This article was originally published on BankNews and is republished here with permission as it originally appeared on October 15, 2025.

As artificial intelligence continues to transform the financial services industry, banks — especially smaller institutions with limited resources — need to consider how to responsibly and effectively integrate these tools into their operations. AI offers numerous opportunities to add value to existing processes, including enhanced efficiency, risk management and improving customer service. However, these new AI technologies also bring complex regulatory, ethical and operational challenges banks must be prepared to address.

Banking leadership and oversight

Before moving forward with AI implementation, senior leadership, including the board of directors, should develop a comprehensive AI strategy that aligns with overall business objectives. This includes identifying specific goals, which can guide the selection and deployment of AI technology. By setting clear objectives, banks can prioritize their AI investments and measure the effectiveness of AI tools and solutions to achieve these goals, while also ensuring alignment with a bank’s legal obligations. Successful AI implementation requires enterprise-wide commitment from top to bottom to foster a culture of accountability and shared responsibility. It may be prudent for banks to consider forming a dedicated AI committee with a formal charter, cross-functional members, defined responsibilities,and decisionmaking authority to navigate this process.  

Data management and infrastructure

To ensure successful implementation of AI, banks should also establish a solid governance structure, which could leverage existing industry resources such as the National Institute of Standards and Technology (NIST) AI risk management framework or the ISO/IEC 42001: AI management system. Such governance structures should include comprehensive policies and procedures, investing in staff training, and establishing processes for testing, monitoring and auditing AI technology in areas such as data quality of inputs, discriminatory or biased results, the privacy and security of data used in AI solutions. Banks should also be prepared to take swift corrective action, when appropriate, to address issues that may arise when using AI, including remediating bias and discrimination in any decisions made using AI. This is essential to maintain customer trust and compliance with relevant laws.

Transparency and explainability

Transparency and explainability are especially critical for consumer-facing AI applications. Banks must ensure clear disclosures, offer opt-out rights and maintain the ability to explain AI-driven decisions to customers. Documenting AI decisions and preserving human oversight are key steps towards enhancing the effectiveness of AI models and ensuring compliance with regulatory standards. Such documentation should also comply with newly enacted state AI laws and regulations, such as those in Colorado, California, Utah and Texas.

Regulatory compliance and ethical considerations

Banks should be aware that complying with new AI laws and regulations is not sufficient. Because they operate in a highly regulated space, banks must ensure AI technology is used in compliance with existing financial laws and regulations, consumer protection laws, as well as ethical standards. For example, under the Equal Credit Opportunity Act and the Fair Credit Reporting Act, an AI system must have the ability to provide specific and accurate reasons for an adverse action taken relating to a consumer application. AI is also widely used in Anti-Money Laundering and Know-Your-Customer compliance under the Bank Secrecy Act and must be accurate and capable of explaining why fraud was detected or suspicious activity flagged. AI technology can also pose risks under federal and state unfair, deceptive, or abusive acts or practices laws, such as chatbots that may inadvertently provide inaccurate information.

AI technology that handles large volumes of nonpublic financial information must be designed with data security and privacy management controls in compliance with the federal Gramm-Leach-Bliley Act. States are also highly active with regards to AI in financial services. For example, the New York State Department of Financial Services issued guidance warning of the increased cybersecurity risks that arise from the use of AI — phishing attacks and overreliance on vendors that may introduce vulnerabilities and supply-chain risks.

Third-party risk and vendor management

Smaller banks face unique challenges as they implement AI, as they may be more likely to rely on third-party AI technology due to limited resources. If banks do not have sufficient staff or internal resources to conduct thorough due diligence and negotiate appropriate contractual terms when onboarding AI vendors, banks should engage external consultants and experts as necessary or choose not to deploy AI. Banks are expected to have strong vendor management processes, which should be applied —  without exception — to the latest wave of AI technologies.

Conclusion

As AI adoption accelerates, banks, especially smaller banks, must balance innovation with caution, ensuring their practices meet evolving regulatory standards and ethical expectations. With careful planning and oversight, these financial institutions can harness AI’s benefits while safeguarding their customers’ data and their own reputations.

Punitive damages are on the line in a potential fourth trial between toy manufacturer, MGA Entertainment (MGA) and rapper T.I. and his wife (the Harrises). But it remains to be seen if the trial will commence, as MGA is seeking permission for an interlocutory appeal — arguing that punitive damages tied to disgorgement of profits are for the judge to decide. Nonetheless, the case highlights important legal considerations when addressing punitive damages in intellectual property disputes.

Following a mistrial and vacated trial verdict, a third jury trial found that MGA’s dolls infringed on the trade dress and likeness of the Harrises’ girl pop group, OMG Girlz. The jury awarded a total of $71.4 million in damages to the Harrises— with $53.6 million of the award being punitive and $17.8 million for disgorgement of profits.

Judge James Selna reduced the damage award to a $1 remitter, which the Harrises rejected. Now, the judge is leaving it to a jury to reconsider and decide the issue, unless he agrees to MGA’s request to certify the new trial order for an interlocutory appeal. If an interlocutory appeal is ultimately granted to MGA, the 9th Circuit will rule whether a judge or jury should ultimately decide on punitive damages.

Case Overview

In the third trial, a jury found that some of MGA’s L.O.L. Surprise! O.M.G. dolls’ hair, accessories, and clothing infringed on the publicity rights and trade dress of OMG Girlz. In addition to awarding compensatory damages, the jury also awarded punitive damages pursuant to California Civil Code, Section 3294, which allows a plaintiff to claim punitive damages if there is clear and convincing evidence that a defendant acted with fraud, oppression, or malice.

But the judge has now overturned the jury’s award, deeming the evidence insufficient to support punitive damages, stating, “there must be a finding of intent, conscious disregard, or willfulness to support punitive damages in California.”[1]

The Harrises contended that evidence of the designers’ knowledge, overlapping markets, and MGA’s credibility issues related to copying other celebrities for doll designs were sufficient to support punitive damages.

Nonetheless, the judge ruled that the Harrises failed to meet the burden of proof for the following reasons:

  • No Clear and Convincing Evidence: According to the judge, the evidence did not establish that MGA acted with willfulness, intent to harm, or conscious disregard for the OMG Girlz’s rights. The judge concluded that the evidence only supported that the conduct was negligent or could be explained by nonwillful alternatives. For instance, the court found the designers’ knowledge of the OMG Girlz was, at best, a passing reference and did not show a deliberate intent to copy OMG Girlz’s trade dress. Similarly, the judge noted the overlapping markets could merely be coincidental and that MGA’s copying of other celebrities did not automatically mean there was intentional copying of OMG Girlz.  
  • Lack of Reprehensibility: The judge also found that MGA’s conduct was not sufficiently reprehensible under the Due Process Clause, holding the harm was economic and there was little evidence of physical or emotional harm. The judge also determined there was no evidence of indifference to health or safety or that OMG Girlz was financially vulnerable. Finally, the judge noted that while there was repeated infringement, there was no evidence of knowledge on the part of MGA.  

