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Cannabis Regulatory Updates
Suit Against Cannabis Giant Trulieve Underscores Cashless ATM Risks and the Need for Banking Reforms
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In a February 19 complaint filed in Arizona state court, Texas-based payment processer Switch Commerce LLC argued that multistate cannabis operator Trulieve Cannabis Corp. and its affiliates should be responsible for a $950,000 fine from Visa for their alleged fraudulent use of “cashless ATMs” — not Switch.
As outlined in our recent publication, the United States imposed a 25% additional tariff on all imports from Canada and Mexico starting March 4, with a 10% tariff specifically on Canadian energy products and potash (the Tariffs). However, President Trump amended previous executive orders to suspend these additional Tariffs until April 2, but only for goods that are eligible under the U.S.-Mexico-Canada Agreement (USMCA).
In response, U.S. Customs and Border Protection (CBP) issued updated guidance on imports from Mexico and Canada detailing how these new additional ad valorem tariffs will be implemented. CBP has updated the Harmonized Tariff Schedule of the U.S. (HTSUS) to include the following new tariff provisions, subject to the exclusions described further below:
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9903.01.01, which applies a 25% tariff on all goods originating from Mexico.
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9903.01.10, which applies a 25% tariff on all goods originating from Canada, except for certain energy products and potash.
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9903.01.13, which applies a 10% tariff on energy products, such as oil and gas, originating from Canada.
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9903.01.20, which applies a 10% tariff on potash originating from Canada.
Products from Mexico and Canada that do not qualify under the USMCA will be subject to the additional Tariffs listed above, as well as the general duties outlined in Chapters 1 through 98 of the HTSUS.
However, in addition to the temporary exclusion for USMCA-eligible goods, the following provisions within Chapters 98 and 99 of the HTSUS can provide exclusions to the Tariffs.
Exclusions Under HTSUS Chapter 98
The Tariffs do not apply to goods that are properly entered under Chapter 98 provisions, which allow certain goods to be imported under reduced or zero duty rates, such as temporary imports, goods returned to the U.S., or goods used for specific purposes like research or government use.
However, the Chapter 98 exclusions do not extend to the following subheadings applicable to goods imported following repair, alterations, processing, or assembly performed in Canada or Mexico:
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9802.00.40, 9802.00.50, and 9802.00.60 – The additional duties apply only to the value of repairs, alterations, or processing performed in Canada or Mexico, as described in the applicable subheading.
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9802.00.80 – The additional duties apply only to the value of the article assembled abroad (in Canada or Mexico), less the cost or value of U.S. components incorporated into the product.
Exclusions Under HTSUS Chapter 99
The following items that are from Mexico or Canada are exempt from the Tariffs pursuant to the statutory exclusions in the International Emergency Economic Powers Act (IEEPA), which is the authority used to impose these unprecedented new duties:
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Donated articles such as food, clothing, and medicine.
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Informational materials such as publications, films, posters, photographs, compact disks (CDs), and artwork. There have been numerous court cases and government statements over the past few decades clarifying the scope of this IEEPA exclusion in the context of economic sanctions in particular.
To claim these exemptions, CBP requires importers to use specific HTSUS Chapter 99 codes (e.g., 9903.01.02 for donated articles from Mexico) when filing entries. CBP continues to issue guidance clarifying which products and corresponding HTSUS codes qualify for these exclusions.
Goods eligible for preferential duty treatment under the USMCA will be subject to the Tariffs on or after April 2, unless that broader exclusion is extended or if they qualify for an exemption under HTSUS Chapters 98 or 99.
To effectively leverage these exclusions, businesses should review their product HTSUS classifications and country of origin determinations. Given the dynamic nature of trade policies, staying informed and maintaining proactive communications with supply chain partners is essential to mitigate risks and capitalize on available relief.
This alert is intended as a guide only and is not a substitute for specific legal or tax advice. Things are rapidly changing by the day and hour, and our Tariff Task Force will do its best to provide timely and relevant updates as things progress. Please don’t hesitate to reach out to us with questions.
On March 12, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) allowed General License (GL) 8L under the Russian Harmful Foreign Activities Sanctions Regulations to expire. As a result, broad OFAC prohibitions now apply for the first time to transactions involving energy with a broad set of systemically significant Russian financial institutions on OFAC’s Specially Designated Nationals (SDN) list. See our previous advisory for more detail on the other recent sanctions that have been imposed on Russia’s energy sector, and another post from earlier this week on where Russia sanctions may be heading under the Trump administration.
Originally issued under the Biden administration following Russia’s full-scale invasion of Ukraine, GL 8 had authorized transactions related to energy that involved SDN Russian financial institutions, such as Sberbank, VTB Bank, and Alfa-Bank. These transactions, which otherwise would have been prohibited by OFAC, were authorized by GL 8 to minimize shocks to the global energy markets that may have otherwise resulted from a cut-off of Russian supplies due to the absence of viable payment channels. The covered energy-related transactions spanned oil, petroleum products, natural gas, coal, wood, agricultural products used to produce biofuels, uranium, and electricity.
