Richard Manfredi, Author at Gibson Dunn

This Royalty Finance Market Update provides an analysis of publicly reported royalty finance transactions for 2020 through 2025 in the life sciences sector, focusing on both traditional and synthetic royalty transactions.

INTRODUCTION

Royalty finance has become one of the most important capital formation tools in the life sciences sector. Over the past six years, more than $32 billion in royalty-linked transactions have closed – funding drug launches, enabling non-dilutive capital raises, and expanding a growing new asset class that sits at the intersection of structured finance and biopharma dealmaking.

This report provides a comprehensive analysis of that market. Drawing from Gibson Dunn’s
proprietary Royalty Finance Tracker (a database of 133 transactions spanning 2020 through 2025) we examine the structural, economic, and competitive dynamics that are shaping how companies, investors, and their advisors approach royalty finance in 2026.

The headline numbers tell a story of resilience and growth: deal value grew 37% from 2020 ($5.2B) to 2025 ($7.1B), with transaction volume stabilizing at 25–27 deals per year even as interest rates climbed to levels not seen in two decades. That durability, with deal flow holding steady while the fed funds rate hovered around 4% for most of 2025 may be the most important finding in this report. But the more interesting story lies beneath the surface in how these deals are being structured, who is doing them, and what the economics look like for both sides.

We hope this report serves as both a useful reference for practitioners and an invitation to engage with Gibson Dunn on the opportunities and challenges ahead.

TRENDS AND MARKET OUTLOOK

Key Takeaways (2020-2025)

The royalty finance market has nearly doubled in six years. Annual deal value grew 37% from 2020 to 2025 ($5.2B to $7.1B), with transaction count stabilizing at 25–27 deals per year, which we view as a sign of a maturing, not overheating, market.
The 2022 dip was temporary. Deal activity contracted briefly as rapid monetary tightening and a biotech equity collapse created a market freeze. However, volume has recovered to record levels even as interest rates climbed above 5%, demonstrating that royalty finance demand is embedded in how biopharma companies fund themselves, not dependent on cheap capital.
The synthetic royalty market is converging on true-sale structures. In 2020–2021, half of
synthetics were structured as true sales; by 2024–2025, that figure reached 71% of deals and 91% of value – representing a structural shift catalyzed by Royalty Pharma’s transaction approach and adopted by the broader buyer market.
Sellers are capturing more value as the market becomes more competitive. Cap structures vary significantly across deal types. Among capped synthetic royalties, the median cap is 2.0x (range: 1.55x–4.0x), although many synthetics remain uncapped, reflecting a broad spectrum of risk allocation. Tiered rates are quite common (functionally creating annual caps at higher net sales tiers), all reflecting improved seller leverage.
Gibson Dunn advised on 27% of all transactions over the six-year period and accounted for 52% of the deal volume in 2025.

The Macro Picture: Growth, Disruption, and Recovery

Key Takeaways

Annual volume grew from $5.2B (2020) to $7.1B (2025), with a temporary dip to $3.9B in 2022.
The 2022 contraction reflected a temporary market freeze driven by rate shock and a simultaneous biotech equity collapse – not a structural weakness in the asset class. Volume recovered to record levels even as interest rates stabilized above 5%.
Deal count stabilized at 25–27 per year from 2023 onward, suggesting the market has found a sustainable equilibrium.
Median deal size trended upward to $221M in 2025, as buyers demonstrated comfort with larger commitments.

Please click on the link below to view our complete Royalty Finance 2026 Report:

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Gibson Dunn’s Royalty Finance team is available to assist with any questions you may have regarding these issues.

Please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s Life Sciences or Royalty Finance practice groups, or the authors:

Ryan Murr – San Francisco (+1 415.393.8373, rmurr@gibsondunn.com)

Karen Spindler – San Francisco (+1 415.393.8298, kspindler@gibsondunn.com)

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

This update provides an overview of the major developments in federal and state securities litigation since our 2025 Mid-Year Securities Litigation Update.

This update covers the following 2025 developments:

We discuss one pending case that will be decided this term, another for which the court has granted review, and a third with a pending certiorari petition. We also discuss a recent precedential decision out of the Third Circuit that cabins the role of securities law relative to other types of corporate misconduct.
We discuss recent decisions from the Delaware Supreme Court and Delaware Court of Chancery, including those addressing the constitutionality of Senate Bill 21, the line between employment law and corporate governance, demand futility in the case of an expressly neutral company, the controlling stockholder standard, and Brophy claims based on access to confidential information.
In the Industry Developments section, we again cover (A) recent developments in the cryptocurrency and artificial intelligence (AI) space, and (B) developments involving issues that cut across several industries—e.g., environmental, social, and governance (ESG) and diversity, equity, and inclusion (DEI) policies and disclosures.
Class certification continues to be an active battleground in securities litigation. Below, we discuss recent “mismatch” challenges after Goldman, market efficiency challenges in the context of meme stocks, and a pending appeal in the Fourth Circuit concerning the sufficiency of a generalized expert methodology under Comcast Corp. v. Behrend, 569 U.S. 27 (2013).

TABLE OF CONTENTS

I. FILING AND SETTLEMENT TRENDS

II. WHAT TO WATCH FOR IN THE SUPREME COURT

III. DELAWARE DEVELOPMENTS

IV. INDUSTRY DEVELOPMENTS

V. CLASS CERTIFICATION

I. FILING AND SETTLEMENT TRENDS

A recent NERA Economic Consulting (NERA) study provides an overview of federal securities litigation filings in 2025. This section highlights several notable trends.

A. Filing Trends

Figure 1 below reflects the federal filing rates from 1996 through the end of 2025. In 2025, 207 federal cases were filed. That number is a decrease from the number of cases filed in 2024. It is also considerably lower than in the peak years of 2017-2019. Note, however, that this figure does not include class action suits filed in state court or state court derivative suits, including those in the Delaware Court of Chancery.

Figure 1:

B. Mix Of Cases Filed In 2025

1. Filings By Industry Sector

As shown in Figure 2 below, the distribution of non-merger objections and non-crypto unregistered securities filings in 2025 varied somewhat from 2024. Notably, after a dip in 2023, the “Health and Technology Services” sector percentage rose again in 2025, surpassing levels seen in 2021 and 2022. On the other hand, the percentage of “Electronic Technology and Technology Services” dropped slightly in 2025. Together, “Health and Technology Services” and “Electronic Technology and Technology Services” filings once again comprised well over 50% of filings. Meanwhile, “Finance” sector filings decreased from 11% to 9%.

Figure 2:

2. Filings By Type

As shown in Figure 3 below, Rule 10b-5 filings made up the vast majority of federal filings this year.

Figure 3:

3. Filings By Circuit

Figure 4 provides insight into the distribution of federal filings by Circuit. Most filings occur in the Second and Ninth Circuits. Filings in the Second Circuit were consistent with 2024. In contrast, the number of filings in the Ninth Circuit was down significantly from 2024 levels.

Figure 4:

4. Event-Driven And Other Special Cases

Figure 5 illustrates trends in the number of event-driven and other special case filings since 2021. The number of Artificial Intelligence-related filings continued to increase in 2025. By contrast, SPAC and Cybersecurity and Customer Privacy Breach filings have decreased notably since 2021.

Figure 5:

C. Settlement Trends

As reflected in Figure 6 below, the average settlement value in 2025 was $40 million. This is a slight drop from last year, but roughly consistent with recent years on an inflation-adjusted basis. (Note that the average settlement value excludes merger-objection cases, crypto unregistered securities cases, and cases settling for more than $1 billion or $0 to the class.)

Figure 6:

As for median settlement value, it increased notably from $14 million in 2024 to $17 million in 2025. In absolute and inflation-adjusted terms, that is the highest figure in at least a decade. (Note that median settlement value excludes settlements over $1 billion, merger objection cases, crypto unregistered securities cases, and zero-dollar settlements.)

Figure 7:

II. WHAT TO WATCH FOR IN THE SUPREME COURT

A. FS Credit Opportunities Corp. v. Saba Capital Master Fund: Supreme Court Hears Oral Argument on Whether Section 47(b) Provides a Private Right of Action.

In FS Credit Opportunities Corp. v. Saba Capital Master Fund, the Supreme Court agreed to address an asserted circuit split as to whether the Investment Company Act of 1940 (ICA) provides a private right of action and a rescission remedy for substantive violations of its provisions. 145 S. Ct. 2842 (2025). In 2024, the Second Circuit allowed the plaintiff, Saba Capital, to challenge certain resolutions adopted by closed-end funds in which Saba was invested under § 47(b). Saba Cap. Master Fund, LTD. v. BlackRock ESG Cap. Allocation Tr., 2024 WL 3174971, at *1 (2d Cir. June 26, 2024).

The Court heard oral argument on December 10, 2025, and much of the discussion centered around legislative history and intent. Counsel for Petitioners argued that § 47(b) contains no private right of action because Congress did not “speak clearly and unambiguously,” Oral Tr. 4:13-15, and Congress has already “vested the SEC with an array of powers to enforce the ICA, from investigation and rulemaking to exemption and filing suit,” diminishing any need for a concurrent enforcement mechanism, id. 5:20-25. The U.S. Solicitor General’s Office also supported Petitioners’ position, arguing that the “SEC is the primary regulator in this area. . . . It brings enforcement actions. . . . [F]or private parties to come in and seek to upset these contracts that the SEC is aware of . . . we don’t think Congress anticipated that necessarily.” Id. 54:5-16. Counsel for Respondents argued that § 47(b) contained an “express cause of action” and that Congress clearly intended for private parties to have a right of action in federal court. Id. 55:14-57:24. The deciding vote may come from Justice Kavanaugh, who called the case “extremely close.” Id. 22:14. Justice Kavanaugh seemed primarily concerned with the effect of directing litigation to the state courts, as that may be the practical consequence of finding no implied cause of action in the ICA. Id. 23:13-24:16, 26:11-18, 28:3-6. A decision following this oral argument is expected between March and June.

B. SEC v. Sripetch: Supreme Court Agrees to Address Required Showing for Disgorgement Awards.

The Supreme Court recently granted certiorari in the case of SEC v. Sripetch. In that case, the SEC successfully sought disgorgement against the defendant, Ongkaruck Sripetch, for securities fraud. SEC v. Sripetch, 154 F.4th 980, 984-85 (9th Cir. 2025). Sripetch and the other defendants allegedly orchestrated scalping and pump and dump schemes in a number of penny stocks. SEC v. Sripetch, 2024 WL 1546917, at *2-3 (S.D. Cal. Apr. 8, 2024). On appeal, Sripetch argued that disgorgement was an improper remedy because the SEC failed to show victims had suffered pecuniary harm. Sripetch, 154 F.4th at 985. The Ninth Circuit, siding with case law from the First Circuit, held that no such showing was required “as a precondition to a disgorgement award under [15 U.S.C.] § 78u(d)(5) or (d)(7).” Id. at 989. This broadened a potential circuit split, as the Second Circuit requires a showing of pecuniary harm. SEC v. Govil, 86 F.4th 89, 111 (2d Cir. 2023). The Supreme Court has agreed to address this, Sripetch v. SEC, 2026 WL 73091 (U.S. Jan. 9, 2026), and we will provide updates as the case proceeds.

C. Barton v. SEC: Defendant Seeks Supreme Court Review of Fifth Circuit’s Broad Grant of a Receivership Over Defendant’s Assets.

The Supreme Court has yet to rule on a certiorari petition in the case of SEC v. Barton. The SEC initiated civil proceedings in Barton to recover investor funds allegedly obtained by fraud, leading the district court to place half of the defendant’s companies in receivership. SEC v. Barton, 135 F.4th 206, 214 (5th Cir. 2025). The Fifth Circuit affirmed the district court’s opinion, holding that the district court could install a receivership over entities that “received or benefited from assets traceable to [defendant’s] alleged fraudulent activities that are the subject of this litigation.” Id. The panel reasoned that any benefit from the disputed funds, no matter how small, could justify receivership over an entity because requiring a larger benefit would incentivize shuffling funds around multiple entities. Id. at 221.

In his petition, Barton argues that the Fifth Circuit’s ruling is unduly punitive, asserting that receiverships must be more closely tailored to the disputed property, as they otherwise constitute a pre-trial punishment in personam, not an in rem protective measure. Petition for Writ of Certiorari at 18, Barton v. SEC, No. 25-465. Barton submits that this broad seizure of assets was unknown at the time of the country’s founding, such that the SEC’s statutory grant to seek “equitable relief” would not include this sweeping seizure power in light of the Court’s recent limitations on equitable relief. Id. at 24.

D. Handal v. Innovative Indus. Props., Inc.: Third Circuit Cabins Securities Litigation in Cases of General Corporate Misconduct.

The Third Circuit recently affirmed the dismissal of a lawsuit for failing to state a claim under §§ 10(b) and 20(a). Handal v. Innovative Indus. Props., Inc., 157 F.4th 279, 287 (3d Cir. 2025). Defendant Innovative Industrial Properties, Inc. (Innovative), a real estate investment trust, allegedly was defrauded by one of its tenants, a cannabis enterprise called Kings Garden. Id. at 286. Before Kings Garden’s alleged fraud was brought to light, Innovative’s securities filings included remarks regarding its due diligence and monitoring processes on prospective and current tenants, along with praise for Kings Garden during earnings calls. Id. at 288-91. After Kings Garden’s alleged fraud was revealed, plaintiff-shareholders of Innovative alleged that Innovative violated §§ 10(b) and 20(a) by making false or misleading statements regarding Kings Garden. Id. at 288.

The Third Circuit held that even if Innovative’s diligence was considered “subpar,” “Innovative never promised that its diligence would meet any particular standard of thoroughness” and such oversight does not necessarily make way for securities litigation. Id. at 295. The Third Circuit noted that neither “corporate trauma” nor “ordinary negligence” amounts to securities fraud, and that the antifraud provisions do not function as “a general charter of shareholder protection.” Id. at 286 (citation omitted). With no currently pending certiorari petition, the decision could remain an important limitation on the reach of the securities laws at least within the Third Circuit.

III. DELAWARE DEVELOPMENTS

A. Delaware Supreme Court Concludes Challenged Aspects of Senate Bill 21 Are Constitutional.

As discussed in our Client Alert from last year, Senate Bill 21 (SB 21) lowered Delaware courts’ scrutiny of controlling stockholder transactions under certain circumstances, provided a safe harbor, and strengthened the presumption that a public company director is disinterested and independent. On May 6, 2025, plaintiff Thomas Rutledge, a stockholder, filed a derivative action challenging a transaction between Clearway Energy, Inc. (Clearway) and its controlling stockholder Clearway Energy Group LLC, alleging that the former overpaid in purchasing a project from the latter. Appellee’s Br. at 16, Rutledge v. Clearway Energy Group LLC, C.A. No. 248 (Del. Jul. 31, 2025). The defendants moved to dismiss and on June 6, 2025, the Court of Chancery granted Rutledge’s unopposed motion to certify two constitutional questions to the Delaware Supreme Court. Intervenor’s Br. at 12-13. Gibson Dunn represents Clearway in this matter.

On November 5, 2025, the Delaware Supreme Court heard oral argument in Rutledge v. Clearway Energy Group LLC. Two questions were at issue on appeal: (1) whether Section 1 of SB 21 (codified at 8 Del. C. § 144), which eliminates the Court of Chancery’s ability to award “equitable relief” or “damages” where safe harbor provisions are satisfied, violates the Delaware Constitution by depriving the Court of Chancery of its equitable jurisdiction, and (2) whether Section 3 of SB 21, which applies the safe harbor provisions to breach of fiduciary duty claims arising from acts or transactions that occurred before the date SB 21 was enacted, violates the Delaware Constitution. Appellant’s Br. at 1.

On the first question, Appellant contended that Section 1 of SB 21 violates Article IV, Section 10 of the Delaware Constitution by “reduc[ing] the Court of Chancery’s equitable powers below the general equity jurisdiction of the High Court of Chancery of Great Britain as it existed prior to the separation of colonies” without “creat[ing] an adequate alternative remedy.” Appellant’s Br. at 13-14.

In response, Clearway rejected this characterization and argued that the provision is permissible because it does not limit the Court of Chancery’s jurisdiction to hear fiduciary duty disputes, modify the contours of any fiduciary duty, or curtail the remedies the Court of Chancery can issue. Appellee’s Br. at 4. Instead, Clearway contended that SB 21 provides only a “review framework” for the Court of Chancery to apply in “resolving fiduciary duty claims involving interested transactions,” which remain within the Court of Chancery’s jurisdiction. Id.

Intervenor the State of Delaware on behalf of Governor Matthew Meyer, likewise asserted that the amendments to Section 144 were constitutionally permissible. Intervenor’s Br. at 1. It argued that the safe harbor provisions follow a “long tradition” of the Delaware General Assembly amending the DGCL to define the contours of directors’ and officers’ duties and the standards that the Court of Chancery applies in evaluating claims of breach of those duties. Id. at 2. It continued that “[s]uch amendments do not diminish ‘the jurisdiction and powers vested by the laws of this State in the Court of Chancery’ or otherwise violate its traditional equitable jurisdiction because they do not alter its power to adjudicate fiduciary breach claims.” Id.

On the second question, Appellant asserted that Section 3 of SB 21 violates Article I, Section 9 of the Delaware Constitution by depriving parties “of their property rights, i.e., causes of action that accrued before [SB 21] was enacted.” Appellant’s Br. at 32.

In response, Clearway argued that Section 144 is not unconstitutionally retroactive for two reasons. First, Section 144 does not eliminate any fiduciary duty claims but alters the framework under which they are adjudicated. Appellee’s Br. at 4. Second, while Section 144 does not “extinguish any vested right,” based on longstanding precedent, the General Assembly may impose new obligations on vested rights so long as they rationally serve the public interest, which Section 144 does. Id. at 4-5.

On this issue, the Intervenor asserted that Appellant “misapprehend[ed] both the Constitution and the nature of stockholder claims.” Intervenor’s Br. at 3. Rather, the Intervenor claimed that where the General Assembly intends to apply retroactive obligations, the Delaware Constitution only requires that the Assembly act with a “legitimate purpose,” and the Assembly’s desire to address recent judicial decisions that, in its view, negatively impacted the state’s corporate law constitutes a legitimate purpose. Id. Additionally, the Intervenor asserted that no vested rights exist in derivative claims because they arise from statutory corporate law which the General Assembly is free to amend pursuant to its plenary powers. Id.

On February 27, 2026, the Delaware Supreme Court concluded the challenged provisions of SB 21 are constitutional under the Delaware Constitution, having neither divested the Court of Chancery of equity jurisdiction nor retroactively extinguished any vested plaintiff rights. On the former, the Court held that “Rutledge ha[d] not met his burden of overcoming the presumption of SB 21’s constitutional validity,” and that “[t]he General Assembly’s enactment of SB 21 f[ell] within the broad and ample sweep of its legislative power.” Slip Op. at 31 (quotation marks omitted). On the latter, the Court concluded the same—that “Rutledge ha[d] not met his burden of overcoming the presumption that § 3 of SB 21 is constitutionally valid.” Id. at 37.

The decision both reinforces the legislature’s important role in shaping Delaware’s corporate law and provides assurance to corporations and investors that they can trust that Delaware’s corporate law means what it says and that when the legislature changes the law—including in the wake of judicial decisions interpreting it—Delaware courts will give effect to that law. For additional insight into the case, see Law.com’s Litigators of the Week.

B. Chancery Draws Line Between Employment Law and Corporate Governance.

The point at which employment law ends and Delaware corporate law begins has been subject to some debate by Delaware commentators and courts in recent years. In Brola ex rel. Credit Glory Inc. v. Lundgren, __ A.3d __, 2025 WL 3439671 (Del. Ch. Dec. 1, 2025), the Delaware Court of Chancery drew a clear line between the two bodies of law in dismissing a stockholder derivative complaint for failing to plead demand futility. As the court explained, the “core issue” in Brola was “whether corporate law can be broadened to encompass interpersonal workplace disputes.” Id. at *4. In the court’s view, “it c[ould] not.” Id.

Credit Glory Inc. has two directors and two stockholders: Alex Brola (the plaintiff) and Christopher Lundgren (the defendant). Id. at *1. The defendant, also formerly an officer, “allegedly ‘used his positions at the Company to sexually harass its employees and expose them to his reprehensible racist views and conduct.’” Id. The defendant’s behavior resulted in judgments against the company totaling over $1.8 million and a derivative lawsuit brought against him. See id. In the derivative action, the plaintiff sought to hold the defendant “liable to the Company for th[e] judgments and other losses on the theory that Lundgren’s actions breached his duty of loyalty.” Id.

The court dismissed the plaintiff’s claim for failing to plead demand futility under Rule 23.1. Id. at *7. The question for demand futility purposes was whether demand was excused because the defendant faced a substantial likelihood of liability; a question that itself turned on the viability of the plaintiff’s underlying claim. Id. at *3. As to that claim, the court explained, “fiduciary liability is not a catch-all for every wrong committed in the workplace simply because the perpetrator happens to hold a title. Egregious interpersonal misconduct, even when violative of employment law and company policy, generally falls outside the scope of Delaware corporate law.” Id. at *5. Such was the case here: “[h]owever deplorable, [the defendant’s] harassment and bigotry were personal malfeasance, not a misuse of his corporate office.” Id.

In support of its decision, the court reasoned that, “aside from the risk of doctrinal sprawl,” several other factors militated against the plaintiff’s “invitation to place workplace misconduct under the banner of fiduciary duty.” Id. at *6. They included the fact that employment “disputes are regulated by comprehensive state and federal laws that reflect careful legislative choices,” “the internal affairs doctrine and comity principles underlying it,” and the “perverse incentives” that “treating sexual harassment-based claims as corporate assets [would] create[].” Id. at *6-7.

The development of Delaware law concerning the circumstances in which directors and officers of Delaware corporations could be held personally liable for harm to the company arising from workplace misconduct is ongoing. Watch this space for further updates.

C. Derivative Claims Dismissed Despite Company Neutrality.

A recent opinion dismissing a derivative action contains interesting and instructive commentary on demand futility, control, and Brophy claims. In Witmer v. Armistice Capital, a stockholder brought derivative claims against the board of Aytu Biopharma Inc. and the company’s allegedly controlling 41.4% stockholder, Armistice Capital. 344 A.3d 632, 640 (Del. Ch. 2025). Among other things, the plaintiff challenged the fairness of transactions between Aytu and entities affiliated with Armistice Capital and asserted so-called Brophy claims (i.e., claims alleging insider trading based on duty of loyalty principles). Id. at 639-40. At an earlier stage of the case, the plaintiff entered into a settlement agreement dismissing all of the defendants from the case except Armistice Capital. Armistice Capital moved to dismiss based on the plaintiff’s failure to adequately plead demand futility and failure to state a claim. Id. at 645. The court found that demand was excused but dismissed the case because the plaintiff failed to state a claim against Armistice Capital, including for breach of fiduciary duty and Brophy-based insider trading. Id. at 648-49.

The court agreed with the plaintiff that demand was excused as futile because Aytu had “taken a position of neutrality on the claims against Armistice” in its settlement agreement with the other defendants. Id. at 646. Armistice Capital did not dispute that Aytu had taken a neutral stance in the settlement agreement. Id. at 647. Instead, it argued that the court should perform a demand futility analysis nonetheless. Id. According to the court, however, precedent dictates that “a company’s enunciated position on a derivative claim takes precedence over the court’s Rule 23.1 assessment of the position the company might be able to take.” Id. at 646. Further, the court found no basis to question the board’s competence, loyalty, or independence in making its decision to take a position of neutrality on the claims here and thus had no basis to displace it. Id. at 647-48.

The court nonetheless agreed with Armistice Capital that the plaintiff failed to plead meritorious claims. The court first dismissed the breach of fiduciary duty claim pertaining to allegedly conflicted transactions based upon its conclusion that Armistice Capital was not conceivably a controlling stockholder and therefore owed no fiduciary duties. Id. at 654. The plaintiff argued Armistice Capital was a controlling stockholder based on a number of factors, namely (i) its 41% ownership of Aytu, (ii) Aytu’s disclosure that Armistice Capital could exert significant control over the company, (iii) Armistice Capital’s ownership stake in the parties across from Aytu in the challenged transactions, (iv) Armistice Capital’s managing partner’s business relationship with Aytu’s CEO, (v) Armistice Capital’s managing partner sitting on Aytu’s board and review committee, and (vi) the approval process for the challenged transactions. Id. at 650. The court disagreed, reasoning that although Armistice Capital “held a large stake in Aytu, it did not control the board, dictate its decision making, or compel the challenged outcomes.” Id. at 654. The plaintiff’s allegations therefore failed to create an inference of control.

The court followed suit on the plaintiff’s Brophy claim, rejecting the plaintiff’s attempt to, in its view, extend the reach of fiduciary duties. The plaintiff alleged that Armistice Capital owed fiduciary duties “because it possessed . . . Aytu’s confidential information” through its board designee. Id. at 655. The plaintiff further alleged that Armistice Capital breached those duties by trading on MNPI. Id. at 654. The court rejected the plaintiff’s fiduciary duty theory, finding “[a]n investor does not become a fiduciary simply because it has a board designee” and therefore “access to confidential information.” Id. at 656-57 n.193. As Armistice Capital owed no fiduciary duties, the court dismissed the plaintiff’s Brophy claim.

D. In re Tesla, Inc. Derivative Litig., 2025 WL 3689114 (Del. Dec. 19, 2025).

In December 2025, the Delaware Supreme Court reinstated Elon Musk’s 2018 equity compensation package and slashed the plaintiff’s attorneys’ $345 million fee award granted by the Court of Chancery. In re Tesla, Inc. Derivative Litig., 2025 WL 3689114 (Del. Dec. 19, 2025). For further information, see our Client Alert.

IV. INDUSTRY DEVELOPMENTS

A. Technology Updates

1. Digital Asset Developments.

In re EthereumMax Investor Litig., 2025 WL 2377070 (C.D. Cal. Aug. 6, 2025): On August 6, 2025, the U.S. District Court for the Central District of California granted certification of four state‑specific classes but refused to certify a nationwide class in a crypto‑asset securities and consumer class action. In re EthereumMax Investor Litig., 2025 WL 2377070, at *1-2, *17 (C.D. Cal. Aug. 6, 2025). The plaintiffs alleged that the defendants coordinated a celebrity‑driven social‑media campaign to “misleadingly promote and sell” EthereumMax (EMAX) tokens and that the tokens were unregistered securities marketed as “safe, worthwhile, and advantageous.” Id. at *1, *3-5. The court held that common questions predominated under Rule 23(b)(3) for the state‑specific classes because the plaintiffs presented evidence of a “uniform, highly orchestrated” promotional scheme, and reliance could be shown on a class-wide basis either through that coordinated campaign or a fraud‑on‑the‑market theory. Id. at *4-6, *11. The court did not address whether EMAX tokens qualify as “securities,” concluding that was a merits question “capable of class‑wide resolution.” Id. at *8. The court held that predominance defeated the proposed nationwide class, however, because of territorial limitations in California and Florida securities statutes applicable only to transactions occurring “in” or “within” those states. Id. at *12-13. These territorial limitations “create[d] a significant predominance and superiority concern as to the Nationwide Class” because determining whether each EMAX purchase occurred in California, Florida, or elsewhere—particularly given pseudonymous blockchain transactions—would require “very individuated questions of fact as to the substantial majority of purchasers . . . not amenable to common proof,” creating “the risk of inappropriate extraterritorial application” and preventing class‑wide adjudication. Id. at *13.

Underwood v. Coinbase Glob., Inc., 2025 WL 1984293 (S.D.N.Y. July 17, 2025): On July 17, 2025, the U.S. District Court for the Southern District of New York resolved a discovery dispute in a putative securities class action alleging that Coinbase unlawfully listed and sold digital tokens that qualified as unregistered securities. Underwood v. Coinbase Glob., Inc., 2025 WL 1984293, at *1, *3 (S.D.N.Y. July 17, 2025). The court explained that the viability of the plaintiffs’ Securities Act claims—particularly under Section 12(a)(1)—turned on whether Coinbase qualified as a “statutory seller,” which depended in part on whether it “passed title, or other interest in the security, to the buyer.” Id. at *1-2. Focusing on that ownership question, the court held that discovery into Coinbase’s treatment of customer crypto-assets in bankruptcy or vis-à-vis creditors was relevant because it could shed light on whether Coinbase retained an ownership interest in the tokens. Id. at *3. The court also compelled the plaintiffs to produce certain documents to Coinbase, including those related to how the plaintiffs sold, accounted for, and reported their tokens because “both parties’ conduct may be germane to . . . [w]hether title passed to Coinbase” under traditional principles of property law. Id. at *3-4. In doing so, the court emphasized that title and privity are not determined solely by user agreements but may turn on the economic realities of how tokens are held and transferred on the platform. Id.