Key Takeaways

  1. When claiming punitive damages, look for your “smoking gun.” Clear and convincing evidence of malicious or oppressive behavior, or reckless disregard, is often required to obtain a punitive damage award. Circumstantial evidence, evidence that is open to multiple interpretations, or credibility determinations may be insufficient to support a finding of “clear and convincing.” Many states require a plaintiff to show clear and convincing evidence that the defendant acted with malice, oppression, or fraud. The standard is higher than a “preponderance of the evidence” (more likely than not) but lower than the criminal standard of “beyond a reasonable doubt.”[2]  
  2. State law will dictate available punitive damages in trademark and publicity cases. The federal Lanham Act does not provide for punitive damages in the case of trademark infringement, and publicity rights are governed by state law. However, states have a variety of laws, including unfair and deceptive trade practice or consumer protection laws, that may allow for punitive damages, attorneys’ fees, expert fees, etc., in the case of trademark or other IP infringement. In advance, plaintiffs should take these laws into account when determining venue for a litigation matter, and defendants should understand how these laws can potentially increase risk exposure.
  3. Constitutional limitations on punitive damages apply. Even if state punitive damages are potentially available in an infringement dispute, there are limits to how much a jury can award. Under constitutional precedent governing due process,[3] this is often evaluated based on the degree of reprehensibility of the defendant’s misconduct, the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award, and the difference between the punitive damages awarded by the jury and the compensatory damages. “Reprehensibility of the alleged conduct is ‘the most important indicium of the reasonableness’ of punitive damages[4].” Generally, punitive damages cannot exceed a single-digit ratio (e.g., 9:1) to the compensatory damages, and the specifically allowed ratio depends on the facts and circumstances of a particular case. This means low compensatory damage awards could also reduce a defendant’s risk exposure when facing a potential punitive damage award.
  4. Whether a judge or jury decides punitive damages may hinge on whether a plaintiff is awarded compensatory damages or equitable relief. The crux of MGA’s latest argument is that the disgorgement of profits award was an equitable remedy, meaning all related punitive damages are also equitable in nature and for the judge to determine. It remains to be seen whether Judge Selna and/or the 9th Circuit will allow an interlocutory appeal on the issue.

[1] Id. Dkt No. 113, at 7.

[2] Addington v. Texas, 441 U.S. 418 (1979).

[3] BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996).

[4] Riley v. Volkswagen Grp. of Am., Inc., 51 F.4th 896, 902 (9th Cir. 2022) (citing State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S.408, 419 (2003).

A Practice Note outlining key procedural and strategic considerations for a party defending a construction arbitration. This Note addresses the crucial initial steps a respondent should take on receiving a demand for arbitration, including reviewing the arbitration agreement for potential jurisdictional challenges and assessing the procedural framework established by the relevant institutional rules, such as those of the American Arbitration Association (AAA), JAMS, the International Chamber of Commerce (ICC), or the International Centre for Dispute Resolution (ICDR). It explores important tactical decisions, such as whether to file a detailed answering statement, assert counterclaims, or seek joinder of third parties or consolidation with other proceedings. This Note also provides guidance on developing defenses, managing pre-hearing procedures like disclosure and dispositive motions, and evaluating the use of expedited arbitration. It examines various hearing strategies designed to streamline proceedings and effectively present a defense, including the use of a chess clock, witness conferencing (hot tubbing), and different approaches to expert testimony.

Click here to read the full article in Thomson Reuters.

On October 17, President Trump issued a proclamation, “Adjusting Imports of Medium- and Heavy-Duty Vehicles, Medium- and Heavy- Duty Vehicle Parts, and Buses into the United States” (the Proclamation), under Section 232 of the Trade Expansion Act of 1962 (Section 232), imposing new tariffs on certain imports of medium- and heavy-duty vehicles (MHDVs), medium- and heavy-duty vehicle parts (MHDVPs), and buses, due to concerns about national security stemming from dependence on foreign manufacturing. This action builds on the Administration’s broader Section 232 strategy, which has already imposed tariffs on a range of imported products affecting different sectors, including but not limited to passenger vehicles, light trucks and specific automotive parts, and steel, aluminum, and derivative parts.

Effective Date

The Proclamation takes effect November 1, 2025, at 12:01 a.m. ET, and applies to Covered Goods (defined below) entered for consumption or withdrawn from warehouse on or after that time.

Covered Products

The new duties apply to the following goods identified in Annex I of the Proclamation (collectively, Covered Goods):

  • MHDVs: commercial trucks and tractors classified in Classes 4 through 8, which generally includes vehicles with a gross vehicle weight rating of 14,001 lbs. (approximately 6,351 kg) or above.  
  • MHDVPs: core components and subassemblies, including but not limited to engines, batteries, transmissions, castings, forgings, axles, chassis frames, and similar items.  
  • Buses: vehicles under Harmonized Tariff Schedule of the United States (HTSUS) heading 8702, including city, coach, and transit buses.  

The Proclamation expressly covers vehicles imported in “knock-down” form for final assembly in the U.S. to prevent circumvention.

Tariff Rates

  • 25% ad valorem on MHDVs and specified MHDVPs.  
  • 10% ad valorem on buses under HTSUS heading 8702.  

Exemptions and Non-Exemptions

  • USMCA-Origin Vehicles: For MHDVs qualifying for preferential tariff treatment under the U.S.–Mexico–Canada Agreement (USMCA), the tariff will only apply to the value of the non-U.S. content. Importers must submit documentation verifying U.S. value-added content to Commerce for approval.  
  • USMCA-Origin Parts: For MHDVPs qualifying for USMCA preferential treatment, the tariff will not be formally imposed until after Commerce “establishes a process to apply tariffs to the non-U.S. content of the parts.”  
  • Older Vehicles: These tariffs do not apply to MHDVs or buses and other vehicles classified in HTSUS heading 8702, provided they were manufactured at least 25 years before their entry date.  
  • Knock-Down Kits: Imports of MHDV knock-down kits or equivalent parts compilations, as determined by U.S. Customs and Border Protection (CBP), shall continue to be subject to the additional ad valorem duty rate imposed under the Proclamation regardless of USMCA preferential treatment qualification. Additionally, such imports will not qualify for import adjustment offsets (discussed below).  

Drawback and Tariff Stacking

  • Drawback: Only drawback claims under subsections (a) and (b) of Section 313 of the Tariff Act of 1930 are permitted. Other types of drawback claims may lead to a reduction in offset allowances.  
  • Tariff Stacking: Stacking rules from previous Section 232 tariffs on passenger vehicles, light trucks and specific automotive parts will apply to Covered Products. This means Covered Products will not be subject to additional or existing Section 232 tariffs on steel, aluminum, copper, automobiles and automobile parts, or lumber. Furthermore, they will not be subject to reciprocal tariffs implemented under Executive Order 14257, later amended by Executive order 14266, and further amended by Executive Order 14316, or the tariffs imposed on Canada (pursuant to Executive Orders 14193, 14197, 14231, and 14226) Mexico (pursuant to Executive Orders 14194, 14198, and 14227), Brazil (pursuant to Executive Order 14323) or India (pursuant to Executive Order 14329). However, Covered Products will be subject to any other applicable duties and tariffs, including the 20% across-the-board tariff imposed on all Chinese imports under Executive Order 14196, as amended by Executive Order 14228, tariffs imposed pursuant to Section 301 of the Trade Act of 1974 (the Trade Act), tariffs imposed pursuant to Section 201 of the Trade Act, and antidumping and countervailing duty orders.  

Import Adjustment Offset

To encourage domestic assembly, the Proclamation establishes an import adjustment offset program for November 1, 2025 through October 31, 2030.

