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.

Read more

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.

Read more

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.

Read more

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.

Read more

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

On September 19, the U.S. Department of Justice (DOJ) announced a False Claims Act (FCA) settlement with a New Jersey shipyard that allegedly hired subcontractors employing undocumented workers. The recent settlement highlights an ongoing shift in the federal government’s strategy to enforce immigration laws aimed at businesses with federal contracts. It also underscores the Trump administration’s stated focus on enforcing immigration laws through various legal avenues, including criminal, civil, and administrative investigations and enforcement actions against employers.

Businesses should expect and prepare for heightened scrutiny regarding their hiring and employment practices under this administration.

Increased FCA Risks for Employers

The FCA prohibits individuals and businesses from knowingly submitting false or fraudulent claims for payment to the federal government under 18 U.S.C. § 287. FCA violations can result in civil penalties, including significant fines per violation (currently more than $14,000 per claim), plus potentially three times the government’s actual damages. Violations can also result in criminal penalties involving fines (up to $500,000 for businesses), imprisonment (up to five years) for individuals, and exclusion from future federal contracts and programs.

Traditionally utilized to pursue government contract fraud, the Trump administration has expanded application of the FCA to charge federal contractors who employ individuals without legal immigration status. In the recent settlement with a New Jersey shipyard, Bayonne Drydock and Repair Corp. (Bayonne), the DOJ alleged that Bayonne used subcontractors that employed approximately 52 undocumented workers on Navy ships between May 2017 and December 2020. Bayonne’s risk manager owned the subcontractors at issue. Interestingly, Bayonne’s risk manager had already received a Notice of Suspect Document from Homeland Security concerning its unauthorized employment of undocumented workers in 2016, suggesting a pattern of prior misconduct. Bayonne’s risk manager was ultimately convicted of harboring undocumented “aliens” under 8 U.S.C. § 1324(a)(2) and (f)(1), and Bayonne agreed to pay more than $4 million in settlement. The settlement agreement noted the obligation of federal contractors to verify the employment eligibility of all newly hired employees through E-Verify, the online platform companion to the I-9 process.

While the FCA, in this context, only applies to federal contractors, these settlements underscore the administration’s broader efforts to intensify immigration-related enforcement.

Trump Administration’s Broader Immigration Enforcement Efforts

The administration is employing a wide range of additional strategies to scrutinize businesses for immigration-related violations. Earlier this year, President Donald Trump signed Executive Order 14159, “Protecting the American People Against Invasion,” which directed the Secretary of Homeland Security and Attorney General to “take all appropriate action” within the civil and criminal context to enforce federal immigration laws. Following this order, there have been several examples of this promised heightened immigration-related enforcement.

ICE Inspections and Workplace Raids

The federal government is increasingly using Immigration and Customs Enforcement (ICE) inspections and workplace raids to identify potential immigration-related violations. ICE has broad authority to inspect an employer’s I-9 forms by issuing a notice of inspection. An inspection could trigger a deep probe into an employer’s payroll and other business records. Employers found to be employing undocumented workers can face serious repercussions, including civil charges and fines. Earlier this year, ICE imposed fines exceeding $8 million on three Denver businesses after it “uncovered widespread” I-9 violations, highlighting the substantial impact these inspections can have on businesses.

Prosecutions for Harboring Undocumented Workers

The federal government is also increasingly prosecuting businesses for “harboring undocumented aliens,” which is defined as, “concealing, harboring, or shielding from detection” any person who is unlawfully present in the United States under 8 U.S.C. § 1324(a)(1)(A)(iii). In March 2025, the U.S. Attorney’s Office for the Southern District of Texas charged the owners of a bakery with harboring illegal individuals after they discovered the owners were allegedly employing and housing undocumented employees in a room located within the same plaza as the bakery. In August, the owners were convicted after a jury trial of two counts of harboring individuals and conspiracy to do so; their sentencing is pending. There are several other examples of this type of enforcement, such as a February 2025 case involving a restaurant owner in Florida.

Increased Whistleblower Incentives

The administration is also providing employees with greater incentives to report their employer’s suspected noncompliance with immigration laws. In May 2025, the DOJ updated its Corporate Whistleblower Awards Pilot Program to include “violations by corporations of federal immigration law.” Pursuant to this amendment, whistleblowers, including current and former employees who may be disgruntled, can submit a tip to the DOJ regarding immigration law violations and receive a substantial reward if the DOJ secures a successful prosecution against their employer.

Emerging Immigration Enforcement Issues

In addition to I-9 inspections, ICE can conduct worksite inspections utilizing Blackie’s warrants. These are civil administrative inspection warrants that allow law enforcement to enter worksites and search for suspected undocumented workers and investigate a pattern or practice of employing unauthorized workers. Blackie’s warrants are issued on probable cause to believe that undocumented workers will be found on the premises. Unlike traditional search warrants, law enforcement is not required to provide names or descriptions of the people being sought.

Although Blackie’s warrants have been used frequently for immigration enforcement in both Trump administrations, in May 2025, a Texas federal court rejected an ICE application for a Blackie’s warrant that sought to “enter and search a private business to which they would otherwise be denied access so that they may exercise their warrantless arrest powers in furtherance of a criminal investigation into the unlawful employment of unauthorized aliens.” Reasoning that using Blackie’s warrants to search for immigration violations is “inherently criminal because the owner(s) of the target business face criminal penalties,” the court cited Fourth Amendment protections to deny the application. Given the court’s decision, the future use of Blackie’s warrants by ICE bears monitoring.

Recommended Actions for Employers

Considering this expanded enforcement posture, employers must develop and maintain their compliance programs to align with the latest regulatory expectations. Key actions include:

  • Training staff on updated immigration enforcement priorities and relevant regulations;
  • Conducting internal audits of I-9 and E-Verify records and preparing for voluntary disclosure and remediation, if necessary;
  • Establishing policies and procedures for subcontractor and intraorganizational management, including oversight mechanisms to prevent unauthorized employment practices such as engaging subcontractors to knowingly employ unauthorized workers;
  • Developing and maintaining strategies for preparing for potential ICE inspections and workplace raids appropriate for the industry; and
  • Engaging legal counsel with experience in immigration, white-collar, and employment law to address issues from multiple perspectives and effectively manage any arising challenges.