The Trump administration, by allowing GL 8L to expire on March 12, effectively revoked this longstanding authorization. As a result, U.S. and non-U.S. persons that continue to conduct energy-related transactions directly or indirectly involving these SDN banks will need to evaluate whether other more limited general licenses may apply on a case-by-case basis, submitting specific license applications to OFAC or pursuing similar approaches with OFAC (e.g., seeking secondary sanctions comfort letters), or else consider refraining from these transactions.
In addition to the prohibitions that will apply when U.S. persons are involved in some way (e.g., most USD-denominated transactions) in activity involving energy and one of these listed banks, U.S. secondary sanctions apply to non-U.S. persons conducting this activity even when there is no jurisdictional link to the U.S. So all financial institutions and energy market participants globally with potential connections to Russia should evaluate their compliance posture in light of these developments.
The trajectory of U.S. sanctions policy toward Russia will likely hinge on Russia’s responses to ongoing diplomatic initiatives involving Ukraine. However, in the meantime, OFAC and other U.S. government agencies have remained active in enforcing Russia-related sanctions.
Please reach out to the authors for any questions about these developments.
This article was originally published on March 13, 2025 on Law360 and is republished here with permission.
The 2019 film “Late Night,” written by and starring Mindy Kaling, tells the story of a late-night talk show host, Katherine Newbury, played by Emma Thompson, whose all-male, all-white writing staff scrambles to add a female writer for the sake of good optics.
The movie shows the struggles of surface-level diversity hiring, before “DEI” became the buzzword heard around the world.
The film, while a (fictional!) comedy, reflects a very real challenge in corporate America: How can organizations approach diversity, equity and inclusion in a way that goes beyond optics and fosters meaningful change, while not running afoul of the Trump administration’s current efforts to dismantle public and private DEI programs?
In the wake of George Floyd’s murder in 2020, corporate America saw an unprecedented surge in DEI commitments. Companies released public statements, pledged financial support to racial justice organizations and implemented new diversity hiring initiatives. Many employers also created DEI leadership roles for the first time, aiming to make systemic changes within their workplaces.
However, just a few years later, the momentum has shifted. The initial urgency behind these efforts has given way to growing legal and political scrutiny, especially with several executive orders and government memoranda rolling back prior DEI mandates.
This includes Executive Orders No. 14173 and 14151, which are respectively titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” and “Ending Radical and Wasteful Government DEI Programs And Preferencing,” as well as Attorney General Pam Bondi’s Feb. 5 memorandum, titled “Ending Illegal DEI and DEIA Discrimination and Preferences.”
In response, organizations have now begun to scale back their DEI programs. The challenge is no longer just about launching DEI initiatives; it is about eliminating quotas, preferences and aspirational goals, and instead focusing on inclusion and belonging — i.e., ensuring that employees have equal opportunities and a seat at the table, in compliance with applicable federal and state antidiscrimination laws.
We spoke to Nicole Edmonds, our partner and DEI committee chair at Troutman Pepper Locke LLP, to discuss the evolving corporate DEI landscape and how employers should handle challenging decisions about their diversity efforts.
The Legal Backdrop: New Challenges for DEI Initiatives
Corporate DEI programs began facing increased scrutiny after the U.S. Supreme Court’s 2023 decisions in Students for Fair Admissions Inc. v. President and Fellows of Harvard College, and Students for Fair Admissions v. University of North Carolina, which struck down race-conscious college admissions policies.
Even though these rulings do not directly apply to private employers, they added to the DEI conversation in corporate America and contributed to increased skepticism about workplace DEI initiatives.
Adding to the already building uncertainty, among many other executive orders issued in the initial days of the new administration, was President Donald Trump’s Executive Order No. 14173, issued on Jan. 21.
The executive order directed federal agencies to “combat illegal private-sector DEI preferences, mandates, policies, programs, and activities,” and instead encouraged private employers to implement the Trump administration’s policy of “individual initiative, excellence and hard work.”
Trump also directed all federal agencies, through the Office of the Attorney General, to report their plans to target what they perceive to be illegal DEI programs of private employers, and to specifically identify nine targets for compliance investigations, among other things.
While portions of that executive order were enjoined on Feb. 21 by the U.S. District Court for the District of Maryland in National Association of Diversity Officers in Higher Education v. Trump, the case currently is on appeal.
Further, statements from many of the new administration’s agency heads have indicated that regardless of the fate of any executive order, the priority of the federal government has, at the least, shifted away from DEI.
For example, Andrea Lucas, the acting chair of the U.S. Equal Employment Opportunity Commission, announced increased enforcement of Title VII against employers who express preferences against American workers.