2. Developments in the Application of the Howey Test for Determining When a Transaction Constitutes a Security.

Recent decisions have taken different approaches in applying the test to determine when a digital asset is an “investment contract” and thus a security. Real v. Yuga Labs looked to the NFTs’ public‑blockchain design and marketplace structure, while Holland v. CryptoZoo focused on economic reality and stated that disclaimers could not overcome allegations that the tokens were securities.

On September 30, 2025, the U.S. District Court for the Central District of California granted a motion to dismiss securities claims brought against Yuga Labs and related parties. Real v. Yuga Labs, Inc., 2025 WL 3437389, at *1-2 (C.D. Cal. Sept. 30, 2025). The court held that the plaintiffs failed to plausibly allege that Yuga’s NFTs and ApeCoin constituted “securities” under the Howey test. Id. at *11. Notably, the court highlighted that the non-fungible and non-proprietary nature of Yuga’s NFTs—“recorded on the Ethereum blockchain” rather than a private, issuer-controlled system—undermined any inference of horizontal or vertical commonality. Id. at *8-10. The court distinguished prior digital assets cases on technological architecture grounds, noting that unlike in other cases, here, the NFTs were recorded on a public blockchain that did not rely on these NFTs and ApeCoin “for its survival.” Id. at *8-9. Further, Yuga NFTs were purchased on “independent exchanges.” Id. at *8. On the “investment of money” and “expectation of profits” questions, the court took a narrow view of promotional conduct, rejecting the idea that statements about ecosystem growth, “inherent, long-term value,” “intrinsic value,” or “trade volume”—without explicit profit-oriented signaling—objectively transform digital assets with membership or other utility into investment contracts. Id. at *6-7, *10. Although the court acknowledged that any potential profits tied to Yuga products would have likely depended on Yuga’s own developmental efforts, it dismissed the complaint because the plaintiffs failed to meet Howey’s other elements. Id. at *11-12.

By contrast, in a separate case, the U.S. District Court for the Western District of Texas took a broader view of Howey’s “expectation of profits” inquiry by rejecting the defendants’ attempt to defeat Howey through formalistic distinctions. In Holland v. CryptoZoo Inc., the court held that the plaintiffs plausibly alleged that the tokens and NFTs at issue constituted “securities.” 2025 WL 2492970, at *28 (W.D. Tex. Aug. 14, 2025), report and recommendation adopted, 2025 WL 3028689 (W.D. Tex. Oct. 29, 2025). The court emphasized that contractual disclaimers and labels cannot override the “economic reality” and “totality of the circumstances” and dismissed “volatility of the market” arguments due to the inherent volatility of cryptocurrency. Id. at *26-28. The court noted that treating volatility as dispositive would mean that “virtually no crypto transactions would ever qualify as investment contracts.” Id.

SEC v. Morocoin Tech Corp., 25-cv-04102 (D. Colo. filed Dec. 22, 2025): In SEC v. Morocoin Tech Corp., filed in the U.S. District Court for the District of Colorado on December 22, 2025, the SEC alleged that seven companies stole from U.S. investors in a cryptocurrency “confidence scam” and violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act. SEC v. Morocoin Tech. Corp., 25-CV-04102 (D. Colo. filed Dec. 22, 2025), Complaint, at ¶¶ 1–7, 25–26. The complaint alleges that four companies—AI Wealth Inc., Lane Wealth Inc., AI Investment Education Foundation Ltd., and Zenith Asset Tech Foundation—established trust with U.S.-based investors by operating “investment clubs that were WhatsApp chats purportedly run by experienced financial professionals who gave purported investment recommendations to investors.” Id. ¶ 2. However, the SEC alleges that the companies’ agents “falsely claimed [these recommendations] were based on AI-generated ‘signals.’” Id. ¶ 25. Some social media ads featured “deepfake videos of prominent financial professionals.” Id. ¶ 18. The defendants then recommended that investors trade crypto assets by opening accounts on “purported crypto asset trading platforms” operated by three other defendants—Morocoin Tech Corp., Berge Blockchain Technology Co., Ltd., and Cirkor Inc. Id. ¶ 3. The defendants offered “security token offerings” purportedly issued by legitimate businesses that the SEC alleges “were not genuine trading platforms,” alleging “no trading took place on [them]” because both the security token offerings and their purported issuing companies were fictitious. Id. The SEC asserts that the defendants “acted in concert to misappropriate at least $14 million from U.S.-based retail investors, which was then funneled overseas through a web of bank accounts and crypto asset wallets.” Id. ¶ 6.

3. Regulatory Updates.

Recent task forces constituted by the SEC could suggest an effort to embrace the inclusion of new technologies across multiple regulated products, and could indicate an emphasis on policy-driven approaches in addition to ad hoc securities enforcement.

SEC-CFTC Joint Staff Statement (Project Crypto-Crypto Sprint) (Sept. 2, 2025): On September 2, 2025, the SEC’s Division of Trading and Markets and the CFTC’s Division of Market Oversight and Division of Clearing and Risk issued a coordinated joint statement “regarding the listing of leveraged, margined, or financed spot retail commodity transactions on digital assets.” SEC—CFTC Joint Staff Statement (Sept. 2, 2025). The Commodity Exchange Act (CEA) requires certain of these transactions be conducted on a CFTC-registered designated contract market or foreign board of trade, unless they are listed on an SEC-registered national securities exchange or meet some other exception. Id. In furtherance of the SEC’s Project Crypto and the CFTC’s Crypto Sprint initiatives, the agencies announced their view that designated contract markets, foreign boards of trade, and national securities exchanges are “not prohibited from facilitating the trading of certain spot crypto asset products.” Id. As a result, both the SEC and the CFTC will review filings and requests by such designated contract markets, foreign boards of trade, and national securities exchanges seeking to facilitate trading of “spot crypto asset products.” Id.

SEC’s Recent Engagement on Crypto, Blockchain Privacy, and Artificial Intelligence: As the SEC’s Crypto Task Force approaches the one-year anniversary of its inception, it is increasing its efforts to bring the emerging issues of crypto, blockchain privacy, and artificial intelligence to the forefront of its discussions with market participants. In August 2025, the SEC’s Crypto Task Force launched a series of Crypto on the Road meetings following five roundtables in Washington, D.C. and hundreds of written submissions from industry participants. SEC, Crypto Task Force: On the Road, https://www.sec.gov/featured-topics/crypto-task-force/crypto-task-force-road (last updated Jan. 16, 2026). At roundtables held in Berkeley, Boston, Dallas/Fort Worth, Chicago, and Ann Arbor, stakeholders were invited to meet with Commissioner Hester Peirce, head of the Crypto Task Force. Id. The Crypto Task Force then held another roundtable on Financial Surveillance and Privacy in Washington, D.C. on December 15 that focused on the tension between the transparency of blockchain technology and the need for privacy enhancement in securities and other transactions. SEC, Crypto Task Force Roundtable on Financial Surveillance and Privacy (Dec. 15, 2025). Finally, the SEC also established a new task force on artificial intelligence led by Valerie Szczepanik to “spearhead the agency’s efforts to enhance innovation and efficiency across the agency.” Press Release, SEC Creates Task Force to Tap Artificial Intelligence for Enhanced Innovation and Efficiency Across the Agency (Aug. 1, 2025).

B. Cross-Cutting Issues

Litigation continues to challenge environmental, social, and governance (ESG) and diversity, equity, and inclusion (DEI) statements and positions taken by public companies. In previous editions of the Securities Litigation Update, we noted that securities cases challenging ESG and DEI policies and disclosures have had mixed results, potentially impacted by shifting political, social, and commercial trends. For our most recent coverage, see the Securities Litigation 2025 Mid-Year Update and the Securities Litigation 2024 Year-End Update.

The following section discusses developments in pending securities cases that involve allegations regarding ESG or DEI policies and disclosures.

Lyall v. Elsevier Inc., 2025 WL 2959908 (D. Mass. Oct. 17, 2025): We previously covered this case in the 2024 Year-End Update. The plaintiff in this case filed a putative class action against RELX PLC and its subsidiaries (RELX) for, among other claims, alleged violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. 2025 WL 2959908, at *1. The plaintiff alleged that RELX misled investors through “greenwashing” (i.e., representing that RELX was doing more to protect the environment than it was actually doing), and that the defendants’ business activities were inconsistent with their stated climate goals. Id. at *2. After the plaintiff filed a second amended complaint in May 2025, the defendants moved to dismiss for failure to state a claim. Id. at *1; see also ECF Nos. 45, 49. The court granted that motion, dismissing the securities claim with prejudice. 2025 WL 2959908, at *1, *7. The court concluded that the plaintiff “[did] not adequately [plead] the related elements of economic loss and loss causation” as she did not allege any drop in RELX’s stock price after the alleged “truth” about the greenwashing was revealed. Id. at *4.

In re Target Corp. Shareholder Class Action Litigation, 2025 WL 3187126 (M.D. Fla. Nov. 14, 2025); 0:25-cv-04380 (D. Minn.): This case is a consolidated shareholder class action against Target Corporation and its board of directors, filed after Target undertook a 2023 LGBTQIA+ Pride Month campaign that featured more than 2,000 Pride-themed products. Id. at *1. The plaintiffs allege the Pride Month campaign triggered a customer boycott, which led to Target’s longest stock-price losing streak in 23 years and an estimated $25 billion loss in market capitalization in the second half of 2023. Id. at *1. A first shareholder lawsuit was filed in the Middle District of Florida, followed by two securities class actions and three related derivative actions, alleging that Target “did not oversee or disclose … the obvious risks of its 2023 LGBT-Pride Campaign and the ESG/DEI initiatives which it advanced.” Id. at *1 (citation modified). The consolidated actions survived a motion to dismiss in late 2024, and in November 2025, the court granted Target’s motion to transfer the cases to the District of Minnesota. Id. at *1, *5.

Spence v. Am. Airlines, Inc., No. 4:23-CV-00552-O, 2025 WL 3537280 (N.D. Tex. Sept. 30, 2025): Following a bench trial, the court in this case found that American Airlines, Inc. and its Employee Benefits Committee breached ERISA’s fiduciary duty of loyalty by allowing for a “focus on [ESG] investing to influence the Plan.” Id. at *1; see Spence v. Am. Airlines, Inc., 775 F. Supp. 3d 963 (N.D. Tex. 2025). Issued months after its earlier findings, the court’s final judgment concluded that the plaintiff failed to “sufficiently establish actual monetary losses to the Plan.” 2025 WL 3537280, at *1. As a result, the court did not grant damages or any monetary relief. Id. at *1, *2. But the court issued a permanent injunction and imposed equitable remedies tailored “to ensure that Defendants and their investment managers act solely for the pecuniary benefit of the Plan and implement compliance measures to ensure fidelity to ERISA’s fiduciary standards.” Id. at *1. On February 10, 2026, the court denied a motion for reconsideration of its final judgment, clarified the injunction, and awarded the plaintiffs more than $4.5 million in attorney’s fees. ECF 188.

SEB Inv. Mgmt. AB v. Wells Fargo & Co., No. 22-CV-03811-TLT (N.D. Cal. Nov. 13, 2025): We have previously reported on this case, including in our 2023 Year-End Securities Litigation Update. The plaintiffs in this case filed a class action complaint against Wells Fargo & Company (Wells Fargo) and its executive officers, alleging violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5. 2025 WL 1243818, at *1 (N.D. Cal. Apr. 25, 2025). The case concerns allegations that Wells Fargo conducted interviews for positions that had already been filled to comply with its disclosed intent that 50 percent of interviewees be diverse for most roles above a certain salary threshold. On April 25, 2025, the court granted the plaintiffs’ motion for class certification. Id. at *8. The defendants’ subsequent petition for Ninth Circuit review was denied. SEB Inv. Mgmt. AB v. Wells Fargo & Co., No. 25-3021, 2025 WL 2028400, at *1 (9th Cir. July 17, 2025). In October 2025, the parties reached an agreement to settle the litigation, and the Court approved the settlement on November 13, 2025. ECF 269.

V. CLASS CERTIFICATION

A. Presuming Reliance Under Basic and Rebutting the Presumption With “Mismatch” Evidence After Goldman.

As we have previously covered, class certification in Rule 10b-5 actions often turns on whether the plaintiffs can invoke the rebuttable presumption of class-wide reliance recognized in Basic Inc. v. Levinson, 485 U.S. 224, 247 (1988). Under Basic, a showing that the challenged securities traded in an efficient market establishes that the price theoretically reflects all material public information, and so investors are afforded the presumption that they relied on challenged statements. Id. In Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258, 263-64 (2014), the Supreme Court held that the Basic presumption could be rebutted by showing a lack of “price impact” of the alleged misrepresentation. And since Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System (Goldman), in “inflation-maintenance” cases, where the plaintiffs infer “front-end” price impact at the time the statements were made from a “back-end” price decline following a corrective disclosure, courts have evaluated whether there is a “mismatch” between the challenged statements and the alleged corrective disclosure. 594 U.S. 113, 119-23 (2021). This analysis is to determine whether the corrective disclosure and challenged statement are similar enough that the later drop can be attributed to a correction of the challenged statement. Id.; see also Arkansas Tchr. Ret. Sys. v. Goldman Sachs Grp., Inc., 77 F.4th 74, 81, 102 (2d Cir. 2023) (explaining that generic front-end challenged statements can create a “mismatch in specificity” when paired with a more concrete back-end disclosure).

As previewed in our mid-year update, the Ninth Circuit in September issued its decision in Jaeger v. Zillow Group, Inc., which is its first decision applying Goldman. In Zillow, the Ninth Circuit affirmed the district court’s class certification order and rejected the defendants’ mismatch challenge to price impact. 2025 WL 2741642, at *1-2 (9th Cir. Sept. 26, 2025). Zillow argued that information allegedly concealed by the challenged statements was not revealed until after the class period and therefore could not support an inference that the challenged statements maintained inflation. Id. But the court disagreed, noting the back-end disclosures “revealed new information” that suggested earlier statements may have been “obscured” and the front-end and back-end statements “matched enough.” Id. at *2. The Ninth Circuit held the district court did not abuse its discretion in concluding the defendants failed to rebut the Basic presumption. Id. Notably, the Ninth Circuit acknowledged that the “price impact” analysis is similar to the merits issue of loss-causation and did not fault the lower court for drawing upon loss-causation caselaw for guidance. Id. at *1.

Lower courts also continue to scrutinize “mismatch” arguments closely, sometimes drawing out incongruities between the alleged front-end misstatement and the purported back-end disclosure. Recently, in Gambrill v. CS Disco, Inc., a magistrate judge in the Western District of Texas walked through such an analysis, resulting in a recommendation to deny class certification after concluding that the defendants had rebutted the Basic presumption because the alleged corrective disclosures did not sufficiently “match” the challenged statements. 2025 WL 3771433, at *7-11, *15 (W.D. Tex. Dec. 16, 2025) (report and recommendation). The recommendation emphasized careful comparison of the exact language the plaintiffs challenged to the purported back-end corrective disclosures, and in this case determined that several of the challenged statements were “quite different” from the back-end disclosures. Id. at *10. The report also noted that other corrective disclosures “d[id] not contradict” the alleged misrepresentations. Id. The magistrate’s report also faulted the plaintiffs’ expert for failing to “tease[] out the impact on [the defendant’s] stock price from the revised earnings guidance as opposed to the allegedly new knowledge” while noting that the plaintiffs’ expert provided no comparison of the front-end and back-end disclosures. Id. at *12.

B. Market Efficiency and “Meme Stock” Dynamics.

In another angle of attack for some securities litigation defendants, the Fifth Circuit has granted interlocutory review under Rule 23(f) in Bozorgi v. Cassava Sciences, Inc., to hear a challenge to class certification under the premise that Cassava’s stock, a so-called “meme stock,” traded in a world divorced from traditional informational efficiency and without regard to whether any new information was disclosed. See Order Granting Motion for Leave to Appeal, Misc. No. 25-90021 (5th Cir. Oct. 21, 2025); see also Defendants-Appellants’ Opening Br. at 1-5, Bozorgi v. Cassava Sciences, Inc., No. 25-50855 (5th Cir. Jan. 15, 2026). Gibson Dunn represents the defendants-appellants.

On appeal, the defendants seek to show the Basic presumption should not apply by establishing that the market for Cassava—which was exceedingly volatile and had huge fluctuations in price during the alleged class period—was not efficient and, therefore, did not incorporate all publicly available information. Defendants-Appellants’ Br. at 3-4. The defendants also argue that even if the market was efficient, the majority of traders were trading on a strategy that rejected the market price’s integrity. Id. The defendants have also framed the appeal to raise related class certification questions, including typicality and whether the plaintiffs offered a class-wide damages methodology consistent with their theory in a market allegedly dominated by meme-stock dynamics. Id. at 5. We will continue to monitor Cassava for what could become the first circuit-level guidance addressing the Basic presumption in the meme-stock context.

C. Other Class Certification Issues: Damages Methodologies.

Finally, in a further update to In re The Boeing Company Securities Litigation, No. 25-1492 (4th Cir.) (originally discussed in our mid-year update), the Fourth Circuit is poised to consider whether plaintiffs can satisfy Comcast Corp. v. Behrend, 569 U.S. 27 (2013), when their expert offers only a generalized framework without a developed class-wide methodology tailored to the plaintiffs’ alleged inflation theory. Oral argument is currently scheduled for March 2026. We will continue to follow developments in Boeing and related appellate cases that may further shape the contours of class certification in securities litigation.

The following Gibson Dunn lawyers prepared this update: Monica K. Loseman, Brian M. Lutz, Jason J. Mendro, Craig Varnen, Jefferson E. Bell, Michael D. Celio, Allison Kostecka, Lissa Percopo, Mark Mixon, Chase Weidner, Lydia Lulkin, Andrew Freire, Megan Murphy, Justine Drohan, Garrett Coleman, Amanda Donoghue, Amir Heidari, John Ito, Yama Keshawerz, Jerelyn Luther, Moksha Padmaraju, Ty Shockley, Russell O. Shapiro, and Alexander Strohl.

Gibson Dunn 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, the authors, or any of the following leaders and members of the firm’s Securities Litigation practice group:

Christopher D. Belelieu – New York (+1 212.351.3801, cbelelieu@gibsondunn.com)
Jefferson Bell – New York (+1 212.351.2395, jbell@gibsondunn.com)
Michael D. Celio – Palo Alto (+1 650.849.5326, mcelio@gibsondunn.com)
Colin B. Davis – Orange County (+1 949.451.3993, cdavis@gibsondunn.com)
Jonathan D. Fortney – New York (+1 212.351.2386, jfortney@gibsondunn.com)
Michael J. Kahn – San Francisco (+1 415.393.8316, mjkahn@gibsondunn.com)
Allison K. Kostecka – Denver (+1 303.298.5718, akostecka@gibsondunn.com)
David M. Kusnetz – New York (+1 212.351.2657, dkusnetz@gibsondunn.com
Jeff Lombard – Palo Alto (+1 650.849.5340, jlombard@gibsondunn.com)
Monica K. Loseman – Co-Chair, Denver (+1 303.298.5784, mloseman@gibsondunn.com)
Brian M. Lutz – Co-Chair, San Francisco (+1 415.393.8379, blutz@gibsondunn.com)
Mary Beth Maloney – New York (+1 212.351.2315, mmaloney@gibsondunn.com)
Mark H. Mixon, Jr. – New York (+1 212.351.2394, mmixon@gibsondunn.com)
Jason J. Mendro – Co-Chair, Washington, D.C. (+1 202.887.3726, jmendro@gibsondunn.com)
Laura K. O’Boyle – New York (+1 212.351.2304, loboyle@gibsondunn.com)
Lissa M. Percopo – Washington, D.C. (+1 202.887.3770, lpercopo@gibsondunn.com)
Jessica Valenzuela – Palo Alto (+1 650.849.5282, jvalenzuela@gibsondunn.com)
Craig Varnen – Co-Chair, Los Angeles (+1 213.229.7922, cvarnen@gibsondunn.com)

Companies and their advisors should continue to monitor these developments closely as they consider how Texas’s evolving corporate ecosystem may contribute to their strategic objectives.

Texas is entering a watershed moment in corporate law and market development. Over just the past few months, the state has attracted headline‑making redomestications, launched multiple nationally significant stock exchanges, and expanded the reach and influence of the Texas Business Court. Together, these developments signal more than incremental progress—they reflect Texas’s accelerating rise as a premier jurisdiction for corporate governance, capital formation, and high‑stakes commercial dispute resolution. For officers and directors evaluating strategic opportunities in 2026, understanding Texas’s rapidly evolving corporate landscape has never been more important.

I. Corporate Redomestications to Texas

A growing number of companies are redomesticating to Texas, drawn by the state’s pro-growth corporate environment, business-friendly regulatory posture, and sophisticated corporate‑law infrastructure. Companies choosing Texas cite several advantages:

Alignment with operational footprint. Many redomesticating companies already have major headquarters or asset concentrations in Texas, making governance, business and political relations, and litigation more efficient.
Predictability of statute-based and business-friendly legal environment. Legislative amendments to the Texas Business Organizations Code (TBOC) and the establishment of the Business Court have created an even more stable and modern governance framework. Learn more about the 2025 amendments to the TBOC and related developments in our Guidebook memo, June webcast, and September presentation.
Comparable or stronger shareholder‑rights regime. Companies have noted that shareholder rights under Texas law parallel other jurisdictions while offering additional clarity in key areas.

Following the amendments to the TBOC in 2025, a few publicly traded corporations with concentrated share ownership (controlled companies) announced plans to redomesticate to Texas, including Dillard’s, Coinbase Global, Inc., and Exodus Movement, Inc. In 2026, additional publicly traded companies that do not have concentrated share ownership and must solicit shareholder approval announced plans to redomesticate to Texas. These include companies such as eXp World Holdings, Inc., Forward Industries, Inc., Texas Capital Bancshares, Inc. and Pelican Acquisition Corporation.

Most notably, on March 10, 2026, Exxon Mobil Corporation announced its plans to redomesticate to Texas from its long-time historic legal home of New Jersey. ExxonMobil’s move to Texas demonstrates confidence in the state’s pro-growth policies and aligns its corporate home with its physical headquarters in greater Houston. Texas has been the company’s physical home since 1989.

In its preliminary proxy statement, ExxonMobil says it believes that Texas’ public policy, generally, is consistent with the company’s values, strategy and efforts to protect and enhance shareholder value. The company also provided supplemental material with key messages and frequently asked questions. “Over the past several years, Texas has made a noticeable effort to embrace the business community. In doing so, it has created a policy and regulatory environment that can allow the company to maximize shareholder value,” said Darren Woods, ExxonMobil chairman and chief executive officer. “Aligning our legal home with our operating home, in a state that understands our business and has a stake in the company’s success, is important.” More specifically, ExxonMobil states that it expects shareholders to benefit from the redomestication to Texas for several reasons. These include, among others:

Legislators, judges and juries, who may make decisions that impact shareholders’ interests, are generally more familiar with the company’s operations and positive local impact. This makes it more likely that decision makers appreciate the tangible consequences of their decisions.
Texas’ stable and supportive business environment, reinforced by recent amendments to the Texas Business Organizations Code and the creation of the Texas Business Court, provides legal and regulatory certainty that can benefit long-term shareholder value.
Texas is one of the largest economies in the world, and ExxonMobil believes the state is deliberate in the creation of its common-sense regulatory environment, which fosters innovation, job creation, and economic growth.

Gibson Dunn is advising ExxonMobil on its redomestication to Texas.

Looking ahead, as more proxy statements are filed for the 2026 annual meetings of shareholders over the next few months, we expect more companies to announce proposed redomestications to Texas as part of the annual meeting agenda. We also expect more companies will explore and pursue plans to redomesticate to Texas as they gain comfort with the passage of time following the TBOC amendments, the use of the Business Court and additional companies choosing Texas. We will continue to monitor this activity and provide updates on our website, which includes a tracker showing completed and pending Texas redomestications.

II. The SEC Weighs In on Redomestications

Increased redomestication activity has caught the attention of market regulators, who have acknowledged the benefits offered by the Texas corporate law regime. Securities and Exchange Commission (SEC) Chairman Paul S. Atkins recently discussed corporate redomestications to Texas at the Texas A&M School of Law Corporate Law Symposium, chaired by Gibson Dunn partner David Woodcock, which took place on February 17, 2026. In his remarks, Chairman Atkins noted that Texas is building a “framework designed to attract companies with shareholders who are eager to get back to basics, with less politicization, abusive litigation, and overall drama.” The Chaiman acknowledged that state corporate law, in conjunction with federal securities law, has the power to “protect shareholders without needlessly paralyzing companies.” He went on to state that competition among states is healthy for the capital markets and drives American prosperity.

In support of redomestication efforts, the SEC has taken steps to limit the potential regulatory burden associated with redomestication. Earlier this year, the Staff of the Division of Corporation Finance at the SEC issued new interpretive guidance affirming that companies wishing to redomesticate within the United States through the formation of a holding company are not required to undertake the time-consuming and costly Form S-4 registration process. Specifically, the Division Staff issued revised Compliance and Disclosure Interpretation 139.03 clarifying that a merger by a publicly traded company with a new holding company formed by that publicly traded company in a different state qualifies for the change-in-domicile exception in Rule 145(a)(2) when the sole purpose of the transaction is to effect a change of domicile within the United States and not to, for example, significantly change regulatory regimes applicable to the organization other than state corporate law.

III. Three Texas Stock Exchanges

Texas now hosts three national securities exchanges, reflecting the state’s growing influence in the national financial sector.

NYSE Texas, which launched corporate listings on March 31, 2025.
Nasdaq Texas, which launched corporate listings on March 5, 2026.
The Texas Stock Exchange (TXSE), the first national securities exchange to receive SEC approval in decades, which plans to launch corporate listings in the second half of 2026.

These stock exchanges have already generated significant interest and action in the business sector and received significant and visible support from the state government. Each fully electronic exchange is building physical headquarters in Dallas, intended as spaces to foster corporate and financial networking and development for Texas leaders, entrepreneurs and innovators.

NYSE Texas has attracted over 100 dual listings since launch. Interested companies may review the NYSE Texas Rules and complete the NYSE Texas Listing Application directly through the website. In September 2025, WaterBridge Infrastructure LLC, a Houston headquartered energy company, became the first company to IPO on both the NYSE and NYSE Texas.

Nasdaq Texas launched with dual-listed companies that are headquartered both within and without Texas. Interested companies may review the Nasdaq Texas Rulebook and follow the listing process detailed in the Nasdaq Listing Center on the website.

The Texas Stock Exchange (TXSE) is targeting July 2026 for initial primary listings, starting each day with the sound of a cannon instead of a bell. The proposed TXSE Rulebook (submitted with the exchange’s approval application to the SEC) and listing qualification information is available, although the final rulebook has not yet been made available.

Dual listing on NYSE Texas or Nasdaq Texas is a relatively simple process and does not currently create significant incremental regulatory requirements. Personnel at all the exchanges are easy to contact to answer questions about requirements or help with applications.

In connection with listing on a new exchange, a company should take certain steps under SEC rules and regulations, such as (1) filing a Form 8-A 12B with the SEC relating to the expected new stock exchange listing under the Securities Exchange Act of 1934, (2) updating its Edgar profile, and (3) updating the list of stock exchanges on the cover page of the next Forms 10-K and 10-Q and Part II, Item 5 of Form 10-K.

Having multiple stock exchanges based in Texas can give more options to Texas corporations that want to take advantage of the law that allows “nationally listed corporations” to impose enhanced shareholder-proposal requirements. A “nationally listed corporation” is a publicly traded Texas corporation that has either (i) its principal office in Texas or (ii) a listing on a Texas-headquartered stock exchange that has been approved by the Texas Securities Commissioner. If this definition applies, then the corporation may opt into Section 21.373 of the TBOC and require that shareholders seeking to submit a proposal (1) beneficially own at least the greater of $1 million in shares or 3% of the company’s voting shares, (2) hold such shares for at least six months prior to the shareholder meeting, (3) continue holding such shares through the duration of the meeting, and (4) solicit holders representing at least 67% of the voting power of shares entitled to vote. To date, TXSE and NYSE Texas are each approved by the Texas Securities Commissioner, and Nasdaq Texas is seeking approval. As such, in order to opt into TBOC 21.373 well before the 2027 proxy season, the corporation will need to be incorporated in Texas with either (a) its headquarters in Texas or (b) its stock listed or dual listed on Nasdaq Texas (assuming approval referenced above is received), NYSE Texas or the Texas Stock Exchange (TXSE).