Troutman Pepper Locke attorneys continue to monitor these developments and are available to help you navigate this rapidly evolving landscape. If you have further questions or seek advice based on your specific situation, please reach out to the authors or any member of our White Collar Litigation + Investigations and Labor + Employment groups.

Eliana Lavine also contributed to this article. She is not licensed to practice law in any jurisdiction; bar admission pending.

In the high-stakes world of startups, securing capital can often feel like navigating a labyrinth. But what happens when the path leads to a down round? As economic pressures mount, many entrepreneurs face this challenging scenario, where raising funds means accepting a lower valuation than a prior round. This article delves into the board of directors’ obligations as it guides a venture-backed company through the strategic maneuvers and critical decisions often found in a down round, and offers insights on how to leverage this situation to fortify your startup’s future.

A “down round” is a term commonly used in private capital financing rounds in which the company’s pre-money valuation (or effective pre-money valuation) is lower than the post-money valuation from its prior financing round. The lower valuation in the down round could result in more dilution for the existing equity holders than anticipated, potentially leading key stakeholders to oppose the financing altogether. As a result, down round financings often use features designed to secure participation from existing equity holders and their board appointees, whether through the form of additional incentives or potential penalties for not participating. Such features may include pay-to-play or pull-up mechanisms, compulsory conversions, warrant coverage, or super-priority liquidation preferences, all of which can present turbulent waters for a board of directors to navigate. [For more information on these different features, please see our article on the features of a down round].

Conflicts of Interest

The special circumstances necessitating a down round require careful handling, as the risk of conflicts of interest between the board of directors and equity holders necessitates that any such down round financing be carefully considered, and the board of directors should take appropriate steps and consider all relevant factors in evaluating the fairness of the transaction. Most startups with existing venture capital investors have a board of directors comprised primarily of management and representatives of the company’s venture capital investors. The investors leading a down round financing often view themselves as backstopping the company at a time when others won’t, and expect to be compensated accordingly. On the other hand, management may focus on maintaining their jobs as a primary driver and their equity stake as a secondary driver. Other key stakeholders often include new investors, who may be looking for an opportunistic investment, and non-participating existing equity holders, who will be diluted and who may or may not be engaged and supportive of the transaction. The board of directors considering such a transaction should pay careful attention to its fiduciary duties as it works to bring this diverse set of stakeholders together.

Guidelines for the Board

While not bulletproof, there are certain measures the board of a company can take to mitigate risk and demonstrate that a down round is reasonable, fair, and appropriate in its terms. It is important to make an effort to satisfy as many of these recommendations as possible, as it will show the fairness and appropriateness of the down round financing. Doing so may also help shift the burden of proof during litigation from the company and the board to the plaintiffs challenging the transaction. It could also shift the level of scrutiny that a court may use in reviewing the lawsuit.

Recommended steps include, but are not limited to:

  1. Informed Decision Making
    1. Seek out alternatives: The board should consider and seek out alternative options, including bridge loans, simple agreements for future equity, convertible note offerings, mergers, asset sales, or other transactions that may be less offensive to non-participating equity holders. 
    2. Research: The board should review current market terms for similar transactions in the same or similar industries if possible, and use these as a guideline in establishing financing terms for the down round. 
  2. Process
    1. Fair value: The board should establish a fair price for the down round. While not required, getting a 409A valuation from an independent and reputable third-party valuation firm is effective in supporting the company’s position that the pricing of the down round was appropriate. 
    2. Independent committee: If possible, the board should establish a committee of independent and financially disinterested board members to evaluate and negotiate the terms of a down round and approve the transaction. 
    3. Conflicts of interest: Any board actions involving interested directors should have the interested directors recuse themselves, and any written resolutions should clearly acknowledge which directors are interested. Transactions involving interested directors can receive extra scrutiny on review and have their own set of approval provisions within the Delaware General Corporation Law and other state laws; it is imperative to follow those provisions. 
  3. Documentation
    1. Written record: The board should keep detailed minutes of meetings, keep resolutions in writing throughout the down round financing, and such documents should reflect the board’s rationale and analysis, including any outside advice from financial advisors, valuation firms, or legal counsel. 
    2. Disclosure: The board should fully disclose the status of the company to the equity holders, including the company’s financial situation and outlook. The board should also disclose clearly the terms of the down round offering, with an emphasis on the benefits, risks, and future outlook. 
  4. Equity Holder Considerations
    1. Right to participate: If permitted under the company’s governing documents, the board should consider giving all existing equity holders the opportunity to participate, whether or not such equity holders have contractual preemptive rights. These rights offerings help to cleanse the down round transaction. 
    2. Consent of equity holders: The board should seek the written approval of the equity holders for the down round, both those participating and those not participating. Approval by the majority of equity holders, especially a majority of non-participating equity holders, significantly helps demonstrate the fairness of a down round transaction. It also helps to show that the equity holders were fully informed of the status of the company, and can also help in shifting the burden of proof during litigation from the board to the plaintiff equity holders challenging the transaction. Please note, in certain down round structures, the vote of certain classes of equity holders will be required to effectuate the transaction. 
  5. Compliance
    1. Legal counsel: The board should ensure experienced legal counsel is available to advise and review the down round. 
    2. Fairness opinion: While not always financially feasible, the board could consider retaining a financial advisor to provide a fairness opinion to support the transaction, the valuation, and even the procedural steps taken. 
    3. Regulatory requirements: The board should ensure compliance with all applicable laws and regulations, including securities laws and corporate governance standards, and meet all internal company requirements. 

Conclusion

In the often-unforgiving landscape of fundraising, a down round can be a strategic lifeline, enabling a venture-backed company to navigate turbulent financial waters when more favorable alternatives are elusive. However, the path of a down round is fraught with complexities and potential pitfalls. The board of directors must execute its fiduciary duties with unwavering diligence, ensuring informed and prudent decision-making. Engaging experienced legal counsel and financial advisors is not just advisable — it is imperative. This not only helps steer the process but also fortifies the board’s commitment to acting in the best interest of the company and its equity holders. Through careful navigation and guidance, a down round can transition from a last resort to a strategic maneuver in the company’s survival and future growth.

This article is intended as a guide only and is not a substitute for specific legal or tax advice. Please reach out to the authors or another member of the Troutman Pepper Locke team for any specific questions. We will continue to monitor the topics addressed in this paper and provide future client updates when useful.