On the other hand, there is also evidence that states may step in to try to fill the gap. For example, 16 state attorneys general came together in a recent joint guidance to reaffirm their commitment to DEI programs.
Certainly, this is a hot-button area that is developing quickly amid the shifting political landscape, and it has left many employers questioning their next step.
Reverse Discrimination Lawsuits: A Growing Concern
One concern some employers have identified is the risk of reverse discrimination claims, where a member of what has traditionally been considered a majority group claims they were unlawfully discriminated against because of that status, or in favor of a minority group.
The Supreme Court recently heard oral arguments in Ames v. Ohio Department of Youth Services, a case that could reshape the legal standard for reverse discrimination claims when a decision is made later this year.
In this case, the court has the opportunity to resolve a circuit split regarding the evidentiary threshold required for such a claim by deciding whether a plaintiff must show additional background circumstances evidencing discrimination.
If the court lowers the threshold, it may become easier for employees to bring, and potentially succeed on, reverse discrimination claims. This could possibly lead to increased litigation, which may, in turn, prompt employers to reassess and potentially scale back their DEI initiatives.
The Future of DEI
In “Late Night,” Katherine initially resisted change. She hired a female writer, Molly Patel, but did not do it with the purest of intentions. However, as Molly, played by Kaling, proved her talent and brought fresh perspectives, Katherine embraced the value of diverse voices.
By the end of the film, Katherine’s once homogeneous writing staff evolved into a diverse and dynamic team, ultimately revitalizing her show and making it a hit once again.
While some companies are scaling back their DEI efforts due to legal concerns, research consistently shows that diverse teams outperform uniform ones.[1]
Organizations should conduct a thorough evaluation of existing DEI programs, identifying what initiatives are in place, assessing potential legal risks and aligning efforts with business objectives that foster a culture of inclusivity.
Meaningful inclusion, and businesses that integrate DEI authentically, can drive innovation and long-term success.
Key Tips for Employers
Given the shifting legal landscape, we recommend that companies continuously monitor legal and political developments to stay informed.
Additionally, now is a good time for companies to conduct a DEI-related risk assessment to identify any areas that may be of concern in the current legal environment. Companies should align initiatives with business goals while maintaining legal compliance.
When conducting such an audit, companies should move away from quotas or programs focused on one protected category. However, they should not abandon their DEI initiatives altogether. Instead, focus on fostering a workplace where all employees feel like they belong.
Like Katherine learned in “Late Night,” maintaining a workplace focused on talent, where all employees feel included and respected, is critical for innovation and growth.
[1] See, e.g., https://www.mckinsey.com/featured-insights/diversity-and-inclusion/diversity-matters-even-more-the-case-for-holistic-impact.
The Securities and Exchange Commission (SEC) has issued a no-action letter providing new interpretive guidance on the verification of accredited investor status in offerings conducted under Rule 506(c) of Regulation D, which may involve general solicitation or general advertising. In a significant liberalization of the SEC’s position since 2012, this new guidance allows issuers to rely on high minimum investment amounts, coupled with written representations from purchasers, as a reasonable step to verify accredited investor status. The no-action letter concurred that an issuer could reasonably conclude that it has taken reasonable steps to verify that a purchaser of securities sold in an offering under Rule 506(c) of Regulation D is an accredited investor if the investment involves minimum investment amounts of at least $200,000 for natural persons and at least $1 million for legal entities.
History of Rule 506(c)
Rule 506(c) was introduced in 2012 pursuant to the Jumpstart Our Business Startups (JOBS) Act and became effective in 2013. This rule marked a significant change in the regulatory landscape by allowing issuers and investment funds to raise capital from accredited investors without the need for a preexisting substantive relationship. Prior to the introduction of Rule 506(c), issuers were prohibited from engaging in general solicitation or advertising when offering securities under Regulation D. Rule 506(c) lifted this restriction, enabling issuers to reach a broader audience of potential investors through general solicitation and advertising, provided that all purchasers in the offering are accredited investors.
However, Rule 506(c) introduced a new requirement to ensure that only accredited investors participate in these offerings. Issuers (or their registered placement agents or broker-dealers) must take “reasonable steps to verify” the accredited investor status of each purchaser. This verification process is intended to provide a higher level of assurance that investors meet the accredited investor criteria, as defined under Regulation D. Prior to this no-action letter, the SEC had made clear that a mere written representation that an investor was an “accredited investor” would not constitute “reasonable steps to verify” the investor’s accredited investor status.
