Richard Manfredi, Author at Gibson Dunn

Gibson Dunn is monitoring regulatory developments and executive orders closely. Our attorneys are available to assist clients as they navigate the challenges and opportunities posed by the current, evolving legal landscape.

On May 9, 2025, President Trump signed an Executive Order aimed at combatting “overcriminalization in federal regulations.” Reviving an Executive Order that was issued in the last days of the first Trump administration and quickly revoked by President Biden, the new Executive Order seeks to prevent “abuse and weaponization” of criminal regulatory offenses against “unwitting individuals” who lack the “privileges [of] large corporations, which can afford to hire expensive legal teams to navigate complex regulatory schemes and fence out new market entrants.” To advance that goal, the Executive Order is meant to “ease the regulatory burden on everyday Americans and ensure no American is transformed into a criminal for violating a regulation they have no reason to know exists.”

This new Executive Order is likely to lead to fewer U.S. Department of Justice (DOJ) criminal investigations and enforcement actions related to whether an individual or corporation acted in violation of a regulation, especially for individuals accused of strict-liability offenses. But the Executive Order, in combination with the reorganization of certain DOJ components, also may result in more aggressive investigations and severe punishments in those criminal regulatory actions that do proceed. As discussed in this alert, companies should closely follow the agency announcements directed by the Executive Order to assess criminal regulatory enforcement risks; engage with agencies to advocate for clearer and reduced enforcement approaches; and address allegations that could give rise to continuing risk under the Executive Order. Further analysis of the broader enforcement landscape, including consideration of DOJ’s recently announced enforcement priorities, can be found in Gibson Dunn’s forthcoming alert.

Policy: The Executive Order states that “it is the policy of the United States” that “[c]riminal enforcement of criminal regulatory offenses is disfavored,” except as to “the enforcement of the immigration laws or regulations” or “laws or regulations related to national security or defense.”

“Prosecution of criminal regulatory offenses,” the Executive Order explains, “is most appropriate for persons who know or can be presumed to know what is prohibited or required by the regulation and willingly choose not to comply, thereby causing or risking substantial public harm.” Thus, “[p]rosecutions of criminal regulatory offenses should focus on matters where a putative defendant is alleged to have known his conduct was unlawful.”

The Executive Order “disfavor[s]” criminal enforcement of “strict liability offenses” for violations of regulations—a scenario that “allows the executive branch to write the law, in addition to executing it”—and states that “agencies should consider civil rather than criminal enforcement” in such instances, “if appropriate.”

The Executive Order also provides that agencies promulgating regulations “should explicitly describe the conduct subject to criminal enforcement, the authorizing statutes, and the mens rea standard applicable to those offenses.”

Directives: Federal agencies are required under the Executive Order to take the following actions:

Report on Criminal Regulatory Offenses—Each agency must identify in a public report all criminal regulatory offenses enforceable by the agency or DOJ, with the applicable mens rea standards and potential criminal penalties for each offense. The Executive Order “strongly discourages” criminal enforcement of any offense not identified in these reports.
Promote Regulatory Transparency—In promulgating new rules, agencies must identify any potential criminal implications for a violation of the rule and “explicitly state a mens rea”
Establish a Default Mens Rea for Criminal Regulatory Offenses—Each agency, in consultation with the Attorney General, must “examine the agency’s statutory authorities and determine whether there is authority to adopt a background mens rea standard for criminal regulatory offenses that applies unless a specific regulation states an alternative mens rea.”
Publish Guidance on Criminal Referrals—By June 23, 2025, agencies are required to publish guidance outlining the factors considered when referring regulatory violations to the DOJ for criminal enforcement. The Executive Order notes that agencies should consider factors such as the harm caused; the defendant’s gain; and whether the defendant had specialized knowledge, licensure, or general awareness of the unlawfulness of his or her conduct.

Historical Context: As noted, the new Executive Order mirrors President Trump’s January 2021 order titled “Protecting Americans from Overcriminalization through Regulatory Reform” (EO 13980),[1] which was intended to shield Americans from “unwarranted criminal punishment for unintentional violations of regulations.” That prior order required agencies to make explicit the mens rea element of criminal offenses and to focus enforcement on individuals who “know what is prohibited or required by the regulation and choose not to comply.” It also similarly stated that strict liability offenses were “disfavored” and that administrative or civil remedies should be pursued instead, “when appropriate.”

The new Executive Order also reflects ongoing legislative debate. Dating back to 2015, various Republican Senators and Representatives have proposed legislation seeking to establish a default mens rea standard for criminal offenses that lack an expressly required state of mind. Most recently, Representative Andy Biggs (R-AZ-5) introduced the Mens Rea Reform Act of 2025, H.R. 59, which, like its predecessors, would “establish [ ] a default mens rea standard . . . for federal criminal offenses—statutory and regulatory—that lack an explicit standard.” The bill is currently pending in the House Judiciary Committee.

Potential Enforcement Implications: It is uncertain what effect the new Executive Order will ultimately have on enforcement actions, especially those involving corporations, but we expect that it may result in fewer but more severe regulatory prosecutions.

The specific terms of the Executive Order afford plenty of leeway for corporate enforcement actions. By its terms, the Executive Order is focused on avoiding the prosecution of “unwitting individuals” for violations of regulations “they have no reason to know exist,” and contrasts such individuals with “large corporations” that “can be presumed to know what is prohibited or required by [a] regulation.” The Executive Order is also seemingly aimed at reducing the prosecution of conduct that allegedly violates a regulation interpreting or implementing a statute (where the “executive branch . . . write[s] the law, in addition to executing it”), as opposed to conduct that allegedly violates the express terms of a statute. That may be a meaningful distinction in the enforcement of statutes like the Federal Food, Drug, and Cosmetic Act that specify particularized violations and remedies, including strict-liability misdemeanor offenses, and are applied more frequently to corporations than individuals. Indeed, as described in Gibson Dunn’s forthcoming alert, DOJ’s Criminal Division announced, just days after the issuance of the Executive Order, that it “will prioritize investigating and prosecuting. . . . [v]iolations of the Federal Food, Drug, and Cosmetic Act,” among other areas.[2] The Executive Order’s explicit carveouts for conduct affecting immigration, national security, and defense also exempt a potentially broad range of corporate conduct from its mandates, especially under the administration’s expansive interpretation of those terms to date. And it may not prove challenging for prosecutors to assert that an investigation involving a possible regulatory offense is seeking to identify potentially knowing or intentional misconduct, or that the conduct under investigation “caus[ed] or risk[ed] substantial public harm.”

At the same time, the Executive Order’s clear policy statement is that “[c]riminal enforcement of criminal regulatory offenses is disfavored,” and DOJ leadership will presumably assess proposed investigations and enforcement actions with that policy in mind. Such assessments likely will lead to fewer DOJ actions involving alleged regulatory offenses, against both individuals and corporations. The policy also may be achieved, in part, by DOJ leadership’s significant streamlining of DOJ enforcement components that specialized in the enforcement of crimes related to regulated products or services, as well as the reduction (or elimination) of associated regulatory agencies. As a result, we expect that certain regulatory enforcement actions will be less frequent, especially those of the sort pursued by the Biden administration and relating to alleged violations of technical environmental, tax, and agency-reporting regulations.

Although the Executive Order will likely lead to less criminal enforcement of regulatory offenses, it may also increase the severity of allegations and punishments in those matters that do proceed. For example, DOJ has historically charged defendants with stand-alone, strict-liability misdemeanor offenses only in conjunction with a negotiated plea bargain; the offenses are almost never charged in a case that will be litigated. That has particularly been true of Federal Food, Drug, and Cosmetic Act misdemeanors charged under the “Responsible Corporate Officer Doctrine” (also known as the “Park Doctrine”), which allows prosecution of individuals without intent, knowledge, or direct participation in the alleged misconduct if they were “responsible corporate officers” who could have prevented it.[3] Park charges are almost exclusively brought in connection with negotiated resolutions, in which an executive accepts responsibility without admitting knowledge of or participation in misconduct in exchange for not being charged with more serious crimes. The predecessor Executive Order that President Trump issued in his first term (EO 13980) acknowledged this reality and included an exception for strict-liability misdemeanor prosecutions concluded via plea agreement. The new Executive Order includes no such exception. As a result, defendants against whom investigations proceed may now have fewer and more severe settlement options, likely encountering demands to plead guilty to a knowing violation or face trial. Yet either option risks significant costs and ramifications, including with respect to a defendant’s ability to contract with the federal government or receive federal funds.

This potential trend toward fewer but more severe regulatory prosecutions may also be accelerated by President Trump’s restructuring of the prosecutors based in DOJ’s Washington, DC, headquarters to consolidate criminal enforcement work in the Criminal Division. That consolidation may lead to more aggressive actions in those prosecutions that advance.

For instance, DOJ leadership has announced that the Civil Division’s Consumer Protection Branch (CPB) will be divided, with its civil work remaining in the Civil Division and its criminal work (and most of its personnel) moving to a consumer protection unit of the Criminal Division’s Fraud Section. For more than fifty years, CPB attorneys used both civil and criminal tools to enforce laws administered by the U.S. Food and Drug Administration, Federal Trade Commission, Drug Enforcement Administration, Consumer Product Safety Commission, and National Highway Traffic Safety Administration. CPB also oversaw all prosecutions by U.S. Attorney’s Offices under consumer protection laws like the Federal Food, Drug, and Cosmetic Act. CPB’s flexibility in remedies and familiarity with complex statutes allowed it to pursue investigations and reach resolutions involving complicated dynamics, often using civil or misdemeanor remedies to secure relief for consumers—collecting more than $20 billion in penalties and restitution since 2017—while allowing defendants to preserve important business functions. Both by their new placement in the Criminal Division and because of the new Executive Order, prosecutors investigating consumer protection matters may have less flexibility moving forward. In addition, criminal resolutions involving such offenses will now track the Criminal Division’s resolution templates and compliance requirements, which are more robust and have less consideration for the role of regulatory agencies than those used in most matters by CPB.

Industry Opportunities: This shifting enforcement landscape presents both opportunities and obstacles for companies. Companies should consider the following actions in the short and long term:

Monitor Agency Reports: Companies should pay close attention to all agency reports listing which criminal regulatory offenses are enforced by that agency, along with the offense’s mens rea standard. Considering the president’s directive that criminal enforcement of offenses not listed in these reports is “strongly discouraged,” the reports may be important guides for companies seeking to identify areas of enforcement risk.
Review and Update Compliance Programs: Given the Executive Order’s implication that “large corporations” with “expensive legal teams to navigate complex regulatory schemes” likely “can be presumed to know what is prohibited or required by . . . regulation,” it is important for companies to maintain effective internal audit and compliance programs to help demonstrate that any regulatory noncompliance was not “willingly” pursued.

Advocate for Civil or Administrative Enforcement: Companies under investigation for regulatory offenses should evaluate the applicability of the Executive Order and, if appropriate, advocate for civil or administrative enforcement instead of criminal action. The Executive Order also provides an opportunity for industry to engage with agencies to advocate for reforms on the use of criminal enforcement in the regulatory context.
Investigate Allegations of Fraud: Following the Executive Order and the restructuring of DOJ components, it is perhaps more likely that regulatory violations may be pursued under fraud theories and statutes. Companies should diligently investigate and address internal and external allegations of wrongdoing, particularly those that could form the basis of a claim of fraud against the government.

[1] https://trumpwhitehouse.archives.gov/presidential-actions/executive-order-protecting-americans-overcriminalization-regulatory-reform/.

[2] Memorandum from Matthew R. Galeotti, Head of the Criminal Division, U.S. Department of Justice to All Criminal Division Personnel re Focus, Fairness, and Efficiency in the Fight Against White-Collar Crime (May 12, 2025).

[3] 421 U.S. 658, 672 (1975).

The following Gibson Dunn lawyers prepared this update: F. Joseph Warin, Stephanie Brooker, Winston Chan, Gus Eyler, Courtney Brown, Matt Axelrod, Katlin McKelvie, Rachel Baron, Aquila Maliyekkal, and Alice Wang.

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 Gibson Dunn’s White Collar Defense and Investigations practice group:

Washington, D.C.
F. Joseph Warin (+1 202.887.3609, fwarin@gibsondunn.com)
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From the Derivatives Practice Group: This week, two CFTC Commissioners announced their departure.

Commissioner Christy Goldsmith Romero Makes Statement on Departure from CFTC. On May 16, Commissioner Christy Goldsmith Romero announced that she intends to step down from the Commission and retire from federal service. Her final day at the Commission will be May 31. [NEW]
Commissioner Summer K. Mersinger Makes Statement on Departure from CFTC. On May 14, Commissioner Mersinger announced that she intends to step down from her position as Commissioner at the CFTC at the end of the month, to pursue new opportunities. [NEW]
CFTC Warns Public of Imposter Scam Targeting Fraud Victims. On May 14, the CFTC warned the public about a growing imposter scam involving individuals falsely claiming to represent the agency. According to the CFTC, scammers are contacting members of the public and claiming to represent the CFTC Office of Inspector General and promise to help financial fraud victims recover lost funds from foreign bank accounts. The CFTC Office of Inspector General stated that it will never contact individuals with offers to recover money lost to investment scams. [NEW]
Acting Chairman Pham Makes Statement on Court Sanctions Against CFTC. On May 13, CFTC Acting Chairman Caroline D. Pham made a statement regarding the Federal District Court report and recommendations for sanctions against the CFTC for misconduct in CFTC v. Traders Global Group Inc, highlighting proactive efforts to overhaul the CFTC’s Division of Enforcement and reform culture and conduct, develop staff, and leverage expertise and reduce siloing. [NEW]
CFTC Staff on Leave Pending Investigation. On May 5, pursuant to the President’s executive orders on lawful governance and accountability, the CFTC placed certain staff on administrative leave for potential violations of laws, government ethics requirements and professional rules of conduct. The CFTC stated it is committed to holding employees to the highest standards, as expected by American taxpayers. Investigations are currently ongoing into these matters and the CFTC has committed to provide updates as appropriate. [NEW]
SEC Publishes New Market Data, Analysis, and Visualizations. On April 28, the SEC’s Division of Economic and Risk Analysis has published new data and analysis on the key market areas of public issuers, exempt offerings, Commercial Mortgage-Backed Securities, Asset-Backed Securities, money market funds, and security-based swap dealers in an effort to increase transparency and understanding of our capital markets amongst the public.

New Developments Outside the U.S.

ESMA Delivers Technical Advice on Market Abuse and SME Growth Markets as Part of the Listing Act. On May 7, ESMA published its advice to the European Commission to support the Listing Act’s goals to simplify listing requirements, enhance access to public capital markets for EU companies, and improve market integrity. In relation to Market Abuse Regulation (“MAR”), the advice covers: protracted processes, identifying key moments for public disclosure; delayed public disclosure, listing situations where delays are not allowed; and Cross-Market Order Book Mechanism, indicating the methodology for the identification of trading venues with significant cross-border activity.
ESMA Consults on Rules for ESG Rating Providers. On May 2, ESMA published a Consultation Paper on draft Regulatory Technical Standards (“RTS”) under the Environmental, Social, and Governance (“ESG”) Rating Regulation. The draft RTS cover the following aspects that apply to ESG rating providers: the information that should be provided in the applications for authorization and recognition; the measures and safeguards that should be put in place to mitigate risks of conflicts of interest within ESG rating providers who carry out activities other than the provision of ESG ratings; the information that they should disclose to the public, rated items and issuers of rated items, as well as users of ESG ratings.
ESMA Publishes the Annual Transparency Calculations for Non-equity Instruments and Bond Liquidity Data. On April 30, ESMA, the EU’s financial markets regulator and supervisor, published the results of the annual transparency calculations for non-equity instruments and new quarterly liquidity assessment of bonds under MiFID II and MiFIR.
ESMA Report Shows Increased Data Use Across EU and First Effects of Reporting Burden Reduction Efforts. On April 30, ESMA published the fifth edition of its Report on the Quality and Use of Data. The report reveals how the regulatory data collected has been used by authorities in the EU and provides insight into actions taken to ensure data quality. The document presents concrete cases on data use ranging from market monitoring to supervision, enforcement and policy making. The report also highlights ESMA’s Data Platform and ongoing improvements to data quality frameworks as key advancements in tools and technology for data quality.
ESMA Issues Supervisory Guidelines to Prevent Market Abuse under MiCA. On April 29, ESMA published guidelines on supervisory practices to prevent and detect market abuse under the Market in Crypto Assets Regulation (“MiCA”). Based on ESMA’s experience under MAR, the guidelines intended for National Competent Authorities include general principles for effective supervision and specific practices for detecting and preventing market abuse in crypto assets. They consider the unique features of crypto trading, such as its cross-border nature and the intensive use of social media.

New Industry-Led Developments

IOSCO Concludes its 50th Annual Meeting. On May 15, IOSCO concluded its 50th Annual Meeting, which was hosted by the Qatar Financial Markets Authority (“QFMA”) in Doha. IOSCO welcomed near 500 participants over the course of three days, followed by the QFMA public conference. The IOSCO Annual Meeting brings all 130 member jurisdictions together to discuss the most relevant issues and risks with regard to global financial markets, and how to assist regulators in implementing standards through capacity building. [NEW]
ISDA Publishes Paper Exploring Use of Generative AI to Extract and Digitize CSA Clauses. On May 15, ISDA published a whitepaper that shows generative artificial intelligence can be used to accurately and reliably extract, interpret and digitize key legal clauses from ISDA’s credit support annexes, showing how this technology could increase efficiency, cut costs and reduce risks in derivatives processes that have traditionally been highly manual and resource intensive. [NEW]
ISDA Margin Survey Shows Leading Derivatives Firms Collected $1.5 Trillion of Margin at Year-end 2024. On May 14, ISDA published its latest annual margin survey, which shows that initial margin (“IM”) and variation margin collected by leading derivatives market participants for their non-cleared derivatives exposures increased by 6.4% to $1.5 trillion at the end of 2024. The 32 responding firms included all 20 phase-one entities (the largest derivatives dealers subject to regulatory IM requirements in the first implementation phase), five of the six phase-two firms and seven of the eight phase-three entities. [NEW]
ISDA Extends Digital Regulatory Reporting to Support Revised Canadian Reporting Rules. On May 13, ISDA extended its Digital Regulatory Reporting solution to cover new reporting rules in Canada and has made it compatible with a trade reporting messaging format used for North America reporting to maximize the benefit of adoption by those firms subject to the rules. The revisions are being implemented by the Canadian Securities Administrators and are scheduled for implementation on July 25, 2025. [NEW]
ISDA Publishes Governance Committee Proposal for CDS Determinations Committees. On May 8, ISDA published a proposal for a new governance committee for the CDS Determinations Committees (“DCs”), the first in a series of amendments to improve the structure of the DCs and maintain their integrity in changing economic and market conditions. The governance committee would be responsible for taking market feedback and adopting rule changes affecting the structure and operations of the DCs to ensure their long-term viability and meet market expectations for efficiency and transparency in credit event determinations.
ISDA Presents Proposed Charter for the Credit Derivatives Governance Committee. On May 8, ISDA presented the proposed Charter for the Credit Derivatives Governance Committee and accompanying DC Rule changes to implement. Pursuant to the announcement made in 2024, an ISDA working group formed from ISDA’s Credit Steering Committee has worked on producing the Governance Committee solution. ISDA views the Governance Committee as the first step in implementing the other recommended changes from the Linklaters’ report as part of an independent review on the composition, functioning, governance and membership of the DCs.
ISDA Responds to FASB Proposal on KPIs for Business Entities. On April 30, ISDA submitted a response to the Financial Accounting Standards Board’s (“FASB”) proposal on financial key performance indicators (“KPIs”) for business entities. In the response, ISDA addressed the implications of KPI standardization, its potential impact on financial reporting and risk management, and the broader cost-benefit considerations for preparers and investors. Based on proprietary analysis, ISDA does not view financial KPI standardization or the proposed disclosures as urgent priorities for the FASB at this time.
CPMI-IOSCO Assesses that EU has Implemented Principles for Financial Market Infrastructures for Two FMI Types. On April 28, CPMI-IOSCO released a report that assessed the completeness and consistency of the legal, regulatory and oversight framework in place as of October 30, 2019. The report finds that the implementation of the Principles for Financial Market Infrastructures is complete and consistent for all Principles for payment systems. The legal, regulatory and oversight frameworks in the EU for central securities depositories and securities settlement systems are complete and consistent with the Principles in most aspects. However, the assessment identified some areas for improvement, particularly in aspects where implementation was broadly, partly, or not consistent, including risk and governance principles.

The following Gibson Dunn attorneys assisted in preparing this update: Jeffrey Steiner, Adam Lapidus, Marc Aaron Takagaki, Hayden McGovern, 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)

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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 )

Hayden K. McGovern, Dallas (214.698.3142, hmcgovern@gibsondunn.com)

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

On May 14, 2025, the Governor of Texas signed SB 29 into law which introduced significant amendments to the Texas Business Organizations Code affecting Texas corporations, limited partnerships and limited liability companies.

Overview

On May 14, 2025, the Governor of Texas signed into law significant amendments to the Texas Business Organizations Code (TBOC). The new laws introduce consequential changes affecting governance, governing authority liability, shareholder rights, and internal management of corporations, limited liability companies, limited partnerships, and other entities organized under the TBOC. We have summarized the most significant changes reflected in the amendments below. These changes became effective on May 14, 2025.

Director, Officer, and Managerial Duties: New Presumptions and Protections

A central feature of the amendments is the codification of the business judgement rule. Specifically, the amendments codify the presumption that directors, officers, and other managerial officials of corporations, limited liability companies, and limited partnerships acted in compliance with their duties. The presumptions apply to entities that are publicly traded or that affirmatively opt in.

For corporations, the actions of directors and officers are presumed to be taken in good faith, on an informed basis, in the best interests of the corporation, and in obedience to the law and the corporation’s governing documents. To prevail in a cause of action claiming a breach of duty, the claimant must rebut one or more of these presumptions and prove (i) the act or omission was a breach of the person’s duties as a director or officer and (ii) the breach involved fraud, intentional misconduct, ultra vires acts, or knowing violations of law. These protections are in addition to any existing statutory or common law defenses.

For limited liability companies and limited partnerships, these amendments also clarify that governing documents may expand, restrict, or eliminate fiduciary duties and related liabilities, including the duties of loyalty, care and good faith.

Limitation on Derivative Actions

Publicly traded corporations or corporations that (i) have 500 or more shareholders and (ii) have made an affirmative election to opt in to the statutory presumptions that directors and officers acted in compliance with their duties, may institute a minimum ownership threshold for shareholders to bring derivative actions. The amendment allows such corporations to set a minimum ownership threshold of up to 3% of the outstanding shares of the corporation to initiate such proceedings.

Attorney Fee Awards

The amendments provide limitations on awards of attorney fees in derivative proceedings through limiting what is considered a substantial benefit to an entity. The amendments provide that substantial benefits to a corporation, limited partnership or limited liability company do not include additional or amended disclosures made to shareholders, limited partners, or members respectively.

Independence of Committees Reviewing Related Party Transactions

Boards of publicly traded corporations[1] may petition the Texas Business Court (or any other district court with proper jurisdiction, if the corporation’s principal place of business is not located in an operating division of the Texas Business Court) to make a determination on the independence of the committee of directors formed to review and approve transactions involving controlling shareholders, directors, or officers. After expedited proceedings to determine appropriate legal counsel to represent the corporation and its shareholders (other than any relevant controlling shareholder), the court will hold an evidentiary hearing and render a binding determination regarding the independence of the directors on the committee. The finding is “dispositive” absent facts not presented to the court.

Jury Trial Waivers and Exclusive Forum Selection

The amendments expressly permit entities to include, in their governing documents, waivers of the right to a jury trial for any internal entity claims. Under Texas law, internal entity claims include claims of any nature such as derivative claims that are based on (i) rights, powers, and duties of its governing authority, governing persons, officers, owners, and members; and (ii) matters relating to its membership or ownership interests. This includes, for example, claims of breach of fiduciary duties by directors of corporations. Such waivers are enforceable even if not individually signed by members, owners, officers or governing persons. A person is considered to have knowingly waived the right to a jury trial if the person voted for or ratified the document containing the waiver or acquired stock in the entity at, or continued to hold stock in a particular entity after, a time in which the waiver was included in the governing documents. Also, in their governing documents, entities may choose an exclusive Texas forum and venue for internal entity claims.

Inspection Rights

The amendments clarify and, in some respects, limit the ability of shareholders, members and partners to inspect records. Notably, emails, text messages, and social media communications are excluded from entity records, unless those records effectuate an action by the corporation, limited liability company or limited partnership. Furthermore, for publicly traded corporations or corporations that affirmatively elect to opt in to the statutory presumptions that directors and officers acted in compliance with their duties, inspection demands by a requesting holder with ongoing or expected litigation involving the corporation or derivative proceedings may be denied. However, these changes do not impair the right to obtain discovery of records from the corporation in an active or pending lawsuit.

Conclusion

Texas is a notable forum for corporate activity and innovation. These amendments provide enhanced protections for directors and officers of Texas entities and should reduce litigation risks, particularly for publicly traded Texas entities. The changes also impose new limitations on shareholders, especially regarding inspection and derivative actions. Additional proposed amendments to the TBOC are currently proceeding through the legislative system. Gibson Dunn will publish a later update summarizing these amendments as they become law.

Texas corporations should update their training for boards of directors and review their organizational documents, internal procedures, and compliance practices to carefully assess the impact of these changes. Gibson Dunn’s Texas lawyers are available to assist with any questions you may have regarding these developments.

[1] This section of the code also applies to corporations that opt in to the statutory presumptions that directors and officers acted in compliance with their duties.

The following Gibson Dunn lawyers prepared this update: Gerry Spedale, Jason Ferrari, and Hillary Holmes.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. To learn more, please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Securities Regulation & Corporate Governance practice group, or the authors in Houston:

Gerry Spedale (+1 346.718.6888, gspedale@gibsondunn.com)

Hillary H. Holmes (+1 346.718.6602, hholmes@gibsondunn.com)

Jason Ferrari (+1 346.718.6736, jferrari@gibsondunn.com)

The Civil Transactions Law codifies the rules governing liquidated damages clauses under Saudi law. This client alert outlines key considerations for contracting parties when adopting such clauses, and how courts may approach them in practice.

How Liquidated Damages Clauses are Recognized in Saudi Arabia

The Saudi legal framework recognizes liquidated damages as pre-agreed estimates of losses incurred by one party due to the other party’s breach of contract, including non-performance or delay in fulfilling contractual obligations.