This offset is 3.75% of the total value of all such MHDVs assembled in the U.S. from 2025 to 2030. This percentage represents the duty that would be due if a 25% tariff were applied to 15% of the value of a U.S.-assembled truck. Manufacturers that assemble MHDVs in the U.S. can use this offset to reduce any Section 232 tariffs on MHDVPs they owe. A similar offset program will be created for manufacturers of MHDV engines, based on the value of engines assembled in the U.S. Recognizing the shared suppliers and structural similarities between the truck and passenger/light vehicle industries, the Proclamation also adjusts the Section 232 automobile tariff program to align with the truck industry program, extending the period of the import adjustment offset program for automobile manufacturers through April 2030. Automobile producers can offset a portion of tariffs on parts, equal to 3.75% of the Manufacturer’s Suggested Retail Price of vehicles they assemble in the U.S. This percentage reflects the duty that would be owed if a 25% tariff were applied to 15% of the value of a U.S.-assembled automobile.

Enforcement and Oversight

Importers who overstate U.S. content or otherwise misrepresent information will face the full 25% duty on the total value of their imports and potential suspension of U.S.-content relief for future entries. In addition, they may face the risk of civil or criminal enforcement. The Secretary of Commerce is authorized to expand the scope of covered parts if imports of additional components are found to threaten national security. CBP will administer tariff collection, offsets, and enforcement.

Relation to Other Section 232 Actions

The Proclamation complements and modifies aspects of Proclamation 10908, which covered passenger vehicles and auto parts, to align procedures for content certification and offset eligibility. It also authorizes limited reductions of existing Section 232 tariffs “by up to half” of the applicable rate for steel and aluminum producers that operate production facilities in Canada or Mexico and supply U.S. automobile or MHDV manufacturers. Such adjustments shall be limited to quantities of aluminum or steel equal to newly committed U.S. production capacity, as determined by the Secretary of Commerce. Rate adjustments shall also be limited to imports of aluminum and steel that qualify for preferential tariff treatment under the USMCA and that were smelted and cast or melted and poured in Canada or Mexico.

Key Takeaways for Industry

  • Significant expansion of Section 232 coverage: extends national-security tariffs to commercial trucks, buses, and related components for the first time.  
  • No drawback relief: traditional re-export and substitution drawback strategies remain unavailable.  
  • Strict documentation requirements: accurate origin, value, and content records are critical to qualify for partial relief or offsets.  
  • Potential supply-chain disruption: companies reliant on foreign-made trucks, buses, or key parts may consider localizing production or reevaluating sourcing.  

Conclusion

The Proclamation represents a major new chapter in the use of Section 232 authorities to safeguard the U.S. industrial base. By combining high tariffs, strict compliance requirements, and incentives for U.S. production, the Administration aims to rebuild domestic manufacturing capacity for medium- and heavy-duty transportation equipment and critical components. Importers, manufacturers, and fleet operators should immediately assess their exposure, review USMCA certifications, and prepare compliance procedures in advance of the November 1 effective date.

From 18 November 2025, new legal requirements for UK company directors, LLP members, and people with significant control (PSCs) to verify their identity will come into effect under the UK’s Economic Crime and Corporate Transparency Act 2023.

From 18 November 2025, it will become mandatory for all UK company directors, LLP members, and PSCs to verify their identity for use at Companies House. Failure to do so will result in being unable to form a new company or file an existing company’s annual confirmation statement, thereby putting the company in danger of being struck off. It will be an offence for a person to act as a director if they have not verified their identity by the relevant deadline. The company will also commit an offence if it allows a person who has not verified their identity to act as a director. A PSC who fails to provide confirmation that their identity has been verified will also commit an offence.

With effect from 18 November 2025, ID verification becomes obligatory for directors, LLP members, and PSCs for (a) registering new companies and LLPs; and (b) new appointments to existing companies and LLPs.

For existing directors, PSCs and LLP members there is a 12-month transition period for compliance with the precise deadline for ID verification compliance depending on the role held. Please see further Companies House guidance on the rollout here: https://www.gov.uk/government/news/companies-house-confirms-identity-verification-rollout-from-18-november-2025.

Companies House has stated that ID verification requirements for limited partnerships, corporate directors of companies, corporate members of limited liability partnerships, and officers of corporate PSCs will commence at a later date.

How to verify your identification

The good news is that the verification process is relatively quick and simple. Directors and PSCs can verify their identity via:

Once identity verification is complete, the individual will receive a personal verification code. Please keep this personal verification code safe. Directors, PSCs, and LLP members will need this code to form new companies and LLPs and to make certain Companies House filings for existing companies and LLPs.

Once individuals have verified their identity (either with Companies House or an ACSP), they will not need to do so again. The personal code will be valid for use in respect of all UK companies or LLPs of which the individual is a director, member, or a PSC.

From 18 November, directors and PSCs will also be able to check the Companies House register to see identity verification due dates for all their roles.

We encourage individuals to verify their identities as early as possible.

Please note, Troutman Pepper Locke UK LLP is not currently an authorised ACSP and is not able to verify the identities of directors, PSCs, and LLP members (we can provide details of the ACSPs that we work with who should be able to help you). We will continue to be able to make Companies House filings on behalf of our clients.

If you have any questions in respect of the verification requirements or need assistance, please do not hesitate to contact Nick Jennings at Nicholas.Jennings@troutman.com or Charlotte Whitley-Roberts at Charlotte.Whitley-Roberts@troutman.com.

The explosive growth of artificial intelligence (AI) is transforming U.S. data center construction, creating new opportunities and challenges across the construction, energy, and technology sectors. Demand for digital infrastructure is surging, requiring massive amounts of energy, larger facilities, and driving record-breaking competition amid resource constraints.[1]

In North America alone, data center market demand, as measured by potential utility energy consumption, is projected to grow: 7.8 gigawatts (GW) of capacity is under construction and an additional 31.6 GW is in planning as of mid-2025 — 10 times the level seen just five years ago.[2] Vacancy rates in existing facilities have dropped to 2.3%, and 73% of new builds are already pre-leased, underscoring the urgency and competitiveness of the sector.[3] Hyperscale cloud and AI providers are driving this growth and reshaping regional geographies, with traditional hubs like Northern Virginia expanding and new markets emerging in rural areas of New Jersey, northwest Indiana, and west Texas.[4]

However, such rapid expansion faces major hurdles. Grid connection wait times average four years, and commercial electricity costs have jumped 30% since 2020, pushing 75% of new development into lower-cost power markets.[5] In response, operators are pursuing short- and long-term strategies such as behind-the-meter power generation, powered-land sites, and retrofitting existing facilities with stranded power to keep pace. Some of these behind-the-meter solutions, such as on-site mobile generators, are likely short-term fixes, as the industry waits for new, large-scale utility capacity to come online, which is generally more efficient and cost-effective in the long term.

The U.S. government has recognized the strategic importance of AI data center infrastructure and is taking steps to accelerate permitting, leverage federal lands, and provide financial incentives for qualifying projects.[6] As a result, private investment is booming, with Google, Microsoft, AWS, and others committing billions of dollars to new projects, signaling a long-term transformation of the nation’s digital and energy infrastructure.[7]

In a rapidly changing environment, participants must navigate not only traditional risks related to project delivery and supply chain management, but also new challenges arising from grid interconnection wait times created by increased interconnection requests, evolving regulatory frameworks, and the shifting dynamics of capital markets.