In the no-action letter, the SEC acknowledged that requiring a high minimum investment amount can be a relevant factor in verifying accredited investor status. Specifically, in order to take advantage of this new guidance as a means of demonstrating reasonable steps to verify accredited investor status, the SEC requires that the minimum investment amounts be at least $200,000 for natural persons and at least $1 million for legal entities. If a purchaser meets the high minimum investment requirement, the purchaser may be considered to satisfy the definition of an accredited investor, provided there are no contrary indications. Purchasers must provide written representations confirming their accredited investor status under Rule 501(a) of Regulation D and represent that their investment is not financed by a third party specifically for making the investment in the issuer. Issuers must not have actual knowledge of any facts indicating that a purchaser is not an accredited investor or that the investment is financed by a third party.
The determination of whether an issuer has taken reasonable steps to verify accredited investor status is objective and context-specific, based on the facts and circumstances of each purchaser and transaction.
Historical Context of High Minimum Investment Amounts
The idea of using high minimum investment amounts as a sufficient indication of accredited investor status has been floated in the past. Notably, when Regulation D was first adopted in 1982, one of the ways that a purchaser could be considered to be an accredited investor was by investing at least $150,000, if the total purchase price did not exceed 20% of the investor’s total net worth at the time of sale.[1] More recently, in response to the adoption of Rule 506(c), the Securities Industry and Financial Markets Association (SIFMA), a leading trade association representing the securities industry, proposed this approach in a letter to the SEC in June 2014. In their letter, SIFMA argued that a high minimum investment amount could serve as a reliable indicator of an investor’s financial sophistication and ability to bear the risks associated with private offerings.[2]
Impact on Capital Raising
This new interpretive position by the SEC builds on the historical development of using high minimum investment amounts as an indication of accredited investor status and facilitates capital raising by issuers and investment funds in several ways. Issuers can streamline the verification process by relying on high minimum investment amounts and written representations, reducing the need for extensive due diligence. Issuers can have increased confidence in their compliance with Rule 506(c) requirements, knowing that high minimum investment amounts are considered a reasonable verification step. The guidance may attract more accredited investors who are willing to meet high minimum investment thresholds, thereby potentially increasing the pool of eligible investors. Additionally, the reduced need for additional verification steps can lower administrative burdens and costs associated with conducting offerings under Rule 506(c).
Conclusion
The SEC’s no-action letter provides valuable guidance for issuers and investment funds seeking to raise capital under Rule 506(c) of Regulation D. By allowing high minimum investment amounts and written representations to serve as reasonable steps for verifying accredited investor status, the SEC has simplified the verification process, potentially making it easier for issuers to attract and secure investments from accredited investors.
[1] See, Revision of Certain Exemptions From Registration for Transactions Involving Limited Offers and Sales, Release No. 33-6389 (Mar. 8, 1982).
[2] See, https://www.sifma.org/wp-content/uploads/2017/08/SIFMA-Rule-506c-guidance-June-2014.pdf. SIFMA proposed that a natural person should be deemed to qualify as an accredited investor in a Rule 506(c) offering if the purchaser made an investment of at least $250,000 and provided a representation that the investment constitutes less than 25% of the purchaser’s net worth.
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
The People’s Protector: A Conversation With AG Jason Miyares
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In this episode of Regulatory Oversight, Chuck Slemp welcomes his former boss, Virginia Attorney General (AG) Jason Miyares. With more than two decades of shared history, Chuck and Jason delve into a candid conversation about their journey from young professionals in the AG’s office to their current roles. Jason shares his inspiring journey from intern to becoming the first Hispanic AG of Virginia and the first child of an immigrant to hold the office.
Multistate Updates
FTC, States Sue John Deere in Right to Repair Lawsuit
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On January 15, the Federal Trade Commission (FTC), Minnesota, and Illinois filed a lawsuit against Deere & Company (Deere). The complaint, which Michigan, Wisconsin, and Arizona have since joined, accuses Deere of creating and maintaining a repair services monopoly and engaging in anticompetitive business practices that interfere with farmers’ rights to repair their Deere agricultural equipment in violation of federal and state antitrust laws.
Single State Updates
Massachusetts AG Campbell Releases “Junk” Fees and Auto-Renewal Regulations
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Massachusetts Attorney General (AG) Andrea Joy Campbell announced Massachusetts’ new consumer protection regulations prohibiting “junk fees” and providing consumers with greater transparency regarding trial and subscription offers, prohibiting unfair marketing tactics that obscure the true cost of a product or service. The regulations are intended to help consumers understand the total cost of products and services at the outset of a transaction, avoid fees, and make it easier to cancel unwanted costs associated with trial and subscription offers.
New York AG James Reaches $16.75M Settlement With DoorDash for Allegedly Misleading Tip Practices
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The New York Attorney General’s (AG) Office announced a $16.75 million settlement with DoorDash, the prominent delivery platform. The settlement relates to claims that DoorDash misled both consumers and delivery workers (Dashers) regarding the handling of tips. Specifically, AG Letitia James alleged that DoorDash employed a guaranteed pay model that was supposed to ensure that delivery workers knew their pay upfront. However, DoorDash allegedly used the model to redirect customer tips to subsidize the wages the company had guaranteed to the Dashers. Instead of giving Dashers the full tips as intended, the tips were used to reduce DoorDash’s payment obligations that were needed to satisfy the guaranteed payment amount.