Historical Context

Even prior to the Civil Transactions Law, Saudi courts recognized liquidated damages clauses based on Sharia principles. Such clauses have been upheld as valid and enforceable, except in cases where:

the breaching party had a legitimate excuse for non-performance or delay; or
the agreed amount was deemed excessively high, amounting to financial coercion, in which cases courts have assessed excessiveness based on prevailing customs and practices.[1]

How Liquidated Damages Operate Today

Validity:Parties can agree on liquidated damages, either in the original contract or a later agreement.[2]

Simplified Burden of Proof:Liquidated damages clauses render the occurrence of damages presumed. To enforce such a clause, the aggrieved party is not required to prove damage or causation – merely that a breach has occurred.[3]

Avoiding Liquidated Damages:A party may avoid liability under a liquidated damages clause by proving either:
- that the other party did not suffer any damage;[4] or
- that the damage was not caused by the party’s breach, but rather by the other party’s acts, omissions, or a force majeure event.
Reducing Liquidated Damages:The breaching party may be successful in reducing the sum of liquidated damages by proving either:
- that the pre-agreed amount is grossly exaggerated, thereby allowing the court to rule in accordance with the general principles of liability under Saudi law;[5] or
- that the breaching party has partially performed their obligations, thereby allowing the court to assess the extent of unperformed obligations and apply the liquidated damages clause accordingly.[6]
Court Discretion:Courts cannot freely adjust liquidated damages clauses. Their discretion is limited to:
- reducing the amount in cases of gross exaggeration or partial performance. A mere discrepancy between the damages incurred and the agreed sum is insufficient to warrant reduction[7]; or
- increasing the sum if the non-breaching party proves that deceit or gross negligence by the debtor caused the damage to exceed the agreed sum.[8]
Prohibition on Payment Obligations:In line with Saudi Arabia’s strict prohibition of interest payments[9], it is impermissible as a matter of public policy for liquidated damages to apply to payment obligations.[10]

How Saudi Arabia Compares to Neighboring Jurisdictions:Saudi Arabia’s approach towards liquidated damages clauses shares similarities with the approaches of UAE and Egypt, but there are some differences. For example:

Element	Saudi Arabi	UAE	Egypt
Default position on prior notice of imposition	No prior notice required.[11]	Prior notice required.[12]	Prior notice required.[13]
Court discretion to adjust liquidated damages	Relatively limited.[14]	Relatively broad.[15]	Relatively limited.[16]

Points to Consider When Drafting a Liquidated Damages Clause

Be specific. Clearly define what triggers the liquidated damages (delays, quality issues, etc.).
Consider industry benchmarks. Base estimates on market standards or historical data to avoid claims of exaggeration.
Expressly address partial performance. Specify how damages will be calculated if some of the triggering obligations are met.
Follow notice requirements. While Saudi law does not by default require notice to enforce liquidated damages, your specific contract might.
Understand burden of proof requirements. Know who bears the burden of proof in different scenarios to claim or defend tactically.
Consider all available remedies and seek them tactically. Parties may be precluded from enforcing liquidated damages clauses in conjunction with other contractual remedies.

[1] Resolution No. 25 dated 31/08/1394H by the Council of Senior Scholars: “The Council unanimously decides that the penalty clause stipulated in contracts is valid and legally binding, and must be upheld unless there is a legitimate excuse for the breach of the obligation that justifies it under Sharia. In such a case, the excuse nullifies the obligation until it ceases. If the penalty clause is, by customary standards, excessive to the extent that it serves as a financial threat and deviates significantly from the principles of Sharia, then fairness and equity must prevail, based on the actual loss of benefit or incurred harm.” Cases in which Saudi courts upheld the Council of Senior Scholar’s Resolution No. 25 include the General Court’s Decision No. 1 of 1439H: “The liquidated damages clause included in contracts is a valid and enforceable condition which must be upheld, unless there is a legitimate excuse for breaching the obligation that is recognized under Shari’a, in which case the excuse suspends the obligation until it ceases. If the amount of liquidated damages is excessive by customary standards, to the point that it constitutes financial coercion and departs from the principles of Shari’a, then recourse must be had to justice and fairness, based on the actual harm incurred or the benefit lost. The determination of such matters in case of dispute is to be made by the competent court with the assistance of experts and professionals.”

[2] Civil Transactions Law, Article 178: “The contracting parties may specify in advance the amount of compensation whether in the contract or in a subsequent agreement, unless the subject of the obligation is a cash amount. The right to compensation shall not require notification.”

[3] For example: Board of Grievance’s decision in Case No. 20 of 1430H (predating the enactment of the Civil Transactions Law): “…and the administrative authority is not required to prove that it has suffered harm, given that [the liquidated damages] constitute an agreed-upon compensation for presumed harm, including harm resulting merely from delay.” Commercial Court in Riyadh’s decision in Case No. 4530906759 of 1445H: “The Law expressly provides that liquidated damages are not due to the creditor if the debtor proves that the creditor has suffered no harm. This is specifically stated in paragraph (1) of Article (179) of the same Law mentioned above,” presuming that liquidated damages are initially owed to the creditor upon breach, and it is the debtor’s burden to rebut this presumption by proving the absence of harm. This position is consistent with the literature of leading scholars in the region. For example, A. Sanhouri, ‘Al Waseet on the Explanation of the Civil Code’, Part Two, p. 817, concerning a similarly formulated legal provision in Egypt’s Civil Code: “[…] the presence of a Liquidated Damages Clause renders the occurrence of damage presumed, and the creditor would not be required to prove it. Therefore, if the debtor alleges that the creditor has not incurred damage, it is he who would bear the burden of proof, and not the creditor.”

[4] Civil Transactions Law, Article 179: “Compensation that is contractually agreed upon by the parties shall not be payable if the debtor proves that the creditor has sustained no harm.”

[5] Civil Transactions Law, Article 179(2): “The court may, upon a petition by the debtor, reduce the compensation if the debtor establishes that the agreed-upon compensation was excessive or that the original obligation was partially performed.” A. Almarjah, ‘Explanation of the Saudi Civil Transactions law,’ 1445H, Part One, p. 297: “Judicial intervention is limited to removing exaggeration in the liquidated damages clause, not to assessing its proportionality to the actual harm. Accordingly, if the agreed liquidated damages exceed the actual harm, but the excess is not deemed gross, the judge may not reduce the amount.”

[6] Civil Transactions Law, Article 179(2): “The court may, upon a petition by the debtor, reduce the compensation if the debtor establishes that the agreed-upon compensation was excessive or that the original obligation was partially performed.”

[7] A. Sultan, ‘A Brief on the General Theory of Obligation’, 1983, Section 2, p. 78, concerning a similarly formulated legal provision in Egypt’s Civil Code: “…if there is excess in the quantification, but it is not exaggerated, it is impermissible to reduce it, as the fundamental principle is that the Judge orders in accordance with what has been agreed-upon by the parties, and absent one of the conditions of the exception, it is obligatory to resort to the fundamental principle.” A similar opinion has been given by a Saudi scholar; A. Almarjah, ‘Explanation of the Saudi Civil Transactions law,’ 1445H, Part One, p. 297: “Judicial intervention is limited to removing exaggeration in the liquidated damages clause, not to assessing its proportionality to the actual harm. Accordingly, if the agreed liquidated damages exceed the actual harm, but the excess is not deemed gross, the judge may not reduce the amount.”

[8] Civil Transactions Law, Article 179(3): “The court may, upon a petition by the creditor, increase the amount of compensation to the extent necessary to cover the harm if the creditor establishes that an act of fraud or gross negligence by the debtor is what caused the harm to exceed the agreed-upon compensation.”

[9] Commercial Court in Jeddah, Case No. 4531041638 of 1445H: “…it is impermissible to agree on compensation where the subject of the obligation is a monetary amount. Given that this Article pertains to public order (public policy), the parties may not contract out of or override its provisions…”

[10] See, Resolution No. (109) (12/3) of the International Islamic Fiqh Academy: “It is permissible to stipulate a penalty clause in all financial contracts, except in contracts where the primary obligation is a debt, as this would constitute explicit riba (usury),” upheld by the Commercial Court in Jeddah in Case No. 433665897 of 1443H.

[11] Civil Transactions Law, Article 178: “The contracting parties may specify in advance the amount of compensation […] The right to compensation shall not require notification.”

[12] UAE’s Civil Transactions Law, Article 387: “Compensation is not due without the debtor being notified, unless otherwise provided by law or agreed upon in the contract.”

[13] Egypt’s Civil Code, Article 218: “Unless otherwise specified, compensation is not due without the debtor being notified.”

[14] Civil Transactions Law, Article 179(2): “The court may, upon a petition by the debtor, reduce the compensation if the debtor establishes that the agreed-upon compensation was excessive or that the original obligation was partially performed.” Id, Article 179(3): “The court may, upon a petition by the creditor, increase the amount of compensation to the extent necessary to cover the harm if the creditor establishes that an act of fraud or gross negligence by the debtor is what caused the harm to exceed the agreed-upon compensation.”

[15] There are some inconsistent court decisions noted across and within each of the jurisdictions. UAE’s Civil Transactions Law, Article 390(2): “The judge may, in all cases, at the request of one of the parties, amend such an agreement, in order to make the amount assessed equal to the damage. Any agreement to the contrary is void.”

[16] Egypt’s Civil Code, Article 224: “(1) Damages fixed by agreement are not due, if the debtor establishes that the creditor has not suffered any loss. (2) The judge may reduce the amount of these damages, if the debtor establishes that the amount fixed was grossly exaggerated or that the principal obligation has been partially performed. (3) Any agreement contrary to the provisions of the two preceding paragraphs is void.”

The following Gibson Dunn lawyers prepared this update: Mahmoud Abdel Baky, Rashed Khalifah, and Hamzeh Zu’bi*.

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, any member of the firm’s International Arbitration, Judgment and Arbitral Award Enforcement, or practice groups, or the following authors in Riyadh:

Mahmoud Abdel-Baky (+966 55 056 6323, mabdel-baky@gibsondunn.com)

Rashed Z. Khalifah (+966 55 236 0511, rkhalifah@gibsondunn.com)

*Hamzeh Zu’bi is a trainee associate in Riyadh and not admitted to practice law.

Please join us for a presentation that focuses on the latest developments in two key markets: the UK and the Middle East. As regulatory landscapes and investor expectations evolve, companies seeking to go public in these markets should ensure that they are alive to the opportunities and challenges.

The session provides valuable insights for companies and shareholders preparing for IPOs, highlighting key IPO readiness steps that companies should be considering, and offering a strategic understanding of how to navigate regulatory complexities and market expectations.

MCLE CREDIT INFORMATION:

This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.0 credit hour, of which 1.0 credit hour may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit.

Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact CLE@gibsondunn.com to request the MCLE form.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour in the General Category.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

PANELISTS:

Jade Chu is a partner in the Dubai office of Gibson, Dunn & Crutcher, where he is a member of the Mergers & Acquisitions practice group.

He has significant experience advising corporates, government-related entities, sponsors and financial institutions on a wide range of corporate transactions (including cross-border public and private M&A, JVs and equity capital markets) and general corporate advisory matters.

Marwan Elaraby is the partner in charge of the Dubai office where he is a member of the Mergers & Acquisitions and Capital Markets Practice Groups.

Marwan advises clients on M&A and private equity transactions, as well as governments on strategic and regulatory matters. He also advises both issuers and underwriters on equity and debt securities offerings.

Chris Haynes is a corporate partner in the London office of Gibson Dunn.

Chris has extensive experience in equity capital markets transactions and mergers and acquisitions including advising corporates, investment banks and shareholders on initial public offerings (including multi-track processes), rights issues and other equity offerings as well as on public takeovers, private company M&A and joint ventures. He also advises on corporate and securities law and regulation.

Ibrahim Soumrany is a partner in the Dubai and Riyadh offices of Gibson, Dunn and Crutcher and is a member of the firm’s Capital Markets practice group.

Ibrahim’s capital markets experience includes advising public and private issuers and investment banks on a broad range of capital markets transactions including equity offerings (IPOs and secondary offerings) and debt offerings (conventional and Islamic). Ibrahim has extensive experience advising on transactions across a number of jurisdictions in the Middle East, the US and Europe. Ibrahim also regularly advises on public M&As as well as companies and their boards on listing requirements, securities and corporate governance matters and reporting obligations.

On May 12, 2025, the United States and China announced that each country would reduce tariff rates on the goods of the other country by 115%, marking a significant breakthrough in the rapidly escalated trade war.

On May 12, 2025, the White House released a Joint Statement with the People’s Republic of China, accompanied by a Fact Sheet, announcing a significant step back from the high tariff rates each country had imposed on the goods of the other since the beginning of April. On the same day, President Trump issued an Executive Order titled “Modifying Reciprocal Tariff Rates to Reflect Discussions with the People’s Republic of China” (“May 12 Order”), directing relevant U.S. agencies to implement reduced tariffs on goods from China. This alert provides an overview of the impactful commitments made in the Joint Statement by the United States and China, where both governments recognized “the importance of the critical bilateral economic and trade relationship between both countries and the global economy” and committed to take certain actions by May 14, 2025, to substantially reduce the previously imposed tariffs.

The Joint Statement marks a significant breakthrough, signaling that both the United States and China have pulled back from the brink of a more serious trade war and a potential collapse in bilateral economic relations. As noted by Treasury Secretary Scott Bessent, the United States does “not want a generalized decoupling from China.” While the Joint Statement involves mutual concessions, it remains expressly a temporary measure rather than a comprehensive or lasting resolution. While much remains to be negotiated, the Joint Statement represents a hopeful step forward.

I. U.S. Reduces Tariffs on Chinese Goods Imposed under IEEPA to 30% for the
Initial Period of 90 Days

The May 12 Fact Sheet notes that the United States and China will each lower tariffs by 115% while retaining an additional 10% tariff. Consistent with this statement, effective May 14, 2025, Chinese goods, including those originating in Hong Kong and Macau, will be subject to a total of 30% tariffs imposed under the International Emergency Economic Powers Act (IEEPA) for an “initial period of 90 days.” These emergency tariffs will be applied in addition to any other applicable tariffs, including tariffs imposed under Section 232, Section 301, or “most favored nation” duties. Specific breakdowns are provided below.

10% So-Called “Reciprocal” Tariffs

Pursuant to Section 2 of the May 12 Order, effective with respect to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on May 14, 2025, all articles imported into the United States from China, including Hong Kong and Macau, will be subject to an additional ad valorem tariff of 10% under the so-called “reciprocal” tariffs imposed by Executive Order 14257 of April 2, 2025. The prior April 2 executive order had imposed broad-reaching so-called “reciprocal” tariffs on all U.S. trading partners except for Mexico and Canada. The original country-specific rate for goods from China announced in that order was 34%. Under the May 12 Order, 24 percentage points are “suspended” for 90 days and replaced by the 10% duty. The May 12 Order removes the retaliatory tariff rates announced in subsequent executive orders of early April, notably the increased tariffs imposed by Executive Order 14259 (increasing the rate to 84%) and Executive Order 14266 (increasing the rate to 125%).

As a consequence of the May 12 Order, if a new deal is not reached during the initial period of 90 days, it appears that the United States may raise the “reciprocal” duty rate on Chinese goods to the originally announced 34%.

20% IEEPA-Fentanyl Tariffs and Other Tariffs that Continue to Apply

The May 12 Fact Sheet clarifies that the United States will retain all duties imposed on China prior to April 2, 2025, including: (i) Most Favored Nation tariffs; (ii) tariffs imposed under Section 301; (iii) industry-sector tariffs imposed under Section 232; and (iv) tariffs imposed pursuant to IEEPA related to the fentanyl-related national emergency announced and expanded in Executive Order 14195.

By way of background, on February 1, 2025, President Trump issued an executive orderimposing an additional 10% ad valorem rate of duty to all articles that are products of China or of Hong Kong, citing a national emergency with respect to illegal drugs entering the United States and China’s alleged failure to arrest, seize or otherwise intercept chemical precursor suppliers and money launderers connected to the illegal drug trade. President Trump subsequently increased such duties on China to 20%, effective March 4, 2025, citing China’s continued failure to adequately respond to the emergency. Thus, the total IEEPA-related tariffs imposed on goods from China is now 30%.

In addition, the Section 301 tariffs, imposed during the first Trump Administration in response to certain technology transfer practices in China, generally range from 7.5% to 25%, with certain products subject to higher duties up to 100%. Consequently, the effective average rate of duty for goods from China is approximately 40%-55%.

De Minimis Tariffs Adjustments

Section 4 of the May 12 Order decreases the tariff rate applicable to low-value imports from China (i.e., goods previously eligible for duty-free treatment under the de minimis exclusion) from 120% to 54%.

By way of background, the de minimis statutory exemption allows many shipments valued at $800 or less to enter the United States duty-free. Section 2(c)(i) of Executive Order 14256 of April 2, 2025 (Further Amendment to Duties Addressing the Synthetic Opioid Supply Chain in the People’s Republic of China as Applied to Low-Value Imports) eliminated the de minimis exception for China imports, effective May 2, 2025. Subsequently, Executive Order 14259 and Executive Order 14266 increased the duty rate on such goods.

The May 12 Order decreases the ad valorem rate of duty for low-value shipments from China and Hong Kong from 120% to 54% (this is still higher than the originally proposed low-value shipment rate of 30%). However, the May 12 Order retains the alternative “specific duty” option for low-value shipments delivered to the United States from China or Hong Kong via the international postal network at $100 per postal item, though this rate is no longer subject to the automatic increase originally scheduled to go into effect on June 1, 2025.

While the de minimis exclusion has been removed for goods from China and Hong Kong, it is still presently in place for imports that originate in other jurisdictions. However, President Trump has previously directed the Secretary of Commerce to develop mechanisms to collect IEEPA-based duties on low-value shipments from other jurisdictions.

II. Chinese Actions and Consultation Mechanism

China Lowers Tariffs on U.S. Goods to 10%

Pursuant to the Joint Statement, China issued an Announcement of the Customs Tariff Commission of the State Council No. 7 of 2025 on May 13, 2025, local time, that suspends the prior 34% tariff on goods from the United States originally announced on April 4, 2025, for a matching 90 days, while retaining a parallel 10% tariff during the period of the pause.

China to Remove Non-Tariff Barriers

In the Joint Statement and accompanying Fact Sheet, China committed to “adopt all necessary administrative measures to suspend or remove the non-tariff countermeasures taken against the United States since April 2, 2025.”

By way of background, China announced a range of non-tariff retaliatory measures on April 4, 2025, including the following:

China’s Ministry of Commerce added 11 U.S. companies to its list of so-called “unreliable entities,” which bars them from engaging in all import and export activities in China and making new investments in China.
Beijing added 16 U.S. entities to its export control list, which prohibits exports of dual-use items to the listed firms. Nearly all of the firms so targeted operate in the defense and aerospace industries.
The Ministry of Commerce announced the launch of an anti-dumping probe into imports of certain medical computed tomography tubes from the United States and India.
Beijing launched an anti-monopoly investigation into the PRC subsidiary of a major U.S. chemical company.
Beijing announced export controls on seven types of rare earth minerals to the United States, which are vital to end uses ranging from electric cars to defense. Notably, the United States imports its rare earth materials predominantly from China, which produces approximately 90% of the world’s supply.

Parties to Establish a Consultation Mechanism

The Joint Statement also promises that the U.S. and China “will establish a mechanism to continue discussions about economic and trade relations,” and that such discussions may be conducted alternately in China and the United States, or a third country upon agreement of the parties.

Conclusion

These developments involving the critical bilateral trading relationship between the United States and China, a relationship valued at an estimated $582 billion worth of annual goods trade, underscores the ongoing fluidity in global trade policy. We will continue to closely monitor developments related to tariffs and the progress of this and other anticipated trade deals. Gibson Dunn lawyers are prepared to help clients navigate this evolving landscape.

The following Gibson Dunn lawyers prepared this update: Hui Fang, Adam M. Smith, Donald Harrison, and Samantha Sewall.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. For additional information about how we may assist you, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or the following leaders and members of the firm’s International Trade Advisory & Enforcement practice group:

United States:
Ronald Kirk – Co-Chair, Dallas (+1 214.698.3295, rkirk@gibsondunn.com)
Adam M. Smith – Co-Chair, Washington, D.C. (+1 202.887.3547, asmith@gibsondunn.com)
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, shandler@gibsondunn.com)
Donald Harrison – Washington, D.C. (+1 202.955.8560, dharrison@gibsondunn.com)
Christopher T. Timura – Washington, D.C. (+1 202.887.3690, ctimura@gibsondunn.com)
Matthew S. Axelrod – Washington, D.C. (+1 202.955.8517, maxelrod@gibsondunn.com)
David P. Burns – Washington, D.C. (+1 202.887.3786, dburns@gibsondunn.com)
Nicola T. Hanna – Los Angeles (+1 213.229.7269, nhanna@gibsondunn.com)
Courtney M. Brown – Washington, D.C. (+1 202.955.8685, cmbrown@gibsondunn.com)
Amanda H. Neely – Washington, D.C. (+1 202.777.9566, aneely@gibsondunn.com)
Samantha Sewall – Washington, D.C. (+1 202.887.3509, ssewall@gibsondunn.com)
Michelle A. Weinbaum – Washington, D.C. (+1 202.955.8274, mweinbaum@gibsondunn.com)
Roxana Akbari – Orange County (+1 949.451.3850, rakbari@gibsondunn.com)
Karsten Ball – Washington, D.C. (+1 202.777.9341, kball@gibsondunn.com)
Hugh N. Danilack – Washington, D.C. (+1 202.777.9536, hdanilack@gibsondunn.com)
Hui Fang – Washington, D.C. (+1 202.777.9577, hfang@gibsondunn.com)
Mason Gauch – Houston (+1 346.718.6723, mgauch@gibsondunn.com)
Chris R. Mullen – Washington, D.C. (+1 202.955.8250, cmullen@gibsondunn.com)
Sarah L. Pongrace – New York (+1 212.351.3972, spongrace@gibsondunn.com)
Anna Searcey – Washington, D.C. (+1 202.887.3655, asearcey@gibsondunn.com)
Audi K. Syarief – Washington, D.C. (+1 202.955.8266, asyarief@gibsondunn.com)
Scott R. Toussaint – Washington, D.C. (+1 202.887.3588, stoussaint@gibsondunn.com)
Lindsay Bernsen Wardlaw – Washington, D.C. (+1 202.777.9475, lwardlaw@gibsondunn.com)
Shuo (Josh) Zhang – Washington, D.C. (+1 202.955.8270, szhang@gibsondunn.com)

Asia:
Kelly Austin – Denver/Hong Kong (+1 303.298.5980, kaustin@gibsondunn.com)
David A. Wolber – Hong Kong (+852 2214 3764, dwolber@gibsondunn.com)
Fang Xue – Beijing (+86 10 6502 8687, fxue@gibsondunn.com)
Qi Yue – Beijing (+86 10 6502 8534, qyue@gibsondunn.com)
Dharak Bhavsar – Hong Kong (+852 2214 3755, dbhavsar@gibsondunn.com)
Arnold Pun – Hong Kong (+852 2214 3838, apun@gibsondunn.com)

Europe:
Attila Borsos – Brussels (+32 2 554 72 10, aborsos@gibsondunn.com)
Patrick Doris – London (+44 207 071 4276, pdoris@gibsondunn.com)
Michelle M. Kirschner – London (+44 20 7071 4212, mkirschner@gibsondunn.com)
Penny Madden KC – London (+44 20 7071 4226, pmadden@gibsondunn.com)
Irene Polieri – London (+44 20 7071 4199, ipolieri@gibsondunn.com)
Benno Schwarz – Munich (+49 89 189 33 110, bschwarz@gibsondunn.com)
Nikita Malevanny – Munich (+49 89 189 33 224, nmalevanny@gibsondunn.com)
Melina Kronester – Munich (+49 89 189 33 225, mkronester@gibsondunn.com)
Vanessa Ludwig – Frankfurt (+49 69 247 411 531, vludwig@gibsondunn.com)

Pohl v. Cheatham, No. 23-0045 – Decided May 9, 2025

On May 9, the Texas Supreme Court held that Texas’s civil barratry statute doesn’t apply to soliciting legal-services contracts outside Texas.

“We reaffirm our longstanding presumption that a civil statute does not have extraterritorial effect unless the Legislature makes clear that such effect is intended.”

Justice Huddle, writing for the Court

Background:

Two Texas lawyers entered into legal-services contracts with clients in Louisiana and Arkansas to represent those clients in personal-injury cases filed in courts outside Texas. After those cases settled, the clients sued the Texas lawyers under Texas’s civil barratry statute, seeking to void their legal-services contracts. The clients alleged that the lawyers directed and financed out-of-state case runners to solicit clients, and that the lawyers coordinated and funded these efforts from their Texas offices.

The Texas lawyers moved for summary judgment, arguing that Texas’s civil barratry statute doesn’t apply because the alleged solicitation occurred outside Texas. The trial court granted summary judgment, but the court of appeals reversed. It held that applying Texas’s civil barratry statute wouldn’t be impermissibly extraterritorial because some of the lawyers’ acts, such as financing the out-of-state runners, occurred in Texas.

Issue:

Does Texas’s civil barratry statute apply to acts of solicitation that occurred outside Texas?

Court’s Holding:

No. Nothing in the civil barratry statute’s text overcomes the strong presumption against extraterritoriality. Applying the statute to the clients’ claims in this case would be impermissible because the statute’s focus is on the acts that procured the legal-services contracts—all of which occurred outside Texas.

What It Means:

The Court reaffirmed the strong presumption against extraterritoriality: “[T]he Legislature generally legislates with Texas concerns in mind, and Texas legislation therefore is meant to apply only within Texas’s borders.” Op. 15. The decision makes clear that defendants can challenge a plaintiff’s statutory claim on the ground that it seeks to give the statute an impermissible extraterritorial effect.
The Court rejected the position that a civil statute should be applied extraterritorially “merely because some or any conduct related to the violation occurs in Texas,” explaining that “the presumption would be meaningless if any domestic conduct could defeat it.” Op. 21–22. Instead, the Court stressed that courts must “home in on the core conduct the Legislature sought to address—the object of the statute’s solicitude—and determine where that conduct occurred.” Op. 22.
Relying heavily on the U.S. Supreme Court’s extraterritoriality precedents, the Court adopted a two-step framework for analyzing the extraterritoriality of Texas statutes. First, Texas courts consider whether the statutory text expresses a clear intent to overcome the “strong presumption against extraterritorial application of a Texas statute.” Op. 17–18. If not, courts must then assess whether applying the statute to the plaintiff’s claim would be an impermissible extraterritorial application. To do so, courts must “identify the ‘focus’ of the Legislature’s concern underlying the provision at issue” and “ask whether the conduct relevant to that focus occurred within or outside Texas.” Op. 21.