Together, these Texas-based national stock exchanges’ innovation and initiative, and the State government’s strong and swift support of them, reinforces Texas’ reputation as a pro-business destination, potentially accelerating the ongoing trend of corporate relocations from other states and solidifying Texas’ role as an economic powerhouse.

IV. The Texas Business Court

The Texas Business Court has continued to stake a larger role in the Texas judiciary and business community. Companies can now remove most derivative, corporate-governance, securities, contract, and trade secret disputes to Business Court, where the case will be presided over by a judge with heightened business qualifications and a lighter caseload than their district court counterparts. The growing prominence of the Business Court and its business-friendly forum for resolving complicated disputes has been a further inducement for companies to re-domesticate in Texas. Many companies have cited the Business Court as reason for leaving Delaware or other states and reincorporating in Texas—such as cryptocurrency giant Coinbase, in whose view “the establishment of the Texas Business Court system gives companies a business-friendly legal ecosystem with strong protections and efficient dispute resolution.” (Paul Grewal, Why Coinbase Is Leaving Delaware for Texas, Wall St. J. (Nov. 12, 2025)).

Since its creation in September 2024 using legislation Gibson Dunn attorneys authored, the new court has lived up to its goal of offering businesses a more efficient and predictable forum for high-stakes commercial litigation. (For more detailed information, see Gibson Dunn’s memorandum on the basics of the Business Court or its webcast on practice before the court.) Industry has trusted the Business Court with their most sensitive cases and filed hundreds of cases in the first year, including many actions with eight-, nine-, and ten-figure sums in controversy. And the new court has rewarded that trust with efficient and careful management of the cases on its docket, issuing dozens of written opinions in an effort to develop a more stable and predictable body of corporate law. Likewise, in the last several months, the Business Court presided over its first four trials—all of which occurred less than 18 months after the cases were initially filed, and in some instances as fast as just 8 months.

The Texas Legislature recently implemented reforms to the Business Court and Texas corporate law that enhance Texas’s desirability as a legal forum. During the 89th legislative session in 2025, the legislature passed House Bill 40, which expands the Business Court’s jurisdiction to additional categories of claims, and broadens active Business Court divisions to include Montgomery and Bastrop Counties—growing centers of industry. These amendments open the Business Court to a larger percentage of corporate disputes and strengthen the protections afforded to Texas businesses under state law.

Decisions in the first year-and-a-half of practice in the Business Court have cemented Texas as a reliable home for business disputes. In one of the most significant decisions so far, the Business Court upheld a partnership’s right to limit fiduciary duties to the maximum extent allowed under Texas law. Primexx Energy Opp. Fund, LP v. Primexx Energy Corp., 709 S.W.3d 619 (Tex. Bus. Ct. 1st Div. 2025). Other rulings, including one obtained by Gibson Dunn Houston partners Gregg Costa and Sydney Scott, upheld in-house counsel’s immunity from civil liability for actions taken in their legal capacity. In re Jackson, No. 25-15-235-CV, 2026 WL 524404 (Tex. App.—15th Dist. Feb. 23, 2026).

In keeping with the court’s goal of deciding high-stakes commercial cases, in a timely manner, the Business Court recently presided over its first four trials.[1] The court completed each of these trials less than 18 months after the case was filed—a stark improvement from ordinary district court practice where it is not uncommon for complex business cases to remain pending for years. The court, with dedicated law clerks, also furthered the mission of developing a stable body of corporate law by issuing detailed written opinions explaining its decisions, rather than the historical trial-court practice of summary rulings. See, e.g., Mesquite Energy Inc. v. Sanchez Oil & Gas Corp., —S.W.3d—, 2026 WL 612263 (Tex. Bus. Ct. 11th Div. Mar. 4, 2026) (in a case led by Gibson Dunn Houston partner Collin Cox, ruling in favor of Gibson Dunn’s client in a case concerning the distribution of settlement proceeds from a prior trade-secrets lawsuit involving formerly related energy companies).

V. Key Takeaways for Companies and Boards Considering Redomestication to Texas

Assess potential benefits of redomestication, including Texas’ pro-business culture, access to the Texas Business Court, and whether alignment of operations and corporate domicile could increase governance efficiency.
Evaluate how Texas’ corporate statutes and case law compare to your current jurisdiction—consider predictability of statute-based approach, elective provisions under TBOC, and Business Court jurisprudence.
Understand SEC process and guidance on redomestication structures, including as related to holding company structures, to ensure proper planning and compliance during shareholder approval and transition processes.
Texas’ “nationally listed corporation” provisions may permit enhanced shareholder‑proposal thresholds—an important consideration for companies weighing a Texas redomestication and a Texas headquarters or a Texas stock exchange listing.
Multiple Texas exchanges create new opportunities for dual listings that are relatively simple to execute, and may influence discussions around investor engagement, liquidity, and regulatory strategy.
The Texas Business Court offers faster case resolution and judges with deep business-law expertise, which may influence venue strategy in governing documents and future contracts.

Conclusion

Corporate redomestications, the establishment of multiple stock exchanges, and the continued development of the Texas Business Court collectively signal a transformative period for Texas’s corporate landscape. Texas continues to emerge as an alternative to traditional corporate jurisdictions. Companies redomesticating to Texas have emphasized that Texas offers companies a compelling value proposition: legal predictability, business-friendly policies, and robust capital markets infrastructure.

The first quarter of 2026 represents not a culmination, but rather an inflection point in Texas’ development as a national leader in corporate governance, capital markets, and commercial dispute resolution. Continued redomestications, decisions in the Business Court, and potential additional refinement of the TBOC in the 80th Legislature are expected to strengthen Texas’s competitive position. Companies and their advisors should continue to monitor these developments closely as they consider how Texas’s evolving corporate ecosystem may contribute to their strategic objectives.

[1] See Marathon Oil Co. v. Mercuria Energy Am. LLC, No. 25-BC11A-0013 (Tex. Bus. Ct. 11th Div.); Mesquite Energy Inc. v. Sanchez Oil & Gas Corp., No. 24-BC11B-18 (Tex. Bus. Ct. 11th Div.); Antero Resources Corp. v. Stonewall Gas Gathering, LLC, No. 24-BC11A-0027 (Tex. Bus. Ct. 11th Div.); Powers v. Axis Midstream Holdings, LLC, No. 24-BC11A-0025 (Tex. Bus. Ct. 11th Div.).

The following Gibson Dunn lawyers prepared this update: Hillary H. Holmes, Gerry Spedale, Ronald O. Mueller, Jack B. DiSorbo, Muriel Hague, and Gregg Costa.

Gibson Dunn will continue to provide thought leadership on Texas developments, providing the unique advantage of deep expertise across Texas corporate law, corporate governance, federal securities regulation, shareholder proposals, Texas litigation, and Texas political strategy. Clients and friends will find helpful resources through publications, CLE presentations, and other literary or speaking engagements, including on our Texas Corporate Law resources website.

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 Texas team or its Capital Markets, Mergers & Acquisitions, Securities Regulation & Corporate Governance, or Litigation practice groups, or any of the following:

Hillary H. Holmes – Co-Managing Partner, Houston Office, and Co-Chair, Capital Markets Group Firmwide | Houston & Dallas (+1 346.718.6602, hholmes@gibsondunn.com)

Gerry Spedale – Partner, Capital Markets Group,
Houston (+1 346.718.6888, gspedale@gibsondunn.com)

Ronald O. Mueller – Co-Founder, Securities Regulation & Corporate Governance Group,
Washington, D.C. (+1 202.955.8671, rmueller@gibsondunn.com)

Collin J. Cox – Co-Managing Partner, Houston Office, Litigation Group,
Houston (+1 346.718.6604, ccox@gibsondunn.com)

Gregg Costa – Co-Chair, Trials Group,
Houston (+1 346.718.6649, gcosta@gibsondunn.com)

Trey Cox – Co-Managing Partner, Dallas Office, and Co-Chair, Global Litigation Group,
Dallas (+1 214.698.3256, tcox@gibsondunn.com)

David Woodcock – Co-Chair, Securities Enforcement Group,
Dallas & Washington, D.C. (+1 214.698.3211, dwoodcock@gibsondunn.com)

Gibson Dunn announces release of Global Investigations Review’s The Guide to Multilateral Development Bank Investigations – Second Edition

Gibson Dunn is pleased to announce with Global Investigations Review the release of GIR’s The Guide to Multilateral Development Bank Investigations – Second Edition. Gibson Dunn partners Michael Diamant and Oleh Vretsona and of counsel Pedro Soto are contributing editors of the publication, which provides a comprehensive analysis of MDB integrity, bringing together perspectives from legal practitioners, consultants and MDBs with the aim of fostering greater accountability and collaboration in the fight against misconduct in MDB-financed projects. The Guide, comprised of 4 sections, is live and published free-to-view on the GIR website HERE.

Mr. Diamant, Mr. Vretsona, and Mr. Soto jointly authored the article on “Avoiding common pitfalls in multilateral development bank audits on the path to effective settlement of allegations.”

Gibson Dunn has one of the most experienced practices in defending companies and individuals in MDB investigations.

You can view the informative and comprehensive articles via the links below:

CLICK HERE to view The Guide to Multilateral Development Bank Investigations – Second Edition

CLICK HERE to view Avoiding common pitfalls in multilateral development bank audits on the path to effective settlement of allegations

This article was first published on Global Investigations Review in February 2026; for further in-depth analysis, please visit GIR The Guide to Multilateral Development Bank Investigations – Edition 2.

The following Gibson Dunn lawyers contributed to this publication: Michael S. Diamant, Oleh Vretsona, and Pedro G. Soto.

For assistance navigating these issues, please contact the Gibson Dunn lawyer with whom you usually work, the leaders or members of the firm’s White Collar Defense & Investigations practice group, or the authors:

Michael S. Diamant – Washington, D.C. (+1 202.887.3604, mdiamant@gibsondunn.com)

Oleh Vretsona – Washington, D.C. (+1 202.887.3779, ovretsona@gibsondunn.com)

Pedro G. Soto – Washington, D.C. (+1 202.955.8661, psoto@gibsondunn.com)

Gibson Dunn’s lawyers remain available to assist with any questions companies may have regarding the interpretation and application of the Section 16 reporting rules applicable to foreign private issuers.

Beginning March 18, 2026, directors and officers of certain foreign private issuers (FPIs) with a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934 (the Exchange Act) must commence filing Section 16(a) reports electronically in English on the Securities and Exchange Commission (SEC)’s EDGAR platform. Notably, on March 5, 2026, the SEC granted exemptive relief from the upcoming Section 16(a) reporting obligations to directors and officers of FPIs organized in the qualifying jurisdictions of Canada, Chile, the European Economic Area (EU member states plus Iceland, Liechtenstein, and Norway), South Korea, Switzerland, and the United Kingdom, who are subject to “substantially similar” insider reporting requirements.

On March 9, 2026, the SEC Staff issued Compliance and Disclosure Interpretations (C&DIs) providing further guidance regarding the implementation of the new Section 16(a) reporting requirements for FPIs. The Staff clarified the timing of initial Form 3 filing deadlines under varying scenarios based on when an individual became a director or officer and when the issuer’s registration statement became effective. The Staff also clarified that directors and officers of FPIs with a class of equity securities registered under Section 12 prior to March 18, 2026 are not required to report transactions occurring prior to March 18, 2026 on their first required Form 4.

HFIAA Overview

On December 18, 2025, the Holding Foreign Insiders Accountable Act (the HFIAA) was signed into law as part of the National Defense Authorization Act for Fiscal Year 2026 (the NDAA). The HFIAA amends Section 16(a) of the Exchange Act to extend insider reporting obligations to directors and officers of FPIs[1]. On February 27, 2026, the SEC adopted final rules and form amendments implementing the HFIAA. On March 5, 2026, the SEC granted exemptive relief from the Section 16(a) reporting rules to directors and officers of FPIs (1) organized in qualifying jurisdictions and (2) subject to qualifying regulations that impose “substantially similar” insider reporting requirements.[2]

As of the date of this client alert, the SEC has determined that the qualifying jurisdictions are Canada, Chile, the European Economic Area (EU member states plus Iceland, Liechtenstein, and Norway), South Korea, Switzerland, and the United Kingdom. The SEC may extend exemptive relief to additional jurisdictions in the future. The SEC may also reconsider the exemptive relief granted if foreign regulations change materially.

Next Steps

FPIs that do not qualify for exemptive relief should immediately begin to prepare their directors and officers for Section 16(a) reporting given the imminent March 18, 2026 deadline. FPIs should ensure they:

Properly identify directors and officers subject to Section 16. Identification of officers may cover more than the current group identified in the company’s Form 20-F and will require an assessment that goes beyond looking at a person’s title. Generally, the term “officer” under Rule 16a-1(f) covers a company’s president, principal financial and accounting officers, certain vice presidents in charge of major business units or functions, and any other person who performs significant “policymaking functions” for the company. In most instances, this group will be equivalent to the “senior management” identified in a Form 20-F and will consist of persons who are currently subject to the FPI’s clawback policies.
Enroll directors and officers subject to Section 16 immediately in EDGAR Next and before March 18, 2026 in order to gain access to (and the ability to make filings with) EDGAR. Under the SEC’s EDGAR Next procedures, review of Form ID applications for new EDGAR access codes currently takes eight to ten business days, and there is little flexibility. Accordingly, filers should allow sufficient lead time to enroll. See our prior client alert here for more details.
Prepare initial Form 3 filings for all current directors and officers, which are due by 10:00 p.m. Eastern time on March 18, 2026.
Review and update internal compliance procedures, including pre-clearance and transaction monitoring processes and insider trading policies, to ensure they are updated to address Section 16 reporting.
Provide training opportunities to directors and officers on the Section 16 reporting obligations.
Implement internal updates to monitor and track equity compensation and other reportable transactions in order to meet the two-business-day Form 4 deadline.

Background of Section 16(a)

Section 16(a) of the Exchange Act mandates the timely disclosure of beneficial ownership of a company’s registered equity securities and any changes in beneficial ownership by directors, officers, and any person who beneficially owns more than 10% of any registered class of a U.S. public company’s equity securities (collectively, “insiders”). Insiders must publicly disclose, in filings with the SEC, transactions in securities or derivatives of such securities on Form 3 (initial statement of beneficial ownership), Form 4 (statement of changes in beneficial ownership) and Form 5 (annual statement of changes in beneficial ownership).

Historically, Rule 3a12-3(b) of the Exchange Act exempted FPIs from Section 16 requirements. Instead, FPI insiders only had to comply with the insider reporting requirements of their home jurisdictions and specified share ownership disclosure requirements in annual reports on Form 20-F.

Reporting Requirements for Directors and Officers of FPIs

General Forms 3, 4 and 5 Reporting

Beginning on March 18, 2026, directors and officers of FPIs must file electronically in English through the SEC’s EDGAR platform:

Form 3: directors and officers of FPIs listing or registering securities on or after March 18, 2026 must report their initial equity holdings on a Form 3 upon listing or the effectiveness of a registration statement under Section 12(g) of the Exchange Act, while directors and officers of FPIs that are already public must report their initial ownership within 10 days after an individual becomes a director or officer of the company. Directors and officers of FPIs that are public as of the date of this client alert need to report their ownership on Form 3 on March 18, 2026.
Form 4: directors and officers must report changes in beneficial ownership—including open-market trades, gifts, equity compensation grants, vesting events, option exercises, and tax withholdings— on Form 4 within two business days.
Form 5: directors and officers must file annual statements of changes in beneficial ownership on Form 5 within 45 days after the end of the applicable fiscal year.

Equity Compensation Reporting

Prior to the enactment of the NDAA, FPIs historically were allowed to disclose compensation information for directors and officers on an aggregate basis, unless individual disclosure was made in the home country. In addition, share ownership of each director and officer needed to be disclosed only if it was greater than 1% of a class of shares. The NDAA’s Section 16(a) reporting obligations will elicit individualized, real-time disclosure of equity compensation information, such as individual grants (i.e., on an award-by-award basis) and aggregate holdings or ownership in the company.

Exempt FPI Directors & Officers

In its March 5, 2026 order, the SEC exempted from Section 16(a) reporting directors and officers of FPIs (A) organized in (i) Canada, (ii) Chile, (iii) the European Economic Area (EU member states plus Iceland, Liechtenstein, and Norway)[3], (iv) South Korea, (v) Switzerland, and (vi) the United Kingdom and (B) subject to a qualifying regulation. To rely on the exemptive relief, such directors and officers:

must file transaction reports under the applicable laws of the home jurisdictions, even when they may not qualify as subject directors or officers under the applicable laws (if they qualify as a director or officer subject to Section 16(a) requirements)[4]; and
ensure those reports are publicly accessible in English within two business days.

If the foreign filing system does not support English submissions, the FPI may post translations on its website. Individuals who do not meet these conditions remain subject to U.S. Section 16(a) filing obligations.

As noted above, the SEC indicates it will reassess and monitor the jurisdictions subject to the exemptive relief and may either expand or contract the list of qualifying jurisdictions in the future based on an assessment of whether qualifying regulations are substantially similar to the requirements of Section 16(a).

Gibson Dunn will continue to monitor developments, including additional FAQs and
SEC Staff guidance addressing implementation of the new Section 16(a) reporting
requirements, as well as any potential expansion of exemptive relief based on “substantially similar” foreign reporting regimes. Our lawyers remain available to assist with any questions you may have regarding the interpretation and application of these evolving Section 16 reporting rules.

[1] What is Not Covered by the NDAA:

10% Owner Reporting: 10% insiders of FPIs are not subject to Section 16(a) reporting obligations.
Short-Swing Liability: Section 16(b) “short swing profit disgorgement” and Section 16(c) “short sale restrictions” are not specifically addressed.

[2] Qualifying regulations are: (i) Canada’s National Instrument 55-104—Insider Reporting Requirements and Exemptions (supported by National Instrument 55-102— System for Electronic Disclosure by Insiders (SEDI) and companion policies), (ii) Articles 12, 17, and 20 of the Chilean Securities Market Law (Ley de Mercado de Valores, Ley No. 8,045) and General Rule (Norma de Carácter General) No. 269, (iii) Article 19 of the European Union Market Abuse Regulation (Regulation (EU) No. 596/2014, as amended by Regulation (EU) No. 2024/2809) (including, as applicable, implementing legislation and regulations adopted by the European Union’s member states) and as incorporated into the domestic law of each European Economic Area state (“EU MAR”), (iv) Article 173 of the Republic of Korea Financial Investment Services and Capital Markets Act and Article 200 of the Enforcement Decree of the Financial Investment Services and Capital Markets Act, (v) Article 56 of the Listing Rules and implementing directives of SIX Swiss Exchange as approved by the Swiss Financial Market Supervisory Authority (the “SIX Listing Rules”), and (vi) Article 19 of the United Kingdom Market Abuse Regulation (Regulation (EU) No. 596/2014), as it forms part of United Kingdom domestic law pursuant to the European Union (Withdrawal) Act 2018 (“UK MAR”).

[3] As of the date of the exemptive order, the European Economic Area consists of the 27 member states of the European Union (Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, and Sweden) as well as Iceland, Liechtenstein, and Norway.

[4]Order Granting Directors and Officers of Certain Foreign Private Issuers an Exemption from the Filing Requirements of Section 16(a) of the Exchange Act, Release No. 34-104931 (March 5, 2026), at n.10, available at https://www.sec.gov/files/rules/exorders/2026/34-104931.pdf.

The following Gibson Dunn lawyers prepared this update: Mellissa Campbell Duru, Eric Scarazzo, Marie M. Kwon, Rodrigo Surcan, Nadin Fallah, and Stephen Huie.

Please view this and additional information on Gibson Dunn’s Securities Regulation and Corporate Governance Monitor.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding the SEC’s announcement, or federal securities laws and regulations more generally. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm’s Securities Regulation & Corporate Governance, Capital Markets, or Securities Litigation practice groups:

Securities Regulation & Corporate Governance:
Thomas J. Kim – Washington, D.C. (+1 202.887.3550, tkim@gibsondunn.com)
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com)
Lori Zyskowski – New York (+1 212.351.2309, lzyskowski@gibsondunn.com)

Capital Markets:
Andrew L. Fabens – New York (+1 212.351.4034, afabens@gibsondunn.com)
Hillary H. Holmes – Houston (+1 346.718.6602, hholmes@gibsondunn.com)
Stewart L. McDowell – San Francisco (+1 415.393.8322, smcdowell@gibsondunn.com)
Peter W. Wardle – Los Angeles (+1 213.229.7242, pwardle@gibsondunn.com)

Surprise valentine Schroders goes 2.7 official – but for others it was the wrong type of red card in February

February highlights

TIAA investment manager Nuveen broke some hearts in the Square Mile with its recommended cash offer for Schroders plc putting a £9.9 billion price on love. Nuveen won the backing of the in-laws and secured hard irrevocables for 42% from the founding Schroder family.
Augmentum Fintech plc, with interests in portfolio companies such as RetailBook and Interactive Investor, succumbed to the charms of the Swedes and recommended a £185 million cash offer from Swedish buyout firm Verdane Fund Manager.
But elsewhere there were high profile break-ups with Rio Tinto/Glencore plc, Apax/Pinewood Technologies Group plc and EQT/Oxford Biomedica plc going their separate ways.
This left all eyes on continental suitor Zurich which has been publicly courting Beazley plc. Having originally played hard to get, Beazley fluttered its eyelashes and said it was “minded to recommend” the improved offer from Zurich on 4 February. Encouraged, Zurich did not disappoint, announcing a recommended cash offer (with permitted dividend) of approx. £8.2 billion on 2 March.

The February Data

Offers Announced

Offers by Sector (YTD)

Bid Premia	Financial Advisor Fees (% deal value)

What’s Happened

Card games: Inspecs – poker faces

On 20 February the recommended cash bid by Luke Johnson and Ian Livingstone’s consortium switched from a scheme to a contractual offer with a 50+1% acceptance condition, a tactic which has reemerged in recent competitive situations. The difference here is that the bid is technically uncontested. Although not in reality.

Competitor Safilo Group may be shut out (after announcing it did not intend to bid), but reopened the betting by acquiring a 25% blocking stake shortly after Johnson and Livingstone announced their bid (ultimately forcing the switch to a contractual offer). Before announcing the switch, Johnson and Livingston “called and raised” by acquiring a 19.1% stake of their own, another tactic which has re-found favour. This stake, when combined with irrevocable undertakings (in respect of 31.9%), puts Johnson and Livingstone in control of 52%.

Game over? No. Safilo Group has drawn again, increasing its stake to 29.99%, the maximum allowable without having to make a mandatory offer. If the Consortium offer is declared unconditional next month, then we may see what lies behind Safilo’s poker face. Does it fold and take the money? Or is it playing a game of chicken and will block a resolution to delist Inspecs from AIM?

International Personal Finance – patience pays

It was back on 30^th July 2025 that the board of International Personal Finance plc announced that it had received a possible offer from BasePoint Capital which it was “minded to recommend”. A revised form of that offer was finally announced on 29 December and the shareholder scheme meeting convened for 11 February. With IPF’s results due on 25 February investors were, despite the delays, not in a rush to vote without knowing how the business was performing. Following “shareholder feedback” the scheme meeting was adjourned until 11 March. For once, “patience” – not normally a game to bet on – paid off, with BasePoint announcing a revised increased final offer – which now includes a further special dividend – simultaneously with the announcement by IPF of a strong set of 2025 results.

Bids all in on financial services

Nuveen’s recommended offer for Schroders and the IPF transaction evidence the continued interest and activity in financial services. Wealth and asset management have been a particular focus with the bid for Schroders coming on the back of NatWest Group’s acquisition of Evelyn Partners from Permira and Warburg Pincus for £2.7 billion and Trian Fund Management and General Catalyst’s US$7.4bn offer for UK headquartered, but NYSE listed Janus Henderson Group plc (which has subsequently received a competing US$8.6 billion approach from Victory Capital). One quarter of the firm offers announced in 2025 were for financial services targets and many from PE bidders, including Permira’s £2.3 billion offer for JTC plc and Apax Partner’s £795 million offer for Apax Global Alpha Limited. That Schroders is likely to be changing ownership has only focussed a brighter spotlight on its surviving peers.

Looking Ahead

Continued activist activity – CAB Payments tapped

On 2 February 2026 a consortium of Helios funds, announced it had put an increased possible cash offer of approx. £213 million to the board of CAB Payments Holdings plc, the parent company of Crown Agents Bank. When this was rejected, Helios (which has a combined 45% shareholding in CAB and an investor since 2016) urged other shareholders to “ask the Board to reconsider”, highlighting the rapid market changes which CAB faces and expressing the view that the transformation needed to meet these challenges will be best achieved in conjunction with Helios in private ownership. On 2 March 2026 Helios followed through, announcing a pre-conditional hostile £221 million cash offer with partial roll-over share alternative.

At one level, this continues a trend seen in 2025 of significant shareholders taking action rather than merely expressing dissatisfaction. At another it also highlights the further impacts of developing technologies, not only causing uncertainty and affecting transactions (such as Apax’s potential offer for Pinewood Technologies) but also creating the direct disruption which, if not navigated successfully, leads to investor dissent and now action. Separately, opportunist activist shareholders continue to build stakes in technology-affected stocks suggesting interesting days ahead.

P2P Financing

The most significant financing backing a UK public to private bid in February was the debt facility supporting Nuveen’s acquisition of asset management company Schroders plc. The financing benefited from Nuveen’s investment grade credit ratings, enabling it to secure a certain funds delayed draw term loan that was structured as an unsecured facility. Pricing was linked to Nuveen’s ratings and began at less than 100bps over SONIA. This reflects the strength of Nuveen’s balance sheet and its ability to access debt capital on institutional terms more favourable than those typically available to financial sponsors.

The broader debt-raising environment for non-corporate prospective bidders remains somewhat uncertain. February saw a notable shift in market sentiment, with a sharp sell-off across software and technology-exposed credits triggered by concerns over the potential impact of artificial intelligence on incumbent software business models. Several high-profile transactions were pulled from syndication, including accounting services provider PIA Group, healthcare software provider Dedalus and SaaS-focused company team.blue, whilst veterinary clinic group IVC Evidensia cancelled a substantial multi-currency amend-and-extend transaction despite a strong track record in the loan markets. The repricing wave that had characterised record-breaking levels of loan market activity in January effectively paused in February, with a sense that pricing may (for the moment at least) have bottomed out, with loans for B2/B credits closing at around E+325 basis points.

However, credits without AI exposure still found receptive markets. German packaging technology company Syntegon successfully completed a €1.6 billion term loan B backing a dividend recapitalisation, priced inside guidance at E+350 basis points, demonstrating strong demand for industrial credits with limited technology disruption risk. Power transformer manufacturer SGB-SMIT also priced a €940 million term loan B at E+375 basis points, supported by sector tailwinds and conservative leverage. With lenders continuing to seek deployment opportunities, any public to private deal for a target with a compelling credit story outside the AI-affected sectors should still be well received by the market.

Equity Capital Markets

The new UK public offers and admissions to trading regime took effect on 19 January 2026 – a landmark change to the UK capital markets. The Public Offers and Admissions to Trading Regulations 2024 (the “POATRs”) replace the UK Prospectus Regulation, and the FCA’s Admission to Trading on a Regulated Market source book (the “PRM”) replace the FCA’s Prospectus Regulation Rules source book (the “PRR”). The POATRs prohibit public offers of relevant securities unless an exemption applies, which exemptions largely track the offer exemptions under the UK Prospectus Regulation. A new exemption relates to public offers of transferable securities admitted or to be admitted to trading on a regulated market (such as the Main Market of the London Stock Exchange (“LSE”)) or primary MTF, which are now subject to the PRM. A prospectus will continue to be required under the PRM for an IPO admission. The previous “less than 20% exemption” for the admission of securities fungible with existing listed securities over a 12-month period has been increased to less than 75%, meaning that many issuances by listed companies will not require a prospectus (although in certain circumstances a voluntary prospectus may nevertheless be appropriate).

On 4 February 2026, Dauch Corporation completed its secondary listing and is, therefore, amongst the first to publish a prospectus under the new PRM regime. Dauch Corporation was formed as a result of the combination of American Axle & Manufacturing Holdings, Inc. and Dowlais Group plc, a transaction governed by the UK Takeover Code. Alongside its primary listing on the NYSE, the combined company has now been admitted to the ‘equity shares (international commercial companies) secondary listing’ category of the FCA’s Official List and to trading on the LSE. On admission to the LSE, Dauch Corporation had a market capitalisation of approximately £1.4 billion based on the closing share price on the NYSE on 27 January 2026 and the issue of new common stock in connection with the combination.