AG of the Week
Derek Brown, Utah
Derek Brown was elected Utah’s attorney general (AG) in the November 2024 election. Brown is a seasoned Utah attorney who previously served as chairman of the Utah Republican Party. After earning a B.A. in English, with minors in business administration and music, he accepted an offer to attend law school. However, he and his wife, Emilie, embarked on a transformative journey by deferring for a year to travel. Upon their return, Brown embraced opportunities as an intern at the Utah Legislature and at the Office of the AG under Jan Graham, laying the groundwork for a meaningful career dedicated to serving others.
During his tenure in the Utah House of Representatives, Brown served on the House Rules, Judiciary, and Law Enforcement and Criminal Justice Committees. In 2010, he was elected to the Utah House of Representatives. At the request of Senator Mike Lee, he left the legislature to serve as Lee’s deputy chief of staff and state director in January 2014. He dedicated two years to advancing Lee’s mission before returning to the private sector.
Brown graduated from Pepperdine School of Law, where he was the editor-in-chief of the Law Review and clerked for the U.S. Court of Appeals for the Third Circuit. He has practiced law with top law firms, specializing in litigation and appellate practice.
Brown also served as legal counsel to Senator Bob Bennett from 2004 to 2006 and then to Senator Orrin Hatch from 2006 to 2007, contributing his expertise to the nation’s governance. Transitioning back to the private sector, Brown embraced the opportunity to teach communications law as an adjunct professor at Brigham Young University, shaping the minds of future leaders.
In 2019, he was elected chair of the Republican Party, serving until 2021, After two more years in the private sector, Brown announced his campaign in winter 2023 and dedicated himself wholeheartedly, culminating in his election on November 5, 2024.
Today, Brown and his wife, Emilie, are proud parents of four children and reside in Cottonwood Heights.
Utah AG in the News:
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On March 10, the AG’s Justice Division charged multiple defendants related to alleged forgery and forgery-related charges concerning candidate petitions.
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On February 19, Brown announced that Utah and 37 states are urging the FDA to take action against illegal sales of counterfeit GLP-1S.
Upcoming AG Events
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March: AGA | Women’s Empowerment Summit | Del Mar, CA
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March: RAGA | Spring Golf Retreat | Pinehurst, NC
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April: NAAG | AG Symposium | Nashville, TN
For more on upcoming AG Events, click here.
In a recent ruling, the U.S. Court of Appeals for the Federal Circuit upended years of settled law and ruled that sales and marketing expenses, by themselves, can be the basis for a finding of domestic industry in an International Trade Commission (ITC) enforcement action. This decision will make the ITC available to U.S. IP owners who import their goods from overseas and do not have a manufacturing base in the U.S.
Lashify, Inc., a U.S.-based company that distributes, markets, and sells DIY eyelash extensions and other accessories manufactured abroad, filed a complaint with the ITC under Section 337. Lashify alleged that certain other importers of like products violated Section 337 because their eyelash extension products infringed claims of three Lashify-owned design and utility patents.
To obtain relief against such importation under Section 337 in the ITC, Lashify had to demonstrate that there is a relevant industry in the U.S. relating to the invention protected by the patent that either already exists or is being established. This requirement demands a showing of an “industry” defined by Section 337 (a)(3), referred to as the “economic prong,” and a connection between that industry and the patented products, referred to as the “technical prong.”
In the ITC investigation, the administrative law judge (ALJ) denied Lashify relief because it found Lashify failed to satisfy the economic prong requirement, a determination that was dispositive and defeated Lashify’s claim for relief. Because all of Lashify’s manufacturing occurs outside the U.S., Lashify cited labor expenditures related to sales, marketing, warehousing, quality control, and distribution for its products. When evaluating whether Lashify established a significant employment of labor or capital pursuant to Section 337(a)(3)(B), the ALJ did not consider Lashify’s cited expenses relating to sales, marketing, warehousing, quality control, and distribution. In reviewing the ALJ’s ruling pursuant to Lashify’s petition for review, the Commission majority agreed with the ALJ and rejected Section 337 relief, stating that it is settled that sales and marketing activities alone cannot satisfy the domestic industry requirement pursuant to Section 337 (a)(3)(B). The Commission majority found similarly with respect to expenses related to warehousing, quality control, and distribution.