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 Texas Supreme Court. Please feel free to contact the following practice group leaders:

Appellate and Constitutional Law Practice

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
Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com

Related Practice: Texas General Litigation

Trey Cox +1 214.698.3256 tcox@gibsondunn.com	Collin Cox +1 346.718.6604 ccox@gibsondunn.com	Gregg Costa +1 346.718.6649 gcosta@gibsondunn.com
Mike Raiff +1 214.698.3350 mraiff@gibsondunn.com	Russ Falconer +1 214.698.3170 rfalconer@gibsondunn.com

This alert was prepared by Texas of counsels Ben Wilson and Kathryn Cherry and Texas associates Elizabeth Kiernan, Stephen Hammer, and Andrew Mitchell.

A new CFIUS “fast-track” pilot program—designed to streamline the investment process for foreign investors from allied and partner countries—aims to enhance efficiencies in the CFIUS review process while maintaining robust national security protections.

On May 8, 2025, the U.S. Department of the Treasury, in its capacity as Chair of the Committee on Foreign Investment in the United States (CFIUS), announced plans to establish a “fast-track” pilot program to expedite its review of investments from allied and partner countries. This program will include a first of its kind “Known Investor” portal, where CFIUS can collect information from foreign investors pre-filing with the aim of accelerating the review process. Treasury will launch this initiative as a pilot program with plans to refine it over time, though further details have not been provided at this time.

This development closely tracks President Trump’s America First Investment Policy (the “Policy”) issued on February 21, 2025, which outlined a dual policy goal: making the United States “the world’s greatest destination for investment dollars,” while also enhancing the “ability to protect the United States from new and evolving threats that can accompany foreign investment.” The Policy announced that the U.S. would create a “fast-track” process to facilitate greater investment from “specified allies and partner sources” based on “objective standards,” though a formal list of qualifying jurisdictions was not released. At the same time, the announcement underscored that CFIUS would maintain rigorous scrutiny on non-passive investments by the People’s Republic of China.

Looking forward, the “Known Investor” program could be particularly valuable for European and Middle Eastern investors, particularly for transactions with minimal national security risks. At this stage, it remains unclear whether the implementation will follow a notice and comment procedure via the Federal Register or whether guidance will be issued directly through the CFIUS website. The exact timeline for implementation also remains unclear.

Our team at Gibson Dunn is closely monitoring this new development and is actively advising clients on preparing for the new program.

The following Gibson Dunn lawyers prepared this update: Roxana Akbari, Sarah Burns, Stephenie Gosnell Handler, and Chris Mullen.

United States:
Ronald Kirk – Co-Chair, Dallas (+1 214.698.3295, rkirk@gibsondunn.com)
Adam M. Smith – Co-Chair, Washington, D.C. (+1 202.887.3547, asmith@gibsondunn.com)
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, shandler@gibsondunn.com)
Donald Harrison – Washington, D.C. (+1 202.955.8560, dharrison@gibsondunn.com)
Christopher T. Timura – Washington, D.C. (+1 202.887.3690, ctimura@gibsondunn.com)
Matthew S. Axelrod – Washington, D.C. (+1 202.955.8517, maxelrod@gibsondunn.com)
David P. Burns – Washington, D.C. (+1 202.887.3786, dburns@gibsondunn.com)
Nicola T. Hanna – Los Angeles (+1 213.229.7269, nhanna@gibsondunn.com)
Courtney M. Brown – Washington, D.C. (+1 202.955.8685, cmbrown@gibsondunn.com)
Amanda H. Neely – Washington, D.C. (+1 202.777.9566, aneely@gibsondunn.com)
Samantha Sewall – Washington, D.C. (+1 202.887.3509, ssewall@gibsondunn.com)
Michelle A. Weinbaum – Washington, D.C. (+1 202.955.8274, mweinbaum@gibsondunn.com)
Roxana Akbari – Orange County (+1 949.451.3850, rakbari@gibsondunn.com)
Karsten Ball – Washington, D.C. (+1 202.777.9341, kball@gibsondunn.com)
Hugh N. Danilack – Washington, D.C. (+1 202.777.9536, hdanilack@gibsondunn.com)
Mason Gauch – Houston (+1 346.718.6723, mgauch@gibsondunn.com)
Chris R. Mullen – Washington, D.C. (+1 202.955.8250, cmullen@gibsondunn.com)
Sarah L. Pongrace – New York (+1 212.351.3972, spongrace@gibsondunn.com)
Anna Searcey – Washington, D.C. (+1 202.887.3655, asearcey@gibsondunn.com)
Audi K. Syarief – Washington, D.C. (+1 202.955.8266, asyarief@gibsondunn.com)
Scott R. Toussaint – Washington, D.C. (+1 202.887.3588, stoussaint@gibsondunn.com)
Lindsay Bernsen Wardlaw – Washington, D.C. (+1 202.777.9475, lwardlaw@gibsondunn.com)
Shuo (Josh) Zhang – Washington, D.C. (+1 202.955.8270, szhang@gibsondunn.com)

Europe

04/28/2025

CJEU | Fact Sheet | Case Law on Personal Data Protection

The Court of Justice of the European Union (“CJEU”) has updated its “case law fact sheet” on personal data protection which compiles its key rulings in the field.

For further information: CJEU Website

04/23/2025

European Data Protection Board | 2024 Annual Report

The European Data Protection Board (“EDPB”) has published its annual report for 2024.

The report provides an overview of the EDPB work in 2024 and highlights key achievements such as the adoption of the 2024-2027 strategy and an increase in the consistency opinions under Article 64(2) GDPR (e.g., on “Consent or Pay” models, the use of personal data to train AI models). The report also emphasizes the EDPB’s contribution to cross-regulatory cooperation for new pieces of legislation such as the Digital Services Act (DSA) and the AI Act.

For further information: EDPB Website

04/14/2025

European Data Protection Board | Guidelines | Personal data and blockchain

The European Data Protection Board (“EDPB”) has published Guidelines 02/2025 on processing of personal data through blockchain technologies, open to public consultation until 9 June 2025.

The guidelines describe the blockchain technologies and provide a framework for organizations considering their use. They outline key GDPR considerations for processing activities (e.g., data retention periods, data subjects’ rights), and clarify the responsibilities of different actors involved in a blockchain related processing.

For more information: EDPB Website

04/11/2025

European Commission | Public Consultation | EU Cybersecurity Act

The European Commission has opened a public consultation on the evaluation and revision of the 2019 EU Cybersecurity Act.

The EU Commission is seeking stakeholders’ feedback on key areas for the contemplated revision, including the mandate of the European Agency for Cybersecurity (ENISA), the European Cybersecurity Framework, challenges related to ICT supply chain security, and the simplification of cybersecurity measures. The public consultation is open until 20 June 2025.

For more information: European Commission Website

04/10/2025

European Commission | Guidelines | Generative AI in Research

The European Commission has updated its Living Guidelines on the responsible use of generative AI in research.

The guidelines provide recommendations for researchers and organizations to ensure they promote and support responsible use of generative AI in their research activities. They are regularly updated to reflect the technological developments in the field.

For more information: European Commission Website, Guidelines

04/10/2025

European Data Protection Board | Report | Large Language Models

The European Data Protection Board (“EDPB”) has published a report on AI Privacy Risks and Mitigations Large Language Models (“LLMs”).

The report provides a risk management methodology to help developers and users of LLMs identify, assess and mitigate privacy risks in the development and use of LLM systems. As such, it complements the Data Protection Impact Assessment process (Art. 35 GDPR) and supports requirements regarding data protection by design and by default (Art. 25 GDPR) and security of personal data (Art. 32 GDPR).

For more information: EDPB Website

04/02/2025

European Commission | Report | B2B Data Sharing & EU Data Act

The European Commission’s Expert Group has issued its final report on B2B data sharing and cloud computing contracts under the EU Data Act.

The report contains model contractual terms (MCTs) covering different data sharing scenarios (e.g., data holder to user, user to data recipient), as well as standard contractual clauses (SCCs) for cloud computing contracts.

For more information: European Commission Website

03/27/2025

European Commission | DORA Directive | Infringement Procedures

The European Commission has launched infringement procedures against 13 Member States (including France, Spain, and Belgium) for failing to fully transpose the Digital Operational Resilience Act (“DORA”) Directive within the given deadline (17 January 2025).

The Member States have two months to complete their transposition and notify the adopted measures to the Commission.

For more information: European Commission Website

France

04/29/2025

French Supervisory Authority | Annual Report | Enforcement

The French Supervisory Authority (“CNIL”) has released its 2024 annual report, recording 17,772 complaints, 87 sanctions, and over €55 million in fines.

The CNIL has stepped up enforcement efforts with 331 corrective actions and observed an increase in the use of simplified procedures. It has also strengthened its response to growing cybersecurity threats and expanded its oversight on AI and digital innovation.

For more information: CNIL Website [FR]

04/24/2025

French Supervisory Authority | Public Consultation | Multi-terminal Consent

The French Supervisory Authority (“CNIL”) has launched a public consultation for its draft recommendation on multi-terminal consent across various devices.

The draft recommendation concerns stakeholders which intend to collect multi-terminal consent when users are authenticated on an account. They offer concrete recommendations on how to validly collect multi-terminal consent. The public consultation will end on 5 June 2025.

For more information: CNIL Website [FR]

04/23/2025

French Supervisory Authority | Publication | Data Breach

The French Supervisory Authority (“CNIL”) has published a fictional data breach use case to help professionals better understand and prevent risks related to unauthorized access to data handled by processors.

The use case outlines a typical data breach based on a real-life incident that was reported to the CNIL.

For more information: CNIL Website [FR]

04/14/2025

French Supervisory Authority | 2025-2028 European and International Strategy

The French Supervisory Authority (“CNIL”) has released its European and international strategy for 2025-2028.

The strategy focuses on three priorities: improving European cooperation, promoting high international data protection standards while supporting innovation, and reinforcing CNIL’s global influence.

For more information: CNIL Website [FR]

04/09/2025

French Supervisory Authority | Public Consultation | Session Recording and Replay Tools

The French Supervisory Authority (“CNIL”) has launched a public consultation on browsing session recording and replay tools.

These tools, which capture detailed user interactions, raise significant privacy concerns due to their potential to collect sensitive personal data without users’ awareness. The goal of the consultation is to develop practical recommendations to help tool providers and website editors ensure GDPR compliance and better protect user privacy.

For more information: CNIL Website [FR]

04/08/2025

French Supervisory Authority | Guidelines | Mobile Applications

The French Supervisory Authority (“CNIL”) has published an updated version of its recommendations on mobile applications recommendations.

The CNIL has published an updated version of its recommendations on mobile applications, originally adopted in July 2024 and released in September 2024. The revised version includes corrections and clarifications in response to stakeholder feedback, and an annotated version is available to highlight the updates.

For more information: CNIL Website [FR]

04/01/2025

French Supervisory Authority | Guidelines | Multi-Factor Authentication (MFA)

The French Supervisory Authority (“CNIL”) has published a recommendation on the implementation of multi-factor authentication (“MFA”) to help online services implement privacy-compliant cybersecurity solutions.

The guidance aims to support controllers and solution providers in aligning MFA practices with the GDPR—covering legal bases, data minimization, retention periods, and the appropriate use of authentication factors such as biometrics, SMS codes, and employee devices.

For more information: CNIL Website [FR]

04/01/2025

ANSSI | Cybersecurity | Information System Security Accreditation

The French National Cybersecurity Agency (“ANSSI”) has published updated guidance on the security accreditation of information systems.

This publication details the steps and documentation required to accredit an information system, including risk assessment, security objectives, and verification processes. It aims to ensure a structured and high-assurance approach to system security within both public and private organizations. The guidance forms part of ANSSI’s broader efforts to promote cybersecurity resilience and regulatory compliance in France.

For more information: ANSSI Website [FR]

Germany

04/29/2025

Hamburg Supervisory Authority | Data Act | Guidance

The Hamburg Supervisory Authority (“HmbBfDI”) has published guidance on the new European Data Act, which will apply from 12 September 2025.

The HmbBfDI’s guidance provides an overview of the new obligations for companies under the Data Act, in particular in relation to data sharing obligations applicable to manufacturers of connected devices. The guidance also identified the key steps companies should take to prepare for the application of the Data Act (e.g., data mapping, updating contracts, marking trade secrets). Since the Data Act applies without prejudice to the GDPR, the guidance analyses the interactions between obligations related to personal data under the GDPR and those related to personal data under the Data Act. Finally, the HmbBfDI has highlighted the responsibilities of supervisory authorities.

For further information: HmbBfDI Website [DE]

04/24/2025

Hamburg Supervisory Authority | Compliance Review | Third Party Services

The Hamburg Supervisory Authority (“HmbBfDI”) has reviewed 1.000 websites for data protection compliance regarding the use of third-party cookies and services and identified deficiencies in 185 of them.

The HmbBfDI found that although most of the websites reviewed met the data protection requirements, deficiencies were found for approximately 185 websites. Most violations result from the fact that certain tracking technologies are activated immediately when the page is first accessed, with the result that users are tracked before consent is obtained.

For more information: HmbBfDI Website [DE]

04/24/2025

Hamburg Supervisory Authority | Q&A | Tracking

The Hamburg Supervisory Authority (“HmbBfDI”) has published FAQs on tracking via third-party services on websites.

The HmbBfDI emphasises that tracking is only permitted with the explicit consent of the respective data subject. The authority included guidance on the design of consent banners, emphasising the need to implement a “reject all” option on the same level as an “accept all” button. The guidance highlights the importance of complying with the requirements of the ePrivacy Directive (transposed into national law) in relation to tracking, alongside the provisions of the GDPR.

For more information: HmbBfDI Website [DE]

04/10/2025

Federal Commissioner for Data Protection and Freedom of Information | Annual Report

The German Federal Commissioner for Data Protection and Freedom of Information (BfDI) has published its annual report.

The Federal Commissioner for Data Protection and Freedom of Information is responsible for monitoring data protection at federal public bodies and at companies that provide telecommunications and postal services. The report shows that most proceedings are related to information and transparency obligations.

For more information: BfDI Website [DE]

04/09/2025

New German Government | Coalition Agreement | Future of Data Protection

The new German Government consisting of the CDU/CSU (Christian Democratic Union of Germany/Christian Social Union of Germany) and SPD (Social Democratic Party of Germany) have published their coalition agreement.

The new German government intends to liberalize data protection law at both national and EU level and work towards “data utilization”, “data sharing” and a “data economy”. It is planned to bundle the data protection authorities of the individual federal states into a nationwide authority. At EU level, the coalition intends to exclude low-risk data processing activities as well as small and medium-sized enterprises from the scope of the GDPR.

For more information: SPD Website [DE]

02/20/2025

Federal Labour Court | Judgement | Right to Compensation

The Federal Labour Court (BAG) ruled in a recently published decision that a delay in providing information under Art. 15 GDPR does not by itself justify a claim for compensation.

According to the BAG, a delayed provision of information under Article 15 GDPR by a former employer does not by itself constitute non-material damage within the meaning of Article 82(1) GDPR. The BAG held that a mere delay, absent specific and substantiated fears of data misuse or an actual loss of control over personal data, does not give rise to a claim for damages. Subjective emotional responses such as worry, annoyance, or nervousness are not sufficient unless they are objectively substantiated by a real risk of data misuse.

For more information: Official Court Website [DE]

Greece

04/08/2025

Greek Supervisory Authority | Guidance | AI and GDPR

The Greek Supervisory Authority (“HDPA”) offers training sessions on AI and GDPR.

The HDPA published educational materials and provides training programs developed by external experts from the European Data Protection Board (“EDPB”). It notably offers a Data Protection Officers and Privacy Professionals Program, as well as a program for ICT Professionals. The material covers various topics such as core concepts of AI, Data Protection and Large Language Models, and Transparency.

For more information: HDPA Website [GR]

Netherlands

04/16/2025

Dutch Supervisory Authority | Survey | Algorithmic Data Processing

The Dutch Supervisory Authority (“AP”) has published survey results showing that many companies feel unprepared to manage algorithms processing personal data. Businesses often lack clarity on whether and how such algorithms are used.

The AP plans to provide guidance and practical tools, as well as and collect best practices to improve responsible algorithm procurement and use. More specifically, the AP is currently developing a checklist for businesses to adequately deal with the rights of people who are subject to algorithmic decision-making.

For more information: AP Press release [NL]

United Kingdom

04/29/2025

CPPA & Information Commissioner’s Office | International Cooperation | Privacy Enforcement

The California Privacy Protection Agency (“CPPA”) and the Information Commissioner’s Office (“ICO”) signed a declaration of cooperation to strengthen international collaboration on data protection.

The agreement will enable joint research, best practice sharing, and coordinated enforcement efforts. It marks the CPPA’s third international partnership, following agreements with Korea’s PIPC and France’s CNIL, and reflects its broader commitment to global privacy cooperation.

For more information: CPPA Press release

The following Gibson Dunn lawyers prepared this update: Ahmed Baladi, Vera Lukic, Kai Gesing, Joel Harrison, Thomas Baculard, Billur Cinar, Hermine Hubert, Christoph Jacob, and Yannick Oberacker.

Gibson Dunn lawyers are available to assist in addressing any questions you may have about these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Privacy, Cybersecurity & Data Innovation practice group:

Privacy, Cybersecurity, and Data Innovation:

United States:
Abbey A. Barrera – San Francisco (+1 415.393.8262, abarrera@gibsondunn.com)
Ashlie Beringer – Palo Alto (+1 650.849.5327, aberinger@gibsondunn.com)
Ryan T. Bergsieker – Denver (+1 303.298.5774, rbergsieker@gibsondunn.com)
Keith Enright – Palo Alto (+1 650.849.5386, kenright@gibsondunn.com)
Gustav W. Eyler – Washington, D.C. (+1 202.955.8610, geyler@gibsondunn.com)
Cassandra L. Gaedt-Sheckter – Palo Alto (+1 650.849.5203, cgaedt-sheckter@gibsondunn.com)
Svetlana S. Gans – Washington, D.C. (+1 202.955.8657, sgans@gibsondunn.com)
Lauren R. Goldman – New York (+1 212.351.2375, lgoldman@gibsondunn.com)
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, shandler@gibsondunn.com)
Natalie J. Hausknecht – Denver (+1 303.298.5783, nhausknecht@gibsondunn.com)
Jane C. Horvath – Washington, D.C. (+1 202.955.8505, jhorvath@gibsondunn.com)
Martie Kutscher Clark – Palo Alto (+1 650.849.5348, mkutscherclark@gibsondunn.com)
Kristin A. Linsley – San Francisco (+1 415.393.8395, klinsley@gibsondunn.com)
Timothy W. Loose – Los Angeles (+1 213.229.7746, tloose@gibsondunn.com)
Vivek Mohan – Palo Alto (+1 650.849.5345, vmohan@gibsondunn.com)
Rosemarie T. Ring – San Francisco (+1 415.393.8247, rring@gibsondunn.com)
Ashley Rogers – Dallas (+1 214.698.3316, arogers@gibsondunn.com)
Sophie C. Rohnke – Dallas (+1 214.698.3344, srohnke@gibsondunn.com)
Eric D. Vandevelde – Los Angeles (+1 213.229.7186, evandevelde@gibsondunn.com)
Benjamin B. Wagner – Palo Alto (+1 650.849.5395, bwagner@gibsondunn.com)
Frances A. Waldmann – Los Angeles (+1 213.229.7914,fwaldmann@gibsondunn.com)
Debra Wong Yang – Los Angeles (+1 213.229.7472, dwongyang@gibsondunn.com)

Europe:
Ahmed Baladi – Paris (+33 1 56 43 13 00, abaladi@gibsondunn.com)
Patrick Doris – London (+44 20 7071 4276, pdoris@gibsondunn.com)
Kai Gesing – Munich (+49 89 189 33-180, kgesing@gibsondunn.com)
Joel Harrison – London (+44 20 7071 4289, jharrison@gibsondunn.com)
Lore Leitner – London (+44 20 7071 4987, lleitner@gibsondunn.com)
Vera Lukic – Paris (+33 1 56 43 13 00, vlukic@gibsondunn.com)
Lars Petersen – Frankfurt/Riyadh (+49 69 247 411 525, lpetersen@gibsondunn.com)
Christian Riis-Madsen – Brussels (+32 2 554 72 05, criis@gibsondunn.com)
Robert Spano – London/Paris (+44 20 7071 4000, rspano@gibsondunn.com)

Asia:
Connell O’Neill – Hong Kong (+852 2214 3812, coneill@gibsondunn.com)
Jai S. Pathak – Singapore (+65 6507 3683, jpathak@gibsondunn.com)

From the Derivatives Practice Group: This week, the CFTC placed certain staff on administrative leave pending ongoing investigations.

New Developments

CFTC Staff on Leave Pending Investigation. On May 5, pursuant to the President’s executive orders on lawful governance and accountability, the CFTC placed certain staff on administrative leave for potential violations of laws, government ethics requirements and professional rules of conduct. The CFTC stated it is committed to holding employees to the highest standards, as expected by American taxpayers. Investigations are currently ongoing into these matters and the CFTC has committed to provide updates as appropriate. [NEW]
SEC Publishes New Market Data, Analysis, and Visualizations. On April 28, the SEC’s Division of Economic and Risk Analysis (“DERA”) has published new data and analysis on the key market areas of public issuers, exempt offerings, Commercial Mortgage-Backed Securities (“CMBS”), Asset-Backed Securities (“ABS”), money market funds, and security-based swap dealers (“SBSD”) in an effort to increase transparency and understanding of our capital markets amongst the public.
Paul S. Atkins Sworn in as SEC Chairman. On April 21, Paul S. Atkins was sworn into office as the 34th Chairman of the SEC. Chairman Atkins was nominated by President Donald J. Trump on January 20, 2025, and confirmed by the U.S. Senate on April 9, 2025. Prior to returning to the SEC, Chairman Atkins was most recently chief executive of Patomak Global Partners, a company he founded in 2009. Chairman Atkins helped lead efforts to develop best practices for the digital asset sector. He served as an independent director and non-executive chairman of the board of BATS Global Markets, Inc. from 2012 to 2015.
CFTC Staff Seek Public Comment Regarding Perpetual Contracts in Derivatives Markets. On April 21, the CFTC issued a Request for Comment to better inform them on the potential uses, benefits, and risks of perpetual contracts in the derivatives markets the CFTC regulates (“Perpetual Derivatives”). This request seeks comment on the characteristics of perpetual derivatives, including those characteristics which may differ across products. as well as the implications of their use in trading, clearing and risk management. The request also seeks comment on the risks of perpetual derivatives, including risks related to the areas of market integrity, customer protection, or retail trading.
CFTC Staff Seek Public Comment on 24/7 Trading. On April 21, the CFTC issued a Request for Comment to better inform them on the potential uses, benefits, and risks of trading on a 24/7 basis in the derivatives markets the CFTC regulates. This request seeks comment on the implications of extending the trading of CFTC-regulated derivatives markets to an effectively 24/7 basis, including the potential effects on trading, clearing and risk management which differ from trading during current market hours. The request also seeks comment on the risks of 24/7 trading, and the associated clearing systems, including risks related to the areas of market integrity, customer protection, or retail trading.

New Developments Outside the U.S.

- ESMA Delivers Technical Advice on Market Abuse and SME Growth Markets as Part of the Listing Act. On May 7, ESMA published its advice to the European Commission to support the Listing Act’s goals to simplify listing requirements, enhance access to public capital markets for EU companies, and improve market integrity. In relation to Market Abuse Regulation (“MAR”), the advice covers: protracted processes, identifying key moments for public disclosure; delayed public disclosure, listing situations where delays are not allowed; and Cross-Market Order Book Mechanism, indicating the methodology for the identification of trading venues with significant cross-border activity. [NEW]
- ESMA Consults on Rules for ESG Rating Providers. On May 2, ESMA published a Consultation Paper on draft Regulatory Technical Standards (“RTS”) under the ESG Rating Regulation. The draft RTS cover the following aspects that apply to ESG rating providers: the information that should be provided in the applications for authorization and recognition; the measures and safeguards that should be put in place to mitigate risks of conflicts of interest within ESG rating providers who carry out activities other than the provision of ESG ratings; the information that they should disclose to the public, rated items and issuers of rated items, as well as users of ESG ratings. [NEW]
- ESMA Publishes the Annual Transparency Calculations for Non-equity Instruments and Bond Liquidity Data. On April 30, the European Securities and Markets Authority (“ESMA”), the EU’s financial markets regulator and supervisor, published the results of the annual transparency calculations for non-equity instruments and new quarterly liquidity assessment of bonds under MiFID II and MiFIR.
- ESMA Report Shows Increased Data Use Across EU and First Effects of Reporting Burden Reduction Efforts. On April 30, ESMA published the fifth edition of its Report on the Quality and Use of Data. The report reveals how the regulatory data collected has been used by authorities in the EU and provides insight into actions taken to ensure data quality. The document presents concrete cases on data use ranging from market monitoring to supervision, enforcement and policy making. The report also highlights ESMA’s Data Platform and ongoing improvements to data quality frameworks as key advancements in tools and technology for data quality.
- ESMA Issues Supervisory Guidelines to Prevent Market Abuse under MiCA. On April 29, ESMA published guidelines on supervisory practices to prevent and detect market abuse under the Market in Crypto Assets Regulation (“MiCA”). Based on ESMA’s experience under Market Abuse Regulation (“MAR”), the guidelines intended for National Competent Authorities (“NCAs”) include general principles for effective supervision and specific practices for detecting and preventing market abuse in crypto assets. They consider the unique features of crypto trading, such as its cross-border nature and the intensive use of social media.
- ESMA Assesses the Risks Posed by the Use of Leverage in the Fund Sector. On April 24, ESMA published its annual risk assessment of leveraged alternative investment funds (“AIFs”) and its first analysis on risks in UCITS using the absolute Value-at-Risk (“VaR”) approach. Both articles represent ESMA’s work to identify highly leveraged funds in the EU investment sector and assess their potential systemic relevance.