Troutman Pepper Locke’s Joseph Kadlec, Douglas Gray, LuAnne Morrow, and Christopher M. Flanagan recently authored the Reuters Legal News article “Life Sciences Companies May Turn to Spin-Offs to Avoid Sell-Offs” where they discuss spin-offs and split-offs as strategic alternatives for life sciences companies facing market and regulatory pressures.

Key Takeaways: FAA Chicago Drone Restrictions

  • Due to “special security reasons,” the Federal Aviation Administration (FAA) has imposed a temporary flight restriction (the TFR) over most of Chicago, IL — through at least October 12, 2025 — prohibiting the operation of nongovernmental drones. 
  • The TFR bars commercial drone operations in industries such as real estate, construction, film production, and event videography, thereby creating operational and financial disruptions. 
  • The FAA can impose TFRs for airspace safety, including law enforcement protection. 
  • Broad restrictions can limit journalists’ and the public’s ability to observe and document government operations, raising transparency and free speech concerns. 
  • The size and duration of TFRs can affect areas far beyond intended enforcement sites, highlighting the tension between security and the impact of overbroad restrictions. 
  • Commercial drone operators should monitor TFRs daily, plan alternative operations outside restricted zones, document operational impacts, and stay informed on evolving legal and regulatory developments. 

The FAA’s October 2025 TFR Over Chicago

Effective October 1, 2025, the FAA implemented a TFR for nongovernmental drones operating over most of Chicago following a request by the Department of Homeland Security (DHS). The FAA and DHS cited “special security reasons” while Operation “Midway Blitz,” an immigration enforcement operation, remains underway in the city. The TFR affects virtually all nongovernmental drone operators within its bounds, regardless of the operators’ proximity to immigration personnel. Specifically, the TFR covers a 15-nautical-mile radius from downtown Chicago and extends from the surface to 400 feet above ground level (AGL). Since nongovernmental drones are generally prohibited from flying above 400 feet AGL, the TFR acts as a de facto ban on operating such drones.

While the TFR is currently set to expire at 7:00 p.m. CDT on October 12, 2025, it is unclear whether the FAA will extend the TFR’s duration while federal immigration operations remain ongoing in Chicago. It remains to be seen if similar TFRs will be implemented in other cities.

Collateral Impact on Commercial Operators

Importantly, the FAA’s TFR is not limited to journalists. The TFR also affects unrelated industries that have come to heavily rely on drones. For example, photography and videography performed by drones is now a standard practice for marketing residential and commercial property listings. Operators cannot proceed with shoots inside the area restricted by the TFR, even in neighborhoods far from any immigration enforcement activity. Additionally, construction firms increasingly use drones for surveying, inspections, and project monitoring. These operations, often time-sensitive, are stalled for the duration of the TFR. Similarly, videographers, event planners, and marketers who use drones for weddings, filmmaking, festivals, and tourism promotion face the same disruption. For these businesses, the TFR is not a matter of civil liberties, but rather results in lost opportunity and operational cost.

The FAA’s Role and Authority

The FAA has a statutory mission to regulate and oversee civil aviation safety, including through its operation of the National Airspace System (NAS). TFRs are one of the tools the FAA relies upon to fulfill its statutory mission, particularly when it comes to drones. TFRs are routinely imposed around presidential visits, major sporting events, or high-risk incidents. Their rationale is straightforward: a blanket ban is easier to enforce and avoids the operational challenges of separating “safe” from “unsafe” drone flights in real time. From a regulatory perspective, the TFR represents the FAA exercising its existing legal authority to prioritize safety.

The First (and Fourth and Fifth) Amendment Perspective

The TFR implicates several constitutional concerns. As to the First Amendment, civil liberties organizations have raised concerns regarding the potential overuse of TFRs. By grounding all civilian drones in a particular TFR, the TFR may limit the ability of journalists and community groups to observe and document government activity from otherwise publicly accessible spaces.

While the government can impose reasonable time, place, and manner restrictions on speech, a TFR ban lasting weeks and covering areas that might be far beyond federal immigration enforcement activity raises questions about proportionality. This is particularly true where drone imagery has become an important tool for the public and media to report on law enforcement, protests, and public events.

Because the FAA uses its expertise to regulate aviation safety for those in the air and on the ground, as a practical matter it receives a significant amount of deference in determining the necessity and scope of TFRs. However, this deference may unintentionally restrict speech and press freedoms. Courts have not yet fully resolved how far federal airspace restrictions can go without infringing on First Amendment protections.

Moreover, depending on the manner in which law enforcement enforces a TFR against those operating drones over private property, such enforcement may give rise to seizure and takings issues under the Fourth and Fifth Amendments, respectively. It may also result in a reassessment of where property owner’s rights end and the NAS begins.

Navigating the Potential Conflict

The TFR highlights two key conflicts:

  • Airspace Safety vs. Free Press — The FAA’s authority is unquestioned, but its broad TFR in this case may impinge on freedom of the press rights protected by the First Amendment. 
  • Security Needs vs. Proportionality — Protecting federal and assisting state and local officers is critical; but the breadth and length of TFRs may be more disruptive to the public than necessary to achieve that goal. 

Practical Guidance for Clients

For drone operators and businesses, compliance with the TFR is mandatory. But there are ways to mitigate its impact and prepare for similar restrictions in the future:

  • Monitor airspace daily. Use FAA tools such as the B4UFLY app, the Notice to Airmen system, and the FAA’s TFR website to stay current on TFRs. Restrictions can appear with little or no advance notice, as was the case with the TFR. 
  • Plan alternatives. If possible, relocate operations outside the restricted zone or rely temporarily on ground-based photography. 
  • Communicate early. Let clients or stakeholders know when restrictions are beyond your control, and explain the expected timeline for resuming operations. 
  • Document losses. Keep records of canceled or delayed projects; these may be relevant for future legal challenges to restrictions. 
  • Stay informed on the law. This area of law is evolving quickly. Watching court cases and regulatory developments can help anticipate how future restrictions may be applied. 

Conclusion

The FAA’s Chicago drone TFR underscores a growing challenge in the law applicable to U.S. airspace use: how to balance legitimate security concerns with the increasing reliance on drones in everyday commerce and the public’s right to information. For now, operators must comply with the TFR and adjust accordingly. But the larger policy question remains unsettled — as drones become more central to journalism, business, and civic life, finding the right balance between safety, constitutional freedoms, and economic activity will be critical.