On appeal, the Federal Circuit interpreted Section 337 (a)(3)(B) without deference to the Commission’s interpretation of the statute, citing the Supreme Court’s recent decision in Loper Bright. The Federal Circuit analyzed whether the phrase “significant employment of labor or capital” in Section 337 (a)(3)(B) includes expenses such as sales, marketing, warehousing, quality control, and distribution, without any U.S. manufacturing. The Federal Circuit held that it does. It clarified that the relevant section does not exclude expenses related to sales, marketing, warehousing, quality control, or distribution from the domestic industry analysis, nor does it require these costs to be accompanied by significant employment in other areas. Since Lashify’s expenses were tied to its patented products, the ITC had no basis to disregard them. As a result, the ITC must now consider these expenses when determining whether a complainant has established a domestic industry.
The court’s decision makes clear that companies can manufacture entirely overseas and still establish a domestic industry through substantial U.S. investments in nonmanufacturing activities. The Federal Circuit’s ruling reshapes the ITC’s domestic industry requirement, expanding access to import bans for U.S. owners of intellectual property.
Recent events highlight the need for enhanced cybersecurity protocols in government offices across the U.S. In late November 2024, the Township of White Lake in Michigan, intended to issue approximately $29 million in general obligation bonds to finance a new public safety building and a new township hall. Prior to closing, a criminal actor gained access to the township’s email system, impersonated a township official, and altered emails containing wiring instructions. The bond underwriter, then wired the purchase price to the hacker rather than the township. The sale was canceled, and to date, approximately $23.6 million has been recovered and returned to the underwriter, which is suing the township for the remainder. According to a supplemental disclosure posted by the township on March 11, the U.S. Securities and Exchange Commission has opened an investigation regarding this event and the sale of the township’s bonds to determine if any violations of the federal securities laws have occurred.
What can governmental entities transferring (and receiving) large sums of money do to better protect themselves from cybercriminals? Many have set up protocols and procedures with vendors and others with whom they frequently do business. Bond financings, however, are usually infrequent for most governmental units, and involve underwriters, financial advisors, paying agents, and other parties that government staff may not know well and with whom they may have little contact.
The Government Finance Officers Association (GFOA) recently recommended a series of fraud prevention measures for participants in public finance transactions to adopt. The recommendations, which may be found at Fraud Prevention Measures When Receiving Funds, include establishing protocols with all vendors and transaction participants regarding (i) how any banking information will be communicated, (ii) by whom, and (iii) in what manner, such as telephone or video meeting. The GFOA recommends the use of encrypted email for transmitting sensitive information and reiterates the importance of maintaining good cybersecurity practices, such as not relying on any information or link contained in an email, but rather contacting the purported sender via prior, known contact information. Another consideration is to require a purchaser, in advance of a closing date, to initiate a test wire in a de minimis, random amount, to the account of the issuer, followed up by telephone confirmation of the receipt and amount of such wire, thereby confirming the accuracy of the wire instructions.
White Lake’s loss highlights the increasing risks to governmental units in transmitting and receiving funds, not only in public finance transactions but also in day-to-day business. Risks can be mitigated by appropriate staff training, close monitoring of financial transactions, implementation of robust protocols, and heightened vigilance by all transaction participants.
This article was republished in INSIGHTS: The Corporate & Securities Law Advisor (Volume 39, Number 5, May 2025).
On March 3, 2025, the Securities and Exchange Commission’s (SEC) Division of Corporation Finance announced that it has expanded its confidential filing process for certain draft registration statements submitted for nonpublic review. Since 2012, many issuers have been able to confidentially submit draft filings to initially register a class of securities using certain registration statements under the Securities Exchange Act of 1934 (Exchange Act). Companies will now also be permitted to confidentially submit drafts of registration statements under the Securities Act of 1933 (Securities Act) for follow-on offerings, regardless of how much time has passed since their initial public offering (IPO). The SEC hopes this expansion will further promote capital formation, while maintaining important investor protections.
In 2012, the Jumpstart Our Business Startups Act (JOBS Act) provided a mechanism for “emerging growth companies” (EGCs) to submit confidential draft registration statements for IPOs for nonpublic review by the SEC staff. After finding positive results for EGCs, the SEC then expanded these accommodations in 2017 to allow for all issuers to submit confidential draft registration statements in connection with an IPO, along with most types of offerings made in the first year after the given IPO. Virtually all companies considering an IPO have since taken advantage of this confidential submission process as it defers public disclosure and potential market scrutiny during the SEC review process.
Follow-On Securities Act Registration Statements
Under the enhanced accommodations, companies will now be permitted to confidentially submit the first draft of a registration statement under the Securities Act for follow-on offerings, regardless of how much time has passed since their IPO or initial Exchange Act Section 12(b)[1] registration statement. The Division of Corporation Finance’s prior policy limited the submission of draft registration statements under the Securities Act for nonpublic review to one year after an issuer’s IPO or initial Exchange Act Section 12(b) registration statement. Companies should keep in mind that the SEC will continue its past practice of limiting nonpublic review to only the initial submission. Any subsequent amendments to a registration statement, as well as the confidential submission, will need to be publicly filed at least two business days prior to effectiveness.