New Industry-Led Developments

ISDA Presents Proposed Charter for the Credit Derivatives Governance Committee. On May 8, ISDA presented the proposed Charter for the Credit Derivatives Governance Committee and accompanying DC Rule changes to implement. Pursuant to the announcement made in 2024, an ISDA working group formed from ISDA’s Credit Steering Committee has worked on producing the Governance Committee solution. ISDA views the Governance Committee as the first step in implementing the other recommended changes from the Linklaters’ report as part of an independent review on the composition, functioning, governance and membership of the DCs. [NEW]
ISDA Publishes Governance Committee Proposal for CDS Determinations Committees. On May 8, ISDA published a proposal for a new governance committee for the CDS Determinations Committees (“DCs”), the first in a series of amendments to improve the structure of the DCs and maintain their integrity in changing economic and market conditions. The governance committee would be responsible for taking market feedback and adopting rule changes affecting the structure and operations of the DCs to ensure their long-term viability and meet market expectations for efficiency and transparency in credit event determinations. [NEW]
ISDA Responds to FASB Proposal on KPIs for Business Entities. On April 30, ISDA submitted a response to the Financial Accounting Standards Board’s (“FASB”) proposal on financial key performance indicators (“KPIs”) for business entities. In the response, ISDA addressed the implications of KPI standardization, its potential impact on financial reporting and risk management, and the broader cost-benefit considerations for preparers and investors. Based on proprietary analysis, ISDA does not view financial KPI standardization or the proposed disclosures as urgent priorities for the FASB at this time.
CPMI-IOSCO Assesses that EU has Implemented Principles for Financial Market Infrastructures for Two FMI Types. On April 28, CPMI-IOSCO released a report that assessed the completeness and consistency of the legal, regulatory and oversight framework in place as of October 30, 2019. The report finds that the implementation of the Principles for Financial Market Infrastructures is complete and consistent for all Principles for payment systems. The legal, regulatory and oversight frameworks in the EU for central securities depositories and securities settlement systems are complete and consistent with the Principles in most aspects. However, the assessment identified some areas for improvement, particularly in aspects where implementation was broadly, partly, or not consistent, including risk and governance principles.
ISDA/IIF Responds to EC’s Consultation on the Market Risk Prudential Framework. On April 22, ISDA and the Institute of International Finance (“IIF”) submitted a joint response to the EC’s consultation on the application of the market risk prudential framework. The associations believe the capital framework should be risk-appropriate and as consistent as possible across jurisdictions to ensure a level playing field without competitive distortions due to divergent rules.
ISDA and FIA Respond to Consultation on Commodity Derivatives Markets. On April 22, ISDA and FIA submitted a joint response to the EC’s consultation on the functioning of commodity derivatives markets and certain aspects relating to spot energy markets. In addition to questions on position management, reporting and limits and the ancillary activities exemption, the consultation also addressed data and reporting and certain concepts raised in the Draghi report, such as a market correction mechanism to cap pricing of natural gas and an obligation to trade certain commodity derivatives in the EU only.

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

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 )

Hayden K. McGovern, Dallas (214.698.3142, hmcgovern@gibsondunn.com)

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

We are pleased to provide you with the April edition of Gibson Dunn’s digital assets regular update. This update covers recent legal news regarding all types of digital assets, including cryptocurrencies, stablecoins, CBDCs, and NFTs, as well as other blockchain and Web3 technologies. Thank you for your interest.

ENFORCEMENT ACTIONS

UNITED STATES

Oregon Attorney General Sues Coinbase
On April 18, Oregon Attorney General Dan Rayfield filed a lawsuit in state court against Coinbase alleging that the crypto exchange offers unregistered securities under Oregon law. The lawsuit largely parrots the theories the SEC recently abandoned in dismissing its enforcement action against Coinbase. In a blog post, Coinbase stated that “Oregon’s lawsuit, like the SEC’s, is meritless, and Coinbase will do whatever is required to beat it.” Coinbase Blog; Bloomberg Law; Complaint.
Long Island Man Gets 18-Year Term For $6 Million Crypto-Investor Fraud
On April 23, a federal court in the Southern District of New York sentenced Long Island resident Eugene William Austin, Jr. to 18 years in prison after a jury convicted him of fraud-related offenses, in connection with a scheme to defraud cryptocurrency investors. The court also ordered forfeiture of roughly $6 million and imposed restitution in an amount to be determined. Press Release.
FinCEN Identifies Cambodia-Based Huione Group as Institution of Primary Money Laundering Concern; Issues New Rule
On May 1, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a proposed rule that would prohibit U.S. financial institutions from opening or maintaining correspondent or payable-through accounts for or on behalf of Cambodia-based Huione Group because it has laundered illicit proceeds from cybercrimes. FinCEN said that Huione Group has been critical for laundering proceeds of cyber heists by the Democratic People’s Republic of Korea and for convertible virtual currency scams conducted by transnational criminal organizations in Southeast Asia. FinCEN.
SEC and DOJ File Charges Against Founder of Purported Crypto Investment Platform
On April 22, the SEC and federal prosecutors in the Eastern District of Virginia filed parallel cases against Ramil Palafox, founder of PGI Global, a purported Bitcoin investment platform, alleging that he misappropriated over $57 million of investor funds. The SEC’s complaint and the indictment allege that from January 2020 to October 2021, Palafox sold “membership” packages promising high returns from cryptocurrency investments but spent the money on luxury items instead. The complaint and the indictment further allege that Palafox ran a multilevel-marketing scheme, using remaining funds to pay other investors until the company’s collapse. Press Release; Law360.
SEC Dismisses Suit Against Dragonchain
On April 24, the SEC agreed to dismiss its enforcement action against blockchain platform Dragonchain and founder Joseph J. Roets. The SEC filed a joint stipulation in the U.S. District Court of Western District of Washington, citing the January 2025 launch of the SEC’s Crypto Task Force and its efforts to develop a regulatory framework for digital assets. The case was dismissed on April 25. The lawsuit, filed in August 2022, had alleged that Dragonchain sold unregistered securities via its DRGN tokens. Law360; CoinTelegraph.
SEC and Ripple File Joint Motion to Pause Appeals in XRP Case
On April 10, the SEC and Ripple Labs asked the U.S. Court of Appeals for the Second Circuit to pause their respective appeals in the agency’s ongoing enforcement action against the company. The Second Circuit granted the motion on April 16, holding the appeal in abeyance and requiring a status report from the SEC within 60 days. Joint Letter; CoinTelegraph; CoinDesk; Reuters.
SEC and Gemini Request Pause in Suit Over Gemini Earn Program
On April 1, the SEC and crypto exchange Gemini asked the district court for a 60-day stay of the regulator’s enforcement action while the parties discuss a potential resolution. The court granted the motion on April 2 and ordered the parties to file a joint status report on May 31. The SEC filed the action against Gemini and Genesis Global Capital, LLC in January 2023 alleging they offered unregistered securities; Genesis later agreed to a consent judgment in connection with bankruptcy proceedings. CoinTelegraph; Joint Letter.
Judge Denies SafeMoon CEO’s Motion to Dismiss Criminal Fraud Case
On April 18, U.S. District Court Judge Eric R. Komitee of the Eastern District of New York denied former SafeMoon CEO Braden Karony’s motion to dismiss his indictment, stating that a jury should assess his arguments regarding whether the charged conduct is extraterritorial and therefore not subject to U.S. law and whether SafeMoon’s token is a security. Karony faces charges of conspiracy to commit securities fraud, wire fraud, and money laundering. Trial is set for May 6. The indictment alleges that Karony, SafeMoon’s co-founder Kyle Nagy and former CTO Thomas Smith conspired to commit securities and wire fraud and money laundering in defrauding investors through a digital asset called SafeMoon. Former CTO Thomas Smith has pleaded guilty to related charges. Law360; Coin Telegraph.
Crypto Casino Founder Charged with Fraud and Misappropriation of Investor Funds
On April 13, Richard Kim, founder of cryptocurrency casino Zero Edge, was charged in the U.S. District Court in the Southern District of New York with securities fraud and wire fraud for allegedly stealing millions from investors between March 2024 and July 2024. According to the complaint, Kim raised $4.3 million from investors, promising to develop an online casino with on-chain games and a new cryptocurrency called “$RNG”, but instead allegedly used the investor funds for speculative cryptocurrency trades and gambling. He was arrested and released on a $250,000 bond. CoinDesk; Complaint.
Nova Labs Settles SEC Lawsuit Over False Client Claims
On April 23, Nova Labs, Inc., the creator of a decentralized wireless network known as the Helium Network, agreed to pay $200,000 to settle an SEC lawsuit filed in January 2025. The suit alleged that Nova Labs falsely claimed client relationships with various prominent businesses to sell preferred stock in a private placement. Nova Labs neither admitted nor denied the SEC’s allegations in its settlement. CoinDesk; Law360; Final Judgment.
CLS Global Sentenced for Running Fraudulent Wash Trading Scheme
On April 2, United Arab Emirates-based financial services firm CLS Global FZC LLC was sentenced in Massachusetts federal court for allegedly running a fraudulent “wash trading” scheme. The firm pleaded guilty to conspiracy to commit market manipulation and wire fraud and wire fraud in January. Additionally, CLS Global was ordered to pay approximately $428,059 in fines and seized cryptocurrency, and sentenced to three years of probation during which CLS Global cannot participate in U.S. cryptocurrency markets. CLS Global also entered into a separate agreement with the SEC over related civil claims. Press Release; Law360

INTERNATIONAL

ADGM Cancels HAYVN Licence, Imposes USD 8.85 Million Fine
On April 17, the ADGM Financial Services Regulatory Authority (“FSRA”) initiated an enforcement action against the HAYVN Group, a digital asset-focused financial institution, and its former CEO for regulatory breaches, including unlicensed virtual asset activity. The FSRA cancelled HAYVN ADGM’s license, banned the former CEO from ADGM’s financial sector, and imposed USD $8.85 million in fines across four related parties for misconduct including unlicensed virtual asset activity, AML failures such as not recording all of its client relationships and allowing client transactions to be routed through unregulated accounts, and providing false information to banks and the FSRA. ADGM.

REGULATION AND LEGISLATION

UNITED STATES

GOP Lawmakers Introduce Draft of Crypto Market-Structure Bill
On May 5, Republican lawmakers released a discussion draft of a bill that seeks to establish a comprehensive regulatory framework for digital assets. The bill provides for joint rulemaking by the SEC and CFTC, a pathway for digital-asset developers to raise funds under the SEC’s jurisdiction and a process for market participants to register with the CFTC for digital commodity trading. The bill would require digital-asset developers to provide accurate disclosures including relating to their digital asset’s operation, ownership and structure. Press Release; The Block.
New Hampshire Passes ‘Strategic Bitcoin Reserve’ Bill
On May 6, New Hampshire passed legislation allowing the state to invest up to 5% of the state’s public funds in precious metal and digital assets with a market cap of over $500 billion – a threshold that currently only permits Bitcoin. Business Insider.
President Trump Signs Resolution to Nullify Expanded IRS Crypto Broker Rule
On April 11, President Trump signed into law a resolution under the Congressional Review Act that nullifies a Treasury Department and IRS rule that would have subjected DeFi participants to onerous tax-reporting requirements for digital-asset transactions (the “DeFi Broker Rule”). The resolution not only effectively repeals the DeFi Broker Rule but also will prohibit the U.S. Treasury and the IRS from issuing a new rule that is “substantially the same” as the repealed rule absent new legislation. The resolution does not repeal the IRS’s July 2024 broker rule applicable to custodial digital asset trading platforms. Reuters; Bloomberg; CoinTelegraph; CoinDesk.
Paul Atkins Confirmed as SEC Chairman
On April 9, Paul Atkins was confirmed as the next Chairman of the SEC. Atkins served as an SEC commissioner under President George W. Bush and previously worked at the Commission during both Republican and Democratic administrations. Atkins founded a financial services consulting firm in 2008, Patomak Global Partners, which has advised clients on regulatory and compliance matters, including issues related to digital assets. Atkins was sworn in on April 21. SEC; New York Times.
SEC Staff Says Certain Reserve-Backed Stablecoins Are Not Securities
On April 4, the SEC’s Division of Corporation Finance issued guidance stating that the offer and sale of certain reserve-backed dollar stablecoins are not securities transactions. To qualify as a “Covered Stablecoin” under the guidance, the stablecoin’s value must be pegged to the U.S. dollar, and the stablecoin must be backed by dollars or other low-risk, liquid assets and be redeemable one-for-one for U.S. dollars at any time and in unlimited amounts, among other requirements. As is typical, the guidance states that it is nonbinding and does not have Commission-level approval. SEC.
SEC Staff Statement Urges Detailed Crypto Disclosures
On April 10, the SEC’s Division of Corporation Finance issued a staff statement providing the Division’s views about the application of certain disclosure requirements under the federal securities laws to offerings and registrations of securities in the digital-asset markets. The statement recommends that companies describe their business operations without overly relying on technical jargon and specify the business activity, “such as operating or developing a network or application, and the current stage of development” and how the issuer expects to generate revenue. With respect to risk factors for offerings and registrations of securities in the crypto asset markets, the guidance provides examples such as risks relating to technology and cybersecurity, price volatility, liquidity issues and potential registration requirements under state and federal laws. The statement also emphasizes that it “does not address all material disclosure items, and the disclosure topics addressed … may not be relevant for all issuers.” As is typical, the guidance states that it is nonbinding and does not have Commission-level approval. SEC; Coindesk.
DOJ Publishes Memorandum Announcing Shift in Enforcement Priorities and Disbandment of Crypto Enforcement Unit
On April 7, Deputy Attorney General Todd Blanche issued a memorandum (the “Blanche Memo”) announcing a shift in the Department of Justice’s enforcement priorities concerning digital assets. According to the memo, the DOJ “will no longer pursue litigation or enforcement actions that have the effect of superimposing regulatory frameworks on digital assets while President Trump’s actual regulators do this work outside the punitive criminal justice framework.” Instead, the focus will be on “prosecuting individuals who victimize digital asset investors, or those who use digital assets in furtherance of criminal offenses such as terrorism, narcotics and human trafficking, organized crime, hacking, and cartel and gang financing.” The memo also announced the disbandment of the National Cryptocurrency Enforcement Team. DOJ; Reuters; CoinDesk; New York Times.
Acting Chairman Pham Lauds DOJ Policy Ending Regulation by Prosecution of Digital Assets Industry and Directs CFTC Staff to Comply with Executive Orders
On April 8, CFTC Acting Chairman Caroline D. Pham praised the Blanche Memo, and directed CFTC staff to comply with the President’s executive orders and Administration policy. Consistent with the DOJ’s enforcement priorities, Pham has refocused the CFTC’s enforcement resources on cases involving combatting fraud and manipulation rather than regulating by enforcement. Specifically, Pham has directed CFTC staff not to charge regulatory violations in cases involving digital assets unless there is evidence that the defendant knew of the licensing or registration requirement at issue and willfully violated such requirement. CFTC.
Federal Reserve Retracts Crypto-Related Guidance for Banks
On April 24, the Federal Reserve Board announced that it withdrew guidance for banks related to their digital-asset and dollar-tokens activities. The agency rescinded a 2022 supervisory letter requesting state member banks to provide advance notification of digital-asset activities and a 2023 supervisory letter regarding the supervisory nonobjection process for state member bank engagement in dollar-token activities. These actions follow earlier comments from Fed Chair Jerome that the Fed does not intend to limit the bank sector’s interaction with digital assets. Federal Reserve; Cryptoslate; WSJ.
Illinois Lawmakers Advance Crypto Fraud Protection Measure
On April 10, Illinois state senators passed out of committee Senate Bill 1797, which requires crypto firms to register with the state and provide disclosures to protect consumers. It also empowers the Illinois Department of Financial and Professional Regulation to set and enforce guidelines for crypto companies. Sen. Mark Walker, one of the bill’s sponsors, emphasized the need for standards to prevent bankruptcy, fraud, and deceptive practices in the crypto industry. Illinois State Assembly; Cointelegraph.
Hidden Road Receives Broker-Dealer License Following Ripple Acquisition
On April 17, prime brokerage platform Hidden Road announced it received a broker-dealer license from the Financial Industry Regulatory Authority (FINRA), shortly after Ripple Labs agreed to acquire the firm for $1.25 billion. The license allows Hidden Road to offer FINRA-compliant prime brokerage, clearing, and financing services in fixed income assets. CoinDesk; Press Release.
CFTC Seeks Comments on 24/7 Trading and Perpetual Derivatives
On April 21, the CFTC issued a request for comment on the implications of extending the trading of CFTC-regulated derivatives markets to an effectively 24/7 basis, including the potential effects on trading, clearing and risk management which differ from trading during current market hours. 24/7 trading is already prevalent in digital assets markets. On the same day, the CFTC also requested comment on the characteristics of perpetual derivatives, the implications of their use in trading, clearing and risk management and the risks of such derivatives risks in connection with market integrity, customer protection, or retail trading. Perpetual derivatives are commonly traded on offshore digital asset exchanges. CFTC 24/7 Trading; CFTC Perpetual Derivatives.

INTERNATIONAL

European Securities and Markets Authority Publishes Official Translations of its Guidelines on Conditions for Qualification of Crypto Assets as Financial Instruments Under MiCA
On March 19, the European Securities and Markets Authority (“ESMA”) published the official translations of its guidelines on the conditions and criteria for the qualification of crypto assets as financial instruments (ESMA75453128700-1323) under Article 2(5) of MiCA. The guidelines clarify when MiCA or other rules apply to crypto assets. They are effective starting on May 18, 2025, and relevant authorities are required to update ESMA. ESMA.
Securities and Futures Commission and Hong Kong Monetary Authority Issue Circulars on Providing Virtual Asset Staking Services
On April 7, the Securities and Futures Commission (“SFC”) and the Hong Kong Monetary Authority (“HKMA”) issued circulars to SFC-licensed virtual asset trading platform (“VATP”) operators and authorized institutions to permit the offering of staking services. VATPs must obtain the SFC’s prior approval and agree to be bound by the SFC’s ‘Terms and Conditions for Staking Services’ before offering staking services. Broadly, other requirements to offer staking services include that VATPs must (i) maintain possession or control over all mediums through which clients’ virtual assets may be withdrawn from the staking service, (ii) implement policies, internal controls and operational rules to ensure that staked virtual assets are adequately safeguarded and (iii) manage operational risks and conflicts of interest. VATPs must also exercise skill, care and diligence when selecting a blockchain protocol for their staking service and when selecting its arrangement for participating in the validation process. VATPs must also ensure adequate disclosure of additional staking risks to their clients and obtain their written acknowledgement before providing them with staking services. SFC; HKMA.
Hong Kong SFC Revises Circular on SFC-Authorized Funds to Engage in Staking Activities Through VATPs and AIs
On April 7, the SFC revised an existing circular that was originally issued on December 22, 2023 delineating the requirements for authorizing investment funds with exposure to virtual assets of more than 10% of their net asset value for public offerings in Hong Kong. The fund manager must obtain the SFC’s prior approval before it can engage in staking activities for its managed SFC-authorized virtual asset fund, and the staking activities must be conducted through an SFC-licensed VATP or authorized institution, subject to a cap to manage fund liquidity. The fund manager must also ensure that the staking activities are consistent with the fund’s investment objective and strategy. SFC.
Monetary Authority of Singapore Consults on Prudential Treatment and Disclosure of Crypto Asset Exposures for Banks
On March 27, the Monetary Authority of Singapore (“MAS”) published a Consultation Paper seeking feedback on proposed amendments aimed at implementing standards promulgated by the Basel Committee on Banking Supervision (“BCBS”) on prudential treatment and disclosure of crypto asset exposures for banks. Specifically, the MAS has proposed to amend relevant MAS notices relating to capital, liquidity, large exposures and disclosure frameworks for banks to implement the BCBS’ standards on prudential treatment and disclosures for crypto asset exposures for banks. MAS.
Monetary Authority of Singapore Proposes Amendments to Anti-Money Laundering and Terrorism Financing Laws
On April 8, the MAS published a Consultation Paper seeking feedback on proposed amendments to MAS Notices on anti-money laundering and countering the financing of terrorism to take into account the latest money laundering, terrorism financing and proliferation financing developments. The amendments apply across the financial sector and are relevant to financial institutions including banks, insurers, capital markets intermediaries, payment service providers (including digital payment token or crypto asset service providers). Broadly, the proposed amendments reference the latest revised standards set by the Financial Action Task Force and cover topics ranging from risk assessments to the clarification of regulatory expectations on the filing of suspicious transaction reports. MAS.
Dubai Financial Services Authority Opens Tokenization Regulatory Sandbox for Expressions of Interest
On March 17, the Dubai Financial Services Authority (“DFSA”) called for expressions of interest to join its new Tokenization Regulatory Sandbox, with a deadline of April 24, 2025. The initiative forms part of the DFSA’s Innovation Testing Licence program and is aimed at firms offering tokenized financial products and services, including equities, bonds, sukuk, and fund units. The sandbox provides a controlled environment for testing tokenized investment solutions, offering a structured path to full regulatory authorization. DFSA.
Abu Dhabi Global Market and Chainlink Forge Alliance to Advance Tokenization Frameworks
On March 24, the Abu Dhabi Global Market (“ADGM”) signed a Memorandum of Understanding with decentralized network Chainlink to promote compliant tokenization and enhance blockchain innovation. The partnership will support projects under the ADGM Registration Authority by leveraging Chainlink’s technical expertise in blockchain interoperability and verifiable data solutions. Chainlink’s infrastructure has enabled over $19 trillion in transaction value globally and is trusted by leading financial institutions. Under the Memorandum of Understanding, ADGM and Chainlink will collaborate on regulatory dialogue and host educational initiatives focusing on blockchain, AI and tokenization. ADGM.

SPEAKER’S CORNER

New York Attorney General Letitia James Sends Letter to Congress Proposing Crypto Regulatory Framework
On April 10, New York Attorney General Letitia James sent a letter to congressional leaders warning that the lack of strong federal regulations on cryptocurrencies and digital assets increases the risk of fraud, criminal activity, and financial instability. She argued that federal regulations would bolster America’s national security, strengthen its financial markets and protect investors from cryptocurrency scams. James’s letter called for protections including “i) onshoring stablecoins to protect the U.S. dollar and the treasuries market, ii) requiring platforms to only conduct business with anti-money laundering compliant platforms, iii) providing for the registration of issuers and intermediaries to ensure accountability, transparency and basic protections to the public, iv) protecting against conflicts of interest, v) promoting price transparency, vi) requiring platforms and intermediaries to actively identify and prevent fraud and scams, and vii) disallowing digital assets in retirement accounts.” NY; Reuters.

OTHER NOTABLE NEWS

SoftBank, Tether and Cantor Fitzgerald Launch Twenty One Capital
On April 23, stablecoin issuer Tether, Bitfinex, SoftBank, and Cantor Fitzgerald announced the launch of Twenty One Capital, Inc., a Bitcoin investment vehicle. CCN.
HM Treasury and the UK Debt Management Office Publish Policy Paper on Pilot Digital Gilt Instrument
On March 18, HM Treasury and the UK Debt Management Office (“DMO”) released a policy paper detailing their pilot Digital Gilt Instrument (“DIGIT”). DIGIT is a new, short-dated, transferable security that will be held on a Distributed Ledger Technology (“DLT”) platform and issued within the Digital Securities Sandbox, operating independently from the Government’s standard debt issuance processes. The policy paper outlines the initial features of DIGIT and seeks input from financial sector firms to gauge investor demand and design preferences for further development. Additionally, it requests information from potential DLT suppliers to explore available technology options and the scope of services required for DIGIT issuance. Stakeholders are invited to submit their responses by April 13, 2025. HM Treasury.

The following Gibson Dunn lawyers contributed to this issue: Jason Cabral, Kendall Day, Jeff Steiner, Sara Weed, Sam Raymond, Nick Harper, Emma Li, Michelle Lou, Zachary Montgomery, Aliya Padhani, Henry Rittenberg, Nicholas Tok, and Apratim Vidyarthi.

FinTech and Digital Assets Group Leaders / Members:

Ashlie Beringer, Palo Alto (+1 650.849.5327, aberinger@gibsondunn.com)

Michael D. Bopp, Washington, D.C. (+1 202.955.8256, mbopp@gibsondunn.com

Stephanie L. Brooker, Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)

Jason J. Cabral, New York (+1 212.351.6267, jcabral@gibsondunn.com)

Ella Alves Capone, Washington, D.C. (+1 202.887.3511, ecapone@gibsondunn.com)

M. Kendall Day, Washington, D.C. (+1 202.955.8220, kday@gibsondunn.com)

Sébastien Evrard, Hong Kong (+852 2214 3798, sevrard@gibsondunn.com)

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

Nick Harper, Washington, D.C. (+1 202.887.3534, nharper@gibsondunn.com)

Martin A. Hewett, Washington, D.C. (+1 202.955.8207, mhewett@gibsondunn.com)

Sameera Kimatrai, Dubai (+971 4 318 4616, skimatrai@gibsondunn.com)

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

Stewart McDowell, San Francisco (+1 415.393.8322, smcdowell@gibsondunn.com)

Hagen H. Rooke, Singapore (+65 6507 3620, hhrooke@gibsondunn.com)

Mark K. Schonfeld, New York (+1 212.351.2433, mschonfeld@gibsondunn.com)

Orin Snyder, New York (+1 212.351.2400, osnyder@gibsondunn.com)

Ro Spaziani, New York (+1 212.351.6255, rspaziani@gibsondunn.com)

Jeffrey L. Steiner, Washington, D.C. (+1 202.887.3632, jsteiner@gibsondunn.com)

Eric D. Vandevelde, Los Angeles (+1 213.229.7186, evandevelde@gibsondunn.com)

Benjamin Wagner, Palo Alto (+1 650.849.5395, bwagner@gibsondunn.com)

Sara K. Weed, Washington, D.C. (+1 202.955.8507, sweed@gibsondunn.com)

The coalition agreement includes noteworthy planned changes in the area of white collar and international trade law that identify trends that will shape the near-term future of businesses operating in Germany and the EU.

On May 6, Friedrich Merz was elected Germany’s new Chancellor, marking the start of the new legislative period. The incoming government – formed by a coalition of the center left and right parties CDU, CSU, and SPD – recently published its coalition agreement.[1]

The coalition agreement outlines the common legislative goals of the German Government for the next four years.

