largest private real estate managers. “Their meteoric growth has been through acquisitions in a way that’s not true of some of the other largest managers,” Roger said.

Partner Michele Maryott has been named by the Orange County Business Journal (subscription required) to its inaugural OC50 2026 Most Prominent Businesswomen in Orange County list. She was selected for her work litigating labor and employment matters, “including defending employers against wage and hour and discrimination class actions, and retaliation, sexual harassment, wrongful termination and whistleblower claims.”