Power Grid Consumption Considerations

Data center size is measured by the amount of power, in megawatts (MW), that the facility needs to operate, including its computing and cooling functions. A 30-MW data center facility was once considered large, but today’s hyperscale projects routinely exceed 100 MW, with some campuses planned at 2 GW — enough to power millions of homes. By 2035, AI data center power demand could reach 123 GW — up from just 4 GW in 2024.[8] This explosive growth is driven by the computational intensity of AI workloads, which require dense racks of graphics processing units (GPUs) and other specialized hardware. GPUs are designed to handle complex mathematical calculations at high speeds, making them essential for processing the vast amounts of data involved in AI tasks. Further, the electricity that these devices use ultimately turns into heat, which the data center must remove by using cooling equipment that also consumes energy.[9] This duality leaves hyperscalers perpetually thirsty for more power.

To meet these demands, developers are exploring innovative power solutions. For instance, Microsoft’s $16 billion deal to revive the Three Mile Island nuclear plant in Pennsylvania is securing 835 MW of clean energy for its AI data centers.[10] Other companies are investing in hydropower and natural gas to bypass grid bottlenecks and ensure a reliable energy supply. Novel alternative power solutions have also been proposed, including using small modular nuclear reactors.

Environmental regulations add another layer of complexity. Temporary power solutions, such as gas turbine power units, are sometimes used to keep projects on schedule, but rapid permitting and local inspection approvals are critical to maintaining milestones. The federal government is responding with executive orders to streamline environmental permitting, encourage the use of Brownfield and Superfund sites, and direct the secretary of commerce to launch a program to provide financial support for high-capacity AI data center development and related energy, manufacturing, and infrastructure projects.[11] However, many permits for data centers are issued at the state level, including special use zoning permits and air permits for the diesel generators installed to ensure power if there is an outage from the main power supply.

Example Projects

At the 2025 Energy and Innovation Summit in Pittsburgh, PA, American companies announced more than $90 billion in new projects in and around Pennsylvania, including:

  • Google’s $3 billion hydropower deal and $25 billion in regional data center investments.

  • Blackstone’s $25 billion commitment to data centers and energy infrastructure.

  • Meta’s plans for multi-gigawatt AI data centers, including the Prometheus campus in Ohio.

  • CoreWeave’s $6 billion AI data center in Pennsylvania.

  • Constellation Energy’s $2.4 billion upgrade to the Limerick nuclear plant.

  • Energy Capital Partners’ $5 billion data center at York II Energy Center.[12]

Key Issues With Surging Demand

The scale of new AI data centers, the demands of stakeholders, and the provisions of upstream contracts are adding new complexities to traditional project execution and delivery methods.

Supply Constraints

The supply chain for data center construction is under strain. Critical components — transformers, switchgear, GPUs, cooling systems, and generators — face long lead times, often exceeding one year. Given the booming demand and incentives to get potential data centers operational on an expedited timeline, there is increased pressure for procurers of this equipment to source components as quickly as possible.

Supply chain disruptions are compounded by international tariffs, rising material costs (steel, aluminum, copper, cement), and labor shortages. Development and construction schedules are routinely built around the anticipated lead times for critical equipment, which often require developers to source the critical equipment even before the facility is designed, forcing contractors to adopt modular construction and prefabrication techniques to accelerate delivery.[13]

To address the limited supply of materials, cloud services providers (CSPs), such as Amazon Web Services, Google Cloud, Microsoft Azure, and others, are partnering with colocation providers, who offer shared data center facilities where companies can rent space for servers and other computing hardware, to expand their data center infrastructure. Typically, CSPs partner with colocation providers to quickly scale their operations without the need for significant capital investment in building new facilities from scratch. Through these symbiotic development partnerships, however, the CSPs and colocation providers are both strategically positioning themselves to capitalize on the growing demand for cloud services and data management solutions. Even so, prices for colocation capacity have risen by 35% since 2020, and new capacity is often leased out years in advance.[14] Vendors are leveraging scarcity to negotiate more favorable contract terms, including upfront payments and tariff pass-throughs.

Interconnection With the Power Grid

Grid connection delays are a major bottleneck, with average wait times approaching four years and reports of up to seven years.[15] Developers are seeking powered-land sites and behind-the-meter solutions, such as on-site natural gas generation, renewables, or even nuclear power, including revitalizing existing power plants or utilizing smaller-scale modular reactors, to bypass grid constraints. These approaches can cut years off project development timelines but often require developers to seek more creative, and sometimes expensive, sources of power.

Regulatory reforms, such as the Federal Energy Regulatory Commission’s (FERC) “first-ready, first-served” cluster studies, are aimed at expediting interconnection, but challenges remain.[16] Colocating data centers with existing power plants is emerging as a strategy to leverage surplus interconnection capacity and reduce transmission costs.[17]

Accelerated Construction Schedules and Extended Lead Times

The pressure to deliver quickly is reshaping payment schedules, staffing models, and risk allocation in contracts. This urgency is forcing flexibility until supply chain bottlenecks ease. For example, prefabricated modules for power skids, which house electrical distribution equipment (transformers, switchgear, UPS, etc.) can be independently constructed and installed if supply chain issues arise with other critical components, such as the cooling modules or IT pods. The prefabricated equipment can then be sourced and seamlessly integrated when available. However, these approaches require a significant increase in skilled labor — both to support the parallelization of construction activities and to manage the complexity of integrating temporary and permanent systems. Design professionals may face the challenge of developing more flexible designs than previously required to account for these emerging challenges in supply and demand on the projects.

International Tariffs and Pricing Volatility

Tariffs on imported components are affecting both delivery times and pricing. Vendors increasingly include tariff payments in their pricing, and if not, often include contractual provisions shifting the obligation to pay for importation tariffs to the purchaser. The volatility of international trade policies adds another layer of uncertainty to project planning and budgeting.[18]

Contract Considerations

The rapid pace at which the industry aims to bring new data centers online presents challenges and new opportunities for creative contracting frameworks.

Upfront Payments and Aggressive Payment Schedules

Suppliers are negotiating more aggressive payment schedules, leveraging their control over scarce equipment and labor. Contractors may find increased leverage due to the commitments required for speed and quantity.

In this context, suppliers — especially those providing scarce or long-lead-time critical equipment (such as transformers, switchgear, generators, and specialized cooling systems) — are pushing, often successfully, for more aggressive payment schedules. Contractors and developers, recognizing that timely delivery of these components is essential to meeting project milestones and securing grid connections, are increasingly pressured to agree — and have their lenders agree — to upfront payments or accelerated payment terms. This is a departure from the traditional model, where suppliers often bore more risk by extending credit or waiting for payment until after delivery or installation. Given the intense demand, developers and their lenders are compelled to embrace these new payment terms and the associated risks to successfully realize their AI data center projects.

Complex Structuring and Creditworthiness

As tech companies and other developers drive these projects, a growing number of stakeholders less familiar with typical construction practices are entering the construction ecosystem. Contractors and suppliers must assess the creditworthiness of these newcomers and consider strategies to insulate themselves from risk pushed down through upstream agreements. Consider requiring upfront payments, limited representations and warranties, and other risk mitigation strategies. New tariffs, costs due to force majeure delays, and other unknown costs should be exceptions for a guaranteed maximum price. Force majeure provisions should be heavily scrutinized to allow for schedule delays due to supply chain issues and other matters outside of the control of the contractor, especially when there are liquidated damages for failure to timely complete the project. Construction contingencies should also be heavily negotiated because of the ever-changing equipment market for data center developments.