Enforcement proceedings in money laundering cases shall become more efficient

In the area of financial crime, federal-level competencies will be consolidated. Cooperation and information exchange between the federal and state governments, as well as with national and international organizations, the EU, and the European Anti-Money Laundering Authority (AMLA), are to be improved.[2]
Improvements in anti-money laundering efforts are planned, particularly in light of the upcoming evaluation by the Financial Action Task Force (FATF).[3] These plans are not entirely new initiatives, as they had already been put forward by the previous government in light of Germany’s poor FATF assessment.
Gaps in the German Transparency Register, which is a central database that records information on the beneficial owners of legal entities, are to be closed.[4]
Legal transactions by legal entities exceeding a net amount of EUR 10,000 may not be carried out by parties subject to anti-money laundering obligations if one or more beneficial owners cannot be identified.[5]

Lowering the thresholds for asset seizures shall help fighting organized crime

An administrative procedure for asset investigation is to be introduced, with the aim of securing suspicious high-value assets where a legal origin cannot be clearly demonstrated.[6]
Existing asset seizure instruments are to be further developed and supplemented by a procedure for confiscating assets of unclear origin.[7]
The fight against organized crime is to be intensified by fully reversing the burden of proof in the confiscation of assets of unclear origin.[8]

EU-Directives on Corporate Crimes shall be implemented, but initiatives to reform German law relating to Corporate Crimes will not be pursued

Unlike the previous coalition agreements[9], the new agreement includes neither plans to regulate internal investigations nor to introduce any legal framework for corporate criminal law. However, it is likely that the EU Anti-Corruption Directive will have to be implemented during this legislative period, which may result in relevant changes in these two areas.

Supply Chain Due Diligence Requirements shall be brought in line with updated EU-Directives and the German Supply Chain Due Diligence Act will be repealed

The German Supply Chain Due Diligence Act (LkSG) is to be repealed. It is planned to replace it with a new “International Corporate Responsibility Act” designed to implement the European Corporate Sustainability Due Diligence Directive (CSDDD) in a low-bureaucracy and enforcement-friendly manner.[10]
The reporting obligations under the LkSG are to be abolished immediately and permanently.[11]
It is planned that existing due diligence obligations will not be sanctioned, except for severe human rights violations, until the new law comes into force.[12]

FDI and Export Control topics will remain high on the agenda, while making processes more efficient

The German Foreign Trade Act is to be revised. Screening and licensing procedures are to be made faster, simpler, and more practical. Foreign investments that conflict with national interests – particularly in critical infrastructure and strategic sectors – are to be effectively blocked.[13]
The effective national implementation of sanctions due to Russia’s war of aggression is to continue to be ensured. The EU’s plans to impose tariffs on fertilizer imports from Russia and Belarus are to be endorsed.[14]
Export licensing procedures are to be simplified and accelerated, with the aim of a paradigm shift in German international trade law. Comprehensive checks are to be replaced by targeted checks on a random basis, supported by heavy penalties for violations. Within the scope of this system, prior export authorizations would no longer be required.[15]
Germany’s China Strategy is to be revised in accordance with the principle of “de-risking”.[16]

To what extent these plans will be implemented in detail remains to be seen in the next few months.

[1] Coalition Agreement of the 21st legislative period, can be found on the websites of the three parties CDU: here; CSU: here; SPD: here; and the German Bundestag: here.

[2] Coalition Agreement of the 21st legislative period, para. 1548 et. seq.

[3] Ibid., para. 1545 et. seq.

[4] Ibid., para. 1550.

[5] Ibid., para. 1550 et seq.

[6] Ibid., para. 1553 et seq.

[7] Ibid., para. 1556 et seq.

[8] Ibid., para. 2261 et seq.

[9] Coalition Agreement of the 19th legislative period, p. 126; Coalition Agreement of the 20th legislative period, p. 111.

[10] Coalition Agreement of the 21st legislative period, para. 1909 et. seq.

[11] Ibid., para. 1911 et seq.

[12] Ibid., para. 1913 et seq.

[13] Ibid., para. 275 et seq.

[14] Ibid., para. 287 et seq.

[15] Ibid., para. 290 et seq.

[16] Ibid., para. 297 et seq.

The following Gibson Dunn lawyers prepared this update: Benno Schwarz, Katharina Humphrey, Nikita Malevanny, Karla Böltz, and Annabel Dornauer*.

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 the Gibson Dunn lawyer with whom you usually work, any leader or member of Gibson Dunn’s White Collar Defense & Investigations or International Trade Advisory & Enforcement practice groups, or the authors in Munich:

Benno Schwarz (+49 89 189 33 210, bschwarz@gibsondunn.com)

Katharina Humphrey (+49 89 189 33 217, khumphrey@gibsondunn.com)

Nikita Malevanny (+49 89 189 33 224, nmalevanny@gibsondunn.com)

Karla Böltz (+49 89 189 33 219, kboeltz@gibsondunn.com)

Annabel Dornauer* (+49 89 189 33 463, adornauer@gibsondunn.com)

*Annabel Dornauer is a trainee attorney in Munich and is not admitted to practice law.

A growing number of federal, state, and international whistleblower programs create a complex and often overlapping landscape for companies facing potential allegations of misconduct. From programs established to generate enforcement leads for the SEC, CFTC, DOJ, FinCEN, and the IRS, to analogous international whistleblower mechanisms, each program has its own incentives, protections, and reporting mechanisms. These nuances result in significant enforcement risks for businesses across industries, but also opportunities to demonstrate effective compliance controls. This webcast explores the evolving whistleblower framework both in the United States and abroad, recent whistleblower trends, and best practices for managing whistleblower complaints while mitigating legal and reputational exposure.

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PANELISTS:

Greta Williams, Co-Partner in Charge of Gibson Dunn’s Washington, D.C. office, is a nationally recognized employment lawyer and trusted advisor to companies facing high-profile employment litigation, internal investigations, and executive-level employment disputes involving claims of discrimination, harassment, whistleblower retaliation, noncompete violations and trade secret theft. Known for leading sensitive workplace investigations and handling complex cases with discretion and impact, Greta is recognized by Lawdragon 500, Benchmark Litigation, and Best Lawyers in America as one of the leading employment lawyers in the country.

Matt Axelrod, a nationally recognized white-collar defense lawyer with extensive criminal, national security, and export enforcement experience, serves as co-chair of the firm’s Sanctions and Export Enforcement Practice Group. Matt’s practice focuses on internal investigations, crisis management, and white collar criminal defense for U.S. and multinational companies. From 2021-2025, Matt served as the Senate-confirmed Assistant Secretary for Export Enforcement at the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), where he led a team of over 200 agents, analysts, and compliance specialists responsible for enforcing the country’s export controls. Matt also previously spent 14 years at the U.S. Department of Justice.

John D.W. Partridge, a Co-Chair of Gibson Dunn’s FDA and Health Care Practice Group and Chambers-ranked white collar defense and government investigations lawyer, focuses on government and internal investigations, white collar defense, and complex litigation for clients in the life science and health care industries, among others. John has particular experience with the Anti-Kickback Statute, the False Claims Act, the Foreign Corrupt Practices Act, and the Federal Food, Drug, and Cosmetic Act, including defending major corporations in investigations pursued by the U.S. Department of Justice and the U.S. Securities and Exchange Commission.

Katharina Humphrey is a partner in Gibson Dunn’s Munich office. She advises clients in Germany and throughout Europe on a wide range of compliance and white collar crime matters. Katharina regularly represents multi-national corporations in connection with cross-border internal corporate investigations and government investigations. She has significant expertise in the areas of anti-bribery compliance – especially regarding the enforcement of German anti-corruption laws and the U.S. Foreign Corrupt Practices Act (FCPA) –, technical compliance, as well as sanctions and anti-money-laundering compliance. She also has many years of experience in advising clients with regard to the implementation and assessment of compliance management systems.

Osman Nawaz is a litigation partner in the New York office, and a member of the firm’s White Collar Defense and Investigations and Securities Enforcement and practice groups. He advises clients on internal and government investigations and enforcement actions, as well as follow-on civil litigation and regulatory and compliance-related issues. Prior to joining Gibson Dunn, Osman concluded a 14-year career with the U.S. Securities & Exchange Commission (SEC). During his time with the SEC, he worked in the agency’s New York Office, serving through multiple administrations and in roles ranging from Staff Attorney to Assistant Regional Director, and ultimately serving as a Senior Officer leading a nationwide enforcement group.

Sanford W. Stark is a partner in Gibson Dunn’s Washington D.C. office and the global Chair of the firm’s Tax Controversy and Litigation Practice Group. Sanford counsels on a wide range of complex domestic and international tax issues and has served as counsel in a number of the largest tax controversy and litigation matters in recent years. He is consistently named one of the nation’s leading Tax Controversy lawyers as recognized in Chambers USA, The Best Lawyers in America, the World Tax Experts Guide, the Tax Controversy Leaders Guide, ITR World Tax, and other publications. Sanford previously served as a Trial Attorney in the Tax Division of the U.S. Department of Justice, where he received the Tax Division’s Outstanding Attorney Award.

Gibson Dunn’s Workplace DEI Task Force aims to help our clients navigate the evolving legal and policy landscape following recent Executive Branch actions and the Supreme Court’s decision in SFFA v. Harvard. Prior issues of our DEI Task Force Update can be found in our DEI Resource Center. Should you have questions about developments in this space or about your own DEI programs, please do not hesitate to reach out to any member of our DEI Task Force or the authors of this Update (listed below).

Key Developments:

On May 2, Judge Beryl Howell of the U.S. District Court for the District of Columbia permanently enjoined enforcement of Executive Order 14230, which, among other things, ordered federal agencies to suspend security clearances for employees of the law firm Perkins Coie, restrict their access to federal buildings, restrict communications by government officials with Perkins lawyers and employees, terminate government contracts with the law firm, and review the government contracts of Perkins Coie’s clients, and directed the Acting Chair of the EEOC to investigate the DEI practices of large law firms. In a 102-page order, the Court denied the government’s motion to dismiss the complaint, granted Perkins Coie’s motion for summary judgment, and concluded that the EO “violates the Constitution and is thus null and void.” The Court observed that, “[n]o American president has ever before issued executive orders like the one at issue,” adding, “In purpose and effect, this action draws from a playbook as old as Shakespeare, who penned the phrase: ‘The first thing we do, let’s kill all the lawyers.’ . . . Eliminating lawyers as the guardians of the rule of law removes a major impediment to the path to more power.”

The Court held that the EO violates the First Amendment by retaliating against the law firm for protected activity—specifically, the firm’s statements and viewpoint in favor of DEI as well as its association with and advocacy on behalf of the President’s opponents in the 2016 and 2020 elections. The Court also held that the EO violates the firm’s clients’ Fifth and Sixth Amendment right to counsel and First Amendment associational rights, denies the firm Equal Protection, and violates Due Process. The Court also invalidated the EO as void for vagueness, in part because the EO directs adverse action against Perkins Coie purportedly in response to the firm engaging in illegal discrimination through its DEI policies, without explaining which of the firm’s policies violate the law or otherwise clarifying what conduct of Perkins Coie’s is unlawful. The Court noted “The terms diversity, equity, and inclusion . . . could refer to a wide range of actions and programs, formal or informal, as well as basic thoughts and beliefs. The Order provides no definition or guidance as to what form of program possibly described by these terms is considered unlawful discrimination by the Trump Administration, leaving plaintiff to guess at what is and is not permissible in the government’s view, while already facing the threat of adverse actions during the guessing.” The government identified two alleged acts of illegal discrimination in which Perkins Coie engaged: (1) participating in the Sponsors for Education Opportunity (“SEO”) summer fellowship program and (2) adopting the “Mansfield Rule.” The Court rejected the government’s arguments as to both, reasoning that (a) the firm’s summer fellowship was “open to all” and does “not contain discriminatory requirements,” and (b) the Mansfield Rule “does not establish any hiring quotas or other illegally discriminatory practices, requiring only that participating law firms consider attorneys from diverse backgrounds for certain positions.” The Court concluded that neither was evidence of unlawful discrimination.

With respect to the EO’s provision directing the Acting Chair of the EEOC to “review the practices of representative large, influential, or industry leading law firms,” the Court said that “no authority is identified by the government—and the Court is aware of none—empowering the President to direct the EEOC to target specific businesses or individuals for an investigation,” and that the EEOC’s investigative authority is generally limited to formal charges filed with the agency. Addressing specifically the investigative letter the EEOC sent Perkins Coie requesting information about its hiring and employment practices, the Court held that “By not following its own procedures, the EEOC has undermined the legitimacy of its own investigation, revealing this investigation . . . to be a product of the retaliation ordered by EO 14230 rather than any legitimate investigative activity.”

On April 23, President Trump issued an Executive Order entitled “Restoring Equality of Opportunity and Meritocracy,” seeking to “eliminate the use of disparate-impact liability in all contexts to the maximum degree possible.” The executive order directs the repeal or amendment of certain regulations that impose disparate-impact liability on recipients of federal funding under Title VI, such as universities, nonprofits, and certain contractors. It also directs the Attorney General, “in coordination with the heads of all other agencies,” to review “all existing regulations, guidance, rules, or orders that impose disparate-impact liability or similar requirements,” and to “detail agency steps for their amendment or repeal.” The order likewise directs all federal agencies to “deprioritize enforcement of all statutes and regulations to the extent they include disparate-impact liability.” This would include Title VII, the Fair Housing Act, the Age Discrimination in Employment Act, the Affordable Care Act, and the Equal Credit Opportunity Act. Finally, the executive order instructs all heads of federal agencies to “assess” or “evaluate” all pending proceedings relying on disparate-impact theories and “take appropriate action” within 45 days, and to conduct a similar review of “consent judgments and permanent injunctions” within 90 days. For more analysis on this executive order, please see our April 25 client alert.

On April 24, 2025, federal district courts in New Hampshire, Maryland, and Washington D.C. granted preliminary injunctions in three separate cases challenging recent actions by the U.S. Department of Education in relation to DEI. The challenged actions include the Department’s February 14, 2025 “Dear Colleague” letter, which purported to “clarify and reaffirm the nondiscrimination obligations of schools and other entities that receive federal financial assistance” and instructed educational institutions to “(1) ensure that their policies and actions comply with existing civil rights law; (2) cease all efforts to circumvent prohibitions on the use of race by relying on proxies or other indirect means to accomplish such ends; and (3) cease all reliance on third-party contractors, clearinghouses, or aggregators that are being used by institutions in an effort to circumvent prohibited uses of race.” The cases also challenge the Department’s February 28 guidance document entitled “Frequently Asked Questions About Racial Preferences and Stereotypes Under Title VI of the Civil Rights Act,” which addressed a range of issues relating to DEI initiatives in educational institutions, including by providing examples of DEI programming that the Administration might find discriminatory. Finally, the cases challenge the Department’s April 3, 2025 letter requiring state and local officials to certify their compliance with the administration’s interpretation of Title VI in relation to DEI. For more information on these agency actions, please see our February 19, March 5, and April 21 Task Force Updates.

The plaintiffs in these three lawsuits challenged the Department’s actions under the First and Fifth Amendments, as well as the Administrative Procedure Act (“APA”). While all three courts granted the plaintiffs’ preliminary injunction motions, each ruled on different—and at times, conflicting—grounds.

In American Federation of Teachers, et al. v. Department of Education, et al., 1:25-cv-00628 (D. Md. 2025), Judge Stephanie Gallagher concluded that the Dear Colleague letter constitutes a “legislative rule” prescribing “new law and policy”—and not merely an “interpretive rule” providing guidance on existing law—because it extends the existing reach of Title VI, substantively alters the legal landscape, and has the force and effect of law. Accordingly, Judge Gallagher concluded that the plaintiffs were likely to succeed in their procedural challenge to the Dear Colleague letter because the Department failed to follow the procedural requirements for legislative rules as set forth in the APA. Judge Gallagher also concluded that the Dear Colleague letter likely violated the APA because the Education Department likely exceeded its statutory authority, failed to explain its change of position, failed to produce any facts to support its position, failed to consider the reliance interests of educators, and acted arbitrarily and capriciously in publishing the letter. Judge Gallagher also concluded that the Dear Colleague letter likely violated the First Amendment by preemptively prohibiting speech. The court declined to enjoin the letter establishing a certification requirement because the plaintiffs had not adequately challenged it in their complaint.

In National Education Association, et al. v. Department of Education, et al., 1:25-cv-00091 (D.N.H. 2025), Judge Landya McCafferty similarly held that the Dear Colleague letter is a legislative rule because it imposes new, substantial obligations on schools. Accordingly, Judge McCafferty concluded that the plaintiffs were likely to succeed in their procedural challenge due to the Department’s failure to follow the procedural requirements that the APA imposes on legislative rules. Judge McCafferty also concluded that the Dear Colleague letter was likely impermissibly vague in violation of the Due Process Clause, and that the Frequently Asked Questions document “does not ameliorate” the letter’s vagueness “but rather, exacerbates it.” Judge McCafferty also concluded that the agency actions likely violated the First Amendment by targeting speech based on viewpoint.

In NAACP v. U.S. Department of Education, et al., 1:25-cv-01120 (D.D.C. 2025), by contrast, Judge Dabney Friedrich concluded that the challenged Department actions were not legislative rules but rather interpretive rules intended to provide guidance on existing obligations, rather than impose new obligations. Accordingly, Judge Friedrich concluded that they did not violate the APA’s procedural requirements, nor were they arbitrary and capricious or contrary to law. Judge Friedrich also concluded that the plaintiffs lacked standing to challenge the agency’s actions on First Amendment grounds. However, she agreed with the other courts in finding that agency actions were likely void for vagueness under the Fifth Amendment because they “fail[ed] to provide an actionable definition of what constitutes ‘DEI.’” Judge Friedrich also concluded that the “shortened timeframe for certifying compliance further exacerbate[d] vagueness concerns.”

On April 21, 2025, Harvard University sued to prevent the freezing of more than $2 billion in federal funding to the university after it refused to comply with policy change demands from the Trump Administration. Naming as defendants numerous federal officials and agencies, the complaint alleges violations of the First Amendment and the Administrative Procedure Act, as well as an unconstitutional exercise of executive authority under Article II of the U.S. Constitution. Harvard argues that the Administration’s actions—including the demand that Harvard discontinue all DEI practices—are unconstitutional government interference with a private actor’s speech. The funding freeze, Harvard argues, is an unlawful use of legal sanction by the Administration seeking to suppress disfavored speech. Harvard also alleges that the Administration violated the APA by failing to follow the prescribed procedures under Title VI before revoking federal funding based on discrimination concerns. Harvard asks the court to undo the funding freeze and declare it unconstitutional.

On April 21, the National Institutes of Health (“NIH”) issued guidance stating that recipients of NIH grant funding must not “operate any programs that advance or promote DEI, DEIA, or discriminatory equity ideology in violation of Federal anti-discrimination laws.” Relatedly, the National Science Foundation (“NSF”) announced on April 18 a shift in funding priorities, including that “[r]esearch projects with more narrow impact limited to subgroups of people based on protected class or characteristics do not effectuate NSF priorities.” In its announcement, NSF also stated that “[r]esearchers may recruit or study individuals based on protected characteristics when doing so is (1) intrinsic to the research question (e.g., research on human physiology), (2) not focused on broadening participation in STEM on the basis of protected characteristics, and (3) aimed to fill an important gap in [science and engineering] knowledge. For example, research on technology to assist individuals with disabilities may be supported even when the research subject recruitment is limited to those with disabilities.”

Media Coverage and Commentary:

Below is a selection of recent media coverage and commentary on these issues:

New York Times, “‘Vaguely Threatening’: Federal Prosecutor Queries Leading Medical Journal” (April 25): Teddy Rosenbluth of the New York Times reports that the interim U.S. Attorney for the District of Columbia, Ed Martin, has sent letters to various medical and scientific journals, including the New England Journal of Medicine, regarding their selection of papers for publication. According to Rosenbluth, the letters suggest the publications are “partisan in various scientific debates” and ask whether the journals “accept submissions from scientists with ‘competing viewpoints,” what they do if authors “may have misled their readers,” and whether they are “transparent about influence from ‘supporters, funders, advertisers, and others.’” The letters also ask what role the NIH plays “in the development of submitted articles.” Rosenbluth reports that it is “unclear how many journals have received these letters or the criteria that Mr. Martin used to decide which publications to target.”
NPR, “Trump Signs Executive Actions on Education, Including Efforts to Rein in DEI,” April 24): NPR’s Elissa Nadworny reports on a series of executive actions taken by the White House on April 23 aimed at educational institutions and relating to DEI. The first instructs Secretary of Education Linda McMahon to “overhaul” the college accreditation system and recognize new accreditors. The second provides that universities may lose federal grants unless they complete “full and timely disclosures of foreign funding.” The third calls for changes in disciplinary policies in K-12 schools, including by prohibiting use of “racially preferential discipline practices” and abandonment of disparate impact analyses of discipline.
Law.com, “Companies Toning Down ‘DEI’ References but Not Necessarily Ditching It, Analysis Reveals” (April 24): Law.com’s Chris O’Malley reports on an analysis of financial reports from 10 leading S&P 500 companies which found that companies are “‘recalibrating’ how they present diversity, equity and inclusion in their regulatory filings.” The study found a “measurable decline in explicit DEI mentions” in these reports. Nevertheless, “substantive commitments persist through neutral phrasing,” including “diversity of thought” and “global workforce composition.” Moreover, O’Malley notes that the study found some exceptions to the trend exist, including major companies with unchanging usage of DEI-related language in their reports year over year.
Law360, “How Proxy Advisory Firms Are Approaching AI And DEI” (April 21): Writing for Law360, Javier Ortiz, Geoffrey Liebmann, and Trevor Lamb report that proxy advisory firms Institutional Shareholder Services Inc. (“ISS”) and Glass Lewis & Co. LLC (“Glass Lewis”) have both issued updated proxy voting policy guidelines relating to DEI. ISS will cease to consider the gender, racial, or ethnic diversity of a company’s board when making voting recommendations for the election or re-election of directors at U.S. companies. Glass Lewis, by contrast, will continue to recommend votes against nominating committee members for companies where Glass Lewis believes the board lacks sufficient diversity. However, Glass Lewis will inform clients when its recommendation concerns diversity, and it will provide two recommendations in those instances, including one that excludes gender or community diversity considerations. Glass Lewis will apply the same policy to shareholder proposals. For more information, please see our February 2025 client alert.

Case Updates:

Below is a list of updates in new and pending cases:

1. Challenges to statutes, agency rules, and regulatory decisions:

American Alliance for Equal Rights v. Ivey, No. 2:24-cv-00104 (M.D. Ala. 2024): On February 13, 2024, AAER filed a complaint against Alabama Governor Kay Ivey, challenging a state law that requires the governor to ensure there are no fewer than two individuals “of a minority race” on the Alabama Real Estate Appraisers Board. The Board has nine seats, including one for a member of the public with no real estate background, which has been unfilled for years. Because there was only one minority member among the Board at the time of filing, AAER asserts that state law requires that the open seat go to a person with a minority background. AAER states that one of its members applied for this final seat, but was denied on the basis of race, in violation of the Equal Protection Clause of the Fourteenth Amendment. On March 29, 2024, Governor Ivey answered the complaint, admitting that the Board quota is unconstitutional and will not be enforced. On March 19, 2025, AAER moved to substitute Laura Clark, whom AAER had referred to as “Member A” in its complaint, as the plaintiff. On April 2, 2025, Governor Ivey responded to the motion to substitute, arguing that AAER lacked good cause for the substitution, and that the motion was merely an attempt by AAER to “resist discovery.”
- Latest update: On April 17, 2025, the court denied AAER’s motion to substitute because AAER failed to show “good cause” for the substitution and could have substituted Ms. Clark as named plaintiff before the deadline to amend the pleadings, but chose not to do so.
California et al. v. U.S. Department of Education et al., No. 1:25-cv-10548 (D. Mass. 2025): On March 6, 2025, the states of California, Massachusetts, New Jersey, Colorado, Illinois, Maryland, New York, and Wisconsin (collectively, “the Plaintiff States”) sued the U.S. Department of Education, alleging that it arbitrarily terminated previously awarded grants under the Teacher Quality Partnership (“TQP”) and Supporting Effective Educator Development (“SEED”) programs in violation of the APA. On March 6, 2025, the Plaintiff States filed a motion for a temporary restraining order to prevent the Department of Education from “implementing, giving effect to, maintaining, or reinstating under a different name the termination of any previously-awarded TQP and SEED grants.” The Plaintiff States argued that the “abrupt and immediate” termination of the TQP and SEED programs threatened imminent and irreparable harm. The court issued a TRO on March 10, 2025, concluding that the Plaintiff States were likely to succeed on the merits of their APA claim, that they adequately demonstrated irreparable harm absent temporary relief, and that the balance of the equities weighed in their favor. The government appealed the order the next day, arguing, among other things, that the district court lacked jurisdiction to review the Department of Education’s decisions on how to allocate funds because the APA does not permit judicial review of “agency action” that “is committed to agency discretion by law.” On April 4, 2025, the United States Supreme Court stayed the TRO, concluding that the government was likely to succeed in showing the district court lacked jurisdiction to grant the TRO under the Administrative Procedure Act
- Latest update: On April 15, 2025, the parties filed a joint status report. The government indicated it intends to move to dismiss the complaint on jurisdictional grounds by May 12, its deadline to answer the complaint. The plaintiffs asked the court to order “expedited production of the administrative record to assist the court in resolving the jurisdictional arguments that the government is expected to make in its motion to dismiss.” The government opposed expedited discovery and instead contended “that the proper and most efficient approach” would be for it to file the administrative record in conjunction with its answer, should the court deny the forthcoming motion to dismiss. On April 16, the court issued an order stating that it would assess the request for expedited production of the administrative record after reviewing the forthcoming motion to dismiss.
De Piero v. Pennsylvania State University, No. 2:23-cv-02281 (E.D. Pa. 2023): A white male professor sued his employer, Penn State University, claiming that university-mandated DEI trainings, discussions with coworkers and supervisors about race and privilege in the classroom, and comments from coworkers about his “white privilege” created a hostile work environment that led him to quit his job. He claimed that after he reported this alleged harassment and published an opinion piece objecting to the impact of DEI concepts in the classroom, the university retaliated against him by investigating him for bullying and aggressive behavior towards his colleagues. The plaintiff alleged harassment, retaliation, and constructive discharge in violation of Title VI, Title VII, Section 1981, Section 1983, the First Amendment, and Pennsylvania civil rights laws. The parties filed cross-motions for summary judgment. On March 6, 2025, the court granted summary judgment to the university on the plaintiff’s hostile work environment claims. The court found that the behaviors complained of by the plaintiff, including “campus wide emails” pertaining to racial injustice, “being invited to review scholarly materials,” and “conversations about harassment levied by and against [the plaintiff],” could not reasonably be found to rise to the level of severe harassment. As to the “pervasive” conduct prong, the court explained that of the 12 incidents in the complaint, no “racist comment” was directed at the plaintiff and “only a few” involved actions that were directed at the plaintiff at all. On March 20, 2025, the plaintiff filed a supplemental brief in support of his remaining claims, arguing that these claims should proceed to trial. He presented what he asserted were undisputed facts to support his claims, including that he was reported for “micro aggressions” after objecting to racial harassment, that colleagues lodged false claims against him, and that he faced retaliatory disciplinary action and salary claw backs. On March 27, 2025, the university filed its own supplemental brief in support of summary judgment, arguing that the plaintiff’s putative Title VII and PHRA retaliation claims failed as a matter of law because the plaintiff cannot prove the university took adverse employment action against him, or there is no causal link between his alleged protected activity and adverse actions taken by the university.
- Latest update: On April 17, 2025, the court granted summary judgment for the university on the plaintiff’s remaining retaliation claims, concluding that none of the alleged acts by the university constituted adverse employment action.
Nat’l Urban League et al., v. President Donald J. Trump, et al., No. 1:25-cv-00471 (D.D.C. 2025): On February 19, 2025, the National Urban League, National Fair Housing Alliance, and AIDS Foundation of Chicago sued President Donald Trump challenging EO 14151, EO 14168, EO 14173, and related agency actions, as ultra vires and in violation of the First and Fifth Amendments and the Administrative Procedure Act. The plaintiffs allege that these orders penalize them for expressing viewpoints in support of diversity, equity, inclusion, and accessibility, and transgender people. They also claim that, because of these orders, they are at risk of losing federal funding. The complaint seeks a declaratory judgment holding that the EOs at issue are unconstitutional, as well as a preliminary injunction enjoining enforcement of these EOs. On February 28, the plaintiffs filed a motion for a preliminary injunction.
- Latest update: On May 2, 2025, the court denied the plaintiffs’ motion for a preliminary injunction. The court determined that the plaintiffs failed to establish standing to challenge provisions of the EOs that are intra-governmental and “not aimed at them.” For the remaining challenged provisions of the executive orders—including provisions mandating certification by government contractors that they do not operate unlawful DEI and terminating grants relating to DEI and gender ideology—the court concluded that the plaintiffs failed to show a likelihood that they would succeed on the merits.