This article was originally published on Law360 and is republished here with permission as it originally appeared on October 9, 2025.

Losses arising from elder exploitation fraud scams are increasing, with our nation’s older population withdrawing large sums of cash from their deposit accounts for fraudsters or wiring hundreds of thousands of dollars to bad actors.

Despite the efforts of law enforcement, regulators and banks to educate older customers about internet and technology fraud tactics, thwarting the crimes has been difficult, and victims and their families frequently target financial institutions to recoup the money lost, often amounting to a lifetime of savings.

The latest trend is for elder law and consumer attorneys to assert what bank lawyers label “compliance predicated” claims, maintaining that the obligation of banks to comply with the Bank Secrecy Act and related regulatory guidance on elder exploitation triggers red flags, and the banks breach a duty of care or the contract of deposit by allowing the customer to conduct a suspicious transaction.

Claims for violation of state unfair competition laws and breach of implied covenant of good faith and fair dealing are also prevalent.

Recent case law discussed below provide practice pointers.

Think Edge Act removal.

In a sticky state court situation involving an older customer? Does the case involve one or more international transactions, and is the financial institution federally chartered? Think Edge Act removal.

Federal court has always been the favored forum for elder exploitation claims, given the often-large stakes, sympathetic plaintiffs and perception that federal courts are more familiar with Uniform Commercial Code preemption arguments and the defenses that financial institutions regularly assert.

But often the bank and the customer are domiciled in the same state, and removal on grounds of diversity jurisdiction is not an option. In cases involving international financial transactions and a federally chartered financial institution, removal pursuant to the Edge Act should always be considered.

The Edge Act allows banks and credit unions organized under federal law to remove cases to federal court that “aris[e] out of transactions involving international or foreign banking.”

While some early Edge Act removal decisions saw courts limit removal to cases involving banking laws, recent rulings embrace the literal language of the statute and permit removal in cases involving foreign banking transactions to stand.

In Lin v. JPMorgan Chase Bank NA, filed in the U.S. District Court for the Central District of California, the district judge denied the plaintiffs motion for remand after the bank removed based on Edge Act jurisdiction. The case involved an older plaintiff duped into sending seven wire transfers, one of which went to an account of a U.K. beneficiary with a Hong Kong address.

The court in 2024 rejected the plaintiffs arguments that the case involved “blatant financial elder abuse” and that the foreign transaction was not the primary issue in the case.

The court found that the bank’s processing of the wire transfer was the alleged “blatant financial elder abuse” claimed by plaintiff and that the statute’s “arising out of language encompassed the issues in the case.

The court also rejected the plaintiffs de minimis argument that only one of seven wires was an international transaction, finding that because that one wire was for $200,000, a “substantial portion of the funds that were transferred via an international bank wire” and that Congress had written the statute to tie federal court jurisdiction to an international bank transaction such as the one at issue in the case.

A June decision from the U.S. District Court for the Southern District of California, Smith v. JPMorgan Chase Bank NA, also permitted Edge Act removal to stand. Initiated against a national bank and two employees in California state court, the complaint alleged that the defendants assisted in financial elder abuse in violation of the California Welfare and Institutions Code, Section 15610.30, and violated California’s Unfair Competition Law.

The plaintiff, a victim of an online scam, invested withdrawn funds into a bitcoin ATM account and wired funds internationally to an account in Hong Kong. After the bank removed the case to federal court, the plaintiff argued that her claims did not “arise out of international banking transactions and that the purpose of the statute favored remand.

The district court rejected the arguments, finding that the plaintiffs claim derived in significant part from a wire transfer sent abroad, which the court found “sufficient for Edge Act jurisdiction.” The district court further found that “the Court must follow what Congress has required” when it enacted the Edge Act.

Courts are rejecting compliance predicated claims.

A recent trend is for elder law attorneys to assert claims maintaining that the Bank Secrecy Act and state elder exploitation statutes require financial institutions to refuse transactions that display red flags of elder exploitation.

But that is not the law. Banks are not required to prevent transactions that customers direct, nor are they required to reimburse customers who authorize wires to individuals who later turn out to be criminals.

A 2023 published opinion from the Court of Appeals of Virginia in Navy Federal Credit Union v. Lentz reaches this precise holding.

In the case, the Court of Appeals of Virginia rejected the argument that the BSA and related regulatory guidance imposes duties owed by financial institutions to customers, finding that “[t]he duties created by the BSA are those owed by a bank only to the federal government, not to any private party, including bank customers.”

The court similarly held that Virginia’s elder exploitation reporting statute did not impose a duty on a credit union to refuse transactions a customer requests simply because the customer is older and the transactions may appear suspicious, stating

[w]e decline to extend a duty to mandate the reporting of elder abuse or to mandate an action by a financial institution when elder abuse is suspected where the plain language of a statute clearly says otherwise. To do so would be an abandonment of the principles of separation of powers and our deference to the legislative branch on matters of policy.

The decision from the appeals court addressing Uniform Commercial Code preemption and compliance predicated claims has been relied on by other state and federal courts addressing similar causes of action.

Embrace UCC and preemption arguments.

The UCC will almost always provide grounds for disposition in the bank’s favor in elder exploitation cases involving wires and fund transfers subject to UCC Article 4A.

In case decided by the U.S. District Court for the Eastern District of Michigan last year, Owczarzak v. JP Morgan Chase Bank NA, the district court dismissed a claim asserting a negligence theory for the bank’s failure to prevent or investigate 10 wire transfers made by an older customer to Hong Kong bank accounts, when the customer was the authorized sender of the wires.

The court noted Article 4A of the UCC governing funds transfers “displaces principles of common law that conflict with its terms” and “sets forth a receiving bank’s duties when executing an authorized payment order.”

Allegations that the bank was negligent in failing to prevent or investigate wire transfers the customer authorized and in not following the Consumer Financial Protection Bureau recommendations on elder financial exploitation fell squarely within Article 4A.

The UCC sets out the duties of the bank when executing payment orders, and common law claims predicated on assertions that the bank should have taken additional steps are displaced by Article 4A.