The financing structures for data centers are evolving, with asset-backed securities (ABS), single-asset single-borrower (SASB) loans, which are tied to the financial performance of a specific property, and other hybrid models that blend real estate and project finance. Lenders are underwriting long-term cash flows from hyperscalers, but the complexity of these deals requires careful attention to developer experience, construction guarantees, and exit strategies.[19]

Wider Scope of Sourcing Materials and Liability

Engineers and contractors are accepting additional liability for code compliance, especially when sourcing equipment that is not Underwriters Laboratories (UL) listed.[20] Typically, contractors and suppliers prefer to use UL-listed equipment, as it bears a highly regarded certification of rigorous safety and reliability testing, despite its often higher price tag than non-UL listed counterparts. However, non-UL listed equipment may present drawbacks, such as increased safety risks, potential noncompliance with local codes, and challenges in obtaining insurance coverage.

Contractors may need to grapple with challenges related to insurance coverage if using alternatively sourced equipment, and suppliers of compliant equipment have greater pricing leverage. Additionally, builders who must use non-UL listed equipment to meet demands may consider requiring project owners or developers to agree to indemnity provisions if such alternatively sourced equipment is required to meet demanding schedule deadlines. The pressure to innovate and source alternative materials must be balanced against regulatory and insurance requirements.

Service Level Agreements and Planned/Unplanned Outages

Further complicating projects are the common scenarios of renovating or expanding existing facilities. Many times, data center operators have service level agreements (SLAs) with their tenants or customers; these SLAs often guarantee uninterrupted service, including power and cooling, and typically provide compensation to customers when service interruptions occur. The existence of SLAs plays a crucial role in the risks associated with maintaining continuous operation and integrity of utilities serving data centers. In the case of construction work on operating data centers, owners may seek to shift their SLA risk to the contractors if construction activities cause power outages or spikes in temperature or humidity within data halls.

When a service outage or other interruption is unavoidable, it is important for the parties to coordinate for a planned outage. This generally requires detailed planning and coordination to minimize impacts, ensure that any necessary downtime is scheduled during off-peak hours, and that the planned outage, including its timing and duration, is communicated well in advance to all stakeholders. As with unplanned outages, missing dates for planned outages or otherwise extending the duration of such outages, can expose the owner to damages under SLAs, and owners try to shift some or all of this risk to contractors.

Contractors should consider the potential liability of covering owner damages to customers under related SLAs due to unexpected outages and missing milestones for planned outages, and incorporate such potential liability into their risk assessment during contract negotiations. By proactively addressing these considerations, contractors can mitigate risks and uphold the reliability standards expected in high-stakes data center construction environments.

Liquidated Damages and Performance Risk

Suppliers and builders often resist liquidated damages provisions due to supply chain uncertainty. In many projects, major or critical equipment is sourced directly by the developer, which means contractors are not assuming liquidated damages risk for equipment delays. This is also true for interconnection and other obligations typically managed by the owner or developer. As a result, contractors are increasingly decoupling the project schedule and liquidated damages risk from equipment delivery. Negotiating appropriate performance and delivery terms is critical, given the potential for project delays and supply chain disruptions. Suppliers should be transparent about their lead times and supply chain capabilities and avoid accepting liquidated damages for aggressive or unrealistic timelines. Stakeholders should closely evaluate and balance their potential liquidated damages exposure against their business and growth goals.

Conclusion

The AI data center construction boom is fundamentally transforming the U.S. electric infrastructure landscape, driving rapid changes in project delivery, risk allocation, and contract negotiation. Contractors and suppliers are being challenged by accelerated schedules, complex stakeholder structures, persistent supply chain constraints, and evolving regulatory requirements. On the other hand, the boom has made data center construction projects more financially lucrative, leading developers and contractors to consider accepting greater risks than they have been accustomed to in the past. In this high-stakes environment, the ability to strategically structure contracts — allocating risk, securing favorable payment terms, and building in flexibility — has become essential. Record demand and long grid delays have made it critical for market participants to proactively manage exposure, whether through upfront payments to secure scarce equipment, shifting the risk of accelerated deadlines to upstream parties, or by leveraging alternative power solutions and innovative financing structures to bridge capacity gaps until new infrastructure comes online.

To capitalize on the opportunities presented by the AI revolution while minimizing downside risk, stakeholders must combine robust risk assessment with proactive engagement across the value chain. The winners in this evolving market will be those who anticipate demand, innovate on efficiency, and build resilient supply chains, while ensuring their contracts reflect the realities of today’s competitive and capacity-constrained environment. Troutman Pepper Locke attorneys are well-positioned to advise clients on emerging market trends and negotiate contracts that help protect their interests. Our team excels at helping clients navigate the complexities of the current boom and secure long-term success in the AI data center sector.

 

 

[1] See Cade Metz et al., How A.I. is Changing the Way the World Builds Computers, N.Y. Times (Mar. 16, 2025), https://www.nytimes.com/interactive/2025/03/16/technology/ai-data-centers.html.

[2] Nathan Eddy, Record-Breaking Data Center Demand Collides with Critical Grid Limitations, Data Ctr. Knowledge (Aug. 18, 2025), https://www.datacenterknowledge.com/data-center-construction/record-breaking-data-center-demand-collides-with-critical-grid-limitations.

[3] Nathan Eddy, Record-Breaking Data Center Demand Collides with Critical Grid Limitations, Data Ctr. Knowledge (Aug. 18, 2025), https://www.datacenterknowledge.com/data-center-construction/record-breaking-data-center-demand-collides-with-critical-grid-limitations.

[4] Nathan Eddy, Record-Breaking Data Center Demand Collides with Critical Grid Limitations, Data Ctr. Knowledge (Aug. 18, 2025), https://www.datacenterknowledge.com/data-center-construction/record-breaking-data-center-demand-collides-with-critical-grid-limitations.

[5] Nathan Eddy, Record-Breaking Data Center Demand Collides with Critical Grid Limitations, Data Ctr. Knowledge (Aug. 18, 2025), https://www.datacenterknowledge.com/data-center-construction/record-breaking-data-center-demand-collides-with-critical-grid-limitations.

[6] See Exec. Order No. 14318, 90 Fed. Reg. 35,385 (July 23, 2025), https://www.whitehouse.gov/presidential-actions/2025/07/accelerating-federal-permitting-of-data-center-infrastructure/.

[7] See Peter Hall & John Cole, Microsoft Describes Three Miles Island Plant as a Once-in-a-Lifetime Opportunity, Pa. Cap.-Star (June 25, 2025, 7:32 PM ET), https://penncapital-star.com/economy/microsoft-describes-three-mile-island-plant-as-a-once-in-a-lifetime-opportunity/; Raphael Satter, Big US Investments Announced at Trump’s Tech and AI Summit, Reuters (July 15, 2025, 2:48 PM ET), https://www.reuters.com/business/energy/some-big-us-investments-being-made-ai-energy-2025-07-15/.

[8] Martin Stansbury et al., Can US Infrastructure Keep Up with the AI Economy?, Deloitte (June 24, 2025), https://www.deloitte.com/us/en/insights/industry/power-and-utilities/data-center-infrastructure-artificial-intelligence.html.