2. Employment discrimination and related claims:

Beneker v. CBS Studios, Inc., et al., No. 2:24-cv-01659 (C.D. Cal. 2024): On February 29, 2024, a heterosexual, white male writer sued CBS, alleging that the company’s de facto hiring policy discriminated against him on the bases of sex, race, and sexual orientation. In his complaint, the plaintiff alleges that CBS violated Section 1981 and Title VII by refusing to hire him as a staff writer on the TV show “Seal Team,” instead hiring several black writers, female writers, and a lesbian writer. The plaintiff sought a declaratory judgment that CBS’s de facto hiring policy violates Section 1981 and Title VII, an injunction barring CBS from continuing to violate Section 1981 and Title VII, an order requiring CBS to offer the plaintiff a full-time producer job, and damages. CBS moved to dismiss the complaint on June 24, 2024, arguing that the First Amendment protects its hiring choices and that two of the plaintiff’s Section 1981 claims were untimely.
- Latest update: On April 18, 2025, the parties filed a joint stipulation to dismiss the case with prejudice, with each party bearing its own costs. The stipulation did not reveal whether the parties entered into a settlement agreement. The court ordered the case dismissed with prejudice on April 21, 2025.

3. Contracting claims under Section 1981, the U.S. Constitution, and other statutes:

Do No Harm v. Nat’l Assoc. of Emergency Medical Technicians, No. 3:24-cv-00011 (S.D. Miss. 2024): On January 10, 2024, Do No Harm challenged the diversity scholarship program operated by the National Association of Emergency Medical Technicians (“NAEMT”), an advocacy group representing paramedics, EMTs, and other emergency professionals. NAEMT awards up to four $1,250 scholarships annually to students of color hoping to become EMTs or paramedics. Do No Harm requested a temporary restraining order, preliminary injunction, and permanent injunction to prevent the continued operation of the program. On January 23, 2024, the court denied Do No Harm’s motion for a TRO, and NAEMT moved to dismiss Do No Harm’s amended complaint on March 18, 2024. On March 31, 2025, the court denied the defendants’ motion to dismiss, finding Do No Harm had standing and plausibly alleged a prima facie Section 1981 violation.
- Latest update: On April 17, 2025, the parties filed a joint stipulation of dismissal, indicating that the defendant will “revise” its scholarship program to remove eligibility requirements and preferences based on race or ethnicity.

The following Gibson Dunn attorneys assisted in preparing this client update: Jason Schwartz, Mylan Denerstein, Zakiyyah Salim-Williams, Cynthia Chen McTernan, Zoë Klein, Cate McCaffrey, José Madrid, Jenna Voronov, Emma Eisendrath, Kristen Durkan, Simon Moskovitz, Teddy Okechukwu, Beshoy Shokralla, Heather Skrabak, Maryam Asenuga, Angelle Henderson, Kameron Mitchell, Lauren Meyer, Chelsea Clayton, Maya Jeyendran, Albert Le, Allonna Nordhavn, Felicia Reyes, Godard Solomon, Laura Wang, and Ashley Wilson.

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 Labor and Employment practice group, or the following practice leaders and authors:

Jason C. Schwartz – Partner & Co-Chair, Labor & Employment Group
Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com)

Katherine V.A. Smith – Partner & Co-Chair, Labor & Employment Group
Los Angeles (+1 213-229-7107, ksmith@gibsondunn.com)

Mylan L. Denerstein – Partner & Co-Chair, Public Policy Group
New York (+1 212-351-3850, mdenerstein@gibsondunn.com)

Zakiyyah T. Salim-Williams – Partner & Chief Diversity Officer
Washington, D.C. (+1 202-955-8503, zswilliams@gibsondunn.com)

Molly T. Senger – Partner, Labor & Employment Group
Washington, D.C. (+1 202-955-8571, msenger@gibsondunn.com)

A recent declination by the U.S. Department of Justice offers one example of enforcement agencies’ expectations for how companies should respond to potential criminal export control violations.

Executive Summary

On April 30, 2025, the Department of Justice (DOJ) announced that it had declined to prosecute Universities Space Research Association (USRA), a nonprofit research firm and NASA contractor, for export control violations committed by a former employee. The case was jointly investigated by the Department of Commerce’s Bureau of Industry and Security (BIS), the Department of Defense’s Defense Criminal Investigative Service, and the FBI. The Counterintelligence and Export Control Section of DOJ’s National Security Division (NSD) and the U.S. Attorney’s Office for the Northern District of California prosecuted the case.

USRA is the second company to receive a declination of prosecution under NSD’s Enforcement Policy for Business Organizations (the “Policy”). As discussed in greater detail below, this case highlights steps companies can take to minimize – or avoid altogether – criminal exposure stemming from the export control violations of employees or agents. Those steps include maintaining robust compliance programs with rigorous due diligence, oversight, and auditing capabilities to detect and address misconduct. If wrongdoing nevertheless occurs, companies can consider taking advantage of the Policy by immediately conducting internal investigations, identifying root causes of the compliance violations, taking appropriate corrective actions, and promptly self-reporting.

Factual Background

According to the press release issued by DOJ, USRA contracted with NASA in 2016 to license and distribute aeronautics-related and military-owed flight control software. Between April 2017 and September 2020, Jonathan Soong, a former USRA program administrator responsible for performing due diligence on prospective purchasers, willfully exported flight control and optimization software to Beijing University of Aeronautics and Astronautics (a.k.a. “Beihang” or “Beihang University”) in the People’s Republic of China. Since May 2001, Beihang has been listed on the Commerce Department’s Entity List due to its involvement in developing military rocket and unmanned aerial vehicle systems. Under the Export Administration Regulations (EAR), a license from the Department of Commerce is required to export the software, developed by the U.S. Army and licensed by NASA, to parties on the Entity List.

Soong’s illegal scheme continued until USRA began to investigate based on an inquiry from NASA about the sales of software licenses to China-based purchasers. Soong initially attempted to conceal his action by lying to USRA and fabricating evidence of due diligence on the purchasers. He was later confronted by USRA’s counsel and eventually admitted to knowing that Beihang was on the Entity List and that a license was required when he exported the software.

According to the Declination Letter (the “Letter”), USRA self-disclosed the violations to NSD within days of Soong’s admission of misconduct and before the completion of the internal investigation. Soong was charged with willfully violating the EAR by exporting U.S. Army-developed aviation software to Beihang. He pleaded guilty in January 2023, admitting to willfully exporting software without a license, using an intermediary to complete the transfer and export to avoid detection, and separately embezzling at least $161,000 in software license sales by directing purchasers to make payment to his personal account. Soong was sentenced to 20 months in prison.

Multiple Theories of Liability Arising From The Same Facts

Companies should be aware that corporate criminal liability results from the illegal actions of employees or agents. In the USRA case, former employee Jonathan Soong exported unlicensed software to an entity subject to EAR restrictions, diverted license payments to his personal accounts, defrauded the government in connection with a federal contract, and presented false statements and falsified documentation during or in connection with a federal proceeding. According to the Letter, DOJ could have prosecuted USRA based on Soong’s misconduct for potential violations of multiple federal criminal statutes:

violations of the EAR and the Export Control Reform Act of 2018 (ECRA) predicated on export-related violations;
violations of the International Emergency Economic Powers Act (IEEPA) predicated on export-related violations;[1]
violations of the False Claims Act predicated on a federal contractor’s knowing submission of fraudulent claims to the U.S. government with the intent to receive payment or approval;
violations of 18 U.S.C. § 1001 predicated on knowingly making false statements in “any matter within the jurisdiction” of the federal government;
violations of 18 U.S.C. § 1343 predicated on using the U.S. electronic communication wires to deceive or defraud; and
violations of 18 U.S.C. § 1512 predicated on obstruction of justice during a federal proceeding.

Mitigating Factors

A declination of prosecution is a discretionary decision by NSD not to prosecute, guided by the evaluative factors set forth in the Policy. Here, by showing that it had initially lacked knowledge of the misconduct but then responded swiftly and transparently through a robust internal investigation, USRA reinforced its status as a good corporate actor and thus earned itself a declination.

Specifically, the Letter cited to a number of mitigating factors as reasons for the declination, including USRA’s “timely and voluntary” self-disclosure of misconduct, “exceptional and proactive” cooperation with the government, and “timely and appropriate” remediation measures, such as terminating the employment of Jonathan Soong, disciplining supervisory personnel, enhancing internal compliance controls, reimbursing NASA of Soong’s salary, and compensating the U.S. Treasury for financial losses resulting from Soong’s criminal embezzlement of $161,000 in sales. The government also considered the nature and seriousness of the offense to be a contributing mitigating factor given that only four unlicensed exports of software were made and the software was based on publicly available information. Furthermore, the government determined that USRA did not obtain any unlawful gains from Soong’s offenses.

Broader Context: NSD’s Voluntary Self-Disclosure Policy and MilliporeSigma

VSD Policy

NSD is responsible for criminal enforcement of U.S. export control and sanctions laws, among other matters related to national security. To qualify for the Policy, companies should make prompt disclosure directly to NSD of all potentially criminal violations of the Arms Export Control Act (22 U.S.C. § 2778), the Export Control Reform Act (50 U.S.C. § 4819), or the International Emergency Economic Powers Act (50 U.S.C. § 1705), as well as potential violations of other criminal statutes that affect national security when they arise out of or relate to enforcement of export control and sanctions laws.

When a company:

voluntarily self-discloses to NSD potentially criminal violations arising out of or relating to the enforcement of export control or sanctions laws,
fully cooperates, and
timely and appropriately remediates the underlying causes of the violation,

absent aggravating factors, NSD generally will not seek a guilty plea, and there is a presumption that the company will receive a non-prosecution agreement and will not pay a fine. NSD also has the discretion to issue a declination when warranted by the principles of federal prosecution. See Justice Manual § 9-27.000.

A deferred prosecution agreement (DPA) or guilty plea may result if the following aggravating factors are present:

pervasive and egregious conduct, including repeat violations;
concealment or involvement by upper management;
significant profit from misconduct;
involvement with Foreign Terrorist Organizations or Specially Designated Global Terrorists;
exports of items controlled for nonproliferation or missile technology reasons; or
exports of WMD components or military items to countries of concern.

Even when a DPA or guilty plea is required, though, companies can still benefit from VSDs, as they are eligible for up to a 50% reduction in criminal fines if they receive full cooperation and remediation credit.

Recent Example: MilliporeSigma Declination

USRA is only the second declination NSD has issued under the Policy. In May 2024, NSD declined to prosecute MilliporeSigma in a factually analogous case where a company employee shipped biochemical products to a Chinese customer using falsified export documents. Notably, the MilliporeSigma case shares many common factors with USRA, including prompt disclosure of misconduct after retaining counsel and before the internal investigation concluded, proactive and full cooperation, effective remediation, and lack of corporate gain or involvement. In addition, NSD considered the limited quantities of biochemical exports as a mitigating factor.

Key Takeaways

Maintain a Robust Compliance Program

The USRA case once again underscores the importance for companies, especially those consistently dealing with sensitive or controlled technologies, to maintain robust compliance programs. An effective compliance framework should implement thorough due diligence procedures, a strong oversight mechanism, and routine audits capable of detecting potentially unauthorized activities. Although companies can work to mitigate enforcement outcomes – as USRA successfully did here – through extensive post-violation cooperation with the enforcement authorities, stronger internal control and supervisory oversight can help detect and address employee misconduct involving illicit exports and embezzlement internally and thus further reduce the serious legal and reputational risks.

Conduct an Internal Investigation

Upon uncovering the misconduct, companies are well advised to acknowledge the seriousness and urgency of the violation and promptly undertake a thorough internal investigation. USRA’s response was crucial in demonstrating to NSD that the company was effectively a defender of corporate compliance integrity, rather than an enabler of the employee’s criminal actions. The comprehensive nature of USRA’s internal investigation, coupled with its full and prompt cooperation, voluntary self-disclosure, disciplinary measures, and updates to internal controls contributed to DOJ’s successful prosecution of the employee and convinced DOJ to decline charges against the company itself.

Carefully Weigh Voluntary Self-Disclosure Considerations

The Letter recognized USRA’s timely VSD to NSD as having a significant impact on DOJ’s decision to not to bring charges against the company. By choosing to self-disclose early – within days of the employee’s admission of wrongdoing and before completing its internal investigation – USRA earned significant VSD credit under the Policy. While each voluntary self-disclosure decision is dependent on individual facts and circumstances, this case, like MilliporeSigma, showcases how voluntary and timely disclosures to DOJ has the potential to substantially reduce corporate criminal exposure by demonstrating to the government corporate responsibility and commitment to compliance.

We have decades of experience conducting investigations and supporting clients with disclosures before the Department of Commerce, State, Treasury, Justice, and other international trade regulatory and enforcement agencies of the United States. We also have the deep experience advising clients on how to construe and implement trade regulation in their business operations, which is critical to mounting the most effective defense to resulting enforcement actions when they arise. Our team includes key architects of U.S. export control enforcement policies at both the Department of Justice and Department of Commerce. David P. Burns, a co-chair of Gibson Dunn’s National Security practice group, previously held senior positions within both the Criminal Division and National Security Division of the U.S. Department of Justice prior to rejoining the firm. David served at NSD during the pivotal 2019 update to its corporate enforcement policy. Mathew S. Axelrod, a co-chair of Gibson Dunn’s newly established Sanctions and Export Enforcement practice group, recently joined the firm following his tenure at the Department of Commerce’s BIS as Assistant Secretary for Export Enforcement. While at BIS, Matt overhauled a number of the agency’s enforcement policies, including those on voluntary self-disclosures. Matt brings valuable firsthand insights to help clients navigate complex export enforcement issues.

[1] The export control system created pursuant to the Export Administration Act of 1979, a statute that expired in 2001, was continued by a presidential declaration of a national emergency and the invocation of IEEPA until the passage of the ECRA in 2018.

The following Gibson Dunn lawyers prepared this update: Matthew S. Axelrod, David P. Burns, Janice Yingzhuang Jiang, Soo-Min Chae*, Adam M. Smith, Christopher T. Timura, and Samantha Sewall.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. For additional information about how we may assist you, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or the following leaders and members of the firm’s Sanctions & Export Enforcement, International Trade Advisory & Enforcement, and National Security practice groups:

United States:
Matthew S. Axelrod – Co-Chair, Washington, D.C. (+1 202.955.8517, maxelrod@gibsondunn.com)
Adam M. Smith – Co-Chair, Washington, D.C. (+1 202.887.3547, asmith@gibsondunn.com)
Ronald Kirk – Dallas (+1 214.698.3295, rkirk@gibsondunn.com)
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, shandler@gibsondunn.com)
Donald Harrison – Washington, D.C. (+1 202.955.8560, dharrison@gibsondunn.com)
Christopher T. Timura – Washington, D.C. (+1 202.887.3690, ctimura@gibsondunn.com)
David P. Burns – Washington, D.C. (+1 202.887.3786, dburns@gibsondunn.com)
Nicola T. Hanna – Los Angeles (+1 213.229.7269, nhanna@gibsondunn.com)
Courtney M. Brown – Washington, D.C. (+1 202.955.8685, cmbrown@gibsondunn.com)
Amanda H. Neely – Washington, D.C. (+1 202.777.9566, aneely@gibsondunn.com)
Samantha Sewall – Washington, D.C. (+1 202.887.3509, ssewall@gibsondunn.com)
Michelle A. Weinbaum – Washington, D.C. (+1 202.955.8274, mweinbaum@gibsondunn.com)
Karsten Ball – Washington, D.C. (+1 202.777.9341, kball@gibsondunn.com)
Hugh N. Danilack – Washington, D.C. (+1 202.777.9536, hdanilack@gibsondunn.com)
Mason Gauch – Houston (+1 346.718.6723, mgauch@gibsondunn.com)
Chris R. Mullen – Washington, D.C. (+1 202.955.8250, cmullen@gibsondunn.com)
Sarah L. Pongrace – New York (+1 212.351.3972, spongrace@gibsondunn.com)
Anna Searcey – Washington, D.C. (+1 202.887.3655, asearcey@gibsondunn.com)
Audi K. Syarief – Washington, D.C. (+1 202.955.8266, asyarief@gibsondunn.com)
Scott R. Toussaint – Washington, D.C. (+1 202.887.3588, stoussaint@gibsondunn.com)
Lindsay Bernsen Wardlaw – Washington, D.C. (+1 202.777.9475, lwardlaw@gibsondunn.com)
Shuo (Josh) Zhang – Washington, D.C. (+1 202.955.8270, szhang@gibsondunn.com)

*Soo-Min Chae, a visiting attorney based in Washington, D.C., is not admitted to practice.

In a transformative step to enhance and better protect its business environment, Saudi Arabia has enacted a new Trade Name Law, which was published in the Official Gazette (Um AlQura) on October 4, 2024, and has come into effect on April 3, 2025.

Introduction

The law came into effect on April 3, 2025, replacing the previous legislation that had been in force since November 23, 1999. The implementing regulations were published on March 30, 2025, and took effect concurrently with the new law.

This law reform marks yet another significant step in the modernization of Saudi’s legal framework, streamlining processes and fostering a transparent, efficient business landscape. Below, we outline the key features of the new law and its practical implications in Saudi Arabia.

Key Features of the New Trade Name Law

1. Simplified Trade Name Selection

The updated Trade Name Law offers businesses greater flexibility in reserving and registering trade names. Trade names can be reserved for an initial period of 60 days, with the possibility of extending for an additional 60 days. Further extensions may be granted but are subject to specific registration circumstances. Given the exclusivity associated with registered/reserved trade names, there is a greater practical need to register desired trade names ahead of time. If the reservation period expires and the procedures for the issuance of a commercial register certificate are not complete, the reservation will lapse, and the trade name will become available for reservation by any person. All reservations and extensions will be subject to payment of fees.

2. Linguistic Flexibility

The old trade names regime was renowned for its strict restrictions on the use of foreign trade names with only a few exceptions being permitted for certain foreign companies or as determined on a case-by-case basis by the Minister of Commerce. The new Trade Name Law ushers in a new era as trade names can now be registered in Arabic, transliterated Arabic (i.e., Arabic words or text that have been written using the Latin (Roman) alphabet instead of the Arabic script), English, or combinations of letters and numbers (with a maximum of 9 digits).

It is recommended that all businesses ensure linguistic consistency in branding to maximize recognition. Foreign investors will need to ensure that the foreign trade name is writable in English and is capable of being translated into Arabic.

3. Independent Trade Name Ownership

Trade names are capable of being owned, sold, or assigned to other persons, which enhances their commercial value. Given that trade names are exclusive and cannot be replicated, registering and owning a trade name provides businesses with a potentially valuable asset.

What Else Has Changed? A Deeper Look at the New Trade Name Law

Trade Name Registration Process

Article 5 of the new law provides a clearer process regarding the trade name application process, including clearer decision-making timelines of up to 10 days from the date of submission of the application, compared to the old timeline which took up to 30 days (see Article 7 of the old regulation). The decision timeline is extendable in certain cases to 30 days when external approval of a trade name is required.

The Ministry of Commerce has integrated the trade name reservation service into the Saudi Business Center portal, which now manages all trade name applications. After a trade name application is accepted, publication is now mandatory, with applicants bearing associated costs.

Priority is given to the first applicant i.e. first in time to submit an application, if multiple applications for the same name exist. If the registrar rejects an application, applicants will have 60 days to appeal to the Ministry.

Trade Name Protection Against Unauthorized Use

The new law, under its Article 6, strengthens protection against unauthorized use such that no person is entitled to use a trade name registered that belongs to someone else. A fine of SAR 10,000 is now imposed as per Article 15 of the implementing regulations to strengthen adherence to the law and limit unauthorized use of registered or reserved trade names. Businesses with registered names in the Commercial Register have the right to seek compensation for damages caused by unauthorized use. This means that the commercial register serves as proof of ownership, and any person who makes any unauthorized use of a registered trade name will have committed a violation and may be liable to pay compensation to the registered owner of the trade name.

Prohibited Trade Names

Article 7 of the new law outlines the following prohibitions:

Trade names must not violate public order or morality.
Names that are misleading, deceptive, or resemble an already registered trade name (regardless of activity type) are not allowed.
Names similar to famous trademarks are restricted unless owned by the applicant.
Names containing political, military, or religious references are prohibited.
Trade names must not resemble symbols of local, regional, or international organizations.

The Ministry of Commerce will also maintain and update a public list of prohibited names regularly, for transparency. Some of the prohibitions introduced by the Trade Names Law are quite broad in nature (particularly the prohibitions relating to “public order or morality” and “famous trademarks”).

It remains unclear how broadly these prohibitions will be interpreted and applied by the Registrar, and the practical challenges such prohibitions may create for applicants wishing to register their trade names. It also remains to be seen whether other restrictions will be unilaterally imposed by the Ministry by way of practice or by way of circumstance and how far the Ministry may go in enforcing these restrictions. To date, the Ministry has already started to reject applications containing the word “company” or that otherwise include a description of an ordinary business activity such as “regional headquarter”.

Monetary Fees for Name Reservations

Article 14 of the implementing regulation introduces the following new fee structure for trade name reservations:

SAR 200 for an Arabic trade name.
SAR 500 for an English trade name.
SAR 100 to extend reservation duration.
SAR 100 to dispose of the trade name.

New Guidelines for Trade Names Similarity Criteria

Article 5 of the implementing regulation stipulates a formal set of criteria and guidelines that will be used to determine whether a trade name is deemed too similar to an existing one, reducing ambiguity. Under these guidelines, a trade name will be considered like another if its written form closely resembles that of a registered, famous, or reserved trade name. This includes:

Identical spelling with different word arrangements.
Identical spelling with a one-letter difference.
Identical spelling with minor changes, such as adding, removing, or altering pronouns, definite articles, pluralization, or diminutives.
Identical pronunciation despite differences in spelling or numbers replacing letters, and vice versa.

Criteria mentioned above shall apply to English trade names and their corresponding wording with the use of Arabic letters.

Use of ‘Saudi’ or names of Saudi Cities and Regions in Trade Names

As per Article 4 of the implementing regulation, businesses can now reserve names containing ‘Saudi’ or the name of a Saudi city or region, subject to the following conditions:

The name must not be identical or similar to any governmental entity.
The main component or essential element of the name must not be ‘Saudi’ or a Saudi city or region.
The name must not be used in a manner that would cause harm to the reputation of the Kingdom of Saudi Arabia.
For both Makkah and Madinah regions, approval from the Royal Commission for Makkah and the Holy Sites or the Madinah Development Authority is required.

Practical Considerations for Businesses

Saudi Arabia’s new Trade Name Law enhances transparency, secures commercial identities, and increases business interests in Saudi. In line with this, businesses should consider the following:

Ensure Distinctiveness: With stricter rules on name similarity and given the relative ease of reserving/registering a trade name, applicants should conduct comprehensive trade name searches and check the Ministry’s prohibited names list before applying to avoid getting rejected.
Understand New Protections: Trade names are now valuable commercial assets—businesses should actively monitor for unauthorized use and take prompt legal action if necessary.
Consider Linguistic Strategy: With increased linguistic flexibility, businesses can choose names that enhance global branding while remaining compliant with local regulations.

For Tailored Legal Guidance

For expert legal advice on trade name registration and compliance, contact our team below.

The following Gibson Dunn lawyers prepared this update: Mohamed A. Hasan and Hadeel Tayeb.

Mohamed A. Hasan (+966 55 867 5974, malhasan@gibsondunn.com)

Hadeel Tayeb (+966 53 944 3329, htayeb@gibsondunn.com)

In the context of M&A agreements, the choice-of-law decision between Delaware and Texas could impact the interpretation and applicability of several common provisions. Below is a brief overview of distinctions and similarities that sellers and buyers should consider when negotiating the governing law provision.

Introduction

In large M&A transactions, sophisticated parties historically default to Delaware law to govern M&A agreements. This default treatment stems from more than just habit; it also applies in light of Delaware’s specialized business court – the Court of Chancery – decades of legal precedent, a sophisticated, business-minded judicial bench, and business-favorable statutory law, all of which combine to provide greater predictability regarding how M&A provisions will be interpreted in the event of a dispute.

However, several other states have recently renewed efforts to lure entities to incorporate in their states. In particular, Texas has created a new business court and is reforming its statutory law in an effort to encourage more companies to be formed in Texas and adjudicate their business disputes in specialized Texas business courts. If more companies choose to incorporate in Texas, and a fulsome, more predictable body of case law develops in respect of M&A disputes adjudicated in Texas, M&A counterparties may seek to supplant the standard Delaware governing law provision in their M&A agreements with a Texas governing law provision.