Courts also regularly dismiss contract claims on preemption grounds. In a case involving elder fraud filed last year in the U.S. District Court for the Southern District of New York, Markatos v. Citibank NA, a bank customer brought a breach of contract action against a bank, alleging breach of the “duty of ordinary care” agreed to in the contract between them by failing to investigate and intervene to stop seven wire transfers totaling over $1.5 million to internet fraudsters.

The district court held that “Plaintiffs claim, at its core, is that he was induced by the fraudulent representations of a third party to authorize the transfer orders, which Defendant accepted without utilizing any heightened measures to protect Plaintiff from said fraud.”

Because this claim was “entirely dependent on Defendant’s execution of those transfers,” the district court found it was preempted.

Actual knowledge is required for liability under state elder exploitation statutes.

Courts are rejecting state unfair competition law claims predicated on allegations that a bank engaged in unlawful or unfair conduct by processing transactions for older customers.

Heightened awareness of elder exploitation has caused state legislatures to enact statutes to protect older customers and make banks liable for assisting in financial exploitation in limited circumstances.

For example, under California law, a bank providing ordinary banking services may be liable for “assisting” elder abuse if it had actual knowledge of the fraudulent conduct. But suspicion or constructive knowledge is not enough to hold a bank liable, as a recent case shows.

In Yaffe v. JPMorgan Chase Bank NA, filed last year, the U.S. District Court for Northern District of California considered whether a bank and one of its branch managers could be liable for assisting financial elder abuse under the California Welfare and Institutions Code, Section 15610.30.

The plaintiff alleged the bank should have suspected or investigated potential fraud. But the court held that without specific allegations of actual knowledge, these allegations were insufficient to impose liability. The court similarly rejected the plaintiffs claims under the California Unfair Competition Law, finding that it was unsupported by plausible allegations.

Although the leave to amend was granted, the district court found that the amended complaint still failed to sufficiently allege actual knowledge and did not cure the identified deficiencies in the Unfair Competition Law claim.

In Nauful v. Navy Federal Credit Union, the U.S. District Court for the District of South Carolina in July granted summary judgment for a credit union on claims alleging violation of the South Carolina Unfair Trade Practices Act and breach of contract.

The court found that the credit union’s conduct in allowing the customer to make frequent large cash withdrawals and wire funds did not meet the threshold for being “immoral, unethical, or oppressive.”

The court similarly rejected the plaintiffs claim for breach of the implied covenant of good faith and fair dealing, emphasizing that there was no contractual duty to prevent the transactions. Further, the implied covenant of good faith and fair dealing could not be used to create new obligations that did not exist in the contract itself.

Conclusion

Courts are increasingly recognizing that despite the sad fact patterns presented in elder exploitation cases, financial institutions do not have liability for merely assisting and executing bank transaction instructions authorized by older customers, even if the transaction is suspicious.

While banks have an obligation to report suspicious activity to the government under the BSA and related regulatory guidance, the duties created by the BSA are owed only to the federal government and not to customers.

Liability for elder exploitation requires actual knowledge of the fraud and complicity. This is the right outcome as putting banks in the position of being watchdogs on behalf of the customer rather than merely reporting suspicious conduct to the government, requiring them to police account activity, or make judgment calls about whether an older bank customer is lying when he or she tells the bank they are doing what they want to do with their money puts banks in an untenable position.

Refusing to engage in transactions for older customers may also expose financial institutions to other liability or regulatory pressure.

These are difficult cases. Financial institutions should continue to educate customers about third-party scams and comply with regulatory and statutory duties. But when actual litigation is filed, banks have plenty of defenses and tools in the arsenal to mount challenges to the claims.

Disclosure: Mary Zinsner was part of the Troutman Pepper Locke team that represented Navy Federal Credit Union in the Nauful and Lentz cases discussed in the article.

Reprinted with permission from the October 09, 2025, issue of Law360. © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.

This article was originally published on Law360 and is republished here with permission as it originally appeared on October 9, 2025.

The U.S. Department of Defense released the final rule implementing the Cybersecurity Maturity Model Certification on Sept. 9.[1] Through the program, the DOD seeks to enhance protections for sensitive information.

Defense contractors’ efforts to ramp up their CMMC compliance may reveal prior unknown instances of cybersecurity noncompliance. Similarly, CMMC assessments may highlight unanticipated export control violations.

Ahead of the CMMC program’s phased implementation, beginning on Nov. 10, defense contractors and subcontractors should consider how they can assess and address these issues before they come to the attention of enforcement authorities.

The CMMC Program

Before the CMMC program was created, the DOD required defense contractors to implement cybersecurity requirements from the National Institute of Standards and Technology‘s Special Publication 800-171.[2] This previous rule relied on contractors to self-validate and report compliance without outside certification.

This will no longer be the case under the CMMC program. Through the new rule, the DOD requires an assessment and certification, and contractors may be required to allow outside auditors to inspect their information systems.

To compete for defense contracts going forward, contractors’ information systems must pass an assessment and achieve a certification level to handle sensitive information.[3] Contractors requiring a CMMC Level 1 to handle federal contract information must complete a self-assessment of their information systems and report the results on the Supplier Performance Risk System.

In some instances, a CMMC Level 2, which is required for certain types of controlled unclassified information, or CUI, can also be obtained through self-assessment.

Companies handling more sensitive CUI must have their information systems externally validated by an outside organization. For instance, most contractors requiring a CMMC Level 2 certification will need an outside assessment from a certified third-party assessment organization.

To achieve the program’s highest certification, CMMC Level 3, the contractor’s information system must successfully complete a CMMC Level 2 third-party assessment and a separate assessment from the Defense Industrial Base Cybersecurity Assessment Center.

Both of these outside assessments must be completed once every three years.

While the CMMC assessment process improves transparency in cybersecurity compliance, it also increases the possibility of discovering prior instances of noncompliance. Prior noncompliance, whether intentional or not, may result in adverse government action against the contractor.

Unintended Compliance Issues: False Claims Act Liability and Export Control Violations

False Claims Act

As the CMMC program increases cybersecurity transparency through its assessment requirements, companies are exposed to increased risk of past violations. Litigation involving contractor cybersecurity fraud is not new.