[9] Energy and AI: Energy Demand from AI, Int’l Energy Agency (Apr. 10, 2025), https://www.iea.org/reports/energy-and-ai/energy-demand-from-ai. While this Blog focuses on power grid restraints, the demand for large amounts of water to cool data center equipment poses yet another bottleneck in AI infrastructure. See Felicity Barringer, Thirsty for Power and Water, AI-Crunching Data Centers Sprout Across the West, Stan. U.: & W. (Apr. 8, 2025), https://andthewest.stanford.edu/2025/thirsty-for-power-and-water-ai-crunching-data-centers-sprout-across-the-west/.

[10] Peter Hall & John Cole, Microsoft Describes Three Miles Island Plant as a Once-in-a-Lifetime Opportunity, Pa. Cap.-Star (June 25, 2025, 7:32 PM ET).

[11] Exec. Order No. 14318, 90 Fed. Reg. 35385 (July 23, 2025), https://www.whitehouse.gov/presidential-actions/2025/07/accelerating-federal-permitting-of-data-center-infrastructure/.

[12] Raphael Satter, Big US Investments Announced at Trump’s Tech and AI Summit, Reuters (July 15, 2025, 2:48 PM ET), https://www.reuters.com/business/energy/some-big-us-investments-being-made-ai-energy-2025-07-15/.

[13] Sandra Benson & Kris Lengieza, How AI is Shaping the Future of Data Center Construction, Procore (May 23, 2024), https://www.procore.com/library/ai-shaping-data-center-construction.

[14] Bhargs Srivathsan et al., AI Power: Expanding Data Center Capacity to Meet Growing Demand, McKinsey & Co. (Oct. 20, 2024), https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/ai-power-expanding-data-center-capacity-to-meet-growing-demand.

[15] Nathan Eddy, Record-Breaking Data Center Demand Collides with Critical Grid Limitations, Data Ctr. Knowledge (Aug. 18, 2025), https://www.datacenterknowledge.com/data-center-construction/record-breaking-data-center-demand-collides-with-critical-grid-limitations; Martin Stansbury et al., Can US Infrastructure Keep Up with the AI Economy?, Deloitte (June 24, 2025), https://www.deloitte.com/us/en/insights/industry/power-and-utilities/data-center-infrastructure-artificial-intelligence.html.

[16] See Improvements to Generator Interconnection Procedures and Agreements, 89 Fed. Reg. 27006 (Apr. 16, 2024), https://www.federalregister.gov/documents/2024/04/16/2024-06563/improvements-to-generator-interconnection-procedures-and-agreements#h-11.

[17] See Alex Engel et al., How “Power Couples” Can Help the United States Win the Global AI Race, Rocky Mountain Institute (Feb. 20, 2025), https://rmi.org/how-power-couples-can-help-the-united-states-win-the-global-ai-race/; see also Martin Stansbury et al., Can US Infrastructure Keep Up with the AI Economy?, Deloitte (June 24, 2025), https://www.deloitte.com/us/en/insights/industry/power-and-utilities/data-center-infrastructure-artificial-intelligence.html.

[18] See, e.g., Jamey Collidge, Charlene Goldfield, Ryan Graham & Ryan Last, Federal Circuit Court of Appeals Issues Ruling Deeming Tariffs Under IEEPA Unlawful, Troutman Pepper Locke ConstructLaw Blog (Sep. 2, 2025), https://www.constructlaw.com/2025/09/02/federal-circuit-court-of-appeals-issues-ruling-deeming-tariffs-under-ieepa-unlawful/; Jamey Collidge & Matthew Simons, Tariffs and Solar Energy: A Resilient Industry Navigating New Uncertainty, Troutman Pepper Locke ConstructLaw Blog (Sep. 9, 2025), https://www.constructlaw.com/2025/09/09/tariffs-and-solar-energy-a-resilient-industry-navigating-new-uncertainty/; Jamey Collidge, Vaughn Morrison & Ryan Graham, Navigating the Solar Industry’s Path Through Tariffs and Growth, Troutman Pepper Locke ConstructLaw Blog (Feb. 10, 2025), https://www.constructlaw.com/2025/02/10/navigating-the-solar-industrys-path-through-tariffs-and-growth/.

[19] Ramona Dzinkowski, The AI Facility Frenzy, Glob. Fin. (June 13, 2025), https://gfmag.com/technology/the-ai-facility-frenzy/; Elen Callahan, SFA Research Corner: Financing Pressures Drive Innovation in Data Center Financing, Structured Fin. Ass’n (May 1, 2025), https://structuredfinance.org/resources/sfa-research-corner-financing-pressures-drive-innovation-in-data-center-financing/.

[20] See generally Certification, UL Sols., https://www.ul.com/services/certification (last visited Sep. 15, 2025) (Underwriters Laboratories Inc. provides safety standards, testing, and certification for a variety of services and physical products).

You’re a marketing director — likely overcaffeinated, surely behind schedule, and your team is staring down a parade of deadlines for something — let’s call it “content,” a word that now covers every act of human (or semi-human) communication. You also have a dozen new vendors bringing the promises of AI to you in different ways — fast, easy, less expensive. But as Paul Virilio warned us: “When you invent the ship, you also invent the shipwreck.” You need to know the trade-offs.

The Ownership Mirage. In the old world (think 2023), creative ownership was typically a contractual thing. You paid a designer or writer, they signed, and the brand owned the output. AI changes the equation because AI isn’t an employee, contractor, or even a “who.” It’s a “what.” And as U.S. copyright law continues to shape up, “whats” cannot own or transfer anything.

Which leads to the weird, slightly vertigo-inducing possibility that your new campaign — your company’s proud, innovative, algorithmically birthed masterpiece — may be unownable. No copyright. No exclusive rights. Anyone could take it, remix it, ridicule it, or claim it. It’s not just a legal quirk — it’s a philosophical one. We’re using tools designed to imitate creation itself, then discovering that imitation doesn’t fit cleanly inside the box we built for art, property, and credit.

The Broader Mess Ownership is just the headline. Beneath it is a web of other problems that feel both obvious and impossible to solve. AI doesn’t “create” so much as it remixes. It’s a collage machine, built on billions of data fragments — snippets of writing, artwork, code — some of which are copyrighted, some private, some scraped from places where consent was more implied than given. When you prompt it to make a “fresh, modern take on your brand identity,” it’s doing so atop a landfill of borrowed fragments. The legal question is whether you’ve built your castle on someone else’s sand.

Then there’s the issue of confidentiality. Feed your brand brief into a public AI system and you may have effectively handed your strategy to the digital ether. Models “learn” from inputs; your proprietary concept might quietly become someone else’s “inspiration.”

And bias — because of course the machine reflects us. Every blind spot and aesthetic preference, scaled up to the size of a global marketing campaign. It’s the kind of feedback loop that looks neutral until you really think about who gets to define “professional,” “beautiful,” or “trustworthy” in the dataset.

The Trade-off. AI gives you something. It also takes something intangible — the human friction that made creative work feel like risk and reward instead of automation. We used to control our creative process through deadlines, drafts, meetings, and arguments. Now, the process controls us: one click, and the image or slogan exists before we’ve even decided what we wanted to say.