February also saw the announcement of the first proposed transaction under the UK’s new Private Intermittent Securities and Capital Exchange System (PISCES) which is expected to take place on 25 March. Tradable Private Equity (TPE) announced that it will create a Tradable Private Equity Investment Company (TPEIC) and interests in the TPEIC vehicle will be traded on the LSE’s Private Securities Market (under the PISCES framework). The sole asset of the TPEIC will be shares in Oxford Science Enterprises, an independent investment company established to commercialise research from the University of Oxford, with a portfolio of over 100 companies. The PISCES framework provides a platform on which existing shares of private companies can be sold during periodic trading windows, while avoiding the continuous disclosure and trading obligations associated with a public market admission.

In addition, a number of smaller-cap and step-up transactions occurred in February, including iFOREX’s IPO and LSE admission on 25 February at 195p per share, implying a market capitalisation of approximately £43 million. Amaroq, the Greenland-focused mining company, confirmed its intention to delist from the TSX Venture Exchange (Canada) and transition from AIM to the Main Market later in 2026. CVS Group completed its move from AIM to the Main Market in January with a £1 billion market capitalisation, and Young’s, the pub operator, announced plans to follow in Q2 2026.

Key Contacts:

Will McDonald Partner, Corporate	Chris Haynes Partner, Corporate	David Irvine Partner, Finance	Kavita Davis Partner, Finance
James Addison Of Counsel, Corporate	Thomas Barker Of Counsel, Corporate	Sarah Leiper-Jennings Of Counsel, Corporate	Pete Usher Associate, Corporate

From the Derivatives Practice Group: This week, the CFTC responded to a no-action letter request from Coinbase Derivatives regarding systems safeguards.

New Developments

CFTC Issues No-Action Position Regarding Systems Safeguards Issue. On March 3, the CFTC issued CFTC Letter No. 26-07 in response to a no-action letter request from Coinbase Derivatives, LLC (COIN), a designated contract market submitted pursuant to Commission regulation 140.99. COIN seeks a no-action position with respect to certain requirements under Commodity Exchange Act Section 5(d)(20), and Commission regulation 38.1051(c) addressing backup facilities. [NEW]

CFTC Chairman Selig Announces Mel Gunewardena as Director of the Office of International Affairs and Senior Markets Advisor to the Chairman. On March 2, CFTC Chairman Michael S. Selig announced Mel Gunewardena as director of the Office of International Affairs and Senior Markets Advisor to the Chairman. Gunewardena was previously a managing director in the Global Markets Trading Divisions at Goldman Sachs, Deutsche Bank, and State Street. [NEW]

CFTC Chairman Selig Announces David I. Miller as Director of Enforcement. On March 2, CFTC Chairman Michael S. Selig announced that former federal prosecutor David I. Miller will serve as the CFTC’s director of enforcement. Miller joins the CFTC from private practice, having served as a litigation partner at two global law firms. [NEW]

CFTC Chairman Selig Announces Alan Brubaker as Director of the Office of Legislative and Intergovernmental Affairs. On March 2, CFTC Chairman Michael S. Selig announced that Alan Brubaker will serve as the CFTC’s Director of the Office of Legislative and Intergovernmental Affairs. Brubaker joins the CFTC after serving as a senior advisor to the House Committee on Oversight and Government Reform under Kentucky Congressman James Comer. [NEW]

CFTC Staff Reissues Staff Letter 25-50 to Add Additional No-Action Position on CPO Delegation Arrangements. On February 26, the CFTC’s Market Participants Division reissued CFTC Staff Letter 25-50 to add an additional no-action position in relation to the interaction between Letter 25-50 and CFTC Staff Letter 14-126, regarding certain delegation arrangements between commodity pool operators.

CFTC Enforcement Division Issues Prediction Markets Advisory. On February 25, the CFTC’s Division of Enforcement issued an advisory following public release of two enforcement cases involving traders’ misuse of nonpublic information and fraud with respect to certain prediction markets. Please see Gibson Dunn’s upcoming alert on this issue for more information.

CFTC Chairman Selig Announces Senior Staff Appointments. On February 23, CFTC Chairman Michael S. Selig announced four senior staff appointments in his office. The four appointments are: Brooke Nethercott as Director, Office of Public Affairs; Emma Johnston as Senior Agriculture Advisor; Meghan Tente as Senior Advisor; and Elizabeth (Libby) Mastrogiacomo as Senior Advisor.

New Developments Outside the U.S.

ESMA Publishes Report Showing New Investment Funds Drive Reduction in Costs to Investors. On March 3, ESMA published its 2025 market report on the costs and performance of EU retail investment products. This eighth Costs and Performance report shows that ongoing costs in the EU continued to decline in 2024. According to ESMA, this is mostly due to new investment funds entering the market, as they usually charge lower fees. Cost reductions for long-standing funds remained more limited. [NEW]

ESMA Publishes the Results of the Annual Transparency Calculations for Equity and Equity-like Instruments. On February 27, ESMA published the results of the annual transparency calculations for equity and equity-like instruments, which will apply from April 6, 2026. The full list of assessed equity and equity-like instruments is available through ESMA’s FITRS in the XML files with publication date from February 27, 2026 (see here) and through the Register web interface (see here).

ESMA Issues a Supervisory Briefing on Algorithmic Trading. On February 26, ESMA published a supervisory briefing to support consistent supervision of algorithmic trading across the EU. As ESMA states, the briefing provides National Competent Authorities with practical tools and clarified expectations for supervising firms engaged in algorithmic trading under MiFID II. It focuses on key areas where supervisory practices have diverged, including pre-trade controls, governance arrangements, testing frameworks and outsourcing of algorithmic trading systems.

ESMA Consults on Post-trade Risk Reduction Services Under EMIR 3. On February 26, ESMA launched a consultation on the requirements for how post-trade risk reduction (PTRR) services can benefit from the conditioned exemption from the clearing obligation introduced under the European Market Infrastructure Regulation (EMIR 3). ESMA is seeking feedback on several elements of the framework for the PTRR service providers to operate under the exemption, including transparency towards participants, algorithm safeguards, execution of PTRR exercises, controls to be performed and record keeping.

ESMA Sets Out Clearing Thresholds Under EMIR 3. On February 25, ESMA published its draft Regulatory Technical Standards setting out new and revised clearing thresholds under EMIR 3. The proposed thresholds ensure continuity in the coverage of systemic risk in over‑the‑counter derivative markets while avoiding unnecessary complexity and additional compliance burdens for market participants.

EBA and ESMA Consult on Revised Suitability Assessment Requirements for Banks and Investment Firms. On February 25, European Banking Authority (EBA) and ESMA launched a consultation on the revised joint guidelines on the assessment of the suitability of members of the management body and key function holders. The revised guidelines form part of a broader package designed to harmonize suitability assessments and ensure supervisory convergence across the EU. The consultation runs until May 25, 2026.

ESMA Reminds Firms of Their Obligations under CFD Product Intervention Measures Amid Rising Offerings of Perpetual Futures. On February 24, ESMA issued a statement reminding firms of their obligation to assess whether newly offered products fall within the scope of existing product intervention measures on contracts for differences. ESMA states that this statement responds to the increased offering of derivatives, often marketed as perpetual futures or perpetual contracts, that provide leveraged exposure to underlying values, including crypto-assets such as Bitcoin.

ESMA Consults on Guarantees as CCP Collateral and on Certain Aspects of CCP Investment Policy. On February 23, ESMA launched a public consultation following the review of the European Market Infrastructure Regulation (EMIR 3). ESMA is encouraging all interested stakeholders, including non-financial counterparties (NFCs), to share their views about: the relevant conditions under which public guarantees, public bank guarantees and commercial bank guarantees may be accepted by central counterparties (CCPs) as collateral; the conditions under which debt instruments can be considered as eligible financial instruments for the purpose of CCP investment policy; and the highly secured arrangements in which emission allowances posted as margins or default fund contributions can be deposited.

ESMA Simplifies MiFID II/ MiFIR Obligations on Market Data. On February 23, ESMA withdrew its guidelines on the Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Instruments Regulation (MiFIR) obligations on market data, effective immediately, which it states reflected its ongoing commitment to simplifying rules and reducing unnecessary compliance burdens for market participants. ESMA stated that this decision aligns the framework with the newly applicable regulatory technical standards on the obligation to make market data available to the public on a reasonable commercial basis.

New Industry-Led Developments

IOSCO Appointed Emily Fitts as Chair of the Monitoring Group. On March 5, IOSCO’s Monitoring Group announced that Emily Fitts has been appointed the new Chair of the Monitoring Group, effective immediately. Previously, she was the Deputy Chief Accountant (International) of the U.S. Securities and Exchange Commission. Fitts succeeds Ryan Wolfe, who served as Chair between April 2025 and March 2026. [NEW]

ISDA Publishes Position Paper on SFDR Review. On February 27, ISDA and the Association for Financial Markets in Europe (AFME) published a position paper on the European Commission’s proposed revisions to the Sustainable Finance Disclosure Regulation (SFDR 2.0). The paper welcomed the European Commission’s proposal as a strong starting point for negotiations, particularly the introduction of a product categorization framework and more streamlined disclosure requirements. ISDA and AFME stated that these represent meaningful progress towards a more coherent regime that can effectively support capital flows to the sustainable transition. [NEW]

ISDA Responds to HKMA SFC Consultation on Clearing Rules. On February 27, ISDA responded to a joint consultation by the Hong Kong Monetary Authority and the Securities Futures Commission on proposed amendments to schedule 2 of the clearing rules for over-the-counter derivatives. The proposed amendments introduced permanent calculation periods going forward. ISDA welcomed the amendment, stating that it provided greater regulatory certainty and removed the need for periodic legislative amendments to update the calculation periods. [NEW]

ISDA Issues Joint Letter on Italian 2026 Budget Law. On February 24, ISDA, the Association for Financial Markets in Europe and the International Securities Lending Association jointly sent a letter to the Italian tax authorities about changes to withholding tax on dividends made in the 2026 budget law, which limits access to the reduced 1.2% withholding tax rate on outbound dividends declared after January 1, 2026. The associations request urgent clarification on how to calculate and apply the new rules, especially in scenarios like securities lending, collateral and derivatives hedging.

ISDA Issues Joint Response to FRB Consultation on Stress Testing Framework. On February 23, ISDA, the Bank Policy Institute, the American Bankers Association, the Financial Services Forum, the Securities Industry and Financial Markets Association and the US Chamber of Commerce jointly responded to the US Federal Reserve’s consultation on the stress testing framework. The associations stated that they welcomed the Federal Reserve’s proposal to open its stress testing framework to public comment, which is a meaningful step toward greater transparency and objectivity.

ISDA Responds to FCA Consultation on Improving the UK MIFIR Transaction Reporting Regime. On February 20, ISDA responded to the Financial Conduct Authority’s consultation on improving the UK Markets in Financial Instruments Regulation (MIFIR) transaction reporting regime. ISDA argues against the introduction of conditional single-sided reporting and proposes that the unique product identifier replaces the international securities identification number as the over-the-counter derivatives identifier.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The judgment materially strengthens the enforceability of ICSID awards in the United Kingdom.

The United Kingdom’s Supreme Court has unanimously held that a Contracting State to the ICSID Convention cannot invoke state immunity to resist the recognition in England of an ICSID award made against it.

Gibson Dunn’s Christopher Harris KC was lead counsel on behalf of Border Timbers, the successful respondent in Zimbabwe’s appeal in the Supreme Court and below.

1. Executive summary

On 4 March 2026, the United Kingdom’s Supreme Court handed down its unanimous judgment in The Kingdom of Spain v Infrastructure Services Luxembourg S.À.R.L. and another; Republic of Zimbabwe v Border Timbers Ltd and another [2026] UKSC 9.

The Supreme Court held that, by ratifying the ICSID Convention, Contracting States have submitted to the adjudicative jurisdiction of the courts of all other Contracting States for the purposes of the recognition of an ICSID award rendered against them. This submission arises from the clear and unequivocal language of Article 54(1) of the ICSID Convention, which satisfies the requirements of section 2(2) of the United Kingdom’s State Immunity Act 1978 (the SIA).

The Supreme Court has therefore held that the SIA precludes a State party to the ICSID Convention from invoking state immunity to resist the English Court’s recognition of an ICSID award. The judgment does not affect a State’s immunity from execution against its assets.

The judgment materially strengthens the enforceability of ICSID awards in the United Kingdom.

2. Background

The joined appeal concerned two ICSID awards: one rendered against Spain, and the other against Zimbabwe. In each case, the award creditors successfully obtained orders registering their respective award in England under the Arbitration (International Investment Disputes) Act 1966.

Both States applied to set the recognition orders aside on state immunity grounds. Those applications were rejected by:

the High Court, in two separate judgments: (i) in Spain’s case, by Fraser J ([2023] EWHC 1226 (Comm)), which we covered in a prior client alert; and (ii) in Zimbabwe’s case, by Dias J ([2024] EWHC 58 (Comm)); and
the Court of Appeal, in a combined appeal ([2024] EWCA Civ 125), which we covered in a prior client alert.

Spain and Zimbabwe appealed the Court of Appeal’s decision to the Supreme Court.

3. The Supreme Court’s judgment

The central issue on appeal before the Supreme Court was whether, by agreeing to be bound by Article 54(1) of the ICSID Convention, Spain and Zimbabwe had submitted to the jurisdiction of the English courts (within the meaning of section 2(2) of the SIA 1978), such that they do not enjoy immunity from the English courts’ adjudicative jurisdiction with respect to the recognition proceedings.

This issue was addressed by analysing the following questions:

What is the test for deciding whether there has been an agreement to submit to the jurisdiction of the English courts under section 2(2) of the SIA?
What is the correct interpretation of Articles 53 to 55 of the ICSID Convention as a matter of customary international law, and does Article 54(1) meet the above test?

As to the first question, the Supreme Court found that a waiver of immunity by treaty requires “a clear and unequivocal expression of the state’s consent to the exercise of jurisdiction” but does not require using explicit words such as “waiver” or “submission”. Accordingly, the appropriate test is “whether the words used necessarily lead to the conclusion that the state has submitted to the jurisdiction.” In reaching this conclusion, the Supreme Court accepted the analysis advanced on behalf of Border Timbers and departed from Lord Goff’s approach in his dissenting judgment in R v Bow Street Magistrate, Ex parte Pinochet (No 3) [2000] 1 AC 147, which had widely been considered to represent English law on the subject. The Supreme Court held that Lord Goff had taken “an unnecessarily narrow view of what may constitute an express waiver of immunity.”

As to the second question, the Supreme Court held that Article 54(1) of the ICSID Convention[1] constitutes a clear and unequivocal submission to the adjudicative jurisdiction of the English courts for the purposes of recognising and enforcing the arbitral awards against Spain and Zimbabwe. In reaching that conclusion, the Supreme Court applied the general principles of treaty interpretation under the Vienna Convention on the Law of Treaties and drew support from (i) the ordinary meaning of Articles 53 – 55 of the ICSID Convention (without reading in words or implying terms into them), (ii) the Convention’s context, (ii) its object and purpose, (iv) its travaux préparatoires, and (v) judgments on the same issue by the courts of Australia, New Zealand, Malaysia and the United States.

4. Commentary

The Supreme Court’s decision is a welcome development for parties looking to enforce ICSID awards in the United Kingdom. It confirms that the SIA prevents States from relying on state immunity to resist the recognition of ICSID awards under the 1966 Act, thus removing a significant procedural defence at the recognition stage.

In practical terms, the judgment should shortcut debate on state immunity issues at the recognition stage for ICSID awards, saving time and cost for ICSID award creditors and allowing them to move more quickly towards seeking execution.

The Court of Appeal will soon be deciding whether a State’s ratification of the New York Convention 1958 is similarly a waiver of adjudicative immunity in respect of proceedings for the recognition of a New York Convention award for the purposes of section 2 of the SIA (CA-2025-001365 – CC/Devas (Mauritius) Ltd and others v The Republic of India; hearing scheduled between 24-26 March 2026).

[1] “Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State. […]”

The following Gibson Dunn lawyers prepared this update: Piers Plumptre, Ceyda Knoebel, Alexa Romanelli, Theo Tyrrell, Katie Mills and Dimitar Arabov.

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 leader or member of the firm’s International Arbitration or Judgment & Arbitral Award Enforcement practice groups, or the authors in London:

Piers Plumptre (+44 20 7071 4271, pplumptre@gibsondunn.com)

Ceyda Knoebel (+44 20 7071 4243, cknoebel@gibsondunn.com)

Alexa Romanelli (+44 20 7071 4269, aromanelli@gibsondunn.com)

Theo Tyrrell (+44 20 7071 4016, ttyrrell@gibsondunn.com)

Katie Mills (+44 20 7071 4045, kmills2@gibsondunn.com)

Dimitar Arabov (+44 20 7071 4063, darabov@gibsondunn.com)

Gibson Dunn continues to monitor developments and is available to assist clients in evaluating contractual remedies, sanctions implications, dispute risk, and arbitration or litigation claims arising from the evolving conflict.

I. Introduction

The recent escalation of armed conflict involving the United States, Israel, Iran, and the Gulf States has rapidly transformed the Strait of Hormuz—one of the world’s most critical trade corridors—into a zone of acute commercial risk. Businesses with exposure to maritime shipping, energy markets, aviation logistics, and contracts tied to delivery timing should assess immediate and downstream implications for contract performance, operational continuity, and legal rights and continue to closely monitor developments.

2. Escalating Maritime Risk in the Strait of Hormuz

Following coordinated U.S.-Israeli strikes on Iranian targets on 28 February 2026 and Iran’s retaliatory strikes against multiple Gulf states, regional tensions intensified. Iran’s Revolutionary Guard Corps (IRGC) has declared the Strait of Hormuz closed,[1] and warned vessels against transiting the Strait. Commercial shipping activity has declined sharply as insurers withdraw coverage and vessels delay passage.[2]

The Strait of Hormuz is a critical chokepoint for global trade. It carries approximately 15–20 million barrels per day of crude oil—roughly one-fifth of the world’s oil supply—and more than one-fifth of global liquefied natural gas (LNG) supply, much of which lacks alternative routing.[3] Reports indicate that multiple vessels have delayed or suspended transit through the Gulf, and certain carriers have temporarily halted operations pending further risk assessments.[4] Multiple tankers have reportedly been damaged, with dozens of vessels diverting or awaiting clearance.[5] Roughly ten days’ worth of shipments are now stranded in the Gulf.[6] According to some reports, the Strait is fast becoming unnavigable.[7]

On 4 March 2026, Gas giant QatarEnergy, responsible for 20% of global LNG supply, declared force majeure on all LNG shipments, after Iranian attacks on its facilities and the closure of the Strait of Hormuz.[8] Others are expected to follow suit.

The disruption is not confined to maritime shipping. Freight forwarders and logistics providers are warning of broader supply chain implications (beyond the Middle East region), including congestion, schedule unreliability, and cost increases as a result of aircraft redeployments, route extensions, service suspensions, and a tightening of available capacity across key trade lanes.[9]

III. Cancellation of War-Risk Coverage and Insurance Market Volatility

One of the earliest commercial consequences has been the suspension or cancellation of war-risk coverage by marine insurers operating in the region.[10] Insurers have reportedly withdrawn coverage for vessels transiting Iranian, Israeli, and/or adjacent Gulf waters or imposed sharply increased premiums—some rising by 50% or more.[11] Premium increases may directly affect delivered costs.

Marine war-risk insurance—often an add-on to standard hull and cargo policies—may cover loss or damage resulting from acts of war, hostilities, terrorism, or related perils (depending on the policy language). Conventional marine policies do not generally insure these risks. The withdrawal of war-risk coverage may have immediate contractual and operational consequences.

For example, many charterparties and financing arrangements require vessels to be insured to specified levels. Where war-risk coverage is withdrawn or becomes prohibitively expensive, owners and charterers may face decisions regarding whether trips can proceed in accordance with contractual and financing obligations. In certain cases, a failure to maintain required insurance could constitute a breach under charter, loan, or sale agreements.

Businesses should carefully review their policies (including notice requirements, navigation warranties, and geographic exclusions) and stay apprised of rapidly changing military conditions.

IV. Downstream Effects on Contract Performance and Commercial Risk Allocation

Beyond immediate shipping and insurance implications, the Gulf Region conflict is likely to generate secondary effects across global supply chains. Freight forwarders have warned that rerouting, suspended services, and capacity constraints could disrupt delivery schedules and increase transit times.[12] In addition, carriers have introduced war-risk surcharges and other pricing adjustments to reflect elevated operating costs.[13]

These developments may place pressure on contractual performance in several respects:

First, parties should closely review force majeure and hardship provisions (which has already been invoked by QatarEnergy, as noted above). Whether the current situation qualifies as a force majeure event will depend on the governing law and the specific contractual language. Clauses referencing “acts of war,” “hostilities,” “blockades,” or “governmental actions” may be implicated. Even where performance remains technically possible, sharply increased costs or the unavailability of required insurance could trigger renegotiation rights or commercial impracticability arguments in certain jurisdictions.
Second, contracts with fixed delivery deadlines or liquidated damages provisions may be strained by transit delays, port congestion, or airspace restrictions.
Third, the introduction of war-risk surcharges and rising shipping costs may generate disputes over cost allocation where pricing mechanisms did not contemplate volatility in insurance premiums or routing expenses.
Fourth, letters of credit, trade finance facilities, and commodity sale contracts often incorporate documentary requirements tied to shipment dates, routes, or insurance coverage. Parties should assess whether compliance remains feasible under revised routing arrangements or modified insurance programs.

V. Impact on Energy Markets and Broader Economic Effects

The widening regional conflict has numerous knock-on effects across different economic sectors. Energy-intensive sectors—manufacturing, transport, aviation, chemicals, aluminum, and fertilizers—are particularly exposed.

Hydrocarbons

The concentration of global hydrocarbon flows through the Strait of Hormuz heightens systemic risk, as even temporary or partial disruptions can introduce price volatility and downstream cost increases affecting manufacturers, transportation providers, and energy-intensive industries worldwide.[14] These macroeconomic effects may compound contractual disputes in supply chains that are already sensitive to geopolitical shocks.

Oil prices rose because of a nearly complete halt of shipments through the Strait of Hormuz.[15] As the war spreads, experts expect that the price could go much higher.[16]

In addition, as Qatar halted LNG production following Iranian drone attacks on facilities, the price of natural gas increased by almost 50%.[17] Given Europe’s reliance on LNG imports following the reduction of Russian LNG flows, a prolonged disruption of Qatari supply could limit the region’s LNG supply and unleash competition with Asian importers, including India and China, for replacement cargoes.[18] For companies with LNG-linked supply contracts, this raises risks relating to, inter alia, cargo cancellation and delay; price revisions tied to benchmarks; and, force majeure notices by upstream producers.

In parallel, to make up for oil shortfalls, relax the pressure on prices, and stabilize markets, governments may adjust their existing sanctions regimes to facilitate alternative supply flows from jurisdictions such as Venezuela or, potentially, Russia. Any such policy shifts would likely be incremental and politically sensitive. Companies should continue to closely monitor sanctions developments and exercise caution before relying on potential relaxations, as compliance obligations may shift rapidly and inconsistently across jurisdictions.

Shipping Logistics

Container lines have suspended Gulf and Red Sea routes and, in some cases, resumed diversions around the Cape of Good Hope. A large-scale return of container ships to the Red Sea and Suez Canal routings, previously projected for 2026, is now reportedly unlikely in the near term.[19] Rerouting around the Cape of Good Hope can add up to two weeks to voyage times and materially increase freight rates.[20]

Costs of shipping oil from the Middle East to Asia (already at six-year high) are set to rise further as the widening of the conflict deters shipowners from sending vessels to the region.[21]

Freight forwarders have warned of tightening capacity across key trade lanes as aircraft redeploy and vessels avoid high-risk corridors. These conditions can create exposure under time-sensitive delivery contracts and just-in-time manufacturing supply chains.

Aluminum

Aluminum markets are likely to be affected by disruption of shipping through the Strait of Hormuz. The Middle East produces approximately 22% of global refined aluminum (excluding China) and exports about 75% of its output.[22]

Aviation

The Gulf conflict has also disrupted aviation across the Middle East and beyond as countries imposed prolonged airspace restrictions and suspended operations at major global transfer hubs such as Abu Dhabi, Doha, and Dubai—the busiest airport in the world. For passenger and freight airlines operating along the critical East-West corridor, rerouting around restricted airspace—on top of existing regional constraints and closed Russian airspace—can materially lengthen flight times, increase fuel and crew costs, and reduce aircraft and cargo capacity, leading to downstream price increases and consequences for time-sensitive freight and just-in-time supply chains, as demonstrated during prior regional airspace closures.[23] In a prolonged conflict, further operational impacts could give rise to contractual, force majeure, and insurance issues across both passenger and cargo operations.

VI. Conclusion

In light of these developments, companies with exposure to Gulf transit or related supply chains may wish to consider the following steps:

Contract Review: Conduct a targeted review of force majeure, insurance, routing, and cost-allocation provisions in key supply, charter, and logistics agreements.
Insurance Audit: Evaluate existing marine, cargo, and political risk policies, with particular attention to war-risk exclusions, cancellation rights, and notice obligations.
Operational Contingency Planning: Assess alternative routing options, inventory buffers, and supplier diversification strategies to mitigate potential delays.
Proactive Communications: Provide timely contractual notices to counterparties where required and maintain dialogue regarding potential delays or cost impacts.

Given the fluidity of the situation, businesses can anticipate continued volatility in insurance markets, shipping availability, and energy products. Early coordination among legal, risk management, and logistics teams will be critical to preserving contractual rights and minimizing exposure.

[1] See Al Jazeera, Shutdown of Hormuz Strait raises fears of soaring oil prices (Mar. 3, 2026).

[2] See Reuters, Ship insurers cancel war risk cover due to Iran conflict (Mar. 2, 2026).

[3] See id. See also The Economist, War in Iran could cause the biggest oil shock in years (Mar. 1, 2026); Reuters, Gas giant QatarEnergy throttles LNG supply by declaring force majeure (Mar. 4, 2026).

[4] See Reuters, Ship insurers cancel war risk cover due to Iran conflict (Mar. 2, 2026).

[5] See The Economist, War in Iran could cause the biggest oil shock in years (Mar. 1, 2026); Financial Times, For Insurers, Gulf Will Be “Just Too Dangerous” (Iran Conflict Day 2 as it Happened: Oil Flows Through Strait of Hormuz Dry Up ) (Mar. 1, 2026).

[6] See The Economist, War in Iran could cause the biggest oil shock in years (Mar. 1, 2026).

[7] See id.

[8] See Reuters, Gas giant QatarEnergy throttles LNG supply by declaring force majeure (Mar. 4, 2026).

[9] See Air Cargo News, Forwarders warn of supply chain disruption following Iran strikes (Mar. 2026).

[10] See Reuters, Ship insurers cancel war risk cover due to Iran conflict (Mar. 2, 2026).

[11] See id.

[12] See Air Cargo News, Forwarders warn of supply chain disruption following Iran strikes (Mar. 2026).

[13] See id.

[14] See Reuters, Ship insurers cancel war risk cover due to Iran conflict (Mar. 2, 2026).

[15] See The Economist, War in Iran could cause the biggest oil shock in years (Mar. 1, 2026).

[16] See id.

[17] See Financial Times, Gas Prices Soar as Iranian Attacks Force Shutdown of Qatari Production (Mar. 2, 2026).

[18] See Financial Times, Gas Prices Soar as Iranian Attacks Force Shutdown of Qatari Production (Mar. 2, 2026).

[19] See Air Cargo News, Box lines unlikely to return to Suez Canal in 2026 following Middle East strikes (Mar. 2, 2026).

[20] See Financial Times, Iran Conflict Day 2 as it Happened: Oil Flows Through Strait of Hormuz Dry Up (Mar. 1, 2026).

[21] See Reuters, Ship insurers cancel war risk cover due to Iran conflict (Mar. 2, 2026); Financial Times, Gas Prices Soar as Iranian Attacks Force Shutdown of Qatari Production (Mar. 2, 2026).

[22] See Financial Times, Iran Conflict Day 2 as it Happened: Oil Flows Through Strait of Hormuz Dry Up (Mar. 1, 2026).

[23] See The Guardian, Airlines Pay the Price as ‘No-Go’ Airspace Increases Due to Global Conflicts (June 23, 2025); Freightwaves, Air Freight Rates Expected to Spike as Iran War Escalates (Mar. 2026).

The following Gibson Dunn lawyers prepared this update: Rahim Moloo, Adam M. Smith, Nooree Moola, Christopher Timura, and Maria Banda.