This new change in SEC policy has several potential benefits for companies considering raising additional capital in the U.S. public markets, including:
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Non-Shelf Follow-On Offerings. Companies who are not eligible to use a shelf registration statement (or that may be limited due to the “baby shelf” rules of Forms S-3 and F-3) may hesitate or avoid follow-on offerings — for example on Form S-1 — due to the potential for SEC review. Additionally, such follow-on registration statements can attract publicity and unwanted market scrutiny and speculation before an offering begins. Submitting a draft registration statement for nonpublic review allows these companies and underwriters to assess whether SEC review may delay plans for a contemplated offering without the market reacting to an offering prematurely based on a preliminary registration statement filing.
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New Non-WKSI Shelf Registration Statements. Companies eligible to file a new non-WKSI[2] shelf registration statement on Forms S-3 and F-3 are typically sensitive to the timing of a shelf registration statement filing, even if they don’t plan for an imminent capital raise (i.e., a “takedown”), as these types of registration statements register a general dollar amount of securities for offerings in the future. These new accommodations provide additional flexibility in the timing for submitting initial shelf registration statement filings, enabling companies to obtain further clarity on whether the SEC will review and comment on the filing.
Initial Exchange Act Registration Statements
The enhanced accommodations also expand the permitted types of forms that can be submitted for nonpublic review under the Exchange Act. The SEC will now accept for nonpublic review a draft registration statement relating to the registration of a class of securities under Section 12(b) or Section 12(g)[3] of the Exchange Act using Forms 10, 20-F, or 40-F. This development represents a change from prior policy and adds Section 12(g) registrations to the list of draft registration statements that the SEC staff will review on a nonpublic basis.
Content of Draft Registration Statements
In addition, these enhanced accommodations also allow for the omission of certain underwriter information in the initial draft registration statement submission when otherwise required by Items 501 and 508 of Regulation S-K. This accommodation will offer issuers more flexibility to begin the review process by SEC staff much earlier, even if the underwriter(s) have not yet been finalized for an offering. Issuers will still need to later provide the name of the underwriter(s) in subsequent submissions and public filings.
Foreign Private Issuers
Foreign private issuers (FPI) may also avail themselves of the new guidance. Additionally, consistent with the SEC’s prior policy, if an FPI qualifies as an EGC, it may continue to take advantage of the statutory JOBS Act process for EGCs or it may choose to comply with the SEC staff’s policy-based accommodations.
De-SPACs
Lastly, given the rise in popularity of SPACs[4] in recent years, the new accommodations also now permit issuers to submit a draft registration statement on Forms S-4 and F-4 for nonpublic review in connection with a “de-SPAC” transaction (i.e., a business combination between a SPAC and a private target company). The Division of Corporation Finance believes this approach is consistent with the SEC’s position that such transactions are the “functional equivalent” of the private target company’s IPO and should be effectively treated as such.
These enhanced accommodations are a welcome development for many issuers looking for additional procedures to further facilitate capital formation in an efficient manner, while avoiding market speculation.
[1] Section 12(b) of the Exchange Act applies to any class of security that is to be listed on a national securities exchange (e.g., NYSE or Nasdaq).
[2] “WSKI” refers to a “well-known seasoned issuer,” which is a category of issuer that allows greater flexibility in accessing U.S. public markets. As of the applicable measuring date, a WKSI generally must have had an outstanding minimum $700 million in worldwide market value of voting and nonvoting equity held by nonaffiliates or have issued in the last three years at least $1 billion aggregate amount of nonconvertible securities other than common equity, in primary offerings for cash, not exchange.
[3] Section 12(g) of the Exchange Act requires an issuer to register a class of equity securities if (1) its total assets exceed $10 million; and (2) it meets the holders of record threshold triggering registration: (A) for issuers that are banks or bank holding companies or savings and loan holding companies, there are 2,000 or more record holders of that class of equity securities; or (B) for issuers that are not banks or bank holdings companies or savings and loan holding companies, there are either 2,000 or more record holders of that class of securities or 500 or more record holders of that class of securities that are not “accredited investors” (as defined in Rule 501(a) of the Securities Act). An issuer that does not meet the size requirements can still voluntarily register a class of equity securities under Section 12(g) (e.g., to enable the quotation of its securities on the over-the-counter market).
[4] “SPAC” refers to a “special purpose acquisition company,” which is a blank check company formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (a business combination transaction).
The Trump administration continues to ramp up sanctions on Venezuela and Yemen’s Houthis, while sending mixed signals about its intentions with respect to Russia. We provide brief updates on these three areas, following up from our earlier post about the new administration’s policy and enforcement approach relating to national security and trade more generally.