In 2021, the U.S. Department of Justice began its Civil Cyber-Fraud Initiative to target contractors for cybersecurity-related fraud.[4] Relying on the FCA, the DOJ can hold companies accountable for past violations if they knowingly, or even recklessly, misled the government about their cybersecurity compliance.

Under the CMMC program, past cybersecurity violations are more likely to be exposed during the assessment process. For instance, companies who may have misrepresented their compliance with NIST SP 800-171 in past contracts may be at risk of FCA litigation after reexamining their current cybersecurity compliance.

Similarly, companies that attested to compliance without verification are also at risk.

Export Control Violations

Sensitive government information like CUI and federal contract information can be subject to the Export Administration Regulations or even the International Traffic in Arms Regulations. The EAR controls many commercial items, including dual-use items that have both commercial and military applications, as well as certain purely military items and spacecraft-related items that were previously ITAR-controlled.

The EAR is administered by the Bureau of Industry and Security within the U.S. Department of Commerce. The ITAR is administered by the Directorate of Defense Trade Controls at the U.S. Department of State. The ITAR controls defense articles and services, as described on the United States Munitions List.

Contractors and subcontractors should be aware that their government contracts may involve ITAR- or EAR-controlled products or technical data, and the DOD is not the only agency that regulates such sensitive information. The State and Commerce Departments may also pursue enforcement actions for export control violations.

Even companies that do not export their products can face export control violations. For example, so-called deemed exports can occur when controlled technical data is released to foreign nationals in the U.S., e.g., employees or contractors.

In addition, if export-controlled technical data is improperly stored, shared or accessed, e.g., in commercial cloud platforms that are not configured for compliant use with controlled technical data, ITAR or EAR violations can occur.

Potential Impacts

All defense contractors should be more cautious and deliberate with their compliance going forward. Contractors with prior violations may be able to mitigate enforcement risk by addressing their cybersecurity and export control compliance gaps as soon as possible, and incorporating new procedures for future compliance.

Those that design or build parts, systems or subcomponents for defense applications, particularly — but not only — when they have overseas suppliers, research and development, manufacturing, etc. may face particularly high risks under the ITAR and EAR.

Recommendations Moving Forward

  • Develop an understanding of the new CMMC program requirements and train employees to recognize and properly handle federal contract information and CUI.
  • Improve internal cybersecurity policies and incident reporting procedures to help prevent future violations.
  • Audit data, as well as supply chains, especially if working with third parties.

With the CMMC’s incorporation of new assessment procedures and outside compliance audits, the risk of discovering unintended violations in some cases may be high.

Contractors that suspect prior cybersecurity or export control violations should act promptly to limit their potential exposure.

[1] https://www.federalregister.gov/documents/2025/09/10/2025-17359/defense-federal-acquisition-regulation-supplement-assessing-contractor-implementation-of.

[2] See Defense Federal Acquisition Regulation Supplement (DFARS) 252.204-7012, Safeguarding Covered Defense Information and Cyber Incident Reporting, https://www.acquisition.gov/dfars/252.204-7012-safeguarding-covered-defense-information-and-cyber-incident-reporting.

[3] For more information about CMMC Levels and assessment requirements, see our prior advisory on the topic at What to Expect When the New CMMC Final Rule Hits Defense Acquisitions on November 10 – Troutman Pepper Locke.

[4] See Press Release, U.S. Dep’t of Justice, Deputy Attorney General Lisa O. Monaco Announces New Civil Cyber-Fraud Initiative (last updated Feb.6, 2025), https://www.justice.gov/archives/opa/pr/deputy-attorney-general-lisa-o-monaco-announces-new-civil-cyber-fraud-initiative.

Reprinted with permission from the October 09, 2025, issue of Law360. © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.

On October 8, 2025, the U.S. Patent and Trademark Office (USPTO) announced it will begin implementing the Automated Search Pilot Program on October 20, 2025 (Federal Register).

The pilot program will allow applicants to request the USPTO to conduct an automated search of the application before any substantive examination begins. The automated search will leverage AI technology and searching tools within the USPTO, giving the applicant an early understanding of hurdles the application may face during examination with respect to prior art.

From the initial search, the USPTO will issue a communication to the applicant detailing the search results so the applicant can review the prior art and make a more informed decision on how to proceed with the application based on the results. The communication, referred to as the Automated Search Results Notice (ASRN), will include 10 prior art documents listed in descending order of relevance as determined by the AI tool, along with the tool’s search queries. While this communication will be sent to the applicant and be placed in the file, copies of the references identified in the ASRN will not be placed in the file. While the applicant is not required to respond to the ASRN, the applicant may choose to amend their application via preliminary amendment to place the claims in better condition for examination or allowance, or take another action, such as deferring examination or expressly abandoning the application for a refund of the search and examination fees.

This new program can be an attractive pathway for applicants who do not have the time to conduct a prior art search before filing, for example, if the applicant is running against an expiring priority deadline or must file an application prior to a public disclosure. Furthermore, the ASRN will be provided to the examiner when substantive examination does begin, so it should provide the examiner with a sturdy foundation for their own search, ideally making the first action on the merits a stronger action. Participating in the program could ultimately reduce the total number of office actions they see from the examiner, resulting in faster time to allowance. Should an applicant wish to amend their claims in view of the ASRN, we recommend doing so as soon as possible after receiving the ASRN to avoid interfering with the examiner’s search and consideration.

Eligible applications are only those original, noncontinuing, nonprovisional utility applications filed under 35 U.S.C. 111(a) on or after October 20, 2025. The program is not retroactive to applications already on file. National stage applications, continuations, or divisionals are not eligible for the program. The program will run until April 20, 2026, or the date that each Technology Center (TC) that examines utility applications has docketed at least 200 applications accepted into this program (about 1,600 petitions total), whichever occurs first, though the program may be extended if the USPTO determines more time is needed to determine effectiveness.

To participate in the program, the applicant must file a petition to participate (i.e., using Form PTO/SB/470) electronically in Patent Center. The petition must be filed at the time of filing the application and must also include the petition fee (micro entity $90; small entity $180; and undiscounted $450). Once the petition is accepted, the USPTO will issue a notice stating the petition has been accepted and the search will automatically be conducted. If a petition is dismissed, the applicant will not have the opportunity to fix any deficiencies and resubmit the petition, so the applicant should ensure all requirements are met before filing a request to participate.

