The asset class is now facing its first meaningful stress test. Investors have requested billions of dollars in redemptions from semi-liquid funds. Public business development companies (“BDCs”) have traded at persistent discounts to net asset value Questions about software exposure, payment-in-kind interest, and valuation practices have made headlines. Regulators and plaintiffs’ lawyers have begun to take notice.

The temptation is to interpret these developments as a familiar banking story: a mismatch between short-term obligations and long-term assets exposed to fire sale risk. If that were the right diagnosis, the policy response would be a familiar mix of prudential limits covering liquidity, leverage, and concentration.

Yet private credit is not synonymous with banking. Its investors are not depositors, and its recent strains are better understood as problems of liquidity and information rather than evidence of systemic fragility. Rather than bank regulation, the better response is to develop market infrastructure that allows private credit loans to trade more easily and be priced more credibly.

The distinction starts with the investors’ claims. Bank depositors expect par repayment on demand and have little reason to scrutinize the bank’s illiquid assets unless failure looms. When this bargain appears endangered, bank runs emerge and fire-sale risk rises. By contrast, the returns of private-credit investors depend on the performance of underlying loans, and they knowingly accept investment risk in exchange for higher yield. This is clear for public BDC shareholders and for investors in private closed-end funds. It is also true, though less obviously, for investors in interval funds, tender offer funds, and non-traded BDCs. These vehicles can impose gates and limit redemptions. A quarterly opportunity to redeem a small fraction of one’s stake is not a demand deposit. By restraining runs, the need for fire sales is also lessened. External solutions like net asset value (“NAV”) financing and continuation vehicles can also generate liquidity.

At the same time, valuation uncertainty complicates investors’ decisions. Loans are bespoke, illiquid, and typically held to maturity. There is no continuous market price. Valuation therefore depends on management’s judgment about borrower health, refinancing prospects, restructuring paths, and recovery values. Even sophisticated lenders can reasonably disagree.

The Blue Owl Capital Corporation II episode illustrates the point. In fall 2025, Blue Owl proposed merging a non-traded BDC into a publicly traded affiliate. Because the public shares traded below NAV, the exchange would have given non-traded investors liquidity—but at a steep discount. After criticism, the merger was withdrawn. A subsequent tender offer at an even lower price attracted participation from fewer than 1 percent of shareholders. That outcome does not resemble a run. If investors believed the portfolio was deteriorating rapidly, many would have accepted a discounted exit. Their reluctance instead suggests something more prosaic: uncertainty about true value and unwillingness to crystallize losses at a potentially distorted price.

Conflicts of interest undermine valuation credibility. Managers may influence valuations that determine their fees. They may operate parallel funds and favor the vehicles with richer fee structures or establish continuation vehicles that favor new investors over those who are cashed out. Existing securities law addresses these issues, and SEC enforcement and private litigation can police fraud and self-dealing. The harder question is whether current safeguards are sufficient where investors have limited exit options.

Although leading market participants like Apollo have proposed more frequent valuations as a solution, alone they will not solve the problem. Daily marks do not equate to market prices. A manager can update estimates every day, but unless inputs are observable and trade data is available, the result remains an internal model, not price discovery.

A more durable solution is a deeper secondary market for private-credit loans. It would allow funds to generate liquidity through voluntary sales rather than forced redemptions, NAV financing, or continuation vehicles. It would facilitate portfolio rebalancing and reduce reliance on large cash buffers. Most importantly, it would generate independent price signals that investors, lenders, and regulators could use to evaluate manager marks and identify outliers.

Private credit can draw lessons from the development of the broadly syndicated loan (“BSL”) market. Today, the few private credit secondary transactions are private bilateral deals or closed auctions governed by nondisclosure agreements. This opacity suppresses the price information needed for credible valuation. A more functional secondary market will require more  transferable documentation, common identifiers, consistent reporting standards, workable settlement conventions, and centralized trading-data aggregation and reporting.  The BSL market’s development in the 2000s was aided by the Loan Syndications and Trading Association’s work on documentation, settlement practices, and market conventions. Private credit may also need a neutral market-wide coordinating institution to develop shared infrastructure and credible reporting norms. Robust secondary private credit trading would entail tradeoffs. Illiquidity has promoted stable relationships between borrowers and lenders  and bespoke underwriting standards. –More patient restructuring practices are possible without market pressures. A more liquid market could increase volatility, compress illiquidity premia, and weaken monitoring incentives. It may also destabilize lender groups facing borrower distress.

Private credit’s evolution suggests the prevailing paradigm should also change. It is a multi-trillion-dollar system financing thousands of companies through vehicles with very different liquidity terms. At that scale, the benefits of better price discovery and more flexible liquidity are likely to outweigh the costs.

The current strains in private credit are not a reason to treat investors as depositors. They are a signal that the market is still maturing. Targeted regulatory attention to conflicts may be warranted. But the most effective long-term response to valuation uncertainty and liquidity pressure is not heavier regulation—it is the gradual construction of a robust secondary market for private credit loans.