Below is a summary of the treatment of common M&A provisions under Delaware and Texas law and considerations for deal participants in selecting the governing law to apply to their M&A agreements.

Non-Reliance

In negotiating a non-reliance provision in an M&A agreement, the question is whether a seller can be liable for fraud for representations made outside of the transaction agreement. In Delaware, parties cannot contractually limit liability for fraud contained within the transaction agreement. However, parties can include a clear and specific non-reliance provision in the transaction agreement wherein the buyer agrees that it is not relying on representations made outside the transaction agreement. Such provisions effectively waive an essential element of a fraud claim, reliance, as it pertains to representations outside the M&A agreement, such as the confidential information memorandum.

In Texas, courts will similarly uphold clear non-reliance provisions to limit a seller’s liability for statements made outside the M&A agreement; similar to Delaware, a merger clause or a provision that states that the parties have not made representations outside the M&A agreement are insufficient to foreclose fraud liability. Consequently, carefully crafted non-reliance provisions should operate to eliminate liability for fraud outside the four corners of the M&A agreement under both Delaware and Texas law.

Sandbagging

“Sandbagging” refers to a buyer seeking indemnification for breaches of representations and warranties that it knew to be false prior to closing. Under Delaware law, if the contract is silent with respect to the ability of the buyer to recover for breaches of which it had pre-closing knowledge, a buyer can recover damages for breach of a representation even if the buyer had knowledge pre-closing that the representation was false. In other words, the buyer’s pre-closing knowledge of the breach does not matter. The policy behind this approach is that the parties negotiated for the specific terms of the contract, including the division of risk between the buyer and seller, and knowledge of the buyer should not undermine this allocation of risk.

In Texas, practitioners commonly state that reliance on the seller’s representations is required for a buyer to bring a claim for indemnification. In other words, the buyer’s knowledge does matter if the contract is silent with respect to the buyer’s ability to recover for breaches of which it had pre-closing knowledge. The policy behind this approach is that the buyer did not rely on the representation to its detriment by closing the transaction if the buyer knew the representation was false prior to closing. However, the case law in Texas addressing sandbagging is less than clear. While there is nothing in the case law suggesting that Texas follows Delaware’s view, there is not a modern case specifically accepting the proposition that the “default” in Texas is that pre-closing knowledge matters in the context of sandbagging.

Parties to agreements governed by either Delaware or Texas law can include contractual provisions specifically allowing or disallowing sandbagging. But if Texas governing law applies, it would be particularly advisable to allow or disallow sandbagging explicitly rather than remaining silent because there is some uncertainty in how Texas courts would address the issue.

Statute of Limitations

In the context of an M&A agreement, a state’s statute of limitations governs the deadline by which a party must bring a claim for breach of contract. In Delaware, the statute of limitations for non-Article 2 claims is three years. However, parties can contractually agree to lengthen the statute of limitations to up to twenty years so long as the contract is in writing and involves at least $100,000. The statute of limitations in Texas for non-Article 2 transactions is four years. In contrast to Delaware, parties may not contractually agree to lengthen the statute of limitations beyond the four-year statutory period. As a result, Delaware affords parties more flexibility than Texas to negotiate a longer contractual survival period for breach claims.

Material Adverse Effect

An M&A agreement will often allow a buyer to walk away from a deal in the interim period between signing and closing if the seller’s business suffers a significant negative impact. This concept is contained within a material adverse effect (MAE) closing condition. Whether a particular occurrence constitutes an MAE can be a source of negotiation and disagreement.

There is a long line of Delaware cases interpreting the meaning of MAE clauses. In general, under this line of cases, the buyer must show that the negative change is long-term, unforeseen, and will have a substantial impact on the seller’s business. The negative impact must be seller-specific; industry-wide downturns are generally insufficient even if the impact on the seller’s business is severe. Even in Delaware courts, where MAE cases are commonly litigated, judicial determinations that an event constituted an MAE are extremely rare. A commonly repeated industry rule-of-thumb is that the seller’s financial results must decline at least 20% to trigger an MAE walk-away right.

In contrast to Delaware, very little case law in Texas exists interpreting MAE clauses. As in Delaware, whether an event is an MAE will likely depend upon the contractual language and the facts. Because the breadth of case law in Delaware provides parties a higher degree of predictability, parties signing M&A agreements governed by Texas law should be aware that in the event of future litigation, there is greater uncertainty regarding the ultimate interpretation of the MAE clause. This uncertainty may weigh in favor of including more precise contractual language in the M&A agreement describing the parties’ intent regarding what constitutes an MAE.

Lost Premium Damages

In an M&A deal where the target is a public company, the counterparties often negotiate what damages the target company can obtain in the event of a termination of the deal due to the buyer’s breach. A potential measure of damages is the diminution in the target’s share price caused by the deal failing to close, otherwise known as lost premium damages. Whether lost premium damages are an appropriate measure of damages has been hotly contested because the recovery, theoretically paid to compensate the shareholders, is retained by the target company. Some argue in favor of lost premium damages because of the practical difficulty in calculating damages without using the diminution in share price, because buyers would otherwise lack incentives to close the deal, and because the shareholders’ interests in the transaction closing closely mirror the target’s interest. Others argue against awarding lost premium damages because the shareholders, who were neither party to the M&A agreement nor third-party beneficiaries thereunder, cannot recover the damages themselves.

Following the latter reasoning, courts in Delaware historically have been reluctant to allow lost premium damages. In response to this reluctance, the Delaware General Corporation Law was amended in 2024 to specifically allow lost premium damages so long as the transaction agreement contains a provision allowing loss in shareholder value to be used as a measure of damages. Courts in Texas have not yet addressed the issue of lost premium damages. Given the debate outlined above, how Texas courts would view these provisions is uncertain.

If lost premium damages are a desired remedy, parties to M&A agreements governed by Delaware and Texas law should include a clause in the agreement specifically allowing lost premium damages. However, in the case of M&A agreements governed by Texas law, practitioners should consider additional contractual protections in the event that the lost premium provision is not upheld in court.

Successor Liability in Asset Purchases

Buyers in asset purchases typically do not inherit the seller’s obligations that are not specifically assumed liabilities in the deal. However, buyers can be liable for the seller’s debts and obligations, also termed successor liability, under several common law theories. First, the buyer expressly or impliedly assumes the liability under the transaction. Second, the transaction is a de facto merger under state law. Third, the transaction is fraudulent or was entered into to defraud creditors. Fourth, the buyer is a mere continuation of the seller.

Courts in Delaware mostly reject the traditional theories of successor liability and only impose liability on the buyer if the buyer expressly assumes the liability or if not allowing a creditor to recover from the buyer would be unjust given the circumstances. There is limited case law upholding successor liability under the traditional theories, but Delaware courts construe these narrowly. As a result, successor liability is relatively uncommon in Delaware.

In contrast, Texas’ successor liability law is governed by statute and is more restrictive than Delaware. Under the Texas Business Organizations Code, a buyer is not subject to successor liability unless required by statutory law or unless the buyer expressly assumes the liability under the transaction. This approach rejects the common law theories wholesale and provides parties with more certainty regarding whether a buyer can be held liable post-closing for a liability of the seller. In determining whether to subject the M&A agreement to Texas or Delaware governing law in the context of an asset purchase transaction, particularly in a transaction where the buyer wants to exclude particularly significant liabilities from the transaction, the buyer should weigh the treatment of successor liability issues under Delaware common law versus Texas’ statutory regime.

Conclusion

Delaware law is the default governing law for many M&A agreements due to its decades of case law, sophisticated bench, and business-friendly statutory law, which provide a high degree of certainty regarding the likely outcome of disputed matters. While Texas continues to build out its body of case law, there will be, in some respects, greater uncertainty for M&A agreements governed by Texas law. However, by being informed of the subtle differences in the relevant Delaware and Texas law, utilizing clear language that has been upheld in other jurisdictions, and contracting in the alternative so that protections are in place regardless of judicial interpretation, parties seeking to subject their M&A agreements to Texas governing law can help bridge the uncertainty gap.

The following Gibson Dunn lawyers prepared this update: Robert Little and Marie Baldwin.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. For further information, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or the leaders or members of the firm’s Mergers & Acquisitions or Private Equity practice groups:

Mergers & Acquisitions:
Robert B. Little – Dallas (+1 214.698.3260, rlittle@gibsondunn.com)
Saee Muzumdar – New York (+1 212.351.3966, smuzumdar@gibsondunn.com)
George Sampas – New York (+1 212.351.6300, gsampas@gibsondunn.com)

Private Equity:
Richard J. Birns – New York (+1 212.351.4032, rbirns@gibsondunn.com)
Ari Lanin – Los Angeles (+1 310.552.8581, alanin@gibsondunn.com)
Michael Piazza – Houston (+1 346.718.6670, mpiazza@gibsondunn.com)
John M. Pollack – New York (+1 212.351.3903, jpollack@gibsondunn.com)

From the Derivatives Practice Group: This week, ESMA was active, publishing various reports and guidelines concerning non-equity instruments, liquidity assessments of bonds, and data usage.

New Developments

SEC Publishes New Market Data, Analysis, and Visualizations. On April 28, the SEC’s Division of Economic and Risk Analysis (“DERA”) has published new data and analysis on the key market areas of public issuers, exempt offerings, Commercial Mortgage-Backed Securities (“CMBS”), Asset-Backed Securities (“ABS”), money market funds, and security-based swap dealers (“SBSD”) in an effort to increase transparency and understanding of our capital markets amongst the public. [NEW]
Paul S. Atkins Sworn in as SEC Chairman. On April 21, Paul S. Atkins was sworn into office as the 34th Chairman of the SEC. Chairman Atkins was nominated by President Donald J. Trump on January 20, 2025, and confirmed by the U.S. Senate on April 9, 2025. Prior to returning to the SEC, Chairman Atkins was most recently chief executive of Patomak Global Partners, a company he founded in 2009. Chairman Atkins helped lead efforts to develop best practices for the digital asset sector. He served as an independent director and non-executive chairman of the board of BATS Global Markets, Inc. from 2012 to 2015.
CFTC Staff Seek Public Comment Regarding Perpetual Contracts in Derivatives Markets. On April 21, the CFTC issued a Request for Comment to better inform them on the potential uses, benefits, and risks of perpetual contracts in the derivatives markets the CFTC regulates (“Perpetual Derivatives”). This request seeks comment on the characteristics of perpetual derivatives, including those characteristics which may differ across products. as well as the implications of their use in trading, clearing and risk management. The request also seeks comment on the risks of perpetual derivatives, including risks related to the areas of market integrity, customer protection, or retail trading.
CFTC Staff Seek Public Comment on 24/7 Trading. On April 21, the CFTC issued a Request for Comment to better inform them on the potential uses, benefits, and risks of trading on a 24/7 basis in the derivatives markets the CFTC regulates. This request seeks comment on the implications of extending the trading of CFTC-regulated derivatives markets to an effectively 24/7 basis, including the potential effects on trading, clearing and risk management which differ from trading during current market hours. The request also seeks comment on the risks of 24/7 trading, and the associated clearing systems, including risks related to the areas of market integrity, customer protection, or retail trading.
CFTC Staff Issues Advisory on Referrals to the Division of Enforcement. On April 17, the CFTC’s Market Participants Division, the Division of Clearing and Risk, and the Division of Market Oversight (“Operating Divisions”) and the Division of Enforcement (“DOE”) issued a staff advisory providing guidance on the materiality or other criteria that the Operating Divisions will use to determine whether to make a referral to DOE for self-reported violations, or supervision or non-compliance issues. According to the CFTC, this advisory furthers the implementation of DOE’s recent advisory, issued February 25, 2025, addressing its updated policy on self-reporting, cooperation, and remediation.
CFTC Staff Issues No-Action Letter Regarding the Merger of UBS Group and Credit Suisse Group. On April 15, the CFTC’s Market Participants Division (“MPD”) and Division of Clearing and Risk (“DCR”) issued a no-action letter in response to a request from UBS AG regarding the CFTC’s swap clearing and uncleared swap margin requirements. The CFTC said that the letter is in connection with a court-supervised transfer, consistent with United Kingdom laws, of certain swaps from Credit Suisse International to UBS AG London Branch following the merger of UBS Group AG and Credit Suisse Group AG. The no-action letter states, in connection with such transfer and subject to certain specified conditions: (1) MPD will not recommend the Commission take an enforcement action against certain of UBS AG London Branch’s swap dealer counterparties for their failure to comply with the CFTC’s uncleared swap margin requirements for such transferred swaps; and (2) DCR will not recommend the Commission take an enforcement action against UBS AG or certain of its counterparties for their failure to comply with the CFTC’s swap clearing requirement for such transferred swaps.
CFTC Staff Issues Interpretation Regarding U.S. Treasury Exchange-Traded Funds as Eligible Margin Collateral for Uncleared Swaps. On April 14, MPD issued an interpretation intended to clarify the types of assets that qualify as eligible margin collateral for certain uncleared swap transactions under CFTC regulations. CFTC Regulation 23.156 lists the types of collateral that covered swaps entities can post or collect as initial margin (“IM”) and variation margin (“VM”) for uncleared swap transactions. The CFTC indicated that the regulation, which includes “redeemable securities in a pooled investment fund” as eligible IM collateral, aims to identify assets that are liquid and will hold their value in times of financial stress. Additionally, MPD noted that the interpretation clarifies its view that shares of certain U.S. Treasury exchange-traded funds may be considered redeemable securities in a pooled investment fund and may qualify as eligible IM and VM collateral subject to the conditions in CFTC Regulation 23.156. According to MPD, swap dealers, therefore, (1) may post and collect shares of certain UST ETFs as IM collateral for uncleared swap transactions with any covered counterparty and (2) may also post and collect such UST ETF shares as VM for uncleared swap transactions with financial end users.

New Developments Outside the U.S.

ESMA Publishes the Annual Transparency Calculations for Non-equity Instruments and Bond Liquidity Data. On April 30, the European Securities and Markets Authority (“ESMA”), the EU’s financial markets regulator and supervisor, published the results of the annual transparency calculations for non-equity instruments and new quarterly liquidity assessment of bonds under MiFID II and MiFIR. [NEW]
ESMA Report Shows Increased Data Use Across EU and First Effects of Reporting Burden Reduction Efforts. On April 30, ESMA published the fifth edition of its Report on the Quality and Use of Data. The report reveals how the regulatory data collected has been used by authorities in the EU and provides insight into actions taken to ensure data quality. The document presents concrete cases on data use ranging from market monitoring to supervision, enforcement and policy making. The report also highlights ESMA’s Data Platform and ongoing improvements to data quality frameworks as key advancements in tools and technology for data quality. [NEW]
ESMA Issues Supervisory Guidelines to Prevent Market Abuse under MiCA. On April 29, ESMA published guidelines on supervisory practices to prevent and detect market abuse under the Market in Crypto Assets Regulation (“MiCA”). Based on ESMA’s experience under Market Abuse Regulation (“MAR”), the guidelines intended for National Competent Authorities (“NCAs”) include general principles for effective supervision and specific practices for detecting and preventing market abuse in crypto assets. They consider the unique features of crypto trading, such as its cross-border nature and the intensive use of social media. [NEW]
ESMA Assesses the Risks Posed by the Use of Leverage in the Fund Sector. On April 24, ESMA published its annual risk assessment of leveraged alternative investment funds (“AIFs”) and its first analysis on risks in UCITS using the absolute Value-at-Risk (“VaR”) approach. Both articles represent ESMA’s work to identify highly leveraged funds in the EU investment sector and assess their potential systemic relevance.
ESAs Publish Joint Annual Report for 2024. On April 16, the Joint Committee of the European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) published its 2024 Annual Report. The main areas of cross-sectoral focus in 2024 were joint risk assessments, sustainable finance, operational risk and digital resilience, consumer protection, financial innovation, securitisation, financial conglomerates and the European Single Access Point (“ESAP”). Among the Joint Committee’s main deliverables were policy products for the implementation of the Digital Operational Resilience Act (“DORA”) as well as ongoing work related to the Sustainable Finance Disclosure Regulation.
EC Publishes Consultation on the Integration of EU Capital Markets. On April 15, the European Commission (“EC”) published a targeted consultation on the integration of EU capital markets. This forms part of the EC’s plan to progress the Savings and Investment Union (“SIU”) strategy, published in March. According to the EC, the objective of the consultation is to identify legal, regulatory, technological and operational barriers hindering the development of integrated capital markets. Its focus includes barriers related to trading, post-trading infrastructures and the cross-border distribution of funds, as well as barriers specifically linked to supervision. The deadline for responses is June 10, 2025.
Japan’s Financial Services Agency Publishes Explanatory Document on Counterparty Credit Risk Management. On April 14, Japan’s Financial Services Agency (“JFSA”) published an explanatory document on the Basel Committee on Banking Supervision’s Guidelines for Counterparty Credit Risk Management. The document, co-authored with the Bank of Japan, indicates that it was published to facilitate better understanding of the Basel Committee’s guidelines and is available in Japanese only.

New Industry-Led Developments

ISDA Responds to FASB Proposal on KPIs for Business Entities. On April 30, ISDA submitted a response to the Financial Accounting Standards Board’s (“FASB”) proposal on financial key performance indicators (“KPIs”) for business entities. In the response, ISDA addressed the implications of KPI standardization, its potential impact on financial reporting and risk management, and the broader cost-benefit considerations for preparers and investors. Based on proprietary analysis, ISDA does not view financial KPI standardization or the proposed disclosures as urgent priorities for the FASB at this time. [NEW]
CPMI-IOSCO Assesses that EU has Implemented Principles for Financial Market Infrastructures for Two FMI Types. On April 28, CPMI-IOSCO released a report that assessed the completeness and consistency of the legal, regulatory and oversight framework in place as of October 30, 2019. The report finds that the implementation of the Principles for Financial Market Infrastructures is complete and consistent for all Principles for payment systems. The legal, regulatory and oversight frameworks in the EU for central securities depositories and securities settlement systems are complete and consistent with the Principles in most aspects. However, the assessment identified some areas for improvement, particularly in aspects where implementation was broadly, partly, or not consistent, including risk and governance principles. [NEW]
ISDA/IIF Responds to EC’s Consultation on the Market Risk Prudential Framework. On April 22, ISDA and the Institute of International Finance (“IIF”) submitted a joint response to the EC’s consultation on the application of the market risk prudential framework. The associations believe the capital framework should be risk-appropriate and as consistent as possible across jurisdictions to ensure a level playing field without competitive distortions due to divergent rules.
ISDA and FIA Respond to Consultation on Commodity Derivatives Markets. On April 22, ISDA and FIA submitted a joint response to the EC’s consultation on the functioning of commodity derivatives markets and certain aspects relating to spot energy markets. In addition to questions on position management, reporting and limits and the ancillary activities exemption, the consultation also addressed data and reporting and certain concepts raised in the Draghi report, such as a market correction mechanism to cap pricing of natural gas and an obligation to trade certain commodity derivatives in the EU only.
ISDA Submits Letter on Environmental Credits. On April 15, ISDA submitted a response to the Financial Accounting Standards Board’s (FASB) consultation on environmental credits and environmental credit obligations. ISDA said that the response supports the FASB’s overall proposals to establish clear and consistent accounting guidance for environmental credits, but highlights that clarification is needed in certain areas, including those related to recognition, derecognition, impairment and hedge accounting impacts.

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

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 )

Hayden K. McGovern, Dallas (214.698.3142, hmcgovern@gibsondunn.com)

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

For the eighth successive Congress, Gibson Dunn is pleased to release a table of authorities summarizing the oversight and investigative (O&I) authorities of each House and Senate committee. Congressional investigations can arise with little warning and immediately attract the media spotlight. Understanding the full extent of a committee’s investigative arsenal is crucial to successfully navigating a congressional investigation.

Congressional committees have broad investigatory powers, including the power to issue subpoenas to compel witnesses to produce documents, testify at committee hearings, and, in some cases, appear for depositions.

Unique Features of Congressional Investigations

Congressional investigations are unlike more familiar executive branch investigations in several respects. First, there are often complex motivations at work. Committee chairs may want to advance their political agenda, heighten their public profile, develop support for a legislative proposal, expose alleged criminal wrongdoing or unethical practices, pressure a company to take certain actions, or respond to public outcry. Recognizing these underlying objectives and evaluating the political context surrounding an inquiry can therefore be a key component of developing an effective response strategy.

Second, Congress’s power to investigate is broad—as broad as its legislative authority—which can often make investigations unpredictable. The “power of inquiry” is inherent in Congress’s authority to “enact and appropriate under the Constitution.”[1] And while Congress’s investigatory power is not a limitless authorization to probe any private affair or to conduct law enforcement investigations, but rather must further a valid legislative purpose,[2] the term “legislative purpose” is understood broadly to include gathering information not only for the purpose of legislating, but also for overseeing governmental matters and informing the public about the workings of government.[3]

Finally, unlike the relatively controlled environment of a courtroom or a confidential investigation, congressional investigations often unfold through public letters and subpoenas and before television cameras in hearing rooms. Targets must coordinate their legal, political, and communications strategies to respond effectively.

Investigatory Tools of Congressional Committees

Congress has a broad range of investigatory tools at its disposal, which enable it to gather information, ensure compliance with legal and regulatory standards, and inform legislative and policy agendas. Although many of Congress’s tools present opportunities for targets to comply voluntarily, it does have the ability to issue subpoenas to compel the production of documents and testimony. It is essential for subjects of congressional oversight to understand both the scope and the limitations of these investigatory powers in order to respond effectively.

Requests for Information: Any member of Congress may request information from an individual or entity, including through documents, briefings, or other formats.[4] Absent the issuance of a subpoena, responding to such requests is voluntary as a legal matter (although of course there may be public or political pressure to respond). As such, recipients of such requests should carefully consider the merits of different degrees of engagement.
Interviews: Interviews also are voluntary, led by committee staff, and occur in private (in person or remotely). They tend to be less formal than depositions and are sometimes transcribed. Committee staff may take copious notes and rely on interview testimony in subsequent hearings or public reports. Although interviews are typically not conducted under oath, false statements to congressional staff can be criminally punishable as a felony under 18 U.S.C. § 1001.

Depositions: Depositions can be compulsory, transcribed, and taken under oath. As such, depositions tend to be more formal than interviews and are similar to those in traditional litigation. The number of committees with authority to conduct staff depositions has increased significantly over the last few years, and a member no longer needs to be present in a House committee deposition.

Hearings: While both depositions and interviews allow committees to acquire information quickly and (at least in many circumstances) confidentially,[5] testimony at hearings, unless on a sensitive topic, is conducted in a public session led by the members themselves (or, on occasion, committee counsel).[6] Hearings can either occur at the end of a lengthy staff investigation or take place more rapidly, often in response to an event that has garnered public and congressional concern. Most akin to a trial in litigation (though without many of the procedural protections or the evidentiary rules applicable in judicial proceedings), hearings are often high profile and require significant preparation to navigate successfully.
Executive Branch Referral: Congress also has the power to refer its investigatory findings to the executive branch for criminal prosecution. After a referral from Congress (or independently on its own initiative), the Department of Justice may charge an individual or entity with making false statements to Congress, obstruction of justice, or destruction of evidence. Importantly, while Congress may make a referral, the executive branch retains the discretion to prosecute, or not.

Subpoena Power

As noted, Congress will usually seek voluntary compliance with its requests for information or testimony as an initial matter. If requests for voluntary compliance are met with resistance, however, or if time is of the essence, Congress may compel disclosure of information or testimony by issuing a subpoena.[7] Like Congress’s power of inquiry generally, there is no explicit constitutional provision granting Congress the right to issue subpoenas.[8] But the Supreme Court has recognized that the issuance of subpoenas is “a legitimate use by Congress of its power to investigate” and its use is protected from judicial interference in some respects by the Speech or Debate Clause.[9] Congressional subpoenas are subject to few legal challenges,[10] and “there is virtually no pre-enforcement review of a congressional subpoena” in most circumstances.[11]

The authority to issue subpoenas is initially governed by the rules of the House and Senate, which delegate further rulemaking to each committee.[12] While every standing committee in the House and Senate has the authority to issue subpoenas, the specific requirements for issuing a subpoena vary by committee. These rules are still being developed by the committees of the 119th Congress and can take many forms. For example, in the 118th Congress, most House committee chairs were authorized to issue subpoenas unilaterally if they provided notice to the ranking member. Other chairs, however, required approval of the ranking member, or, upon the ranking member’s objection, required a vote of the majority of the committee in order to issue a subpoena.

Contempt of Congress

Failure to comply with a subpoena can result in one of three enforcement avenues: a criminal contempt referral, a civil contempt action, or exercise of Congress’s inherent contempt power.

Statutory Criminal Contempt Power: Congress possesses statutory authority to certify recalcitrant witnesses for criminal contempt prosecutions in federal court. In 1857, Congress enacted this criminal contempt statute as a supplement to its inherent authority.[13] Under the statute, a person who refuses to comply with a congressional subpoena is guilty of a misdemeanor and subject to a fine and imprisonment.[14] “Importantly, while Congress initiates an action under the criminal contempt statute, the Executive Branch prosecutes.”[15] This relieves Congress of the burdens associated with its inherent contempt authority. The statute simply requires the House or Senate to certify a contempt finding to the Department of Justice. Thereafter, the statute provides that it is the “duty” of the “appropriate United States attorney” to prosecute the matter,[16] although the Department of Justice maintains that it always retains discretion not to prosecute and often declines to do so. Although Congress rarely uses its criminal contempt authority, the House Democratic majority, following the events of January 6, 2021, employed it against a flurry of Trump administration officials, including Attorney General Bill Barr, Secretary of Commerce Wilbur Ross, Secretary of Homeland Security Chad Wolff, political adviser Steve Bannon, Trade Director Peter Navarro, and White House Chief of Staff Mark Meadows. The Department of Justice prosecuted Bannon and Navarro for defying subpoenas from the Select January 6 Committee. Juries found each guilty, and the D.C. Circuit upheld Bannon’s conviction.[17] In September 2024, the Senate unanimously voted to find Ralph de la Torre, the CEO of a bankrupt hospital operator, Steward Health Care, in contempt of the Senate and to certify the report of his contempt to the U.S. Attorney for prosecution. This was the first time the Senate had held someone in criminal contempt since 1971.[18]

Civil Enforcement Authority: Congress may seek civil enforcement of its subpoenas, which is often referred to as civil contempt. The Senate’s civil enforcement power is expressly codified.[19] This statute authorizes the Senate to seek enforcement of legislative subpoenas issued to private parties in a U.S. District Court. In contrast, the House does not have a civil contempt statute, but federal district judges have held that it may pursue a civil contempt action “by passing a resolution creating a special investigatory panel with the power to seek judicial orders or by granting the power to seek such orders to a standing committee.”[20]

Inherent Contempt Power: The oldest, and least relied upon, form of compulsion is Congress’s inherent contempt power. The inherent contempt power has not been used by either body since 1935.[21] Much like the subpoena power itself, the inherent contempt power is not specifically authorized in the Constitution, but the Supreme Court has recognized its existence and legitimacy.[22] To exercise this power, the House or Senate must pass a resolution and then conduct a full trial or evidentiary proceeding, followed by debate and (if contempt is found to have been committed) imposition of punishment.[23] As is apparent in this description, the inherent contempt authority is cumbersome and inefficient, and it is potentially fraught with political peril for legislators.[24]

Committee Procedural Rules

Committees may adopt their own procedural rules for issuing subpoenas, taking testimony, and conducting depositions, and many committees update their rules each Congress. Committees are also subject to the rules of the full House or Senate, and, in the House, the Chair of the Committee on Rules issues regulations prescribing general deposition procedures applicable to all committees. Typically, House committee chairs can issue subpoenas unilaterally, while Senate committees generally cannot. To issue a subpoena, Senate committee rules for all but one committee—Homeland Security and Governmental Affairs—and one subcommittee—Permanent Subcommittee on Investigations—require (1) consent from the Ranking Member or (2) a majority vote of the committee to authorize the subpoena.