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, any leader or member of the firm’s International Arbitration or International Trade Advisory & Enforcement practice groups, or the authors:

International Arbitration:
Rahim Moloo – Co-Chair, New York (+1 212.351.2413, rmoloo@gibsondunn.com)
Nooree Moola – Dubai (+971 4 318 4643, nmoola@gibsondunn.com)
Maria L. Banda – Washington, D.C. (+1 202.887.3678, mbanda@gibsondunn.com)

International Trade Advisory & Enforcement:
Adam M. Smith – Co-Chair, Washington, D.C. (+1 202.887.3547, asmith@gibsondunn.com)
Christopher T. Timura – Washington, D.C. (+1 202.887.3690, ctimura@gibsondunn.com)

The Amendment Directive which significantly narrows EU sustainability obligations for companies with respect to both the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) has been officially published on February 26, 2026 and will enter into force on March 18, 2026. Here is what you need to know.

On February 26, 2026, the Amendment Directive (EU) 2026/470 significantly simplifying corporate sustainability reporting (CSRD) and corporate sustainability due diligence (CSDDD) requirements has been officially published and shall enter into force twenty days following publication on March 18, 2026. The final Omnibus agreement went much further in cutting sustainability reporting and due diligence obligations for companies than the package initially proposed by the European Commission in early 2025, see our client alert of February 28, 2025.

Now Member States are obliged to transpose these amendments into their national laws, namely regarding the Accounting Directive/CSRD by March 19, 2027 and regarding CSDDD by July 26, 2028.

Key Changes
The key changes in substance are summarized in our client alert of December 12, 2025.

Sustainability Reporting
EU subsidiaries of U.S. and other non-EU companies which are in scope, so-called “Wave 2 Companies”, will generally be due to report in 2028 for financial year 2027.

Companies already required to report under the CSRD for financial years starting in 2024 (“Wave 1 Companies”) but no longer meet the revised thresholds shall be out of scope for financial years 2025 and 2026, subject to national transposition.

The process of simplifying the applicable European Sustainability Reporting Standards (ESRS) is still ongoing, see our client alert of December 4, 2025. On December 3, 2025, the European Financial Reporting Advisory Group (EFRAG) released its draft simplified ESRS together with its final technical advice, and the European Commission currently reviews the draft and prepares its Delegated Act incorporating EFRAG’s technical advice. In the Amendment Directive, the European Commission committed to adopting the Delegated Act to revise the first set of ESRS within six months of the entry into force of the Amendment Directive on September 18, 2026. It is expected that the revised standards will start to apply for the reporting period of financial year 2027.

Sustainability Due Diligence
Compliance with CSDDD will be required for in-scope companies only by July 2029.

The following Gibson Dunn lawyers prepared this update: Ferdinand Fromholzer, Carla Baum, Vanessa Ludwig, Johannes Reul, and Babette Milz.

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

Ferdinand Fromholzer – Munich (+49 89 189 33-270, ffromholzer@gibsondunn.com)

Carla Baum – Munich (+49 89 189 33-263, cbaum@gibsondunn.com)

Vanessa Ludwig – Frankfurt (+49 69 247 411 531, vludwig@gibsondunn.com)

Johannes Reul – Munich (+49 89 189 33-272, jreul@gibsondunn.com)

Babette Milz – Munich (+49 89 189 33-283, bmilz@gibsondunn.com)

The SEC enforcement action highlights the agency’s continuing scrutiny of valuation practices and disclosures by private fund sponsors of illiquid investments.

The Securities and Exchange Commission (the SEC) recently announced a settled enforcement action that highlights the agency’s continuing scrutiny of valuation practices and disclosures by private fund sponsors of illiquid investments. On February 25, 2026, the SEC settled claims against a formerly registered investment adviser and private fund manager (the Adviser) concerning the sufficiency of established fair valuation procedures for principal sales of loans to private fund clients (the Funds) during a brief period of extreme market dislocation at the beginning of the pandemic. Without admitting or denying the SEC’s allegations, the Adviser agreed to settle to negligence-based violations and a $900,000 penalty.[1]

Key Takeaways:

During periods of unusual market volatility, the Commission expects advisers to consider the potential need to go beyond established valuation procedures to validate fair value for principal and other related-party transactions.
Notwithstanding recent speeches by senior leadership, the Enforcement Division and the Commission appear willing to pursue rather technical, time-limited, historic issues, in spite of a registrant’s remediation in response to examination findings.

The SEC Order:

According to the SEC’s Order, the Adviser, based in Chicago, originated certain senior loans using proprietary capital, typically held the loans for 30–60 days, then sold portions of such loans to the Funds. The advisory agreements with the Funds and the private placement memoranda stated that the Adviser would sell loans to the Funds at “fair value” or “fair market value” as reasonably determined by the Adviser without any third party valuation and on terms “no less favorable to [the Funds] as the terms [they] would obtain in a comparable arm’s length transaction with a non-Affiliate.”

The Order outlines the key components of the Adviser’s valuation policy and practice:

The Adviser’s written valuation policy provided that loans sold to the Funds would be transferred at the Adviser’s purchase price, less the unamortized loan fee or discount at the time of transfer, “subject to market adjustments that may be made in [the Adviser’s] sole discretion.”
In practice, the Adviser sold loans to the Funds at par value less the unamortized loan fee, based on the belief that the closing price of the loan generally represented the fair market value given the limited time period between origination and the sale to the Funds.
The Adviser followed an internal credit rating system to assign a rating to each loan it underwrote, and only sold to the Funds loans rated “B” or above at the time of sale.
The Adviser sought to comply with the client consent requirement of Section 206(3) of the Investment Advisers Act of 1940 (the Advisers Act) for principal transactions by having a third-party agent for the Funds review the proposed transaction and consent to the sales.[2]
In requesting the agent’s consent, the Adviser certified to the agent that the loan sale was being conducted on an arm’s length basis, consistent with its advisory agreement, and that based on current market conditions, the Adviser believed the sale to be at fair market value.

The loan sales at issue in the SEC’s Order occurred during a very narrow time period at the beginning of the coronavirus pandemic: March 2020 through May 2020. During this period, the Adviser sold portions of loans to the Funds that it had originated before the start of the pandemic at par value less the unamortized loan fee, consistent with the written valuation policy and prior practice. According to the Order, in light of the unusual market conditions, the Adviser should have done more to confirm that loans were being sold at fair value: “between March 2020 and May 2020, at the start of the coronavirus pandemic, during a period of disruption in U.S. financial markets, [the Adviser] continued to sell performing loans it originated before the market disruption at par value less the unamortized loan fee and failed to determine the effect of the market disruption on the fair market value of those loans.”

The order also notes a number of mitigating facts. First, all but one of the loans at issue either continued to perform or were fully repaid by the borrowers. Second, in May 2021, in response to an examination deficiency letter concerning this activity, the Adviser voluntarily reimbursed the Funds over $5 million and made enhancements to its disclosures and policies regarding its loan transfer practices.

To settle the matter, the Adviser agreed, without admitting or denying, to negligence-based violations of Sections 206(2) and 206(4) of the Advisers Act, and Rule 206(4)‑8, and to pay a $900,000 penalty.

The Bottom Line:

This action reflects continued regulatory scrutiny by the SEC’s Divisions of Examinations and Enforcement of valuation practices and compliance with related disclosures by private fund sponsors of illiquid investments (as discussed further in previous Gibson Dunn alerts here and here), particularly in affiliated transactions, and should be of interest to sponsors that warehouse investments on their own account or at a fund with the intent to transfer to a parallel or co-investment vehicle, sponsor continuation funds, lead secondary transactions, pursue a “season and sell” credit strategy, or otherwise engage in principal and other related-party transactions across funds, among other activities. Even where consent is obtained and the subject investment ultimately performs to expectations, the SEC signals an expectation for contemporaneous evidence that affiliate transaction pricing reflects current market conditions rather than defaulting to adjusted cost without further consideration, with a particular focus on sales occurring during a period of market distress or volatility.

[1] In Re: Madison Capital Funding LLC, Advisers Act Release No. 6948 (February 25, 2026), available at https://www.sec.gov/files/litigation/admin/2026/ia-6948.pdf.

[2] Although the SEC’s Order states that the Adviser’s sales to the Funds were principal transactions subject to Section 206(3) of the Advisers Act, the Order does not analyze whether the loans constitute “securities.”

The following Gibson Dunn lawyers prepared this update: Kevin Bettsteller, Marian Fowler, Osman Nawaz, Mark Schonfeld, Lauren Cook Jackson, and Jordan Alston*.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding the issues and considerations discussed above. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm’s Investment Funds or Securities Enforcement practice groups:

Investment Funds:
Carolyn Abram – Dubai (+971 4 318 4647, cabram@gibsondunn.com)
Kevin Bettsteller – Los Angeles (+1 310.552.8566, kbettsteller@gibsondunn.com)
Albert S. Cho – Hong Kong (+852 2214 3811, acho@gibsondunn.com)
Candice S. Choh – Los Angeles (+1 310.552.8658, cchoh@gibsondunn.com)
Shannon Errico – New York (+1 212.351.2448, serrico@gibsondunn.com)
Blake E. Estes – New York (+1 332.253.7778, bestes@gibsondunn.com)
Marian Fowler – Washington, D.C. (+1 202.955.8525, mfowler@gibsondunn.com)
A.J. Frey – Washington, D.C./New York (+1 202.887.3793, afrey@gibsondunn.com)
Shukie Grossman – New York (+1 212.351.2369, sgrossman@gibsondunn.com)
James M. Hays – Houston (+1 346.718.6642, jhays@gibsondunn.com)
Kira Idoko – New York (+1 212.351.3951, kidoko@gibsondunn.com)
Duncan K. R. McKay – New York (+1 212.351.2603, dmckay@gibsondunn.com)
Gregory Merz – Washington, D.C. (+1 202.887.3637, gmerz@gibsondunn.com)
Eve Mrozek – New York (+1 212.351.4053, emrozek@gibsondunn.com)
James O’Donnell – London (+44 20 7071 4261, jodonnell@gibsondunn.com)
Roger D. Singer – New York (+1 212.351.3888, rsinger@gibsondunn.com)
Edward D. Sopher – New York (+1 212.351.3918, esopher@gibsondunn.com)
C. William Thomas, Jr. – Washington, D.C. (+1 202.887.3735, wthomas@gibsondunn.com)
Kate Timmerman – New York (+1 212.351.2628, ktimmerman@gibsondunn.com)

Securities Enforcement:
Mark K. Schonfeld – New York (+1 212.351.2433, mschonfeld@gibsondunn.com)
David Woodcock – Dallas (+1 214.698.3211, dwoodcock@gibsondunn.com)
Jina L. Choi – San Francisco (+1 415.393.8221, jchoi@gibsondunn.com)
Osman Nawaz – New York (+1 212.351.3940, onawaz@gibsondunn.com)
Tina Samanta – New York (+1 212.351.2469, tsamanta@gibsondunn.com)
Lauren Cook Jackson – Washington, D.C. (+1 202.955.8293, ljackson@gibsondunn.com)

*Admitted only in New York; practicing under the supervision of members of the District of Columbia Bar under D.C. App. R. 49.

In re BioAge Labs, Inc., Securities Litigation, No. 25-cv-00196, 2025 WL 3038991 (N.D. Cal. Oct. 30, 2025)

Case Highlights

In October 2025, a federal district court dismissed securities claims against a biopharmaceutical company, BioAge Labs, Inc., arising from disclosures in connection with its initial public offering (IPO) concerning the safety of the company’s lead drug candidate, azelaprag, which was intended to facilitate weight loss by mimicking the physiological effects of exercise. The court held that the plaintiff failed to plausibly allege that BioAge’s IPO offering documents were misleading because they omitted discussion of a potential liver-related safety risk.

At the time of the IPO, BioAge was conducting a Phase 2 clinical trial of azelaprag. Approximately nine weeks after the IPO, BioAge discontinued the trial after 11 participants who received azelaprag developed transaminitis—elevated liver enzyme levels that can indicate injury to the liver. Following that announcement, BioAge’s stock price dropped, and investors brought a class action under Sections 11 and 15 of the Securities Act of 1933.

The plaintiff alleged that BioAge’s IPO offering documents were misleading because they failed to disclose that transaminitis posed a serious risk to the development and commercialization of azelaprag. Specifically, the plaintiff claimed that transaminitis was “virtually certain” to occur in the Phase 2 trial because a single patient in an earlier, Phase 1 trial experienced transaminitis and, therefore, it was not possible to accurately discuss the risk that side effects of azelaprag might derail the drug’s prospects without expressly disclosing the risk posed by transaminitis.

The court disagreed, identifying both legal and factual deficiencies in the complaint.

First, as a matter of law, the court emphasized that Section 11 does not impose a freestanding duty to disclose all material risks. Here, the plaintiff did not identify any statement in which BioAge affirmatively downplayed or mischaracterized the risk of transaminitis. Instead, the plaintiff argued that by discussing the general risk of adverse events, BioAge implicitly represented that no “expected” or “typical” safety risks existed. The court rejected this argument, holding that a company does not assume an obligation to disclose every conceivable safety signal merely because it elects to discuss clinical trial risks in general terms.

Second, the court found that the plaintiff failed to plausibly allege that transaminitis was “inevitable” at the time of the IPO. The complaint relied heavily on non-serious liver enzyme elevation in one of 265 participants across eight Phase 1 trials, which resolved without treatment and did not disrupt development. The court held that this isolated observation did not establish a trend, much less make liver toxicity “virtually certain” to derail Phase 2 testing. The complaint also pointed to the fact that BioAge tracked liver enzyme levels in mice that were dosed with azelaprag in a 27-week mouse study. But the court found that study actually showed that azelaprag lowered liver enzyme levels, and nothing in the mouse study would have indicated that transaminitis was inevitable.

Key Takeaways

BioAge provides helpful guidance on a pharmaceutical company’s obligation to disclose drug-safety risks, particularly when reporting clinical trial results. The decision underscores that the omission of isolated adverse events may not, standing alone, render otherwise accurate descriptions of general trial risks and outcomes misleading. At the same time, BioAge serves as a reminder that once a company elects to speak about a specific risk, it assumes a duty to disclose additional context to avoid providing investors with “half-truths.” Importantly, the more serious and prevalent the undisclosed safety risk, the more likely it is that general statements about clinical trial risks may be rendered misleading. This is particularly so under Section 11, where Items 105 and 303 of Regulation S-K impose affirmative disclosure obligations regarding known trends, uncertainties, and material risk factors. Companies should carefully calibrate their risk disclosures with these principles in mind and consult experienced counsel when drafting public statements about drug development programs and observed safety events.

This newsletter has been prepared by the Life Sciences and Securities Litigation teams of Gibson Dunn. For further information, please contact the Gibson Dunn lawyer with whom you usually work, or any of us by email:

Life Sciences:
Ryan Murr – Co-Chair, San Francisco (rmurr@gibsondunn.com)
Branden Berns – San Francisco (bberns@gibsondunn.com)
Melanie Neary – San Francisco (mneary@gibsondunn.com)

Securities Litigation:
Jessica Valenzuela – Palo Alto (jvalenzuela@gibsondunn.com)
Jeff Lombard – Palo Alto (jlombard@gibsondunn.com)
Monica Loseman – Co-Chair, Denver, New York (mloseman@gibsondunn.com)
Brian Lutz – Co-Chair, San Francisco (blutz@gibsondunn.com)
Jason J. Mendro – Co-Chair, Washington, D.C. (jmendro@gibsondunn.com)
Craig Varnen – Co-Chair, Los Angeles (cvarnen@gibsondunn.com)

Gibson Dunn associates Zaneta Kim and Celina Jackson also contributed to this update.

Join us for a recorded webcast covering recent U.S. Commodities Futures Trading Commission enforcement trends and developments, as well as recent policy shifts and announcements from the CFTC under the Trump administration. Topics include an overview of the enforcement landscape following the change in administrations, new leadership in key roles at the CFTC, anticipated enforcement priorities at the CFTC moving forward, and what the changing landscape means for companies moving forward.

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PANELISTS:

David P. Burns is a partner in Gibson Dunn’s Washington, D.C. office and Co-Chair of the firm’s National Security Practice Group. His practice focuses on white-collar criminal defense, internal investigations, national security, and regulatory enforcement matters. Prior to re-joining the firm, David served in senior positions in both the Criminal Division and National Security Division of the U.S. Department of Justice.

Amy Feagles is a partner in Gibson Dunn’s Washington, D.C. office and is a member of the White Collar Defense and Investigations and Antitrust & Competition Practice Groups. Her practice includes internal investigations, regulatory and criminal investigations, and complex civil litigation across industries such as healthcare, financial services, and government contracting.

Jeffrey L. Steiner is a partner in Gibson Dunn’s Washington, D.C. office, Chair of the firm’s Derivatives Practice Group and Co-Chair of the firm’s Financial Regulatory and Fintech and Digital Assets Practice Groups. He advises a range of clients on regulatory, legislative, enforcement and transactional matters related to OTC and listed derivatives, commodities and securities. He frequently assists clients with compliance and implementation issues relating to the Dodd-Frank Act, the rules of the CFTC, the SEC, the National Futures Association and the prudential banking regulators.

We are pleased to provide you with the February 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 Board of Governors of the Federal Reserve System (Federal Reserve), Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) released the 2026 stress test scenarios. The Federal Reserve Board voted to maintain the current stress capital buffer requirements through 2027 pending revisions to supervisory stress testing models.
At a Senate Banking Committee hearing, Vice Chair for Supervision Michelle Bowman confirmed the Federal Reserve, OCC and FDIC have reached consensus on a Basel III endgame re-proposal and intend to issue it before the end of March.
The OCC issued a notice of proposed rulemaking to implement the GENIUS Act regarding the issuance of payment stablecoins and certain related activities by entities subject to the OCC’s jurisdiction. For additional information, see our Client Alert.
The OCC finalized its rule on the scope of national trust bank charters to clarify the longstanding authority of national trust banks to engage in non-fiduciary activities in addition to their fiduciary activities. The final rule is effective April 1, 2026.
The National Credit Union Administration (NCUA) issued a proposed rule implementing portions of the GENIUS Act relating to applications for payment stablecoin issuance. The FDIC announced a 90-day extension to the comment period on its related proposal.
Continuing a broader interagency trend toward formalizing supervisory review processes, the OCC issued a proposed rule revising procedures governing appeals of material supervisory determinations.
The New York State Department of Financial Services issued draft regulations establishing a licensing and supervision framework for Buy Now, Pay Later providers. Comments on the draft regulations are due by March 5, 2026.

DEEPER DIVES

Stress Capital Buffer Maintained Through 2027. In conjunction with issuing the final stress test scenarios, the Federal Reserve Board voted to maintain current SCB requirements through 2027, postponing the computation of new buffer levels based on the 2026 test results until revised supervisory models — incorporating public feedback — are finalized. The Federal Reserve Board noted that delaying the recalculation will provide time to refine stress testing methodologies, scenario design, and model documentation following extensive outreach and comments from industry participants. The decision effectively preserves the status quo in capital planning requirements for large banking organizations in the near term, reducing immediate uncertainty over capital buffer changes while the Federal Reserve continues its broader review of stress testing practices and transparency initiatives.

Insights. Maintaining the current SCB requirements through 2027 signals a measured approach by the Federal Reserve, balancing the need for robust capital standards with responsiveness to industry feedback and supervisory model enhancements. Banks should continue integrating scenario details into capital planning and model validation processes while preparing for potential recalibration of SCB requirements once revised stress testing methodologies are finalized.

OCC Proposes Comprehensive Stablecoin Framework to Implement the GENIUS Act. On February 25, 2026, the OCC issued a 376-page proposed rule to implement key provisions of the GENIUS Act for entities under OCC jurisdiction. The proposal would establish a prudential regulatory framework for permitted payment stablecoin issuers, including national banks, federal savings associations, federal branches, federally supervised nonbank entities, and certain foreign issuers operating in the United States. The proposal addresses permissible activities, reserve composition and segregation, redemption timing, capital requirements, audit thresholds, and transition mechanics for larger state-regulated issuers.

Insights. The OCC’s proposed rule establishes the first detailed federal prudential regime for payment stablecoins. While it clarifies core structural requirements, key issues — including reserve diversification, capital calibration, interest/yield interpretation, and multi-brand issuance — remain open. Market participants should evaluate economic models, governance frameworks, and distribution strategies in light of the proposed constraints and engage meaningfully during the comment period. Notably, the OCC seeks comment on more than 200 questions—including how reserve diversification should be structured, how capital should be calibrated, and how multi-brand or co-branded issuance models should be treated under the rule—signaling that several core calibrations remain open and subject to meaningful stakeholder influence.

OCC Finalizes Rule on Scope of National Trust Bank Charters. On February 27, 2026, the OCC finalized a rule amending its chartering regulation (12 C.F.R. § 5.20) to clarify the permissible activities of uninsured national trust banks. The rule replaces references to “fiduciary activities” with the statutory phrase “operations of a trust company and activities related thereto,” aligning the regulation with the National Bank Act. The change resolves ambiguity created by prior regulatory language that had been interpreted by some as limiting trust banks to strictly fiduciary activities or requiring them to perform core banking functions in order to engage in non-fiduciary operations. The final rule is effective April 1, 2026.

Insights. The principal effect of the rule is to confirm that national trust banks may engage in non-fiduciary trust company activities — including custody and safekeeping — without triggering the core banking function requirement applicable to full-service national banks. Notably, the OCC also declined to address whether a national trust bank must conduct fiduciary activities at all or whether any minimum “quantum” of fiduciary activity is required, stating that this question is outside the scope of the rulemaking. By preserving case-by-case discretion and declining to impose a fiduciary threshold, the OCC reduces interpretive uncertainty that had constrained some charter applicants and may broaden the practical appeal of the national trust bank charter for specialized custody, asset servicing, and digital-asset business models, subject to regulatory approval.

OCC Proposes Revisions to Supervisory Appeals Process. On February 17, 2026, the OCC issued a notice of proposed rulemaking to revise its procedures governing appeals of material supervisory determinations. The proposal would modify the composition of the appellate body, clarify timelines for appeal submissions and codify standards of review. The proposal follows the FDIC’s January 2026 establishment of a new Office of Supervisory Appeals and adoption of updated supervisory appeals guidelines. The OCC indicated that the revisions are intended to enhance transparency, consistency, and independence in the appeals process.

Insights. The OCC’s proposal — together with the FDIC’s recent creation of a new Office of Supervisory Appeals — signals a broader interagency effort to strengthen the procedural credibility and independence of supervisory appeals. While the revisions do not alter substantive supervisory standards, they may meaningfully affect how institutions manage disagreements over MRAs, MRA severity, and other material determinations. If the revised framework is perceived as more independent and predictable, institutions may be more willing to utilize the appeals process than in prior years. Banks should view these reforms not merely as technical procedural changes, but as an opportunity to reassess internal escalation, documentation, and board reporting practices around supervisory findings. Even absent a formal appeal, a clearer and more structured appellate framework may alter supervisory dynamics during examinations by providing institutions with greater leverage in negotiating the scope and characterization of findings. Institutions should assess whether their governance and documentation processes position them to effectively evaluate and, if appropriate, pursue appeals under the revised frameworks.

Vice Chair for Supervision Bowman Details Supervisory Priorities and Examination Approach. On February 19, 2026, Vice Chair for Supervision Michelle Bowman delivered opening remarks at the Federal Reserve Bank of Atlanta 2026 “Banking Outlook Conference: The Next Horizon in Banking,” outlining the Federal Reserve’s supervisory and regulatory priorities for the year ahead. Bowman emphasized continued commitment to regulatory and supervisory tailoring, underscoring that supervisory expectations should reflect an institution’s size, complexity, and risk profile rather than impose uniform standards across institutions.
Bowman noted ongoing reviews of the Federal Reserve’s merger and acquisition and de novo chartering processes, including potential streamlining measures and refinements to competitive analysis frameworks aimed at supporting community bank growth. She also provided updates on capital-related initiatives, including continued review of proposed revisions to the Community Bank Leverage Ratio, consideration of adjustments to the mutual bank capital framework, coordination with the OCC and FDIC on U.S. Basel III implementation, refinements to the G-SIB surcharge framework, and efforts to enhance stress testing transparency through expanded model and scenario disclosures.

Bowman further highlighted efforts to recalibrate supervisory findings and Matters Requiring Attention (MRAs) to focus more squarely on material financial risks — including credit, liquidity, and interest rate risk — while reaffirming that operational and cybersecurity risks remain core supervisory priorities. She emphasized that an increased focus on core financial risks does not diminish the Federal Reserve’s attention to nonfinancial risks where safety and soundness concerns are implicated, stating: “Let me be clear: emphasizing core and material financial risks to safety and soundness does not mean neglecting nonfinancial risk. Cybersecurity, for example, remains a top priority. Strong risk management remains essential to the safety and soundness of the institutions we supervise, and we will continue to issue findings and examine for it where appropriate.”

Insights. Bowman’s remarks are consistent with her prior public statements emphasizing regulatory tailoring, supervisory recalibration and incremental refinement of capital frameworks rather than sweeping reform. Her continued focus on aligning supervisory expectations with demonstrable risk — particularly for community and regional institutions — signals that the Federal Reserve’s 2026 supervisory agenda is likely to prioritize proportionality, clarity in MRAs and predictability in capital requirements. While Bowman reiterated that cybersecurity and operational resilience remain core supervisory priorities, the speech reinforces an ongoing effort to concentrate examination findings more squarely on material financial risks. Institutions should view the remarks as confirmation of an evolving supervisory posture rather than a directional shift. With respect to capital, Bowman again signaled that 2026 will be a year of incremental but consequential capital framework refinement rather than sweeping reform. Days later, at a Senate Banking Committee hearing, Bowman confirmed the Federal Reserve, OCC and FDIC have reached consensus on a Basel III endgame re-proposal and intend to issue it before the end of March.

OTHER NOTABLE ITEMS

FDIC Extends Comment Period on Proposed GENIUS Act Rulemaking. On February 6, 2026, the FDIC announced a 90-day extension to the comment period on the FDIC’s notice of proposed rulemaking that would implement the application provisions under the GENIUS Act for state-chartered nonmember banks and state savings associations seeking to issue payment stablecoins through a subsidiary. The FDIC is extending the comment period from February 17, 2026, to May 18, 2026.

NCUA Proposes Rule for Permitted Payment Stablecoin Issuer Applications. On February 12, 2026, the NCUA issued a proposed rule to implement portions of the GENIUS Act relating specifically to payment stablecoin issuers that are subsidiaries of federally insured credit unions (FICUs). Under the proposal, the NCUA would establish the application and licensing process for permitted payment stablecoin issuers (PPSIs) within its jurisdiction and would limit federally insured credit unions to investing only in NCUA-licensed PPSIs. Comments on the proposal are due by April 13, 2026. The NCUA signaled forthcoming rulemakings on substantive PPSI standards, with additional guidance and supervisory updates likely to follow as FICU examination policies and guidance are adapted to incorporate stablecoin supervision.

Speech by Vice Chair for Supervision Bowman on Mortgage Lending. On February 16, 2026, Vice Chair for Supervision Michelle Bowman gave a speech titled “Revitalizing Bank Mortgage Lending, One Step with Basel.” In her speech, Vice Chair for Supervision highlighted the significant long-term decline in bank participation in mortgage origination and servicing, noting that banks’ share of mortgage originations fell from roughly 60% in 2008 to about 35% in 2023, and servicing rights held by banks dropped from around 95% to approximately 45% over the same period. She attributed part of this shift to regulatory capital treatments that may be overly punitive relative to underlying risk, particularly the capital deduction and high risk weight applied to mortgage servicing rights (MSRs) and the uniform risk weighting of on-balance-sheet mortgages irrespective of loan-to-value ratios. Bowman outlined that the federal banking agencies are considering revisions within the Basel framework to better align capital requirements with risk and to encourage bank engagement in mortgage markets. Potential modifications include removing the requirement to deduct MSRs from regulatory capital while reconsidering their appropriate risk weight and introducing greater risk sensitivity for residential mortgage exposures based on credit characteristics such as loan-to-value. She emphasized that such recalibrations aim to support bank participation in mortgage origination and servicing without compromising safety and soundness and invited industry feedback on forthcoming proposals.

SEC Commissioner Uyeda Remarks on Treasuries and Tokenization. On February 9, 2026, Securities and Exchange Commission Commissioner Mark Uyeda gave remarks at the Asset Management Derivatives Forum 2026 conference. In his remarks, Commissioner Uyeda provided a comprehensive update on the Commission’s progress toward mandatory clearing for certain U.S. Treasury securities, outlining benefits and operational challenges as the compliance deadline approaches. Uyeda noted ongoing outreach on interpretive questions—including inter-affiliate transactions and extraterritorial scope—indicating continued engagement with market participants to refine the operational framework ahead of full compliance. On tokenization of securities, Uyeda described the shift from theoretical discussion to practical market developments. He framed tokenization as a potential modernization of capital markets infrastructure that should be integrated within the existing securities regulatory framework, rather than prompting entirely new or separate regulatory regimes.