Venezuela
On March 5, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued General License (GL) 41A, effectively requiring Chevron to cease its previously authorized operations in Venezuela by April 3. This action revokes GL 41, issued in November 2022, which had permitted Chevron to extract Venezuelan oil and export it to the U.S., and to support its joint ventures in Venezuela more broadly, such as with component and diluent imports. GL 41 included an automatic monthly renewal feature with a six-month validity period. The one-month wind-down period provided by GL 41A reflects the Trump administration’s desire to impose rapid and tough pressure on the Maduro regime.
This sharp turn in policy and very tight wind-down authorization is also a lesson for others relying on OFAC authorizations under this administration, which has shown that it will not hesitate to impose pain on companies even when implementing unexpected and severe policy reversals. Public reporting indicates that OFAC has notified other companies in Venezuela that their licenses are also about to be revoked, with similar 30-day wind-downs. These same reports cite estimates by certain groups that the Chevron withdrawal alone could cause as much as a 7.5% contraction in Venezuela’s GDP this year, as Chevron’s activity in the country accounts for about 25% of the Maduro regime’s revenue.
As with Iran, we would expect that the Trump administration ultimately aims for a negotiated resolution — but in the case of Venezuela focused on cooperation with deportation and efforts toward democratization — even as it imposes severe economic pain through sanctions. Interested parties should continue to watch for any indications of talks commencing, with the possibility of sanctions being relaxed if an agreement can be reached.
Russia
The Trump administration’s initial signals were that it would continue or even accelerate the Biden administration’s ramping up of sanctions against Russia in order to gain more leverage at the negotiating table. However, in recent weeks, the well-publicized disagreements between the U.S. and Ukrainian leadership, and friendlier signals toward Russia, cast some doubt on that path.
Last week, different press reports indicated at the same time that the administration is looking at further increasing sanctions on Russia, and also reducing those sanctions. President Trump stated on social media: “Based on the fact that Russia is absolutely ‘pounding’ Ukraine on the battlefield right now, I am strongly considering large scale Banking Sanctions, Sanctions, and Tariffs on Russia until a Cease Fire and FINAL SETTLEMENT AGREEMENT ON PEACE IS REACHED . . .To Russia and Ukraine, get to the table right now, before it is too late. Thank you!!!” Secretary of the Treasury Scott Bessent on March 6 had criticized “the Biden administration’s egregiously weak sanctions on Russian energy,” and said this administration “will not hesitate to go all in should it provide leverage in peace negotiations. Per President Trump’s guidance, sanctions will be used explicitly and aggressively for immediate maximum impact.”
But other reports from last week state that the Trump administration is looking at potentially changing, or even altogether removing, the “price cap” on Russian oil (and possibly also the similar policy on petroleum products) if there is progress with peace talks. Such a move may have a limited impact if the EU and UK do not follow it, as the price cap primarily impacts the insurance and shipping industries, which are highly concentrated in the EU and UK.
With all of this political posturing, it is important to understand that the current glide path is a significant increase in U.S. sanctions on Russia: OFAC’s GL 8L, which authorizes critical banking transactions relating to Russia’s energy sector (including oil, gas, petroleum products, coal, nuclear, biofuels, and electricity), is set to expire on March 12. After that date, strict OFAC prohibitions and broad secondary sanctions on non-U.S. persons will kick in. Combined with the now very broad sanctions on Russia’s “shadow fleet” and other key elements of its energy industry, these unprecedented banking sanctions will open serious questions about how Russia will continue to sell and transport (and get paid for) its energy products.
Yemen
On March 4, the U.S. Department of State designated Ansarallah, also known as the Houthis, as a Foreign Terrorist Organization (FTO). This reverses the Biden administration’s 2021 removal of the first Trump administration’s FTO designation of the Houthis, which the Biden administration did out of concern for the disproportionate impact the FTO prohibitions could have on humanitarian access and people-to-people contacts in Yemen. As discussed in our recent publication, both U.S. and non-U.S. persons face severe legal consequences in dealing with designated FTOs, such as Ansarallah.
The State Department’s press release included warnings for Chinese and other parties that may be interacting with the Houthis: “Most recently, the Houthis spared Chinese-flagged ships while targeting American and allied vessels. Separately, the United States will not tolerate any country engaging with terrorist organizations like the Houthis in the name of practicing legitimate international business.”
The Trump administration’s decision follows a series of attacks by Ansarallah, including the seizure of commercial vessels in the Red Sea, which have threated international shipping lanes, and attacks against Israel. Despite recent indications by the Houthis that they may limit the scope of their attacks following the temporary ceasefire in Gaza, it appears they may have downed yet another U.S. military drone last week.
Concurrently with the re-designation of the Houthis as an FTO, OFAC issued amended GLs 22A, 23A, 24A, 25A, 26A, and 28A, renewing and updating, or in some cases (in particular for the delivery of refined petroleum products) reducing, the scope of previously authorized transactions involving Ansarallah.
Please reach out to the authors for any questions about these developments.