Further, House and Senate committees afford certain subcommittees the authority to authorize the issuance of subpoenas. House Rules provide that subcommittees may authorize and issue subpoenas by a majority vote of subcommittee members.[25] In the 119th Congress, 13 House committees have given a total of 71 subcommittees subpoena authority—either implicitly or explicitly—through committee rules.[26] On the other hand, 7 committees[27] either limit or proscribe subcommittee subpoena authority, often because committee rules delegate subpoena authority solely to the committee chair. In contrast with the House, only 3 Senate committees[28]—Banking, Housing, and Urban Affairs; Health, Education, Labor, and Pensions; and Homeland Security and Governmental Affairs—provide for 12 subcommittees to exercise subpoena authority.

Failing to comply with a subpoena from a committee or to otherwise adhere to committee rules during an investigation may have severe legal, strategic, and reputational consequences. If a subpoena recipient refuses to comply with a subpoena, committees may resort to additional demands, initiate judicial enforcement or contempt proceedings (as noted above), and/or generate negative press coverage of the noncompliant recipient. Although rarely used, criminal contempt prosecutions can also be brought in the event of willful refusals to comply with lawful congressional subpoenas. As we have detailed in previous client alerts,[29] however, defenses exist to congressional subpoenas, including challenging a committee’s jurisdiction or failure to follow applicable rules, asserting attorney-client privilege and work product claims, and raising constitutional challenges.

Under the Republican majority, committee investigations have focused on censorship of conservative speech, China, environmental issues, discrimination, including failure to adequately address antisemitism, media bias, debanking, COVID origins and vaccines, and antitrust issues. We also anticipate that committees in both chambers will pursue investigations regarding healthcare, cybersecurity, and other topics.[30]

This client alert provides a table that presents the key investigative powers and authorities for each House and Senate committee. The table includes information for each committee that answers key O&I related questions, including:

What is the scope of the committee’s investigative authority?
What are the procedures for exercising the committee’s subpoena power?
Can the chair of the committee issue a subpoena unilaterally?
Does the committee permit staff to question witnesses at a hearing?
Can the committee compel a witness to sit for a deposition? If so, what are the procedures for doing so?
What are the rules that apply to depositions before the committee?

Below, we have highlighted noteworthy changes in the committee rules, which House and Senate committees of the 119th Congress adopted earlier this year.[31]

Noteworthy Changes

House

As we detailed in a client alert from earlier this year,[32] House Republicans will continue to use expansive investigative tools, including the ability to issue subpoenas without consulting the minority and deposition powers that allow staff to conduct depositions without members present.
The Rules of the 119th Congress reauthorized the Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party and broadened its jurisdiction.[33] The Select Committee’s expanded jurisdiction now consists of “policy recommendations on countering the economic, technological, security, and ideological threats of the Chinese Communist Party to the United States and allies and partners of the United States,”[34] a seemingly broader and more pointed focus than its jurisdiction in the 118th Congress, which was “to investigate and submit policy recommendations on the status of the Chinese Communist Party’s economic, technological, and security progress and its competition with the United States.”[35]

Senate

In the Senate, the new Republican majority can make use of unilateral subpoena authority on one committee—Homeland Security and Governmental Affairs—and one subcommittee—Permanent Subcommittee on Investigations. Three committees—Agriculture, Nutrition, and Forestry, Small Business and Entrepreneurship, and Veterans’ Affairs—afford the committee Chair qualified unilateral subpoena authority, requiring the Chair to notify the Ranking Member and, if the Ranking Member does not communicate their objection within a period of 48 to 72 hours, the Chair may issue the subpoena without the Ranking Member’s approval.
Of note, the Committee on Commerce, Science, and Transportation scheduled a mark up in January 2025 to change its rules to give the Chair unilateral subpoena authority. The Committee postponed the markup which, to date, has not been rescheduled.[36] Accordingly, the Committee is currently operating under its rules from the 118th Congress, meaning that for the Chair to issue a subpoena the Ranking Member must consent or the Committee must authorize the subpoena through a majority vote.[37]

Our table of authorities provides an overview of how individual committees can compel a witness to cooperate with their investigations. But each committee conducts congressional investigations in its own particular way, and investigations vary materially even within a particular committee. While our table of authorities provides a general overview of what rules apply in given circumstances, it is essential to look carefully at a committee’s rules and be familiar with its practices to understand how its authorities apply in a particular context.

Gibson Dunn lawyers have extensive experience defending targets of and witnesses in congressional investigations. They know how investigative committees operate and can anticipate strategies and moves in particular circumstances because they also ran or advised on congressional investigations when they worked on the Hill. If you have any questions about how a committee’s rules apply in a given circumstance or the ways in which a particular committee tends to exercise its authorities, please feel free to contact us for assistance. We are available to assist should a congressional committee seek testimony, information, or documents from you.

[1] Barenblatt v. United States, 360 U.S. 109, 111 (1957).

[2] See Wilkinson v. United States, 365 U.S. 399, 408-09 (1961); Watkins v. United States, 354 U.S. 178, 199-201 (1957).

[3] Michael D. Bopp, Gustav W. Eyler, & Scott M. Richardson, Trouble Ahead, Trouble Behind: Executive Branch Enforcement of Congressional Investigations, 25 Corn. J. of Law & Pub. Policy 453, 456-57 (2015).

[4] Id.

[5] Id. at 457.

[6] Id. at 456-57.

[7] Id. at 457.

[8] Id.

[9] Eastland v. U.S. Servicemen’s Fund, 421 U.S. 491, 504 (1975).

[10] Bopp, supra note 3, at 458.

[11] Id. at 459. The principal exception to this general rule arises when a congressional subpoena is directed to a custodian of records in which a third party (typically the actual target of the investigation) has a legal interest. In those circumstances, the Speech or Debate Clause does not bar judicial challenges brought by the third party seeking to enjoin the custodian from complying with the subpoena, and courts have reviewed the validity of such subpoenas. See, e.g., Trump v. Mazars, 140 S. Ct. 2019 (2020); Bean LLC v. John Doe Bank, 291 F. Supp. 3d 34 (D.D.C. 2018). It also could be argued that a subpoena is subject to pre-enforcement challenge if it lacks a valid legislative purpose. The idea is that the Speech or Debate Clause might not preclude a preemptive litigation challenge to such a subpoena on the rationale that a subpoena lacking any valid legislative purpose is not a legislative act at all. In Trump v. Committee on Ways & Means, the district court explained that “in the context of investigations, and in particular cases involving congressional efforts to gather information, . . . Speech or Debate Clause immunity is available only when those efforts are undertaken for a legitimate legislative purpose, that is, to gather information ‘concerning a subject “on which legislation could be had.”‘“ 415 F. Supp. 3d 38, 45-46 (D.D.C. 2019) (quoting McSurely v. McClellan, 553 F.2d 1277, 1284-85 (D.C. Cir. 1976) (en banc), in turn quoting Eastland, 421 U.S. at 506). The argument faces the challenges discussed earlier in that we have not seen a successful challenge based on the absence of a legislative purpose in nearly a century and a half.

[12] Bopp, supra note 3 at 458.

[13] Id. at 461.

[14] See 2 U.S.C. §§ 192 and 194.

[15] Bopp, supra note 3, at 462.

[16] See 2 U.S.C. § 194.

[17] United States v. Bannon, 101 F.4th 16, 18 (D.C. Cir. 2024). Navarro’s appeal from his conviction is still pending before the court of appeals. See United States v. Navarro, No. 24-3006 (D.C. Cir.).

[18] 170 Cong. Rec. S6405-02 (daily ed. Sept. 25, 2024); S. Res. 837 (118th Cong.).

[19] See 2 U.S.C. §§ 288b(b), 288d.

[20] Bopp, supra note 3, at 465. A panel of the U.S. Court of Appeals for the D.C. Circuit ruled in August 2020 that the House may not seek civil enforcement of a subpoena absent statutory authority. Committee on the Judiciary of the United States House of Representatives v. McGahn, 973 F.3d 121 (D.C. Cir. 2020). That decision was vacated when the D.C. Circuit decided to rehear the case en banc, but the case then settled without a final judicial resolution, thereby leaving the question unresolved in the D.C. Circuit.

[21] See Congress’s Contempt Power and the Enforcement of Congressional Subpoenas: Law, History, Practice, and Procedure, Congressional Research Service (May 12, 2017), at 12.

[22] Bopp, supra note 3, at 460 (citing Anderson v. Dunn, 19 U.S. 204, 228 (1821)).

[23] Id.

[24] Id. at 466.

[25] House Rule XI(2)(m).

[26] Ten committees—Agriculture, Appropriations, Armed Services, Education and Workforce, Ethics, Foreign Affairs, Judiciary, Oversight and Government Reform, Rules, and Transportation and Infrastructure—either explicitly or implicitly provide for subcommittee subpoena authority. Three committees—House Administration, Natural Resources, and Small Business—do not reference subcommittee subpoena authority and thus default to House Rules’ default provision that allows for such authority. Two committees—the Committee on the Budget and the Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party—do not have any subcommittees.

[27] Energy and Commerce; Financial Services; Homeland Security; Permanent Select Committee on Intelligence; Science, Space, and Technology; Veterans’ Affairs; and Ways and Means.

[28] Nine committees do not provide for subcommittee subpoena authority: Agriculture, Nutrition, and Forestry; Appropriations; Armed Services; Commerce, Science, and Transportation; Energy and Natural Resources; Environment and Public Works; Finance; Foreign Relations; and Judiciary. Seven committees do not have any subcommittees: Special Committee on Aging, Budget, Ethics, Indian Affairs, Rules and Administration, Small Business and Entrepreneurship, and Veterans’ Affairs.

[29] Congressional Investigations in the 119th Congress (Jan. 22, 2025), https://www.gibsondunn.com/congressional-investigations-in-the-119th-congress/.

[30] Id.

[31] This alert will be updated to reflect several committees finalizing their rules and any subsequent changes to already-adopted committee rules.

[32] Congressional Investigations in the 119th Congress, supra note 1.

[33] See H.R. Res. 5, 119th Cong. § 4(a) (2025).

[34] Id. § 4(a)(2) (2025) (emphasis added).

[35] H.R. Res. 11, 118th Cong. § 1(b)(2) (2023) (emphasis added).

[36] Senate Commerce Committee, Executive Session 2 (Postponed), January 29, 2025, https://www.commerce.senate.gov/2025/1/executive-session-2_2.

[37] Senate Commerce Committee, Rules of the Committee, https://www.commerce.senate.gov/committee-rules.

Please click below to view the complete Table of Authorities of House & Senate 119th Congress:

Table of Authorities

The following Gibson Dunn lawyers assisted in preparing this update: Michael Bopp, Thomas Hungar, Jillian Katterhagen, Kareem Ramadan, Maya Jeyendran, Tate Rosenblatt, and Kelly Yahner.

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 Congressional Investigations or Public Policy practice groups, or the following authors:

Michael D. Bopp – Chair, Congressional Investigations Practice Group,
(+1 202.955.8256, mbopp@gibsondunn.com)

Stuart F. Delery – Co-Chair, Administrative Law & Regulatory Practice Group,
(+1 202.955.8515, sdelery@gibsondunn.com)

Barry H. Berke – Co-Chair, Litigation Practice Group,
(+1 212.351.3860, bberke@gibsondunn.com)

Thomas G. Hungar – Partner, Appellate & Constitutional Law Practice Group,
(+1 202-887-3784, thungar@gibsondunn.com)

Amanda H. Neely – Of Counsel, Congressional Investigations Practice Group,
(+1 202.777.9566, aneely@gibsondunn.com)

Sophia Brill – Of Counsel, Congressional Investigations Practice Group,
(+1.202.887.3530, sbrill@gibsondunn.com)

Jillian N. Katterhagen – Associate Attorney, Congressional Investigations Practice Group,
(1.202.955.8283, jkatterhagen@gibsondunn.com)

Kareem W. Ramadan – Associate Attorney, Congressional Investigations Practice Group
(+1.202.887.3542, kramadan@gibsondunn.com)

Kelly M. Yahner – Associate Attorney, Congressional Investigations Practice Group
(+1.202.777.9581, kyahner@gibsondunn.com)

We are pleased to provide you with the April edition of Gibson Dunn’s monthly U.S. bank regulatory update. Please feel free to reach out to us to discuss any of the below topics further.

KEY TAKEAWAYS

The federal banking agencies continue to revisit their approach to digital asset- and blockchain-related activities.
- The Board of Governors of the Federal Reserve System (Federal Reserve) rescinded (i) SR 22-6, which established an expectation that state member banks notify the Federal Reserve prior to engaging in crypto-asset-related activities and (ii) SR 23-8, which required state member banks to obtain written supervisory nonobjection prior to engaging in certain “dollar token” activities.
- The Federal Reserve and Federal Deposit Insurance Corporation (FDIC) withdrew from the “Joint Statement on Crypto-Asset Risks to Banking Organizations” (Jan. 3, 2023) and the “Joint Statement on Liquidity Risks to Banking Organizations Resulting from Crypto-Asset Market Vulnerabilities” (Feb. 23, 2023), joining the Office of the Comptroller of the Currency (OCC) which had previously withdrawn on March 7, 2025.
- The most recent actions by the Federal Reserve and FDIC now generally align the three federal banking agencies on crypto-related activities, no longer requiring institutions to receive nonobjection prior to engaging in certain crypto-related activities.
- As noted in the FDIC’s release announcing its withdrawal, the agencies “are exploring issuing additional clarity with respect to banking organizations’ crypto-asset and related activities in the coming weeks and months.”
Acting Chairman Travis Hill highlighted key policy issues in focus by the FDIC, including encouraging de novo bank formation, revamping the FDIC’s approach to digital assets and blockchain-related activities (see above), resolution planning and the failed bank resolution process (see below), and reevaluating quantitative asset thresholds in FDIC regulations.
The Federal Reserve requested comment on a proposal to reduce the volatility of the capital requirements stemming from the Federal Reserve’s annual stress test, consistent with its December 23, 2024 announcement and the December 24, 2024 suit challenging the legality of the current the stress testing framework.

DEEPER DIVES

Federal Reserve and FDIC Withdraw Guidance on Certain Crypto-Related Activities to Align with OCC. On April 24, 2025, the Federal Reserve announced the withdrawal of guidance related to crypto-asset and dollar token activities and related changes to the Federal Reserve’s supervisory expectations. The Federal Reserve rescinded both SR 22-6 establishing that state member banks should notify the Federal Reserve prior to engaging in crypto-asset-related activities and SR 23-8 requiring state member banks to obtain written supervisory nonobjection prior to engaging in certain “dollar token” activities. On the same date, the Federal Reserve and the FDIC also withdrew two other joint interagency statements that addressed crypto-asset risks and liquidity risks stemming from crypto-asset market vulnerabilities. The Federal Reserve did not issue replacement guidance, but stated that the change ensures that the Federal Reserve’s “expectations remain aligned with evolving risks and further support innovation in the banking system,” and committed to working with the agencies to consider whether additional guidance is appropriate. Similarly, the FDIC noted it is exploring issuing additional clarity with respect to banking organizations’ crypto-asset and related activities in the future.

Insights. As we have previously highlighted, the federal banking agencies continue to signal increased receptivity to crypto-related activities and digital assets. Coupled with the OCC and FDIC’s related actions last month, the withdrawal and rescission of additional guidance from the Biden Administration serves as the latest of many incremental steps toward a regulatory environment that is more accepting of crypto- and blockchain-related activities and product offerings.

As noted by Acting Chairman Hill in his April 8, 2025 update on key policy issues, “one specific area that merits attention is the use of public, permissionless blockchains by banks.” The Federal Reserve’s Policy Statement on Section 9(13) of the Federal Reserve Act notes in the preamble to the final rule that the Federal Reserve “generally believes that issuing tokens on open, public, and/or decentralized networks, or similar systems is highly likely to be inconsistent with safe and sound banking practices.” At this time, there is no indication the Federal Reserve’s Policy Statement on Section 9(13) of the Federal Reserve Act is under consideration for amendment or reversal through a subsequent rulemaking process.

In addition, other crypto-related activities and product offerings may present thorny legal authority/permissibility issues under law or raise safety and soundness concerns, all of which must continue to be evaluated by institutions. In practice, banks are still expected to engage with the Federal Reserve, FDIC and OCC regarding proposed crypto-related activities.

Acting Chairman Hill Provides an Update on Key Policy Issues. On April 8, 2025, Acting Chairman Hill highlighted key policy issues in focus by the FDIC, including encouraging de novo bank formation, revamping the FDIC’s approach to digital assets and blockchain-related activities, resolution planning and the failed bank resolution process, and reevaluating quantitative asset thresholds in FDIC regulations. With respect to de novo bank formation, Acting Chairman Hill described the de novo rate as having “fallen off a cliff.” He noted that the FDIC is considering whether there are scenarios that could warrant adjusted standards, including with respect to up-front and ongoing capital expectations for noncomplex, community banks, or adjustments to deposit insurance applications for innovative business models. He also noted that the FDIC is actively working on a request for information to ask “a comprehensive set of questions addressing issues related to ILC [industrial loan company] applications.”

He also referenced “just a few” of the issues that the FDIC is considering with respect its approach to digital assets and blockchain-related activities, noting that the FDIC expects to issue additional guidance on particular crypto-related activities and raised the prospect of whether the agency “should [] more comprehensively identify which crypto-related activities are permissible.” He highlighted the use of public, permissionless blockchains by banks as an area where additional guidance could be forthcoming, particularly in light of the withdrawal by the FDIC from the aforementioned interagency letters (see above).

On reevaluating rules’ quantitative asset thresholds, he noted the agency has been “inventorying and analyzing the dozens of numerical thresholds used by the FDIC” and “considering different options for indexing and the impact those options would have.” He called out two specific thresholds in his remarks – $100 billion and $10 billion, noting in particular that “while some uses of the $10 billion threshold are statutory, others exist at regulators’ discretion.”

Insights. The statements by Acting Chairman Hill represent a tonal change that may result in a substantial shift to legacy FDIC positions. His comments on de novos and ILCs raise potential options to consider for potential de novo community and regional banks and for fintechs that want to engage in limited banking activities, respectively. As noted above, the consistent refrain on digital assets and blockchain technology suggests that guidance will be forthcoming in the near future, but coordination and practicality will be critical.

The FDIC Revises Approach to Resolution Planning for Large Banks. In his April 8, 2025 key policy updates, Acting Chairman Hill also identified the FDIC’s work on resolution planning and the failed bank resolution process. Shortly thereafter, on April 18, 2025, the FDIC announced changes in its approach to resolution planning and issued responses to Frequently Asked Questions (FAQs) regarding IDI Resolution Planning. According to Acting Chairman Hill, the changes “deemphasize and broaden the ‘strategy’ discussion and waive the expectation that banks identify and build their plans around a hypothetical failure scenario,” to better focus instead on providing the FDIC the information it would need to rapidly sell a bank and, if needed, operate the institution for a short period of time.

Insights. Those changes align with Acting Chairman Hill’s discussion of resolution planning in his key policy updates. On resolution planning, he also noted: (i) for large institution resolutions, the FDIC’s “primary goal should be maximizing the likelihood of the optimal resolution option, which experience has demonstrated to generally be a weekend sale”; and (ii) the FDIC plans “to engage in outreach with large institutions in their capacity as potential acquirers” and engage with potential nonbank bidders “to facilitate their ability both to partner with banks on bids and to bid individually on particular asset pools.”

The OCC Restructures Supervision and Other Functions. On April 16, the OCC announced that effective June 2, 2025, the agency will: (1) combine the Midsize and Community Bank Supervision and Large Bank Supervision functions within a Bank Supervision and Enforcement Division; (2) reinstate the Chief National Bank Examiner office and both the Bank of Supervision Policy and Supervision Risk and Analysis divisions therein; and (3) elevate the Information Technology and Security function.

Insights. According to the OCC, the reorganization is intended to promote the seamless sharing of expertise and resources to address bank-specific issues or novel needs, both in practice and in approach. The streamlined structure accompanies reports from earlier this year of a hiring freeze and layoffs within the OCC, and midsize and community bank group specifically, consistent with efforts across the federal government. It is not clear whether or how the organizational change may impact existing supervisory teams, though banks on the cusp of growing into the Large Bank Supervision group may experience increased continuity if their supervisory teams remain the same as the institution grows. The announcement also comes after the OCC reported a “major security incident” to Congress earlier this month, and the elevation of the Information Technology and Security function may be an attempt to calm concerns within the industry regarding the safety of proprietary and customer information at the agency.

OTHER NOTABLE ITEMS

Federal Reserve Requests Comments on Proposal Regarding Stress Capital Buffer Requirements. On April 17, 2025, the Fed issued a proposal for comment aimed at reducing the volatility of capital requirements stemming from stress testing. The proposal is consistent with its December 23, 2024 announcement and the December 24, 2024 suit challenging the legality of the current the stress testing framework. In its announcement, the Federal Reserve also previewed that later this year, it will propose additional changes to improve the transparency of the stress test, including disclosing and seeking public comment on the models that determine the hypothetical losses and revenue of banks under stress and ensuring that the public can comment on the hypothetical scenarios used for the annual stress test before the scenarios are finalize—also consistent with the December 2024 announcement and suit.

Federal Reserve Board Publishes Financial Stability Report. On April 25, 2025, the Federal Reserve published its semi-annual Financial Stability Report. According to the Federal Reserve Bank of New York’s industry survey, there was a meaningful increase relative to its fall 2024 survey in the percentage of respondents citing risks emanating from changes to global trade policy as their top risk to financial stability, with moderate increases in the percentage of respondents citing policy uncertainty, persistent inflation, corrections in asset markets and Treasury market functioning as top risks to financial stability, with a moderate decline in the percentage of respondents citing U.S. fiscal debt sustainability as a top risk to financial stability—though it did remain at 50%.

Acting Comptroller Hood Address Areas of Strategic Focus. On April 16, 2025, Acting Comptroller Hood gave remarks before the Exchequer Club in which he expanded on his four key areas of strategic focus for the OCC: (1) reducing regulatory burden (“regulations must be effective, not excessive”); (2) promoting financial inclusion (“financial inclusion is the civil rights issue of our time”); (3) embracing bank-fintech partnerships (“innovation is not optional—it is essential”); and (4) expanding responsible bank activities involving digital assets (“Interpretive Letter 1183 confirms that national banks may engage in certain digital asset activities, provided they do so safely and soundly and under appropriate risk management standards”).

Speech by Governor Barr on AI, Fintechs and Banks. On April 4, 2025, Federal Reserve Board Governor Barr gave a speech titled “AI, Fintechs, and Banks.” In his speech, Governor Barr discussed innovation in the context of generative artificial intelligence (Gen AI) in banking and how bank–fintech partnerships may accelerate the integration of the technology and banking. He advised that bank risk managers and regulators should monitor developments outside the bank perimeter so that they are not caught off guard as this technology quickly enters the banking system, the importance of an appropriate incentive structure, and the unique role of fintechs in “laying the groundwork for good risk management of Gen AI.”

Speech by Governor Barr on AI and Cybersecurity. On April 17, 2025, Federal Reserve Board Governor Barr gave a speech titled “Deepfakes and the AI Arms Race in Bank Cybersecurity.” In his speech, Governor Barr addressed how generative AI has the potential to enable deepfake technology and “supercharge identity fraud.” Governor Barr emphasized the role of “strong, resilient financial institutions in preventing attacks” and advocated for bank controls to evolve in kind with AI-powered advances by, for example, adapting facial recognition, voice analysis and behavioral biometrics to detect potential deepfakes, among other controls. He also advocated for updated guidance and regulation, use of AI technologies by banking regulators, increasing the penalties for cybercrime and targeting upstream organizations.

Speech by Acting Comptroller Hood on AI in Financial Services. On April 29, 2025, Acting Comptroller Hood gave a pre-recorded speech titled “AI in Financial Services.” In his remarks, Acting Comptroller Hood, referencing both the “tremendous potential” as a risk management and business operations tool and the risks accompanying reliance on complex technology, championed “effective, but not burdensome, regulatory oversight” and directed banks to consider the risk-based and technology-neutral principles in existing OCC and interagency guidance.

The following Gibson Dunn lawyers contributed to this issue: Jason Cabral, Ro Spaziani, and Rachel Jackson.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. Please contact the Gibson Dunn lawyer with whom you usually work or any of the member of the Financial Institutions practice group:

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

Ro Spaziani, New York (212.351.6255, rspaziani@gibsondunn.com)

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

M. Kendall Day, Washington, D.C. (202.955.8220, kday@gibsondunn.com)

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

Sara K. Weed, Washington, D.C. (202.955.8507, sweed@gibsondunn.com)

Ella Capone, Washington, D.C. (202.887.3511, ecapone@gibsondunn.com)

Sam Raymond, New York (212.351.2499, sraymond@gibsondunn.com)

Rachel Jackson, New York (212.351.6260, rjackson@gibsondunn.com)

Zack Silvers, Washington, D.C. (202.887.3774, zsilvers@gibsondunn.com)

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

Nathan Marak, Washington, D.C. (202.777.9428, nmarak@gibsondunn.com)