Federal Reserve Announces Public Outreach Meeting on Review of Regulations. On February 19, 2026, the Federal Reserve announced it will hold a hybrid public outreach meeting on March 26, 2026 as part of the agency’s required review of regulations under the Economic Growth and Regulatory Paperwork Reduction Act. The outreach meeting will present an opportunity for stakeholders to present their views on the regulatory categories for which comment was previously published in the Federal Register: applications and reporting; powers and activities; international operations; consumer protection; directors, officers and employees; money laundering; rules of procedure; safety and soundness; securities; banking operations; capital; and the Community Reinvestment Act. Those interested in providing oral comments must register by March 19, 2026.

FDIC Updates PPE List. On February 24, 2026, the FDIC released an updated list (as of February 15, 2026) of companies that have submitted notices for a Primary Purpose Exception (PPE) under the 25% or Enabling Transactions test.

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

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

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

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

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

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

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

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

Sam Raymond, New York (+1 212.351.2499, sraymond@gibsondunn.com)

Rachel Jackson, New York (+1 212.351.6260, rjackson@gibsondunn.com)

The OCC proposal sets forth a detailed prudential, operational and supervisory framework for “permitted payment stablecoin issuers” and marks the first comprehensive federal implementing rule under the GENIUS Act.

On February 25, 2026, the Office of the Comptroller of the Currency (OCC) issued a proposed rule (Proposal) to implement the Guiding and Establishing National Innovation for U.S. Stablecoins Act (the GENIUS Act) for entities within the OCC’s jurisdiction. The Proposal would establish a new regulatory framework governing the issuance of “payment stablecoins” and related custody activities of national banks, federal savings associations, federal branches of foreign banks, foreign payment stablecoin issuers, federal qualified payment stablecoin issuers and certain state qualified payment stablecoin issuers.

The Proposal sets forth a detailed prudential, operational and supervisory framework for “permitted payment stablecoin issuers” (PPSIs) and marks the first comprehensive federal implementing rule under the GENIUS Act. The Proposal would operationalize the GENIUS Act’s statutory requirements, including licensing, reserve composition, capital and liquidity standards, governance and risk management expectations, supervisory reporting and statutory restrictions on PPSI activities.

Comments on the Proposal are due 60 days following publication in the Federal Register. The Proposal contains a comprehensive set of targeted requests for comment (well over 200 discrete questions with multiple subparts) spanning definitions, reserve design, capital methodology, anti-evasion mechanics, operational timing, and interoperability. The OCC explicitly invites evidence and data to support preferred calibrations.

Scope and Covered Entities

The Proposal would apply to PPSIs within the OCC’s jurisdiction under the GENIUS Act, including:

Subsidiaries of national banks and federal savings associations that are organized as PPSIs and approved by the OCC;
Federal qualified nonbank PPSIs chartered or licensed by the OCC pursuant to the GENIUS Act;
Foreign payment stablecoin issuers to the extent they fall within OCC regulatory or enforcement authority under the statute;
State-qualified payment stablecoin issuers that exceed the statutory issuance threshold and transition to federal oversight; and
National banks, federal savings associations, and federal branches engaged in custody or safekeeping of payment stablecoins or reserve assets subject to OCC supervision.

While the Proposal references Bank Secrecy Act and sanctions compliance as applicable legal requirements, it notes that detailed anti-money laundering and sanctions standards will be proposed in a separate coordinated rulemaking.

Permissible and Prohibited Activities of PPSIs

Permissible Activities

The GENIUS Act limits the types of activities that may be conducted by a PPSI to (i) issuing or redeeming payment stablecoins; (ii) managing related reserves; (iii) providing custodial or safekeeping services for payment stablecoins, required reserves, or private keys of payment stablecoins; and (iv) other activities that directly support these enumerated activities.

The Proposal closely tracks the GENIUS Act in defining permissible activities, while layering in clarifications and additional conditions. Permitted activities for PPSIs include:

Issuing and redeeming payment stablecoins;
Managing related reserves, including purchasing, selling, and holding “reserve assets” and providing custodial services for reserves, consistent with applicable law;
Providing custodial or safekeeping services for payment stablecoins, reserve assets, and private keys, subject OCC requirements;
Undertaking “activities that directly support” these core functions (e.g., holding non stablecoin crypto assets as principal solely to test distributed ledger functionality); and
Acting as principal or agent with respect to payment stablecoins and paying “gas” or network fees to facilitate customer transactions.

The OCC clarifies that these authorities sit alongside, and do not curtail, other powers of depository institutions and trust companies to engage in activities permissible pursuant to applicable state and federal law.

The Proposal also explicitly clarifies that stablecoin issuers may assess fees associated with purchasing or redeeming stablecoins, which the OCC views as inherent in the GENIUS Act’s authorized activities.

Prohibition on Payment of Interest or Yield

The Proposal implements the GENIUS Act’s prohibition on paying “any form of interest or yield” to holders “solely in connection with holding, using, or retaining” a payment stablecoin.

The Proposal goes beyond the statutory language to confront concerns on the use of affiliates or related third parties to circumvent this restriction. To address this concern, the Proposal introduces a rebuttable presumption that certain affiliate or third party arrangements designed to replicate yield economics are inconsistent with the statute. Even where the presumption does not apply, the OCC expressly reserves authority to evaluate arrangements on a case-by-case basis if they function as yield in economic substance. For the purposes of the prohibition, the Proposal would define a “related third party” to include “any person paying interest or yield to payment stablecoin holders as a service (i.e., on behalf of the [PPSI]) and any person that the issuer issues payment stablecoins on behalf or under the branding of (i.e., persons that have entered [a] white-label relationship with the issuer).” This anti-evasion presumption may be rebutted, but it is also not intended to be an exclusive example of prohibited relationships intended to evade the prohibition.

The breadth of this restriction is significant in that the prohibition is not limited to traditional interest payments and it potentially encompasses balance-based rewards, rebates, loyalty tokens, profit-sharing arrangements, or other economic benefits tied to holding stablecoin balances. Lastly, the formal legal separation between the issuer and a third-party partner will not be dispositive if economic substance suggests compensation for passive holding. The Proposal therefore places structural constraints on how stablecoin ecosystems may be monetized.

Notably, the Proposal specifically highlights that merchants are not prohibited from independently offering a discount for a holder that uses a specific stablecoin or for issuers to share profits with non-affiliated partners in a white-label agreement. However, the boundaries of this type of permissible activity are unclear.

Other Prohibited Activities

In addition to the prohibited payment of interest or yield, the Proposal includes a number of other prohibited activities, including:

PPSIs may not use a deceptive name or combinations of terms suggesting U.S. government issuance or backing (e.g., “United States Government,” “USG”) in stablecoin names, and may not market payment stablecoins in a way that would cause a reasonable person to view them as legal tender, U.S. government issued, or guaranteed/approved by the United States. References to USD as a pegged currency are not impacted by this prohibition;
PPSIs may not suggest that stablecoins are legal tender, backed by the full faith and credit of the United States or subject to federal deposit or share insurance; and
PPSIs may not pledge, rehypothecate, or reuse required reserve assets, directly or indirectly (including via custodians), except in narrow circumstances.

Reserve Assets and Liquidity Requirements

As required under the GENIUS Act, the Proposal would require a PPSI to maintain identifiable reserve assets on a 1:1 basis backing the “outstanding issuance value” of the PPSI’s payment stablecoins. For these purposes, the Proposal defines “outstanding issuance value” to mean the total consolidated par value of all payment stablecoins for which the PPSI has an obligation to convert, redeem, or repurchase for a fixed amount of monetary value, which generally reflects payment stablecoins in circulation and excludes stablecoins held by a PPSI but not yet issued or permanently removed from circulation. Reserve assets must be maintained at fair value in an amount at least equal to the outstanding issuance value at all times. The OCC notes that the Proposal includes robust liquidity requirements, but does not include any capital-based overcollateralization or reserve asset buffer requirements. The OCC specifically requests comment on whether the final rule should include a reserve asset buffer requirement in excess of the outstanding issuance value and/or remove some of the liquidity requirements, or if the OCC should provide additional guidance on appropriate buffer levels for purposes of prudent risk management.

Eligible Reserve Assets

Under the Proposal, eligible reserve assets are limited to a statutory list of “high-quality, liquid instruments,” consistent with the GENIUS Act, and generally include the following categories:

Cash and balances at the Federal Reserve;
Short-term U.S. Treasury securities;
Qualifying repurchase agreements backed by eligible Treasury collateral;
Certain money market funds invested solely in eligible assets; and
Tokenized representations of eligible reserve assets that meet specified criteria.

The Proposal excludes stablecoins themselves and other crypto assets as eligible reserve assets. This preserves the statute’s requirement that reserves consist of traditional high-quality liquid assets and ensures that payment stablecoins are not backed by volatile or intrinsically unstable instruments.

Reserve Concentration Limits and Diversification Requirements

The Proposal would impose reserve asset diversification and deposit concentration requirements under two proposed frameworks.

Under “Option A” set forth in the Proposal, the OCC would adopt a principles-based diversification requirement, pursuant to which a PPSI would be required to maintain reserve assets that are sufficiently diverse to manage credit, liquidity, interest rate, and concentration risks, taking into account the PPSI’s business model and risk profile. Option A would also include a safe harbor under which a PPSI would be deemed to satisfy the diversification requirement if, on each business day, the PPSI maintains:

At least 10% of its required reserve assets as demand deposits or money at a Federal Reserve Bank;
At least 30% of its reserve assets as demand deposits, at a Federal Reserve Bank, or amounts receivable and due unconditionally within five business days on pending sales of reserve assets, maturing reserve assets, or other maturing transactions;
No more than 40% of its reserve assets at any one eligible financial institution, whether as deposits or insured shares at any one insured depository institution, securities custodied at any one eligible financial institution, bilateral reverse repurchase agreements with any counterparty, or through other exposures;
No more than 50% of the amount required to be immediately available liquidity (i.e., at least 10% of reserve assets held as demand deposits or at a Federal Reserve Bank) at any one eligible financial institution; and
Reserve assets with a weighted average maturity of no more than 20 days.

In addition, the Proposal would impose a mandatory minimum amount of insured deposit reserves—at least 0.5% of reserve assets, up to a maximum of $500 million—for PPSIs with at least $25 billion in stablecoin issuance value.

The OCC notes that Option A is intended to provide flexibility for PPSIs—particularly smaller, less complex issuers—to satisfy diversification standards without meeting all of the safe harbor requirements.

Under Option B, these same Option A quantitative benchmarks would apply – but they would be mandatory requirements for all PPSIs, rather than considered to be a safe harbor.

Segregation and Use Restrictions

The OCC’s preamble emphasizes that reserve assets must be “segregated from the issuer’s own operating assets” and held in a manner that protects them from commingling, rehypothecation for unrelated purposes, or loss in insolvency. This reflects the statutory objective of protecting holders’ redemption rights by ensuring that reserves are legally and operationally insulated from the issuer’s risk-taking or commercial activities.

Capital Requirements

Consistent with how the OCC evaluates and sets capital requirements for newly chartered national trust banks under OCC Bulletin 2007-21, the Proposal would require a PPSI to maintain capital sufficient to support its ongoing operations, with capital requirements tailored to the PPSI’s business model and risk profile. At inception, a PPSI would be required to maintain capital equal to the greater of (1) the minimum amount specified in a de novo or other OCC approval order, or (2) $5 million.[1] In addition, each PPSI would be required to establish and maintain a process for assessing capital adequacy on an ongoing basis based on its risk profile and operating history, subject to supervisory review.

PPSIs would be required to maintain an operational liquidity backstop consisting of highly liquid assets generally sufficient to maintain operations of the stablecoin issuer during a business disruption and calculated based on the actual total operating expenses of the stablecoin issuer over the past 12 months, calculated quarterly. This liquidity backstop is consistent with the OCC’s approach to chartering national trust banks, which typically requires a pool of liquid assets sufficient to cover six to 12 months of expenses.

PPSIs would also be required to include Accumulated Other Comprehensive Income (AOCI) as a component of CET1 capital. This inclusion would make PPSIs subject to potential regulatory capital volatility associated with changes in value of available-for-sale fixed income securities (e.g., due to changes in interest rates), though the OCC expects that any changes in value to the short-dated securities permitted to be held by PPSIs would likely generate immaterial amounts of AOCI.

While not in the proposed regulations, the OCC noted that it is also considering a variable capital component tied more directly to price and interest rate risk of stablecoin reserve assets. Under this approach, a capital charge would apply to reserve assets that consist of U.S. Treasuries, repurchase agreements, and tokenized versions of those assets.

PPSI Application Timeline and OCC Review Framework

The GENIUS Act provides that the OCC must act on certain applications within 120 days. The Proposal clarifies that this statutory review period begins only once the OCC determines that an application is “substantially complete.”

The Proposal establishes application and approval requirements for entities seeking to become PPSIs under OCC supervision. Applicants must establish that they will satisfy the statutory and regulatory standards governing:

Permissible and prohibited activities,
Reserve assets and liquidity requirements,
Redemption mechanics,
Capital sufficiency,
Operational resilience and internal controls, and
Applicable compliance obligations.

The Proposal further notes that the OCC may impose conditions on approvals and retains authority to determine whether an applicant satisfies the statutory and regulatory criteria for PPSI status.

Covered Custodians

Safekeeping Standards

The Proposal prescribes standards consistent with the GENIUS Act for covered custodians providing custodial or safekeeping services for “covered assets”. Covered assets would include payment stablecoin reserves, payment stablecoins used as collateral, private keys used to issue payment stablecoins, and any cash or other property received in connection with the provision of custodial or safekeeping services for such assets. Covered custodians would include national banks, federal savings associations, federal branches, and PPSIs to the extent they engage in custody activities subject to the Proposal.

The Proposal would impose minimum principles‑based requirements designed to ensure that covered assets are treated as customer property and protected from claims of the custodian’s creditors. Covered custodians would be required to maintain written policies, procedures, and internal controls commensurate with their size, complexity, and risk profile, and to separately account for covered assets. In addition, covered custodians would be required to maintain possession or control of covered assets that are held directly, including in a digital wallet for which the covered custodian controls the associated private keys.

The Proposal clarifies that certain segregation requirements of customer assets from that of the covered custodian do not apply in the case of a depository institution that provides custodial or safekeeping services for covered assets that are in the form of cash to the extent the depository institution holds such cash in the form of cash on deposit, provided such treatment is consistent with federal law.

The Proposal would permit omnibus arrangements for multiple customers’ covered assets if recordkeeping and controls are sufficient to preserve customers’ interests and meet safety and soundness standards.

Reporting

The OCC indicates a preference in the Proposal to leverage existing Call Report Schedule RC-T data for bank custodians and quarterly financial reporting for nonbank issuers, but is considering requiring covered custodians to report on a separate form maintained by the OCC: (1) total covered assets under custody, and (2) total payment stablecoin reserves under custody. For payment stablecoin reserves under custody, the OCC is further considering requiring covered custodians to report the following: (a) total payment stablecoin reserves under custody for (i) an affiliate and (ii) third parties; (b) total payment stablecoin reserves held in a deposit account at (i) the covered custodian and (ii) a third-party depository institution; (c) total payment stablecoin reserves held in a deposit account that are not covered by FDIC insurance at (i) the covered custodian and (ii) a third party depository institution; and (d) total payment stablecoin reserves held in each of the eight eligible reserve asset categories.

Other Notable Provisions:

Timely Redemptions. The Proposal would require a PPSI to establish and publicly disclose policies and procedures providing for the “timely” redemption of payment stablecoins at par. Generally, a PPSI would be required to redeem a payment stablecoin no later than two business days following a valid redemption request. The Proposal highlights limited circumstances in which a payment redemption may be extended for up to seven calendar days – namely if a PPSI faces redemption demands in excess of 10% of its outstanding issuance value within a single 24‑hour period. Upon such an event, the PPSI would be required to notify the OCC within 24 hours and timely redemptions would be immediately extended to seven calendar days.
Examination Cycles and Standards. Consistent with the practice for national banks and federal savings associations, PPSIs would be subject to regular full-scope supervisory examinations at least once every 12 months, though in some cases every 18 to 36 months, as determined by the OCC in its sole discretion for PPSIs with an outstanding issuance value of less than $1 billion or less than $25 billion in total monthly trading volume that meet certain regulatory and compliance requirements. The OCC would also retain the flexibility to conduct more frequent or targeted examinations or reviews as it deems necessary.
Large State Issuers. The Proposal would require if a state-regulated nonbank PPSI exceeds $10 billion of payment stablecoins in circulation, it must notify the OCC within five business days of exceeding that threshold, complete of a capital analysis within 270 days and transition to OCC oversight within 360 days, receive a waiver from the OCC, or otherwise cease issuing new payment stablecoins until the circulation amount is under the $10 billion threshold (on a net basis).
Disclosures and Reporting. The Proposal would impose explicit public disclosure obligations designed to reinforce transparency and reduce run risk. In particular, a PPSI would be required to establish and publicly disclose policies and procedures governing the “timely” redemption of payment stablecoins at par and publish monthly reports on reserves held. Each PPSI would be also required to submit to the OCC (i) a confidential weekly report regarding the issuance and redemption, trading volume and reserve assets for each issuance, (ii) a quarterly report on the financial condition of the PPSI within 30 days of the end of the prior quarter and (iii) audited financial statements annually within 120 days after the end of its fiscal year. In addition, PPSIs would be subject to several event-driven and supervisory notice requirements.
Open Question on Co-Branding and Multi-Brand Issuance. The Proposal does not prohibit, but explicitly requests comment on whether a PPSI should be prohibited from issuing more than one brand of payment stablecoins, with the OCC noting in the preamble that is recognizes advantages PPSIs issuing under multiple brands, but also noted that it may also “foster uncertainty about reserve assets and encourage contagion and run risk among brands of payment stablecoins”. If multiple-brand issuances are not permitted by a PPSI, the OCC noted that it is considered streamlining the process for approving PPSI applications if an affiliate of the applicant has already been approved, in order to permit the sharing of back-office functions and services between legally separate issuers).
Transactions with Affiliates. The Proposal would require a PPSI to ensure that transactions with affiliates and insiders are on market terms, “not excessive and do not pose a significant risk of material financial loss” and are “appropriately documented and reviewed by the board of directors” of the PPSI. The Proposal does not define what constitutes “excessive” or what may pose a “significant risk of material financial loss”.
Change in Control Review. The Proposal would require that the OCC receive prior notice of any change in control of an OCC-regulated stablecoin issuer using definitions and procedures currently applicable to national banks under the OCC’s “Change in Bank Control Act” regulations. Under these standards, prior notice to the OCC may be required in some circumstances for the acquisition of a 10% or greater voting interest in a stablecoin issuer. The OCC would retain the right to approve, object or request additional time to review the proposed change in control.
State Law Preemption. The OCC describes but does not codify several GENIUS Act provisions that it views as “self executing” and central to the federal–state allocation of authority. These include: (i) exclusive OCC licensing and visitorial authority over Federal qualified payment stablecoin issuers, preempting competing state licensing or charter requirements and (ii) preemption of state charter or licensing requirements for PPSIs. The OCC invites comment on whether these self-executing GENIUS Act provisions should nonetheless be reflected in OCC regulations for convenience.

Key Takeaways for Market Participants

Stablecoin issuance is being prudentialized — not lightly regulated. The Proposal places payment stablecoins squarely within a bank-like supervisory framework emphasizing reserve integrity, capital adequacy, liquidity discipline, and governance. Stablecoin issuance will resemble specialized banking, not fintech licensing.
Regulatory calibration will drive economics. Reserve diversification design, capital methodology, and the interest prohibition will likely shape economic outcomes more than technological design decisions.
Co-branding remains unresolved and strategically significant. Multi-brand issuance models may be restricted or require structural separation. Institutions relying on ecosystem distribution should treat this as a core architectural issue.
Capital requirements will be case-by-case and negotiated. Individualized capital determinations introduce uncertainty but also flexibility. Early engagement and robust risk modeling will be critical.
Liquidity risk tolerance is anchored to the two-day redemption standard. Redemption timing expectations effectively define the minimum operational liquidity buffer.
Scaling introduces regulatory inflection points. The proposed $10 billion and $50 billion issuance thresholds materially impact reporting, examination, and governance obligations.
The comment period is unusually consequential. With more than 200 targeted questions and key areas where the OCC highlights openness to alternative proposals, stakeholders have a rare opportunity to shape the first generation of federal stablecoin prudential standards.

The Proposal represents the most comprehensive federal framework for payment stablecoins to date. Although it establishes a structured prudential regime, it leaves open critical design questions — particularly around reserve diversification, capital calibration, interest economics, and multi-brand issuance — that will shape competitive dynamics and ecosystem architecture.

For institutions considering entry into the stablecoin market, advocacy matters. The final contours of the rule will determine whether and how payment stablecoins evolve as foundational components of next-generation regulated payment infrastructure. Institutions that engage early — both strategically and in the comment process — will be best positioned to influence and adapt to the emerging regime.

[1] The OCC states in the Proposal that, based on its experience chartering de novo national trust banks seeking to provide stablecoin programs, “minimum capital amounts ranging from $6.05 million to $25 million would be necessary to establish a viable business model.”

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.

Please feel free to contact the Gibson Dunn lawyer with whom you usually work, any member of Gibson Dunn’s Financial Institutions, Financial Regulatory, Fintech and Digital Assets, Public Policy or Administrative Law and Regulatory practice groups, or the following authors:

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

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

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.

Key Developments

On February 26, U.S. Equal Employment Opportunity Commission (“EEOC”) Chair Andrea Lucas issued a letter to chief executive officers, general counsel, and board chairs of the 500 largest employers in the United States to educate them about her views on the potential for race- and sex-based discrimination in corporate DEI programs. The letter asserts that the “bedrock American principle[]” of equality has been “under attack” by “movements and ideologies” that “demand equal outcomes over equal treatment” and “promote discrimination against certain races or groups.” Chair Lucas writes, “we are the Equal Employment Opportunity Commission, not the Equitable Employment Outcomes Commission.” The letter states that the EEOC is committed to using “every available resource” to eradicate what it views as discriminatory practices in the workplace. In a press release regarding the letter, Chair Lucas, echoing Chief Justice Roberts in the SFFA v. Harvard admissions decision, stated that “[t]he only lawful way to stop discrimination on the basis of race or sex, is to stop discrimination on the basis of race or sex,” and urged corporate leaders to “reject identity politics” as a solution to workplace issues.

On the same day, the EEOC issued a decision holding that Title VII permits federal employers to maintain sex-separated bathrooms, and similar intimate spaces, based on biological sex and does not require special exceptions for transgender employees, reversing a 2015 EEOC decision which held that federal agencies “must allow” trans-identifying employees access to the “opposite sex restroom.” The case arose when a “male employee” of the U.S. Army began “identif[ying] as a woman” and requested access to female-designated bathrooms and locker rooms. The Army denied the request based on Executive Order 14168, which directed agencies to ensure that “intimate spaces” are designated by sex rather than identity. The EEOC reasoned that because of innate reproductive and physical differences between men and women, the sexes are not “similarly situated” when it comes to bathrooms and other intimate spaces where privacy expectations apply and, therefore, separating men and women under such circumstances is not discriminatory under Title VII. The EEOC also concluded that under the Supreme Court’s 2020 decision in Bostock v. Clayton County, trans-identifying employees are entitled to equal treatment, not exemptions from generally applicable workplace rules, including rules to use the bathroom corresponding to one’s biological sex. The EEOC’s decision applies only to federal agencies subject to the EEOC’s administrative complaint process and does not bind private sector employers or federal courts. In a LinkedIn post about the decision, Chair Lucas said that “[w]hen it comes to bathrooms, male and female employees are not similarly situated. Biology is not bigotry.” The case is Selina S. v. Dep’t of the Army, EEOC Appeal No. 2025003976 (Feb. 24, 2026).

Beginning on March 1, 2026, the Fair Investment Practices by Venture Capital Companies Law (“FIPVCC”) will require certain “venture capital companies” with broadly defined ties to the State to begin registering with the California Department of Financial Protection and Innovation (“DFPI”). By April 1, 2026, these covered entities must submit their first annual report, which will cover in-scope activities from 2025. The law mandates that these firms collect and report anonymized, aggregated demographic data on the founding teams of their portfolio companies, including information on race, ethnicity, gender identity, LGBTQ+ status, and disability status. While participation in the founder surveys is voluntary, the collected data will be published online by DFPI. Firms that fail to comply will be given a 60-day period to cure the deficiency before potentially facing penalties. In preparation for these new requirements, affected firms are advised to confirm their coverage under the law, identify their reportable 2025 venture capital investments, and implement processes for surveying founders and securely managing the data. For more information, please refer to the Gibson Dunn client alert on this topic.

On February 24, the United States Court of Appeals for the Sixth Circuit affirmed the dismissal of a putative-class action lawsuit alleging racially discriminatory grantmaking in violation of Section 1981 by Progressive Preferred Insurance, Progressive Casualty Insurance, and Circular Board. The defendants’ program—which was discontinued after the Supreme Court’s 2023 decision in SFFA v. Harvard—offered ten $25,000 grants to small businesses to help them buy a commercial vehicle and limited eligibility to Black-owned businesses.

In a 2-1 decision, Judge Andre Mathis, joined by Judge David McKeague, held that the lead plaintiff, a white commercial truck driver, lacked standing to challenge the defendants’ grant program because he failed to submit an application for the grant. The Sixth Circuit adopted the plaintiff’s two-contract theory, which distinguished between an “application-stage” contract and subsequent “grant-stage” contract, but held that the plaintiff’s injury was “self-inflicted” because he never applied to the grant program and therefore could not establish that the defendants caused his injury. The court noted that the plaintiff did not plead any race-based barriers to entering into an “application-stage” contract or allege that the grant application required him to disclose his race or certify compliance with any race-based eligibility criteria before applying. Thus, the court reasoned that because the plaintiff chose not to submit his application, he never subjected himself to the allegedly discriminatory race-based criteria for the subsequent “grant-stage” contract. Judge Danny Boggs dissented, disagreeing with the majority’s description of the plaintiff’s injury as “self-inflicted” because the grant program “clearly discriminated” based on race and led to the plaintiff’s injury of an “unequal contracting opportunity based on race.” The case is Nathan Roberts v. Progressive Preferred Insurance Co., No. 24-3454 (6th Cir. 2025).

On February 17, the EEOC sued Coca-Cola Beverages Northeast, Inc., alleging it engaged in unlawful employment practices on the basis of sex in violation of Title VII of the Civil Rights Act of 1964. The complaint alleges that Coca-Cola Northeast invited only female employees to an “employer-sponsored trip and networking event” at a casino resort, which featured a “social reception, team-building exercises and recreational activities,” excusing them from their regular work duties and paying their normal wages. The complaint alleges that Coca-Cola Northeast’s exclusion of male employees from attending and participating in the event constitutes a “denial of equal compensation, terms, conditions, or privileges of employment on the basis of sex.” EEOC Chair Andrea Lucas posted about the suit on LinkedIn, stating that “Title VII does not permit sex segregation and sex-based disparate treatment in privileges of employment like employer-sponsored events, trips, networking, and training.” The case is EEOC v. Coca-Cola Beverages Northeast, Inc., No. 1:26-cv-00115 (D. N.H. 2026).

On February 6, the United States Court of Appeals for the Fourth Circuit vacated an injunction barring enforcement of Executive Orders 14151 (“Ending Radical and Wasteful Government DEI Programs and Preferencing”) and 14173 (“Ending Illegal Discrimination and Restoring Merit-Based Opportunity”). The Fourth Circuit previously stayed the injunction pending the resolution of the appeal. The plaintiffs (the National Association of Diversity Officers in Higher Education, the American Association of University Professors, and the Mayor and City Council of Baltimore Maryland), argued that the “Termination Provision” of EO 14151 and the “Certification Provision” and “Enforcement Threat Provision” of EO 14173 violate the First and Fifth Amendments. Those provisions require all agencies to (1) terminate all DEI-related positions, programs, and performance requirements, (2) include in every contract or grant award a provision that states the contractual counterparty or grant recipient does not operate unlawful programs promoting DEI, and (3) prepare a plan specifying measures to deter unlawful DEI programs, respectively.