A Few Things (Still) in Your Power. If you’re leading a creative team, here’s what still belongs to you:

  1. Intentionality. Decide why you’re using AI before you do. “Because it’s faster and cheaper” isn’t a strategy.
  2. Human fingerprints. The more your team edits, refines, and shapes the work, the more legally protectable it becomes.
  3. Contracts that catch up to reality. Update your creative service agreements. Define what “AI-generated” means. Decide who’s responsible if something goes wrong.
  4. Data hygiene. Treat AI prompts the way you treat public statements — assume the internet is listening.
  5. Critical distance. Ask not only what AI can make, but what it’s making of you, your team, and the “content.” The technology will likely impact your hiring practices and team management more than you currently anticipate.

A Final Note. The legal issues arising from AI hit clients almost every day right now, and here is what we’re finding: AI, in trying to imitate human creativity, has forced us to define what creativity actually is. The legal parameters will catch up eventually, as they always do — but in the meantime, every marketing director, copywriter, and designer is operating in the gray space between authorship and automation.

When a commercial tenant files for bankruptcy, it can present a complex array of challenges for a landlord. This article will provide insight into the implications of a tenant’s bankruptcy for a landlord, and how the landlord can effectively navigate the legal landscape.

To access this article and read other insights from our Creditor’s Rights Toolkit, please click here.

State attorneys general increasingly impact businesses in all industries. Our nationally recognized state AG team has been trusted by clients for more than 20 years to navigate their most complicated state AG investigations and enforcement actions.

State Attorneys General Monitor analyzes regulatory actions by state AGs and other state administrative agencies throughout the nation. Contributors to this newsletter and related blog include attorneys experienced in regulatory enforcement, litigation, and compliance. Also visit our State Attorneys General Monitor microsite.

Contact our State AG Team at StateAG@troutman.com.

Troutman Pepper Locke Spotlight

From Politics to PR: Navigating Crisis Management
By Stephen C. Piepgrass

In this episode of Regulatory Oversight, Stephen Piepgrass is joined by Zack Condry, co-founder of Watermark Strategies, to analyze the evolving landscape of crisis management and the critical role of strategic communication in navigating complex issues.

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Multistate AG News

Kalshi Sues Ohio Regulator Over Authority Dispute
By Troutman Pepper Locke State Attorneys General Team

On October 7, 2025, Kalshi, a platform specializing in prediction market trading, filed a lawsuit against the Ohio Casino Control Commission (OCCC) and Ohio attorney general (AG), alleging that their regulatory actions overstep state authority. The complaint seeks to block enforcement of a cease-and-desist order that was issued by the OCCC in the spring, which accused Kalshi of “operating online sports gaming” and warned Ohio licensees that partnering with Kalshi could jeopardize their licensing status and integrity.

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States and FTC Partner to Bring Enforcement Action Against Allegedly Fraudulent Charity
By Troutman Pepper Locke State Attorneys General Team

The Federal Trade Commission (FTC) and 20 states reached a settlement with Kars-R-Us.com, Inc. (Kars) and its operators, Michael Irwin and Lisa Frank, related to an alleged national charity fraud scheme.

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Single State AG News

Court Rules That Ohio AG Cannot Enforce FDA Premarket Authorization Requirements
By Bryan Haynes and Nick Ramos

An Ohio appellate court recently affirmed the dismissal of a case brought by the Ohio attorney general (AG) against Central Tobacco & Stuff Inc. (Central Tobacco), an e-cigarette retailer, in which the AG alleged that Central Tobacco sold e-cigarettes lacking FDA premarket authorization and violated the state’s Consumer Sales Practices Act (CSPA) by failing to inform consumers about the lack of FDA authorization.

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AG of the Week

Charity Clark, Vermont

Charity R. Clark was re-elected as Vermont’s attorney general (AG) in 2024, having first been elected in 2022 and sworn in on January 5, 2023. Clark is a graduate of Burr & Burton Academy, the University of Vermont, and Boston College Law School. Before law school, she worked as a policy analyst in the Vermont governor’s office.

Clark began her legal career in 2005 as an associate at Downs Rachlin Martin in Burlington and later at Orrick in New York City. In 2014, she joined the Vermont AG’s office as an assistant AG in the Public Protection Division. She later served as chief of staff under former AG T.J. Donovan from 2018 to 2022.

Clark is active in her community, serving as a justice of the peace, chair of her town library board, and as a board member of Burr & Burton Academy. In 2018, she helped found the Junior League of Champlain Valley’s Diaper Bank, which has distributed more than one million diapers statewide to families in need.

As AG, Clark has focused on consumer protection, environmental issues, and public safety, and continues to serve Vermont through legal advocacy and community engagement.

Vermont AG in the News:

  • Clark announced a settlement with Angi, previously known as Angie’s List, addressing concerns about allegedly deceptive marketing practices on its online platform, which facilitates connections between consumers and more than 300 contractors or service professionals in Vermont.

  • Clark, along with a coalition of 20 other AGs, filed a lawsuit against the U.S. Department of Justice seeking to prevent the implementation of new restrictions on federal funding designated for aiding survivors of domestic violence and other violent crimes.

  • Clark announced the arraignment of a licensed psychologist on four counts of felony Medicaid fraud.

Upcoming AG Events

  • November: DAGA | Scottsdale Policy Conference | Scottsdale, AZ

  • November: AGA | International Delegation

  • December: DAGA | Holiday Party | Washington, D.C.

For more on upcoming AG Events, click here.

Troutman Pepper Locke’s State Attorneys General team combines legal acumen and government experience to develop comprehensive, thoughtful strategies for clients. Our attorneys handle individual and multistate AG investigations, proactive counseling and litigation, and manage ancillary regulatory issues. Our successful approach has been recognized by Chambers USA, which ranked our practice as a leader in the industry.

Troutman Pepper Locke’s Securities Investigations + Enforcement Practice

Troutman Pepper Locke’s Securities Investigations and Enforcement team counsels and defends clients through all stages of securities enforcement proceedings. Our attorneys have served in key government agencies and regulatory bodies, and bring their insight to bear in each representation. The team includes a former branch chief of the Division of Enforcement at the SEC, former enforcement lawyers, regulators and government attorneys, assistant United States Attorneys and former assistant attorneys general, as well as in-house counsel for public companies. Our lawyers and practice have been identified as leaders in the field by publications such as the Legal 500, SuperLawyers, Benchmark Litigation, and Chambers USA.

In the Spotlight

Team Member Spotlight: Megan Rahman

Megan Rahman, a partner in our Richmond office, offers strategic guidance to clients facing regulatory investigations and complex federal civil and criminal litigation. Her practice includes cases involving securities fraud, insider trading, and accounting issues. Megan also advises on compliance with the Foreign Corrupt Practices Act and the False Claims Act, assisting clients in achieving their legal and strategic goals. Her work covers U.S. national security matters, such as CFIUS notifications, and she conducts educational programs to keep in-house counsel informed on regulatory compliance.

Recently, Megan was part of a team that guided a client through a complex legal situation involving both a criminal investigation by the Department of Justice and a civil investigation by the Securities and Exchange Commission, focusing on allegations of insider trading.

For Megan’s full bio, click here. 