This article was originally published on Texas Lawyer and is republished here with permission as it originally appeared on October 8, 2025.

On Sept. 25, 2025, the United States District Court for the Southern District of Texas (District Court) issued an appellate ruling in In re ConvergeOne Holdings, Case No. 24-02001 (S.D. Tex. Sept. 25, 2025) reversing the bankruptcy court’s prior confirmation of ConvergeOne Holdings, Inc and its subsidiaries (collectively, the debtors) Chapter 11 plan (plan). The debtors, which provided IT, cloud and communications-based solutions, negotiated a restructuring support agreement (RSA) with approximately 81% of their first and second lien holders prior to commencing their chapter 11 cases. The RSA and the subsequent prepackaged Chapter 11 plan aimed to eliminate $1.6 billion in secured debt and included an “equity rights offering” at a discount, which was exclusively available to the majority of first lien holders (majority lenders), along with a 10% backstop fee. Importantly, those non-majority lenders (minority lenders) were excluded from both the negotiations and the opportunity to participate in the backstopping and equity purchase.

After the plan was filed, minority lenders objected to the confirmation of the prepackaged plan, arguing that their exclusion from the rights offering violated the equal treatment requirement of Section 1123 of the Bankruptcy Code. The District Court, reversing the bankruptcy court’s prior confirmation of the plan over the objection of the minority lenders, found that the exclusive rights offering violated the sacred tenant of equal treatment found in the Bankruptcy Code. Specifically, the requirement that a plan “provide the same treatment for each claim or interest of a particular class, unless the holder of a particular claim or interest agrees to a less favorable treatment” found under Section 1123(a)(4).

In reaching its conclusion, the District Court focused on the Supreme Court decision in Bank of America National Trust & Savings Association v. 203 N LaSalle St. Partnership, 526 U.S. 434 (1999), which, while addressing the absolute priority rule under Section 1129(b) of the Bankruptcy Code, was found to be instructive regarding exclusive opportunities and market testing. In LaSalle, the Supreme Court rejected a plan that gave equity holders an exclusive opportunity to invest in the reorganized debtor without market testing, finding this constituted a property interest received “on account of” their prior interest. The District Court also specifically noted and distinguished the circumstances before it in the ConvergeOne plan from those present in In re Peabody Energy, where all creditors had the opportunity to participate in a discounted stock offering, as well as the Fifth Circuit’s recent decision in In re Serta Simmons Bedding, 125 F.4th 555 (5th Cir. 2024), which held that equal treatment under Section 1123(a)(4) requires both equality of opportunity and approximate equality of value. The following are several of the focal points in the District Court’s decision:

  1. Exclusivity and Lack of Market Test: The backstopping opportunity was offered exclusively to majority lenders, with minority lenders intentionally excluded from negotiations and participation. There was no market test or competitive bidding to determine the fair value of the opportunity.

  2. Disparate Value: The exclusive opportunity resulted in majority lenders receiving, on average, a 30% higher recovery for their claims compared to minority lenders, far exceeding “approximate equality.”

  3. No Consideration for Opportunity: While majority lenders provided backstop funds in consideration for the returned equity, there was no consideration for the opportunity itself, which was granted solely based on their status as majority lenders.

  4. Illusory Alternatives: The minority lenders were given only a brief window to propose alternative plans after the RSA and plan were finalized, but the District Court found these alternatives were not genuinely considered and could not realistically succeed given the pre-packaged nature of the plan and the supermajority support for the original deal.

  5. Precedent and Policy: The Court found the plan analogous to LaSalle, where exclusive opportunities without market testing or genuine competition violate the Bankruptcy Code’s equal treatment requirements, which was further supported by the Serta decision’s mandating that both the opportunity and the result must be equal among class members.

In sum, the District Court staked the following guideposts in remanding the ConvergeOne plan back to the bankruptcy court:

  • Section 1123(a)(4) mandates equality in opportunity to participate

  • An “open market test” is instructive in determining whether an associated backstopping fee is appropriate

ConvergeOne is the most recent in a growing number of challenged restructuring and liability management transactions brought by minority lenders who have either been kept in the dark or flatly shut out of negotiations by borrowers and majority lender groups. The District Court’s opinion makes clear that there is a low tolerance for efforts to exclude minority groups for the ultimate benefit of a select group of lenders through restructuring transactions and similar liability management exercises. Indeed, equality is a chief pillar of the Bankruptcy Code, and any Chapter 11 plan that seeks to unabashedly shun that requirement will be refuted by the courts. Moreover, the ConvergeOne decision appears to potentially widen the holding in Serta to require that nearly all prepetition restructuring transactions (e.g., backstopping arrangements and related fees) are subject to an “open market test” requirement if a bankruptcy court is to find Section 1123(a)(4) has been satisfied in support of confirmation.

Reprinted with permission from the October 08, 2025, issue of Texas Lawyer. © 2025 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.

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.

Key Takeaways

  • The SEC is considering a shift from quarterly to semiannual reporting for public companies.  
  • No formal proposal has been issued, but recent statements suggest movement toward this change.  
  • Implementation would require significant regulatory updates and substantial market buy-in, which could take years.  
  • Companies should monitor developments and assess potential impacts on compliance and reporting practices.  

Background

Semiannual reporting is not new to the U.S. capital markets, and this is not the first time the SEC has considered a change in reporting frequency. Before 1970, the U.S. was on a semiannual reporting schedule. The SEC adopted the Quarterly Report on Form 10-Q in 1970, after years of semiannual Form 9-K practice in the 1950s and 1960s, moving the U.S. from semiannual to quarterly periodic disclosure. Between 2018 and 2019, during President Trump’s first term, the SEC actively considered semiannual reporting after support for the change was also voiced by the president. The SEC initially requested data in a request for comment (RFC) at the end of 2018 covering: (i) overlaps between 10-Qs and earnings releases; (ii) whether earnings releases and Current Reports on Form 8-Ks could satisfy core 10-Q requirements; and (iii) whether rules should allow flexibility in frequency (issuer-wide or by class). Commentators were largely split between companies and their industry groups pushing for less frequent reporting against some investors (including banks, fund managers, etc.) pushing to maintain quarterly reporting. However, the SEC dropped the potential policy change by delaying the issuance of any official rulemaking proposal during the final year of President Trump’s first term. In 2021, however, shortly after President Joseph Biden took office and appointed then-SEC Chair Gary Gensler, the SEC officially withdrew the proposal from consideration and further development.