The three-judge panel—Chief Judge Albert Diaz, Judge Pamela A. Harris, and Judge Allison J. Rushing—held that the plaintiffs lacked standing with respect to the Enforcement Threat Provision because the allegations “that they’ll be forced to restrict” their speech “or face penalties” “overstate[d]” the text of the provision. The court explained that the provision “focus[es] on internal government agency processes and programs and reporting to the President from his subordinates,” and that the plaintiffs are not in imminent danger of injury because they are not “agenc[ies] within the executive branch of government.” Turning to the Termination and Certification Provisions, the court held that plaintiffs had standing but concluded that their facial challenges as to each were unlikely to succeed. The court held that plaintiffs’ Fifth Amendment claim as to the Termination Provision was unlikely to succeed because the directive to terminate “equity-related” grants was not impermissibly vague. The court also found that plaintiffs’ First Amendment challenge to the Certification Provision was also likely to be unavailing because the provision effectively asks plaintiffs only to “certify compliance with federal antidiscrimination law,” and therefore does not burden “protected speech” because “plaintiffs have no protectable speech interest in operating” DEI programs that violate federal antidiscrimination law.

The court suggested that an as-applied challenge may be more likely to succeed than a facial challenge, if, for example, “the President, his subordinates, or another grantor misinterprets federal antidiscrimination law” in terminating a particular DEI program. And in a concurring opinion, Chief Judge Diaz emphasized that the court was presented with a “facial challenge,” not the legality or termination of a particular DEI program, which “makes all the difference.” He also stated that the evidence presented by the plaintiffs indicates that programs have been “terminated by keyword,” and “valuable grants” have been “gutted in the dark.” He concluded, “[f]or those disappointed by the outcome, I say this: Follow the law. Continue your critical work. Keep the faith. And depend on the Constitution, which remains a beacon amid the tumult.”

On February 9, a group of anonymous law students and the EEOC filed a stipulation voluntarily dismissing a lawsuit the students filed in response to the EEOC’s March 17 letters requesting information from twenty law firms. The lawsuit was filed after the EEOC sent requests to the law firms requesting information including the name, sex, race, GPA, and contact information for law students who applied for jobs since 2019. The EEOC stated that responding to the requests was voluntary, most law firms “did not provide any of the requested information,” and any information provided to the EEOC by law firms in response to the March 17 letters “did not include names, email addresses, phone numbers, or other personally identifying information of any law firm employee or applicant.” The stipulation states that the EEOC “considers the matter of responding to those letters closed.” The case is Doe 1 et. al v. EEOC, et. al, No. 25-cv-1124 (D.D.C. 2025).

On February 5, Judge John Ross of the U.S. District Court for the Eastern District of Missouri dismissed a lawsuit filed by the State of Missouri against Starbucks in which Missouri alleged that the company’s DEI commitments were pretext to discriminate on the basis of race, gender, and sexual orientation. The court found that the State lacked standing, because it “did not point to even a single Missouri resident” who suffered an adverse employment action because they lacked Starbucks’s “preferred racial or sex characteristics.” The court dismissed the State’s claims under both Title VII and the Missouri Human Rights Act. The case is State of Missouri v. Starbucks Corp., No. 4:25-cv-00165 (E.D. Mo. 2025).

On February 4, the EEOC filed a motion in the Eastern District of Missouri to enforce an administrative subpoena issued in its investigation of Nike for alleged violations of Title VII. The EEOC alleges that Nike engaged in unlawful employment practices by “engaging in a pattern or practice of disparate treatment against White employees, applicants, and training program participants,” including by committing to allegedly unlawful “race-based workforce representation quotas,” as evidenced by its published “2025 Targets.” The EEOC subpoenaed information relating to layoff decisions, executive compensation policies and decisions tied to DEI metrics, demographic and pay data for people of color that was provided to Nike executives, and programs aimed at increasing the representation of racial and ethnic minorities in the workforce. The EEOC asserts that Nike provided “some but not all the information and documents required” and therefore failed to “fully comply” with the subpoena. On February 12, 2026, the court ordered Nike to respond to the EEOC’s motion by March 16, 2026.

On January 30, 2026, Federal Trade Commission (“FTC”) Chairman Andrew N. Ferguson issued a letter to 42 law firms warning that their participation in the Diversity Lab’s Mansfield Certification program may expose them to potential antitrust liability. The letter alleges that to be eligible for Mansfield Certification, firms agree that at least 30% of the candidates they consider for leadership and promotion will come from underrepresented “racial and other groups” and agree to participate in monthly information-sharing calls with competitor firms to exchange strategies for achieving the program’s DEI benchmarks. The letter states that such coordination among competing employers could violate Section 1 of the Sherman Act and Section 5 of the FTC Act by distorting competition for legal talent, suppressing wages and benefits, and depriving labor markets of independent decision-making. Although the letter does not allege unlawful conduct by recipient law firms, it advises the firms to re-evaluate their relationship with Diversity Lab and peer firms in light of their obligations under federal antitrust law. Last spring, Judge Beryl Howell of the U.S. District Court for the District of Columbia wrote that the Mansfield program does not violate anti-discrimination laws because it “expressly does not establish any hiring quotas or other illegally discriminatory practices” and requires “only that participating law firms consider attorneys from diverse backgrounds for certain positions.” The case is Perkins Coie LLP v. U.S. Dep’t of Justice, et al., No. 25-716 (D.D.C. 2025) and is on appeal at the D.C. Circuit Court of Appeals, No. 25-05241 (D.C. Cir.).

On February 12, 2026, Bloomberg reported that Diversity Lab founder Caren Ulrich Stacy announced that the organization will pause its Mansfield program. According to Ulrich Stacy, the organization’s operating funds have been “substantially depleted by the need to respond to Executive Orders, DOJ law-firm lawsuits, and EEOC letters to law firms.” Ulrich Stacy stated that the FTC’s January 30 letters led to hundreds of concerned emails from clients. Most of Diversity Lab’s small team will be furloughed and the organization will operate with only one part-time employee and Ulrich Stacy herself.

Media Coverage and Commentary

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

Washington Post, “Colleges quietly cut ties with organizations that help people of color” (February 19): Todd Wallack of The Washington Post reports that, under pressure from the Trump Administration, many colleges have cut ties with organizations associated with assisting racial minorities. He reports that following the U.S. Department of Education’s civil rights investigations into multiple colleges’ partnerships with the PhD Project, which seeks to diversify the pipeline of aspiring business school professors, more than 100 colleges have ended their relationship with the organization. According to Wallack, the Administration initiated these investigations because the PhD Project limited participation at a prior conference to indigenous students and students of color, although the PhD Project has since opened its annual conference to students of any race. Wallack reports that 31 universities have reached agreements with the Trump Administration to identify their partnerships with organizations that “restrict participation based on race” and either end those partnerships or explain why they will not. Wallack also reports that 14 additional universities are still negotiating with the Administration to resolve their civil rights investigations related to the PhD Project.
Wall Street Journal, “DEI is a Threat to Americans’ Health” (February 12): Stanley Goldfarb argues that DEI initiatives have contributed to a decline in medical education standards in the United States and urges the Trump Administration to reform the accreditation system for medical schools.
CNBC, “Corporate DEI Index Sees 65% Drop in Participation from Fortune 500 Companies” (February 4): CNBC’s Laya Neelakandan reports that the Human Rights Campaign’s Corporate Equality Index saw a 65% drop in Fortune 500 participation, from 377 companies in 2025 to 131 in 2026. Launched in 2002, the index rates companies on workplace social responsibility and equity. Neelakandan writes that the index has become a “conservative target” in recent years and has “seen more companies exiting its orbit.”
K-12 Drive, “Education Department Doubles Down on Anti-DEI Efforts” (February 4): Naaz Modan of K-12 Drive reports that following a court order enjoining enforcement of the U.S. Department of Education’s 2025 “Dear Colleague” letter regarding DEI initiatives, the Department stated to K-12 Drive that it would “continue to vigorously enforce Title VI to protect all students and hold violators accountable.” The Department said that that it “has full authority under Title VI of the Civil Rights Act of 1964 to target impermissible DEI initiatives” and that it “continued to do so with or without the February 14th Dear Colleague Letter.” Modan writes that the letter had been challenged in multiple lawsuits. She quotes the Vice President for Partnerships and Engagement at EdTrust, an educational equity nonprofit, as stating that even without the letter as a source of authority, the Administration has “other levers” to enforce Title VI, including through investigations.

Case Updates

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

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

American Alliance for Equal Rights v. American Bar Association, No. 1:25-cv-03980 (N.D. Ill. 2025): On April 12, 2025, the American Alliance for Equal Rights (“AAER”) sued the American Bar Association (“ABA”) in relation to its Legal Opportunity Scholarship, which AAER asserts violates Section 1981. According to the complaint, the scholarship awards $15,000 to 20-25 first-year law students per year. To qualify, an applicant must be a “member of an underrepresented racial and/or ethnic minority.” On June 16, 2025, the ABA moved to dismiss the complaint for failure to state a claim. AAER filed an amended complaint on June 25, 2025 making new allegations about the ABA’s commitment to diversity and beliefs around refusing to contract with persons of certain races. On July 30, 2025, the ABA again moved to dismiss. On October 31, 2025, AAER filed a notice advising the court that the ABA’s scholarship no longer requires applicants to “be a member of an underrepresented racial and/or ethnic minority” and instead now requires applicants to “have demonstrated a strong commitment to advancing diversity, equity, and inclusion (DEI).” AAER accused the ABA of failing to timely bring these changes to the court’s attention. On November 6, 2025, the court struck AAER’s notice from the record, stating that the reason for the notice was “a mystery since no relief was requested,” and that, given that the ABA had not raised any argument that the case was now moot in light of changes to its policy, the court was “unwilling to follow the parties down this rabbit hole” and would not grant further briefing on the issue.
- Latest update: On January 21, 2026, the court granted in part and denied in part the ABA’s motion to dismiss AAER’s amended complaint. The court held that AAER had organizational standing based on Member A but not Member B, reasoning that Member A had plausibly alleged that he was ready and able to apply but was ineligible under the scholarship’s published criteria for the 2025 cycle, rendering any application futile. Member B, on the other hand, was not applying to law school in 2025 and therefore could not apply for the scholarship during that cycle. The court also noted that the altered eligibility language for the 2026 scholarship cycle appeared to eliminate Member B’s race‑based ineligibility, further undermining the plaintiff’s standing as to Member B. On the merits, the court held that AAER had plausibly pled a Section 1981 claim, rejecting the ABA’s argument that the scholarship was a purely gratuitous program and not “contractual.” Finally, the court declined to resolve the ABA’s First Amendment affirmative defense at the motion‑to‑dismiss stage, because the defense depended on disputed facts that required further factual development through discovery.
American Alliance for Equal Rights and Do No Harm v. Buckfire & Buckfire PC, No. 2:25-cv-13617 (E.D. Mich. 2025): On November 13, 2025, AAER and Do No Harm sued Buckfire & Buckfire, P.C., a Michigan law firm, alleging that the firm discriminates against white scholarship applicants in violation of Section 1981. The plaintiffs allege that the firm offers two scholarships that are “automatically open to member[s] of an ethnic, racial, or other minority group” but only open to white applicants who “demonstrate a defined commitment to issues of diversity.” The plaintiffs assert claims on behalf of their “members who are victims of Buckfire’s discrimination.” The plaintiffs seek declaratory judgment that the scholarships violate Section 1981, a permanent injunction prohibiting defendants from “knowing applicants’ race” and from “considering race as a factor when administering its scholarship programs,” nominal damages, and attorneys’ fees.
- Latest update: On January 20, 2026, the plaintiffs filed an amended complaint alleging that applicants are forced to select a race or ethnicity as part of the application process for the scholarships and providing new factual details regarding Member 1’s denied application for one of the two scholarships. The defendant answered on January 30, 2026, denying that its scholarship programs discriminate, asserting that the scholarships are not contractual, and stating that all applicants are subject to the same requirements and selection criteria. The defendant denies that the “Race/Ethnicity” box on the application is a required field and denies that the plaintiffs’ members suffered any cognizable injury. The defendant seeks dismissal of the action and requests attorneys’ fees and Rule 11 sanctions for factual misstatements.

2. Employment discrimination and related claims

Cooper v. The Office of the Commissioner of Baseball, et al., No. 1:24-cv-03118 (S.D.N.Y 2024): On April 24, 2024, Brandon Cooper, an Arizona-based former minor league baseball umpire sued Major League Baseball (“MLB”), claiming that his employment was retaliatorily terminated after he accused a female umpire of harassing him and using homophobic slurs. The complaint further alleges that the MLB implemented an “illegal diversity quota requiring that women be promoted regardless of merit,” which Cooper contends emboldened the female umpire to believe she could “get away with anything” because she was a woman, and that “MLB ha[d] to hire females” and would not terminate her employment. Cooper later filed an amended complaint adding Alexander Lawrie, a Florida-based former minor league baseball umpire, as co-plaintiff, raising claims under state, local, and federal law for hostile work environment, wrongful termination, failure to promote, and retaliation. The defendants moved to dismiss or in the alternative, to transfer Cooper’s claims to the District of Arizona and Lawrie’s to the Middle District of Florida. On December 17, 2025, the parties submitted a joint letter informing the court that the defendants had reached a settlement in principle with Lawrie and were in the process of finalizing the settlement agreement.
- Latest update: On January 29, 2026, the parties stipulated to dismiss Lawrie’s claims with prejudice, and the court ordered the dismissal on February 6, 2026. Cooper’s claims remain pending. As of February 9, 2026, Cooper and the MLB have confirmed completion of The MLB stated that it intends to move for summary judgment.
EEOC v. Battleground Restaurants, No. 1:24-cv-00792 (M.D.N.C. 2024): On September 25, 2024, the EEOC filed a lawsuit against a sports bar chain, Battleground Restaurants, alleging the chain refused to hire men for its front-of-house positions, such as server or bartender jobs, in violation of Title VII. On August 15, 2025, the parties submitted a proposed consent decree intended as a “complete resolution of all matters in controversy.” The consent decree would enjoin the defendants from “discriminating against any qualified male applicants who apply for nonmanagerial front-of-house positions,” “steering applicants into positions, in whole or in part, because of their sex,” and “disposing of or failing to maintain records relevant to applications for employment.” The defendants agreed to make a payment of $1,111,300 to be distributed to a class of eligible claimants. The defendants also agreed to, among other requirements, “promulgate and maintain” policies that prohibit Title VII violations, require hiring practices be periodically reviewed, require all images in promotional materials depict at least one male server, and require application records be maintained for the duration of the decree. They also agreed to provide an annual in-person training to “all supervisory, management and Human Resources personnel” involved in restaurant hiring.
- Latest update: On February 3, 2026, the court entered the parties’ consent decree providing injunctive and monetary relief, appointing a claims administrator to identify eligible class members and distribute compensation, and requiring policy revisions, training, and reporting by the defendants. The decree will remain in effect for three years and will automatically extend until all related disputes are resolved.
Wang v. University of Pittsburgh et. al., No. 2:20-cv-01952 (W.D. Pa. 2022); No. 25-1816 (3d Cir. 2025): On June 14, 2023, a former employee filed this action against the University of Pittsburgh, the University of Pittsburgh Medical Center, and other individual defendants. The plaintiff alleged that the defendants violated Sections 1983 and 1981, Title VII, and the Pennsylvania Human Relations Act (“PHRA”) by removing him as Director of the Clinical Electrophysiological Program after he published an article criticizing DEI considerations in the cardiology workforce. On March 29, 2024, the defendants moved for summary judgment, arguing that the plaintiff’s claims under Section 1981, Title VII, and the PHRA failed because he did not engage in protected activity and could not establish a causal connection between any purported protected activity and an adverse action, and because the defendants had legitimate, non-retaliatory reasons for removing him from the role. The defendants further argued that the plaintiff’s Section 1983 claims failed because he could not demonstrate a deprivation of federal rights by a defendant acting under the color of state law. On March 26, 2025, the court granted the defendants’ summary judgment motion in full, finding that the University of Pittsburgh was not involved in any alleged adverse actions, that the plaintiff’s removal from the role did not constitute state action, and that his comments during a private meeting with individual defendants did not constitute protected activity. On April 24, 2025, the plaintiff filed a notice of appeal with the Third Circuit, and briefing between the parties concluded on November 3, 2025.
- Latest update: On January 5, 2026, the parties were notified that the appeal was scheduled for oral argument before the Third Circuit on March 6, 2026.

3. Challenges to statutes, agency rules, executive orders, and regulatory decisions

Glass, Lewis & Co., LLC v. Ken Paxton, No. 1:25-cv-01153 (W.D. Tex. 2025): On July 24, 2025, Glass, Lewis & Co., LLC sued Texas Attorney General Ken Paxton to enjoin Texas Senate Bill 2337, which, starting September 1, 2025, requires proxy advisory services like Glass Lewis to “conspicuously disclose” that their advice or recommendations are “not provided solely in the financial interest of the shareholders of a company” if the advice or recommendations are based wholly or in part on ESG, DEI, social credit, or sustainability factors. Glass Lewis alleges that the law unconstitutionally discriminates based on viewpoint and infringes on its freedom of association in violation of the First Amendment. Glass Lewis also contends that the law is unconstitutionally vague under the First and Fourteenth Amendments and is preempted by ERISA. On August 29, 2025, the district court issued a preliminary injunction preventing the law from going into effect. On November 20, 2025, Glass Lewis filed a motion for summary judgment, and in response, the Attorney General filed a motion to defer or deny the motion as premature, arguing that the factual record needed to be complete to resolve Glass Lewis’s claims. On December 5, 2025, the Attorney General filed an answer to Glass Lewis’s complaint.
- Latest update: The court held oral argument on the motions regarding summary judgment on January 22, 2026. On February 2, 2026, the court deferred ruling on Glass Lewis’ summary judgment motion and directed the parties to meet and confer regarding document production.

Legislative Updates

Since the start of 2026, several states have introduced Proxy Advisor Transparency Acts, requiring proxy advisors to disclose when they recommend casting a vote for nonfinancial reasons including diversity, equity, and inclusion.
- Kansas SB 375: The Kansas State Senate Judiciary Committee introduced Kansas Senate Bill 375 on January 22, 2026. The bill requires proxy advisors to disclose when they make recommendations “against company management” without conducting financial analysis, such as recommendations relating to ESG, DEI issues, and social credit and sustainability scores. The stated purpose of the bill is to prevent fraudulent or deceptive practices.
- Mississippi SB 2676: Mississippi State Senator Josh Harkins (R) introduced Mississippi Senate Bill 2676 on January 19, 2026. Like Kansas’s SB 375, the Mississippi Proxy Advisor Transparency Act requires proxy advisors to disclose when they make recommendations against company management without conducting financial analysis. Recommendations against company management include those related to ESG and DEI issues. Shareholders, companies, limited partners, and recipients of proxy advisory services aggrieved by violations of the Act would be entitled to injunctive or declaratory relief.
- Oklahoma HB 4429: Oklahoma State Representative Kyle Hilbert (R) introduced Oklahoma House Bill 4429 on February 2, 2026. The bill requires proxy advisors to “provide, clear, factual disclosures when they recommend casting a vote for a nonfinancial reason” to “prevent fraudulent or deceptive acts and practices.”
- West Virginia SB 417: State Senator Patricia Rucker (R) introduced West Virginia’s Senate Bill 417 on January 15, 2026. The Act requires proxy advisors to disclose when proxy recommendations lack financial analysis. The bill’s “legislative findings” observe that “proxy advisors have recommended votes against company management, including votes for shareholder proposals related to environmental, social, or governance (ESG) issues; diversity, equity, or inclusion (DEI) issues; and social credit and sustainability scores; but have not disclosed to clients that the recommendations were made without conducting a financial analysis to determine how these votes would affect shareholder value.”
Arizona HB 2135: On February 5, 2026, Arizona State Representative Michael Way (R) introduced Arizona House Bill 2135, which provides a private cause of action for private individuals to sue covered entities, such as public employers, universities, or other entities, which violate state or federal anti-DEI laws. The bill defines “covered entity” as “a corporation, organization, institution or agency in [Arizona] that is subject to a state or federal law prohibiting a diversity, equity and inclusion policy.” “Diversity, equity, and inclusion policy,” in turn, is defined as “a policy that is known and practiced as DEI, Critical Race Theory or Anti-Racism or” various other concepts, including the idea of “one race or sex [being] inherently superior to another race or sex” and the idea that “the United States is fundamentally racist.”
Florida SB 1566: Florida State Senator Nick DiCeglie (R) introduced Florida Senate Bill 1566 on January 9, 2026. The bill prohibits local governments from expending public funds for the purpose of promoting DEI initiatives. The bill also prohibits the government from contracting with private vendors for the provision of DEI training or education and requires termination of such contracts. The bill requires each local government to annually certify compliance and encourages individuals to call the governmental efficiency hotline established under the bill to report violations under the section. Similar legislation was introduced in the House.
New Hampshire HB 1788: On January 9, 2026, New Hampshire State Representatives Richard Nalevanko (R), Susan Deroy (R), Robert Wherry (R), Joe Sweeny (R), Jose Cambrils (R), Ross Berry (R), and Ruth Ward (R) introduced New Hampshire House Bill 1788. The bill would require courts to find contracts that include DEI-related provisions to be void as a matter of law and provides a private cause of action for taxpayers to sue public entities or state agencies for engaging in or failing to investigate allegations of contracts with DEI-related provisions. Taxpayers bringing suit would be entitled to declaratory relief, injunctive relief, and reasonable attorney’s fees in any action brought against a district or administrative unit in violation of the act. The bill excludes the following from the definition of DEI: “activities of registered student organizations, mental or physical health services by licensed professionals, bona fide qualifications based on sex, or any attempt to comply in good faith with the Americans with Disabilities Act.”

The following Gibson Dunn attorneys assisted in preparing this client update: Jason Schwartz, Mylan Denerstein, Anna McKenzie, Cynthia Chen McTernan, Zakiyyah Salim-Williams, Molly Senger, Katherine Smith, Cate McCaffrey, Sameera Ripley, Anna Ziv, Emma Eisendrath, Benjamin Saul, Simon Moskovitz, Teddy Okechukwu, Beshoy Shokrolla, Angelle Henderson, Lauren Meyer, Kameron Mitchell, Taylor Bernstein, Jerry Blevins, Chelsea Clayton, Sonia Ghura, Samarah Jackson, Shanelle Jones, Elvyz Morales, Allonna Nordhavn, Felicia Reyes, Eric Thompson, Laura Wang, Daniela De La Cruz, Taylor-Ryan Duncan, Sam Moan, Shreya Sarin, and Rachel Schwartz.

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)

Greta B. Williams – Partner, Labor & Employment Group
Washington, D.C. (+1 202-887-3745, gbwilliams@gibsondunn.com)

Cynthia Chen McTernan – Partner, Labor & Employment Group
Los Angeles (+1 213-229-7633, cmcternan@gibsondunn.com)

Anna M. McKenzie – Partner, Labor & Employment Group
Washington, D.C. (+1 202-955-8205, amckenzie@gibsondunn.com)

New SDNY program provides a clear pathway for declinations where corporations decide to self-report certain financial crimes, with key differences from other DOJ corporate self-disclosure programs.

On February 24, 2026, the United States Attorney’s Office for the Southern District of New York (SDNY) announced a new, voluntary self-disclosure program in which corporations that timely self-report certain types of financial crimes, and subsequently cooperate with SDNY’s investigation, remediate the misconduct, and provide restitution to victims, will promptly receive a letter from SDNY declining to criminally prosecute the corporation.[1] Jay Clayton, U.S. Attorney for the SDNY, had previewed this new program in a fireside chat in December when he told a New York City Bar Association audience that SDNY was planning to offer “real benefits” to companies that quickly self-report misconduct, cooperate with the government, and rapidly compensate victims.[2]

SDNY’s new program, which differs in several key (and often favorable) respects from self-disclosure programs previously announced by other U.S. Attorneys’ Offices and DOJ divisions, provides corporations with a clear outline of the steps necessary to obtain a criminal declination. At the same time, SDNY has made clear that failure to timely self-report or attempt to self-report will result in a presumption that the corporation will not receive a declination, regardless of its cooperation. With the greater certainty of declination should the corporation follow the prescribed steps, and of the consequences of failing to timely self-report, SDNY’s new program may lead to an increase in corporate self-reporting of covered financial crimes to SDNY. SDNY’s program may also serve as a model for other U.S. Attorney’s Offices to adopt similar programs.

Categories of Crimes Eligible for Self-Reporting

The new SDNY program only applies to certain categories of financial crimes. Specifically, it applies to any fraud committed by a corporation or any of its employees, officers, directors, or agents. This includes any fraud in connection with securities, commodities, or digital assets, any false statements to auditors or regulators, and any other willful violations of federal securities laws that undermine the integrity of financial markets or otherwise cause harm, such as insider trading and market manipulation.

The SDNY program will not apply to any corporate crimes that have a nexus to terrorism, sanctions evasion, foreign corruption, drug or human trafficking, or other crimes involving violence or forced labor, nor to crimes involving the financing or laundering of money in connection with those crimes. For most corporations, the biggest impact will be that the SDNY program will not apply to FCPA and associated internal controls and books and records violations.

Importantly, eligibility for the program will not depend on the seriousness of the offense, the pervasiveness of the misconduct, the severity of harm caused by the misconduct, past criminal history, or the involvement of senior leaders. This is in stark contrast to other federal government self-disclosure programs, including among others the DOJ Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy, which treated these as aggravating factors disqualifying corporations from receiving declination.[3] For that reason, the SDNY program both opens a wider number of crimes to declination if self-reported, and, importantly, offers corporations considering whether to self-report much greater certainty that, if self-reported, the illegal conduct they identified will not result in a criminal prosecution depending on the facts learned during the investigation. The SDNY program may therefore yield a higher rate of self-reporting than other government self-reporting programs.

Timely Self-Reporting

If a crime is eligible for potential declination, the corporation must promptly report it to SDNY, prior to receiving a government subpoena or document request, including from a regulatory agency or state government, and prior to the company learning of the existence of a government investigation. Critically, a corporation will not be disqualified even if the corporation self-reports after it learns of a whistleblower submission to the government or there are press reports regarding the illegal activity, provided there was no public reporting of a government investigation into the misconduct. This again is in contrast to other government self-disclosure programs, which require self-reporting prior to the misconduct being publicly disclosed or known to the government, and even before there is an imminent threat of disclosure or government investigation.[4] In other words, unlike other programs, the SDNY program appropriately assesses the timeliness of self-reporting based on when the company learned of a government investigation, not based on when the government knew or was about to learn of the alleged misconduct. The SDNY program therefore makes it easier for a company’s self-report to qualify as timely and, thereby, eligible for declination.

If a company decides to self-report, it should not wait to complete its internal investigation before reporting. Delay in self-reporting, especially where SDNY views it as strategic or self-serving, may disqualify a company. The company’s self-report must include all known facts about the misconduct, the individuals involved, and any affected parties, and must be updated promptly as the company learns new information.

Conditional Declination

After a company self-reports, SDNY will determine whether the company is eligible for declination pursuant to the program. If SDNY determines that the company is eligible, SDNY will promptly grant the company a conditional declination. The conditional declination letter will explain that SDNY will decline to prosecute the company for the illegal conduct if it satisfies certain conditions set forth in the letter, including committing to cooperate with the government’s investigation, conduct remediation, and provide restitution to those harmed.[5] SDNY expects that conditional declination letters will be issued to qualifying companies within two to three weeks of self-reporting.

Other self-reporting programs have not offered such a prompt, conditional declination, waiting until the investigation runs its course to determine whether declination is appropriate.[6] As SDNY emphasizes, its new approach of prompt conditional declinations is designed to give the company, its management, and its shareholders crucial clarity regarding the likely outcome of the investigation at the outset, further incentivizing self-reporting.

Even if a company that timely self-reports is deemed ineligible for conditional declination based on the nature of the crime reported, it is possible that SDNY may still treat the company more favorably for having timely self-reported.

Still, executives should approach the program with caution. SDNY has historically focused on charging high-level executives, rather than companies, so SDNY may view the provision of information and evidence against executives as a key component of cooperation. Companies should also be prepared to assess whether a conditional declination is worthwhile if it means a key executive could later be charged criminally.

The early need to make a decision whether to self-report and agree to a conditional declination, especially if the conduct potentially involved company executives, may also accelerate and increase Board of Director involvement, including through the creation of a Special Committee to help assess and determine a course of action.