Jay Dubow Appointed Co-Chair of ABA’s Business and Corporate Litigation Committee

Troutman Pepper Locke is proud to announce that Jay Dubow, co-chair of our Securities Investigations + Enforcement practice, has been appointed as co-chair of the American Bar Association’s (ABA) Business and Corporate Litigation Committee (BCLC). Jay will serve a three-year term in this prestigious role.

With nearly 1,500 members, the BCLC is one of the largest committees within the ABA’s Business Law Section. Jay’s leadership and insight will be invaluable as we navigate this dynamic landscape and explore new areas of interest.

In the News

Our team frequently comments on emerging trends and developments in the legal industry. Below are several media quotes from one of our esteemed team members, offering insights and perspectives on current issues.

Jay Dubow was recently quoted in:

Webinars and Speaking Engagements

SEC Policy Shifts

SEC Considers Shift to Semiannual Reporting for Public Companies

By Alexander T. Yarbrough, Rakesh Gopalan, and Joshua Eastwood

The Securities and Exchange Commission (SEC) is actively evaluating whether to transition from the current quarterly reporting regime for domestic public companies to a semiannual reporting framework. Although no formal proposal or timeline has been released, recent public statements by President Donald Trump and SEC Chair Paul Atkins indicate strong support for such a shift. However, significant hurdles and practical considerations remain before any such implementation can take effect.

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SEC Announces Return to Simultaneous Consideration of Settlement Offers and Related Waiver Requests

By Jay A. Dubow, Megan Conway Rahman, and Ghillaine A. Reid

On September 26, Securities and Exchange Commission (SEC) Chair Paul S. Atkins announced a return to the SEC’s prior practice of allowing individuals and entities facing enforcement actions to request that the SEC simultaneously consider both their settlement offers and any related waiver requests. Waivers may be necessary to avoid automatic disqualifications and collateral consequences that can result from enforcement actions, such as the loss of well-known seasoned issuer status, safe harbor protections, private offering exemptions, or the ability to serve in certain regulated capacities.

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Digital Assets Updates

SEC No-Action Letter: Expanding Custody Options for Crypto Assets With State Trust Companies

By John P. Falco, John M. Ford, Genna Garver, Ethan G. Ostroff, and Theodore D. Edwards

On September 30, 2025, the Office of the Chief Counsel of the Securities and Exchange Commission’s (SEC) Division of Investment Management (the Division) issued a no-action response (the No-Action Letter) stating that it would not recommend enforcement against registered investment advisers (RIAs) or certain regulated funds (i.e., registered investment companies and business development companies) for maintaining crypto assets and related cash and cash equivalents with certain state-chartered financial institutions (state trust companies) so long as particular conditions are met. In doing so, the No-Action Letter permits regulated funds and RIAs to treat state trust companies as “banks” for purposes of the custody requirements of Investment Company Act of 1940, as amended (the 1940 Act), the Investment Advisers Act of 1940, as amended (the Advisers Act) and the rules thereunder.

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SEC and CFTC Staff Issue Joint Statement on Digital Asset Commodity Transactions

By Akshay Belani, Jay Dubow, Genna Garver, Ethan G. Ostroff, and Ghillaine Reid 

On September 2, the staff of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) issued a Joint Staff Statement regarding the listing of leveraged, margined, or financed spot retail commodity transactions on digital assets. Specifically, the SEC’s Division of Trading and Markets and the CFTC’s Division of Market Oversight and Division of Clearing and Risk shared their view that “current law does not prohibit” SEC- or CFTC-registered exchanges from facilitating trading of those spot crypto asset products.

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AI Updates

SEC Launches AI Task Force

By Jay A. Dubow and Ghillaine A. Reid

This article was republished in the October 2025 issue of Insights: The Corporate and Securities Law Advisor.

On August 1, the Securities and Exchange Commission (SEC) announced the formation of a new task force dedicated to harnessing artificial intelligence (AI) to enhance innovation and efficiency across the agency. This initiative, led by Valerie Szczepanik, SEC’s newly appointed Chief AI Officer, marks a significant step in the agency’s commitment to integrating this technology into its operations.

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SEC Regulatory Initiatives

SEC Takes Official Position on Inclusion of Issuer-Investor Mandatory Arbitration Provisions for IPOs

By Jay A. Dubow, J. Timothy Mast, Douglas D. Herrmann, Mary Weeks, and Chloe Ann C. Lee

In a policy statement issued by the Securities and Exchange Commission (SEC) on September 17, 2025, the agency announced that companies seeking to go public will be permitted to include an issuer-investor mandatory arbitration provision — which would require investors to resolve claims of fraud, false statements, or other investor claims through arbitration rather than in court litigation — without impact on the acceleration of the effectiveness of the registration statement. The SEC has traditionally declined to approve bylaw provisions that allow companies to avoid securities class action litigation by requiring claims to be submitted to arbitration. This change in policy stance observes judicial attitudes regarding the Federal Arbitration Act (FAA) and indicates that initial public offering (IPO) investors should prepare to be required to arbitrate investor claims in the imminent future.

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SEC Launches Initiative to Tackle International Fraud and Protect U.S. Investors

By Jay Dubow and Ghillaine Reid 

On September 5, the U.S. Securities and Exchange Commission (SEC) announced the formation of a Cross-Border Task Force. This initiative aims to enhance the Division of Enforcement’s capabilities in identifying and combating cross-border fraud that adversely affects U.S. investors. As global markets become increasingly interconnected, the SEC’s proactive approach underscores its commitment to safeguarding the integrity of U.S. capital markets.

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Whistleblower Updates

Evaluating the SEC’s Rising Whistleblower Denial Rate

By Jay A. Dubow, Ghillaine A. Reid, and Jaycee E. Parker

Published in Law360 on September 5, 2025. © Copyright 2025, Portfolio Media, Inc., publisher of Law360. Reprinted here with permission.

This year has seen a record percentage of whistleblower claim denials by the U.S. Securities and Exchange Commission. This rising trend of award denials is a departure from the SEC’s previous track record and may reflect a more conservative approach to whistleblower award determinations under the current administration.

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Securities Fraud Challenges

Navigating Confidential Witness Allegations in Securities Litigation

By Jay A. Dubow, Erica Hall Dressler, and Millie Krnjaja

Plaintiffs pursuing securities fraud claims under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 face the heightened pleading standards imposed by both Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act (PSLRA). To survive a motion to dismiss, plaintiffs must therefore plead “the who, what, when, where, and how” of the alleged fraud and the facts that give rise to a strong inference that the defendant acted with scienter with particularity. These requirements can pose significant hurdles for plaintiffs, who may lack firsthand knowledge or direct access to facts that clearly show why a statement was misleading or documents that reveal a defendant’s state of mind.

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SEC Enforcement

SEC Charges TZP Management Associates With Breaching Fiduciary Duty by Overcharging Management Fees to Private Funds

By Jay A. Dubow, Ghillaine A. Reid, and Isabela P. Herlihy

Last week, TZP Management Associates, LLC (TZP), a New York-based private equity investment adviser, agreed to pay more than $680,000 in monetary relief to settle charges brought by the Securities and Exchange Commission (SEC) for breaches of fiduciary duty related to the calculation of management fees for TZP’s private fund clients. This enforcement action highlights the importance of adhering to fund partnership agreements and providing adequate disclosure of fee calculation and management practices to mitigate potential conflicts of interest.

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Abrianna Harris and Mike Matthews also contributed to this newsletter. They are not licensed to practice law in any jurisdiction; bar admission pending.