What’s New in September 2025 and Why This Time May Be Different

On September 15, 2025, President Trump called on the SEC to consider a regulatory shift to semiannual reporting over quarterly reporting by domestic public companies. President Trump’s support for less frequent reporting stems from two areas of concern: (i) reducing “short-termism concerns,” where investors and companies only focus on short-term improvements rather than long-term growth, and (ii) reducing compliance and reporting burdens for public companies to incentivize more companies to go — and stay — public. Shifting to semiannual reporting would also align the U.S. capital markets reporting scheme with other international reporting schemes (including Australia, the UK, and Europe) which already maintain a semiannual reporting frequency.

Atkins has also publicly signaled support for the reporting change. He briefly addressed the concept of semiannual reporting during an open SEC meeting on September 17, which was held to vote on mandatory arbitration clauses in initial public offerings (IPOs). Atkins described these measures as “among the first steps of my goal” to reinvigorate IPO activity. He has repeatedly stated that one of his main policy goals as SEC chair is to make becoming a public company more attractive by eliminating compliance requirements that do not provide meaningful investor protections, minimizing regulatory uncertainty, and reducing legal complexities in the SEC’s rules.

On September 30, the SEC received a formal petition from the Long-Term Stock Exchange, a San Francisco-based securities exchange, to permit public companies to report on a semiannual basis, although the SEC has yet to comment.

Proponents argue that semiannual reporting would reduce costs and duplicative efforts, while freeing management’s attention for strategic moves that may negatively impact a company’s earnings in the short term but result in better long-term outcomes. A shift to semiannual reporting would also ensure the U.S. is consistent with international markets and result in parity with foreign private issuers (public companies which are domiciled outside the U.S. but are required to, or voluntarily, report with the SEC), as many such international issuers operate without mandated quarterly filings.

Opponents raise concerns that transparency and market efficiency will suffer, as bad news may be delayed, volatility may increase, and analyst coverage could diminish. Such a change could also lead to detrimental impacts for insiders and controlling shareholders, as quarterly filings help manage the release of material nonpublic information and available trading windows, allowing potentially larger windows of time in which such insiders may freely trade in company securities. Less frequent mandated public reporting can complicate trading compliance unless companies supplement with robust current reports or make voluntary updates. Empirically, critics of semiannual reporting argue, a reporting change would not cure short-termism, as companies may still face quarterly expectations from markets, institutional investors, and creditors even without a legal mandate.

There May Be Considerable Regulatory Changes to Implement Semiannual Reporting

Rules 13a-13 and 15d-13 under the Securities Exchange Act of 1934, along with Form 10-Q instructions, establish quarterly periodic reports and their requirements. A move to semiannual reporting would require amending those rules and forms with coordinated updates to Regulation S-K, Regulation S-X interim presentations, review expectations by auditors (and the rules of the Public Company Accounting Oversight Board (PCAOB)), Financial Accounting Standards Board (FASB) and securities exchange rules (such as the New York Stock Exchange and Nasdaq). As a result, even if the SEC implements a rule change, a rolling implementation process would be necessary before the capital markets are fully aligned on semiannual reporting. This process could take several months if not years.

There may be some clues to the SEC’s potential course of action from the 2018 RFC. The SEC provided several potential options for shifting to a semiannual reporting scheme, while understanding and maintaining the market’s expectations for quarterly information. The SEC, at least in 2018, did not expect a hard or immediate shift to semiannual reporting but rather carveouts and/or exceptions to support the market’s expectations. Instead, the SEC asked for public opinions on options related to:

  • Using the earnings release as the “core” of the Form 10-Q, trimming duplicative items and various guidance to better streamline quarterly reporting. Under this regime, there would still be quarterly reporting, but at a far lesser extent than what is currently required in Form 10-Q.  
  • Issuer- or class-based flexibility (e.g., by size or reporting status), where the SEC would preserve quarterly reporting for some issuers but allow semiannual for others. This could align with the trend and current regulations carving out or altering reporting requirements for smaller reporting companies and emerging growth companies.  
  • Elimination of quarterly reporting entirely and broadening the scope of Current Reports on Form 8-K to serve as the safety net for material, between-period events, and consider coordination with FASB and PCAOB if interim review/reporting standards change.  

Another potential option briefly discussed by Atkins was to allow issuers the choice to provide quarterly reports and remove the mandated reporting requirements for the first and third quarters.

Practical Implications

From a practical perspective, reporting companies would need to consider the impact of the following if semiannual reporting is implemented:

  • Insider trading and other transactions in company securities (including certain M&A or capital-raising activity) may be delayed or prohibited if there are longer periods of time in which insiders or companies possess material nonpublic information that will not be disclosed until the semiannual report.  
  • Staleness dates for financials/comfort letters, incorporation-by-reference timing, and shelf takedown readiness may need recalibration if interim financials are less frequent.  
  • Many credit agreements with lenders include covenants for quarterly reporting, which could greatly impact a company’s ability to shift to semiannual reporting. Companies seeking new debt arrangements may also be restricted in moving away from quarterly reports if creditors or debt investors still expect and demand quarterly reports.  
  • Issuers that move to semiannual reporting while their peers stay quarterly, if such an option is provided, could see relative information deficits that affect analyst coverage and liquidity resulting in market practices converging on voluntary quarterly reporting. As quarterly reporting in the U.S. has been the standard since 1970, over five decades of reliance and expectations on quarterly reports may make the actual shift to semiannual reporting less likely in practice even with a rule change.  
  • Sarbanes-Oxley (SOX) certifications and PCAOB interim reviews would need to be mapped to the new cadence, and internal controls would need to support timely event-driven Form 8-Ks and Regulation FD disclosures. This would require internal shifts to ensure SOX certifications can be properly made and controls maintained.  

Where Things Stand Today; Looking Ahead

No proposed rule or new RFC has been published yet, but the SEC’s recent regulatory agenda suggests active consideration of disclosure reforms. Recent Supreme Court decisions have heightened scrutiny of administrative rulemaking, so any substantial change will likely involve extensive public comment and participation and could take more than a year to finalize. The effective date of any new rule could be months or years after adoption, depending on implementation details.