Cooperation

As with other self-disclosure programs, the corporation must fully cooperate with the government’s investigation in order to receive declination. This cooperation must include, among other things, (a) accurate disclosure of all relevant, non-privileged information known to the company relating to the misconduct; (b) identifying individuals involved in or responsible for the conduct, as well as witnesses with material information; (c) sharing the non-privileged factual results of internal investigations; (d) producing all relevant documents, including documents located abroad, and making efforts to mitigate barriers to production caused by data privacy laws and foreign blocking statutes; (e) specifically identifying documents that are material to individual culpability; (f) subject to individuals’ Fifth Amendment rights against self-incrimination, using best efforts to make current or former company employees or representatives, including those located overseas, available for interviews or testimony; (g) using best efforts to ensure that these witnesses are truthful; (h) coordinating with SDNY to ensure that the company’s internal investigation does not interfere with SDNY’s investigation; and (i) preserving records, including relevant custodians’ communications on ephemeral messaging apps.

The company must also agree to self-report to SDNY for three years all credible evidence or allegations of violations of U.S. laws. Importantly, a company will not be disqualified from potentially receiving a declination for any misconduct that it subsequently self-reports pursuant to this continuing obligation. Nevertheless, this broad disclosure requirement may serve as a deterrent to self-reporting for some companies.

Remediation

The corporation must remediate the harm caused by the criminal conduct to obtain declination. Remediation may include implementing changes to the company’s compliance program and terminating or disciplining any company employees, officers, directors, agents, customers, or investors knowingly and directly involved in the misconduct.

The remediation required by the SDNY program differs from that required by other government self-reporting programs in multiple respects. First, certain other programs have required companies to conduct a root cause analysis to determine the cause of the misconduct, and to implement an effective compliance program.[7] The SDNY program more narrowly only states that remediation may require implementing changes to the compliance program, without any reference to a root cause analysis or implementation of an effective compliance program. It remains to be seen how meaningful a distinction this will be in practice. Second, whereas SDNY only requires disciplining individuals knowingly and directly involved in the misconduct, other programs have also required disciplining individuals who failed in oversight or had supervisory authority over the area in which the criminal conduct occurred, even if those individuals did not participate in the misconduct.[8] By requiring a narrower remediation than other self-disclosure programs, the SDNY program may encourage greater self-reporting.

Restitution to Injured Parties

As a condition of declination, the SDNY program requires companies to pay restitution to all injured parties. To the extent the corporation pays restitution through a resolution with a regulator such as the Securities and Exchange Commission, SDNY will credit that restitution.

Notably, other disclosure programs additionally require corporations to disgorge or forfeit profits that they earned from the illegal conduct.[9] The SDNY program, however, explicitly disclaims forfeiture so long as the company provides full restitution, and does not mention disgorgement. To the extent a corporation earned profits from criminal conduct for which there are no victims meriting restitution, a corporation may be able to retain those profits and still receive an SDNY declination letter for self-reporting. Of course, another regulator may still require disgorgement as a condition to settlement, so in practice a company may not be able to retain any profits associated with the criminal conduct.

Final Declination

At the conclusion of the government’s investigation, after the company has fulfilled its cooperation, remediation, and restitution obligations, SDNY will issue a final declination notice, concluding the case without criminal charges. Importantly, the declination letter will not protect individuals, including company employees, from prosecution for the crimes the company self-reported.

The declination letter also has limits: “[it] cannot bind any state, local, or foreign prosecuting authority, or any other federal authority including regulators.” But SDNY pledges to bring to the attention of any such agencies the company’s self-reporting, cooperation, and remediation. As additional incentives to self-report, SDNY will not require payment of any fine or forfeiture as a condition of declination, provided the company makes “reasonable best efforts to provide prompt and full restitution to all injured parties.” Nor will SDNY require a company to employ a monitor in order to receive declination.

Summary of Key Differences With Other Programs

As shown above, the SDNY program differs materially from that of other US Attorney’s Office and DOJ corporate disclosure programs, including most notably the DOJ Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy, in several key respects:

The SDNY program does not treat the seriousness of the offense, the pervasiveness of the misconduct, the severity of harm caused by the misconduct, past criminal history, or the involvement of senior leaders as aggravating factors precluding declination;
The SDNY program assesses the timeliness of self-reporting based on when the company learned of a government investigation, not when the government knew or was about to learn of the alleged misconduct;
The SDNY program offers companies that timely self-report covered misconduct a prompt, conditional declination at the outset of an investigation, rather than wait until the investigation concludes to determine whether declination is appropriate.
As part of remediation, the SDNY program requires companies to implement necessary changes to their compliance programs, but does not expressly mandate that companies conduct a root cause analysis or demonstrate the implementation of an effective compliance program;
Also as part of remediation, the SDNY program only requires disciplining individuals knowingly and directly involved in the misconduct, whereas other programs more broadly require disciplining individuals who failed in oversight or had supervisory authority over the area in which the criminal conduct occurred, even if those individuals did not participate in the misconduct; and
The SDNY program requires full restitution to all injured parties, but, so long as there has been restitution, does not require forfeiture or disgorgement of profits in order to receive a declination.

Conclusion

The SDNY’s new self-disclosure program seeks to deliver on U.S. Attorney Clayton’s promise to offer “real benefits” to companies that timely self-report applicable financial crimes. The program appears designed to provide a clear, structured pathway to achieve declination. The prompt conditional declination provides companies with the promise of a higher degree of certainty at the outset of an investigation regarding the ultimate outcome of what could potentially be a years’ long government investigation. In addition, by disclaiming the aggravating factors that other self-reporting programs use to disqualify corporations from eligibility for declination, the SDNY program is intended to provide companies with assurance that the conditional declination they received will not change as the facts develop during the course of the investigation. The SDNY program also appears to offer certain clearer benefits for self-reporting than comparable government disclosure programs, including narrower remediation and payments limited to restitution.

The SDNY program has incentives designed to change the calculus for many corporations regarding whether to self-report – and indeed to whom to self-report. As a result, there may be an increase in corporate self-reporting of eligible offenses to SDNY, and we will continue to closely monitor developments.

[1] See United States Attorney’s Office for the S.D.N.Y., Corporate Enforcement and Voluntary Self-Disclosure Program for Financial Crimes (Feb. 24, 2026), available at https://www.justice.gov/usao-sdny/media/1428811/dl?inline.

[2] See SDNY Head Backs Good Deals For Quick Cooperation By Cos., Law360 (Dec. 2, 2025), available at https://www.law360.com/pulse/articles/2417296.

[3] See U.S. Dep’t of Justice, Criminal Div., Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy (May 12, 2025), available at https://www.justice.gov/d9/2025-05/revised_corporate_enforcement_policy_-_2025.05.11_-_final_with_flowchart_0.pdf; United States Attorney’s Office for the E.D. Pa., Corporate Transparency Initiative (Sep. 3, 2025), available at https://www.justice.gov/usao-edpa/corporate-transparency-initiative; U.S. Dep’t of Justice, Nat’l Security Div., NSD Enforcement Policy for Business Organizations (Mar. 7, 2024), available at https://www.justice.gov/nsd/media/1285121/dl. For more on the Criminal Division Corporate Enforcement Policy, please see our client alert.

[4] See Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy; E.D. Pa. Corporate Transparency Initiative; NSD Enforcement Policy for Business Organizations; U.S. Dep’t of Justice, Antitrust Div., Leniency Policy and Procedures (June 2022), available at https://www.justice.gov/atr/page/file/1490246/dl?inline.

[5] SDNY published a model conditional declination letter, available at https://www.justice.gov/usao-sdny/media/1428826/dl?inline.

[6] See Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy; E.D. Pa. Corporate Transparency Initiative; NSD Enforcement Policy for Business Organizations.

[7] See Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy; NSD Enforcement Policy for Business Organizations.

[8] See Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy; NSD Enforcement Policy for Business Organizations.

[9] See Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy; E.D. Pa. Corporate Transparency Initiative; NSD Enforcement Policy for Business Organizations.

The following Gibson Dunn lawyers prepared this update: Stephanie Brooker, Nick Hanna, F. Joseph Warin, Winston Chan, Barry Berke, Reed Brodsky, Jordan Estes, Dani James, Michael Martinez, Karin Portlock, Oleh Vretsona, Sam Raymond, and Jonathan Seibald.

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 leader or member of the firm’s White Collar Defense & Investigations practice group, or the authors:

Barry H. Berke – New York (+1 212.351.3860, bberke@gibsondunn.com)

Reed Brodsky – New York (+1 212.351.5334, rbrodsky@gibsondunn.com)

Stephanie Brooker – Co-Chair, Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)

Winston Y. Chan – Co-Chair, San Francisco (+1 415.393.8362, wchan@gibsondunn.com)

Jordan Estes – New York (+1 212.351.3906, jestes@gibsondunn.com)

Nicola T. Hanna – Co-Chair, Los Angeles (+1 213.229.7269, nhanna@gibsondunn.com)

Dani R. James – New York (+1 212.351.3880, djames@gibsondunn.com)

Michael Martinez – New York (+1 212.351.4076, mmartinez2@gibsondunn.com)

Karin Portlock – New York (+1 212.351.2666, kportlock@gibsondunn.com)

Oleh Vretsona – New York (+1 202.887.3779, ovretsona@gibsondunn.com)

F. Joseph Warin – Co-Chair, Washington, D.C. (+1 202.887.3609, fwarin@gibsondunn.com

Sam Raymond – New York (+1 212.351.2499, sraymond@gibsondunn.com)

Jonathan Seibald – New York (+1 212.351.3916, mseibald@gibsondunn.com)

Until the scope of any new proposed rule becomes clear, companies should expect that cancellation design, consent flows, and subscription disclosures will remain under close regulatory scrutiny, including through active enforcement under ROSCA and Section 5 of the FTC Act.

The Federal Trade Commission has renewed its efforts to promulgate a nationwide rule governing subscription cancellation practices, following the U.S. Court of Appeals for the Eighth Circuit’s vacatur of the FTC’s prior “Click-to-Cancel” Rule in July 2025. The vacated rule would have imposed sweeping requirements on subscription and autorenewal programs, extending beyond existing statutory obligations under the Restore Online Shoppers’ Confidence Act (ROSCA). The Eighth Circuit’s ruling came in a case brought by Gibson Dunn on behalf of industry petitioners. Agreeing with Gibson Dunn’s arguments, the Eighth Circuit invalidated the Click-to-Cancel Rule in its entirety, holding that the FTC failed to comply with the procedural requirements of its Magnuson-Moss rulemaking authority. In response to the Eighth Circuit’s ruling, on January 30, 2026, the FTC submitted a draft Advance Notice of Proposed Rulemaking (ANPRM) to the Office of Information and Regulatory Affairs (OIRA), formally initiating a new rulemaking process.

Bottom Line: Although the July 2025 vacatur halted implementation of a sweeping trade regulation rule, it did not reduce federal scrutiny of subscription practices. Any renewed rulemaking proposal must address the deficiencies identified by the Eighth Circuit, including required economic analysis. Until the scope of any new proposed rule becomes clear, companies should expect that cancellation design, consent flows, and subscription disclosures will remain under close regulatory scrutiny, including through active enforcement under ROSCA and Section 5 of the FTC Act.

Key Takeaways

The Eighth Circuit vacated the prior Click-to-Cancel Rule in litigation brought by Gibson Dunn, requiring the FTC to comply with Magnuson-Moss procedural safeguards in any renewed rulemaking effort.
The FTC has now initiated a new rulemaking effort.
The FTC continues to pursue subscription-related conduct under its existing authority, including ROSCA and Section 5 of the FTC Act.
State autorenewal statutes—and state enforcement of those laws—continue to expand, increasing compliance complexity.

The Eighth Circuit’s Vacatur

In October 2024, the FTC adopted a revised Negative Option Rule—commonly referred to as the Click-to-Cancel Rule—that would have imposed sweeping requirements on companies offering subscription and autorenewal programs. The rule extended beyond online transactions and included, among other things:

A requirement for separate, express consent to the negative option feature;
Broad prohibitions on misrepresentations concerning any material aspect of the transaction;
Restrictions on certain “save” or retention attempts during cancellation; and
Cancellation mechanisms that were at least as easy as the method used to enroll.

These requirements went beyond the baseline obligations imposed by ROSCA, which applies to online transactions and focuses on clear disclosure, informed consent, and a simple mechanism to stop recurring charges.

In July 2025, the Eighth Circuit vacated the Click to Cancel Rule after petitioners represented by Gibson Dunn demonstrated that the FTC failed to conduct a preliminary regulatory analysis that was required because the Rule’s economic impact exceeded the statutory threshold for major rules under Section 18 of the FTC Act. The court held that the FTC’s later regulatory analysis could not cure that defect. The decision reinforces that FTC trade regulation rules must strictly comply with the procedural and economic requirements of the Magnuson-Moss framework, particularly where projected impact is substantial.

FTC’s Renewed Rulemaking

On January 30, 2026, the FTC submitted a draft ANPRM on negative option practices to OIRA for review pursuant to Executive Order 14215, which requires White House review of independent agency rulemakings. If cleared, the FTC will publish the ANPRM in the Federal Register, opening a new public comment process.

The text of the ANPRM has not yet been released publicly. As a result, it remains unclear whether the FTC intends to re-propose a rule comparable in scope to the vacated Click-to-Cancel Rule or pursue a different approach. In light of the Eighth Circuit’s ruling, the Commission may seek to advance a more tailored proposal centered on defining a “simple” or “easy” cancellation method, rather than re-proposing the broader prohibitions contained in the vacated rule.

The renewed ANPRM confirms continued federal attention to subscription and cancellation practices.

ROSCA Enforcement Remains Active

Even without a new rule in effect, the FTC continues to regulate subscription practices through enforcement under ROSCA and Section 5 of the FTC Act.

FTC leadership has publicly emphasized that unwanted subscriptions and cancellation obstacles remain enforcement priorities. Statements by Chair Andrew Ferguson and Bureau of Consumer Protection Director Chris Mufarrige underscore the FTC’s continued focus on subscription enrollment and cancellation practices under existing statutory authority.

ROSCA requires companies offering online negative option features to clearly and conspicuously disclose all material terms before obtaining a consumer’s billing information, secure the consumer’s express informed consent to the subscription, and provide a simple mechanism to stop recurring charges. These statutory standards remain fully operative and continue to serve as the basis for enforcement actions.

Recent cases reflect a consistent focus on whether subscription programs adequately disclose automatic renewal and fee terms before enrollment, whether consent mechanisms demonstrate informed agreement to recurring charges, and whether cancellation processes introduce friction that could be characterized as unreasonably difficult.

Over the past two years, the FTC and the U.S. Department of Justice (on the FTC’s behalf) have brought actions across multiple industry sectors—including e-commerce, digital services, ed-tech, and subscription-based consumer products—challenging enrollment disclosures, consent flows, and cancellation design. Several matters have resulted in substantial monetary settlements, including a $7.5 million resolution involving alleged concealment of cancellation options, and a $60 million settlement concerning renewal disclosures and refund practices.

The scale of these settlements underscores a central reality: the FTC is already using its existing statutory authority under ROSCA to pursue the same core subscription practices targeted by the vacated Click-to-Cancel Rule.

For businesses, the practical takeaway is that the vacatur of the Click-to-Cancel Rule has not reduced scrutiny of subscription models. The FTC’s enforcement posture reflects continued attention to disclosure, consent, and cancellation design—the very issues likely at the center of the renewed rulemaking effort.

State Law Developments

State legislatures continue to update and expand autorenewal statutes. States including California, Colorado, Minnesota, and New York have strengthened disclosure, reminder, and cancellation requirements. In some jurisdictions, state requirements exceed federal baseline standards under ROSCA.

In addition, like the FTC, states have been active in enforcing their state autorenewal laws. For example, in August, the California Automatic Renewal Task Force—made up of several California District Attorney’s offices—announced a $7.5 million settlement with a meal delivery service to resolve claims under California’s Autorenewal Law. In November 2025, 34 states announced a $4.8 million settlement with an online clothing retailer related to the retailer’s paid membership program.

For businesses operating nationally, compliance therefore requires navigating both evolving federal enforcement standards and increasingly prescriptive state mandates.

Implications for Businesses

Companies offering negative option features should:

Review subscription disclosures for clarity and prominence;
Confirm consent flows meet ROSCA’s express informed consent standard;
Evaluate cancellation pathways to ensure they are straightforward and defensible;
Assess retention or “save” mechanisms to ensure they do not functionally impede a consumer’s ability to cancel through a simple mechanism; and
Monitor both federal rulemaking developments and state legislative changes.

Conclusion

The FTC’s renewed rulemaking effort, coupled with ongoing ROSCA enforcement and expanding state regulation and enforcement, underscores that subscription compliance remains a significant regulatory risk for businesses. Companies should evaluate their subscription practices accordingly. Gibson Dunn lawyers are available to assist with compliance strategy, enforcement defense, and engagement in the rulemaking process.

The following Gibson Dunn lawyers prepared this update: Svetlana Gans, Ryan Bergsieker, Ashley Rogers, Caelin Moriarity Miltko, and Connor Mui.

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, the authors, or any of the following leaders and members of the firm’s Consumer Protection, Administrative Law & Regulatory, Antitrust & Competition, or Privacy, Cybersecurity & Data Innovation practice groups:

Consumer Protection:
Gustav W. Eyler – Washington, D.C. (+1 202.955.8610, geyler@gibsondunn.com)
Svetlana S. Gans – Washington, D.C. (+1 202.955.8657, sgans@gibsondunn.com)
Ashley Rogers – Dallas (+1 214.698.3316, arogers@gibsondunn.com)

Administrative Law & Regulatory:
Stuart F. Delery – Washington, D.C. (+1 202.955.8515, sdelery@gibsondunn.com)
Eugene Scalia – Washington, D.C. (+1 202.955.8673, escalia@gibsondunn.com)
Helgi C. Walker – Washington, D.C. (+1 202.887.3599, hwalker@gibsondunn.com)

Antitrust & Competition:
Rachel S. Brass – San Francisco (+1 415.393.8293, rbrass@gibsondunn.com)
Svetlana S. Gans – Washington, D.C. (+1 202.955.8657, sgans@gibsondunn.com)
Kristen C. Limarzi – Washington, D.C. (+1 202.887.3518, klimarzi@gibsondunn.com)
Cindy Richman – Washington, D.C. (+1 202.955.8234, crichman@gibsondunn.com)

Privacy & Cybersecurity:
Ryan T. Bergsieker – Denver (+1 303.298.5774, rbergsieker@gibsondunn.com)
Cassandra L. Gaedt-Sheckter – Palo Alto (+1 650.849.5203, cgaedt-sheckter@gibsondunn.com)
Vivek Mohan – Palo Alto (+1 650.849.5345, vmohan@gibsondunn.com)

From the Derivatives Practice Group: This week, the CFTC reissued Staff Letter 25-50 to add an additional no-action position regarding CPO delegation arrangements.

New Developments

CFTC Reaffirms Exclusive Jurisdiction over Prediction Markets in U.S. Circuit Court Filing. On February 17, the CFTC filed an amicus brief in the U.S. Circuit Court of Appeals for the Ninth Circuit confirming its exclusive jurisdiction over the U.S. commodity derivatives markets, including event contract markets commonly referred to as prediction markets. The brief was filed in North American Derivatives Exchange, Inc. et al v. The State of Nevada on relation of the Nevada Gaming Control Board et al.

New Developments Outside the U.S.

ESMA Publishes the Results of the Annual Transparency Calculations for Equity and Equity-like Instruments. On February 27, ESMA published the results of the annual transparency calculations for equity and equity-like instruments, which will apply from April 6, 2026. The full list of assessed equity and equity-like instruments is available through ESMA’s FITRS in the XML files with publication date from 27 February 2026 (see here) and through the Register web interface (see here). [NEW]

EBA and ESMA Consult on Revised Suitability Assessment Requirements for Banks and Investment Firms. On February 25, European Banking Authority (EBA) and ESMA launched a consultation on the revised joint guidelines on the assessment of the suitability of members of the management body and key function holders. The revised guidelines form part of a broader package designed to harmonise suitability assessments and ensure supervisory convergence across the EU. The consultation runs until May 25, 2026. [NEW]

ESMA Consults on Guarantees as CCP Collateral and on Certain Aspects of CCP Investment Policy. On February 23, ESMA launched a public consultation following the review of the European Market Infrastructure Regulation (EMIR 3). ESMA is encouraging all interested stakeholders, including non-financial counterparties (NFCs), to share their views about: the relevant conditions under which public guarantees, public bank guarantees and commercial bank guarantees may be accepted by central counterparties (CCPs) as collateral; the conditions under which debt instruments can be considered as eligible financial instruments for the purpose of CCP investment policy; and the highly secured arrangements in which emission allowances posted as margins or default fund contributions can be deposited. [NEW]

ESMA Publishes Supervisory Briefing on the AAR Representativeness Obligation. On February 20, ESMA published a supervisory briefing on the representativeness obligation linked to the active account requirement (AAR). The briefing sets out ESMA’s supervisory expectations for how counterparties should comply with and report on the AAR representativeness obligation. According to ESMA, it also provides guidance and promotes supervisory convergence for the supervision of counterparties subject to the AAR.

ESMA Publishes List of Supplementary Deferrals for Sovereign Bonds. On February 19, ESMA and the National Competent Authorities (NCAs) have agreed that supplementary deferrals may be applied on top of the standard Markets in Financial Instruments Regulation deferral regime for sovereign bonds. ESMA and all NCAs, except the National Bank of Slovakia, have decided to allow the following supplementary deferrals: for trades of a medium size on liquid bonds in Group 1, the publication of the volume may be omitted until the end of the trading day. The supplementary deferrals should start applying on May 4, 2026.

ESMA Seeks Input to Streamline and Simplify its Market Abuse Guidelines. On February 19, ESMA launched a consultation proposing amendments to its Market Abuse Regulation guidelines on the delay in the disclosure of inside information. According to ESMA, the proposals will align the guidelines with the disclosure regime as amended by the Listing Act, ensuring issuers face fewer administrative burdens while benefiting from clearer requirements.

New Industry-Led Developments

ISDA Publishes SwapsInfo Full Year 2025 and the Fourth Quarter of 2025 Review. On February 17, ISDA published a report noting that trading activity in interest rate derivatives (IRD) and credit derivatives increased in 2025, which ISDA said reflects shifting monetary policy expectations and broader market conditions. ISDA also found that IRD traded notional rose by about 46% year-on-year, led by an increase in overnight index swaps. Index credit derivatives also traded notional grew by more than 50%.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The CFTC re-affirms its intent to police insider trading on registered prediction markets.

With prediction markets rapidly growing, the Commodity Futures Trading Commission’s (CFTC) Enforcement Division issued a pointed reminder: trading in event contracts on prediction markets can violate exchange rules and/or constitute fraud or insider trading-type misconduct under federal law if the trader has direct or indirect influence over the outcome of the event or has confidential information and acts in breach of a pre-existing duty of trust and confidence, such as a duty owed to the trader’s employer.

What Happened?

The February 25, 2026 CFTC enforcement advisory relates to enforcement action taken by a CFTC-registered exchange but makes clear that engaging in unlawful trading practices in event contracts will not escape scrutiny from the CFTC itself, whose mandate includes enforcement against fraud, manipulation, and abusive practices in the U.S. derivatives markets, including registered prediction markets.

CFTC-registered exchanges, which include registered prediction markets known as “Designated Contract Markets,” are self-regulatory organizations and have oversight responsibilities over the activities that occur on their platforms. In addition to supervising this exchange-level oversight, the CFTC retains enforcement authority over trading activities on the exchanges it regulates. The advisory cited one exchange’s internal enforcement program’s handling of two matters. In one matter, a political candidate traded an event contract tied to his own candidacy in violation of exchange rules because the exchange alleged that the trader had direct or indirect influence over the outcome of the event. In another, the exchange penalized a video editor who allegedly traded an event contract on upcoming content that had not yet been released, enabling highly successful trades on the alleged basis of material, nonpublic information that was misappropriated from the trader’s employer in violation of a pre-existing duty of trust and confidence.

In addition to noting these exchange-level sanctions, the enforcement advisory underscored that the CFTC has full authority to police illegal trading practices (including those on exchanges) and that such conduct may violate among other things Section 6(c)(1) of the Commodity Exchange Act and CFTC Rule 180.1, which prohibit manipulative schemes and trading based on misappropriated confidential information. The enforcement advisory highlighted that the CFTC’s Enforcement Division “will investigate and prosecute violations” and is coordinating with exchanges regarding “referrals of appropriate potential violations” to the Enforcement Division.

Why This Matters

Using confidential company information in prediction markets can violate a pre-existing duty of confidentiality to the company.

Using internal, confidential, or time-sensitive company information to profit on prediction markets can create significant personal and legal risk for individuals. In the course of their employment, employees often encounter nonpublic information subject to a duty of confidentiality and/or subject to requirements to not utilize such information for personal benefit, either pursuant to various company policies or under common law or both. For example, company codes of conduct or common law duties may prohibit employees and other covered persons from:

using employer confidential information for personal gain,
misusing employer resources,
engaging in conflicts of interest, or
acting in ways that harm the company’s reputation.

If an employee’s trading on prediction markets violates company policies or common law duties, such trading could not only breach duties to the trader’s employer, for which the employer could take punitive actions, but also result in violation of exchange rules and federal laws. The same types of restrictions, and thus same consequences, may apply to independent contractors, service providers, and others with access to confidential or proprietary information arising through a relationship that supports a duty of trust and confidence.

Trading on such confidential information could also potentially expose individuals to regulatory scrutiny.

The Enforcement Division, in its advisory, also made clear that (1) exchanges have been, and are expected to, enforce their rules and the CFTC’s rules with respect to trading in event contracts, and (2) the CFTC is looking at trading in event contracts as an area for potential investigation. This could create real legal risks for individuals involved in inappropriate activities.

The advisory, for example, cited CFTC Rule 180.1, which is broad and modeled on SEC Rule 10b-5,[1] and referenced as an illegal practice “misappropriation of confidential information in breach of a pre-existing duty of trust and confidence to the source of the information (commonly known as ‘insider trading’) ….” The Enforcement Division also cited other illegal disruptive trading practices including pre-arranged, noncompetitive trading and wash sales, disruptive trading, and general fraud and market manipulation.

Influence over an outcome is a red flag.

If an individual’s role allows that person to influence the outcome of an event (e.g., campaign work, corporate announcements, event planning, content production), trading on related event contracts poses significant risks that such trading could be found to violate not only workplace policies but also exchange rules and federal law, as outlined above. As referenced in the CFTC’s advisory, one trader in a recent exchange action was penalized specifically because he had direct or indirect influence over the outcome.

Bottom Line: Improper Event Contract Activity Will Attract Scrutiny

Like trading on any financial market, both the CFTC and CFTC-regulated exchanges prohibit the misuse of information. The CFTC has now re-affirmed that it has full authority to police illegal trading practices on exchanges and that prediction market users involved in inappropriate trading can face regulatory consequences.

In addition, many companies maintain codes of conduct or other policies that prohibit employees and others from engaging in conduct such as that discussed above. Companies may well find it helpful to specifically address the applicability of their policies to prediction market trading, both to assist their employees in avoiding prohibited or unlawful conduct and to protect the companies’ reputation. And the CFTC has been explicit that exchanges (e.g., designated contract markets) have a duty to maintain audit trails, conduct surveillance, and enforce their rules against illegal practices.

If you are interested in discussing these developments, Gibson Dunn’s lawyers are available to assist with any questions you may have.

[1] SEC Rule 10b-5, promulgated under Section 10(b) of the Securities Exchange Act of 1934, prohibits the use of any manipulative or deceptive device in connection with the purchase or sale of any security. The Rule makes it unlawful (a) to employ any device, scheme, or artifice to defraud; (b) to make any untrue statement of a material fact or to omit a material fact necessary to make statements made not misleading; or (c) to engage in any act, practice, or course of business that operates as a fraud or deceit upon any person, in each case in connection with the purchase or sale of any security. 17 C.F.R. § 240.10b-5 (2025); see also Securities Exchange Act of 1934 § 10(b), 15 U.S.C. § 78j(b) (2024).

The following Gibson Dunn lawyers prepared this update: Jina Choi, Julia Lapitskaya, Ronald Mueller, Osman Nawaz, Tina Samanta, Jeffrey Steiner, and Sarah Pongrace.

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, any member of the firm’s Derivatives, Securities Regulation & Corporate Governance, or Securities Enforcement practice groups, or the following authors:

Jina L. Choi – San Francisco (+1 415.393.8221, jchoi@gibsondunn.com)
Julia Lapitskaya – New York (+1 212.351.2354, jlapitskaya@gibsondunn.com)
Ronald O. Mueller – Washington, D.C. (+1 202.955.8671, rmueller@gibsondunn.com)
Osman Nawaz – New York (+1 212.351.3940, onawaz@gibsondunn.com)
Tina Samanta – New York (+1 212.351.2469, tsamanta@gibsondunn.com)
Jeffrey L. Steiner – Washington, D.C. (+1 202.887.3632, jsteiner@gibsondunn.com)