Robert Miller is an associate professor at the University of South Dakota Law School. This post is based on his recent article, “The Market Solution to Private Credit’s Stress,” available here.

This rule formalizes the reorganization reflected in recent announcements from the Criminal Division. Days before the Priorities Memorandum, the Criminal Division renamed its longstanding Fraud Section the “White Collar and Corporate Enforcement Section,” handling what DOJ described as fraud that does not involve U.S. public funds. When considered with the new rule and recent Priorities Memorandum, this reorganization indicates a division of labor between the Fraud and Criminal Divisions, in which the Fraud Division focuses on fraud involving taxpayer dollars and government-funded programs, while the Criminal Division addresses corporate and financial fraud in the private sector.

The Fraud Division’s powers do not stop with fraud schemes and offenses. The new rule also grants the Fraud Division sweeping authority to prosecute any federal criminal offenses related to or uncovered in investigations brought under the Division’s core authorities. This is a clear signal that non-fraud offenses identified in the course of a fraud investigation may be charged without referral to another DOJ component, thereby setting up a potential collision course with other components if a Fraud Division investigation yields evidence of tax evasion, national security, environmental, civil rights, or other offenses typically the province of other DOJ components. The rule permits these prosecutions by the Fraud Division regardless of whether such prosecutions fit within the six enumerated categories, which could help avoid delays or coordination challenges that can arise from inter-divisional referrals.

The rule also provides the Fraud Division with robust tools to further its expanded investigative authority. The Assistant Attorney General for the Fraud Division has delegated authority to certify special grand juries under 18 U.S.C. § 3331, enabling the Fraud Division to empanel investigative grand juries anywhere in the country. The rule also empowers the Fraud Division to pursue penalties in the form of injunctions, restitution, seizures or forfeitures of property, and damages.

These developments have several practical implications for potential targets of fraud or fraud-adjacent investigations. The Fraud Division’s broad charging authority and nationwide grand jury power allow DOJ to open investigations more quickly, including those that span multiple jurisdictions and encompass conduct that might previously have been handled by different DOJ components or U.S. Attorney’s Offices. Companies and individuals under investigation may face increasingly complex proceedings involving parallel civil and criminal tracks, multiple federal offices, and overlapping federal and state authorities. The Fraud Division’s authority to charge non-fraud offenses also creates risk for entities or individuals who may not be typical targets of fraud enforcement but whose activities intersect with conduct under investigation.

Key Takeaways

The Fraud Division’s expanded authorities, together with the administration’s overall stated focus on fraud and abuse as one of its priority areas, create a heightened enforcement environment for corporate activity touching on government funds, tax, and healthcare. Companies at elevated risk of scrutiny include those involving government contracting and procurement, recipients of federal grants or benefits, healthcare delivery and billing, international trade or customs activities, and businesses in the tax preparation or advisory space. The Priorities Memorandum also notes the Fraud Division’s goal to use data analytics and interagency coordination to identify fraud schemes, increasing the possibility that companies with large volumes of government billing data, customs declarations, or tax filings may be subject to algorithmic or pattern-based screening.

Companies can take several steps to limit their exposure to potential fraud investigations and enforcement actions.

• First, companies should assess whether existing compliance programs can detect the kinds of patterns that enforcement authorities will flag.
• Second, companies should evaluate exposure to the Fraud Division’s priority areas and consider whether internal compliance monitoring adequately covers interactions with government-funded programs and related reporting requirements.
• Third, the Priorities Memorandum explicitly reaffirms DOJ’s encouragement of voluntary self-disclosure, cooperation, and remediation under DOJ’s Corporate Enforcement and Voluntary Self-Disclosure Policy.[4] Companies that discover potential misconduct within the Fraud Division’s purview should carefully consider whether to self-report and to whom they should report.
• Finally, companies with ongoing government investigations should monitor whether their matters may be reassigned to or coordinated through the Fraud Division, and should remain attentive to the evolving division of responsibility between the Fraud Division, the Criminal Division’s White Collar and Corporate Enforcement Section, and various U.S. Attorneys’ Offices.

ENDNOTES

[1] Establishing the National Fraud Enforcement Division, AG Order No. 7108-2026, 28 CFR Part 0, Fed. Reg. Doc. No. 2026-16846 (published Aug. 18, 2026), effective August 24, 2026.

[2] See 28 C.F.R. § 0.70(a)–(f).

[3] Colin M. McDonald, Memorandum, “The Fraud Division’s Enforcement Priorities” (August 13, 2026), available at https://www.justice.gov/opa/pr/assistant-attorney-general-colin-m-mcdonald-issues-memorandum-national-fraud-enforcement.

[4] Alert Memorandum, “DOJ Releases First Department-Wide Corporate Enforcement Policy”, (March 13, 2026), available at https://client.clearygottlieb.com/36/4024/uploads/2026-03-13-doj-releases-first-department-wide-corporate-enforcement-policy.pdf

This post is based on a Cleary Gottlieb Steen & Hamilton LLP memorandum, “Justice Department Shuffles Enforcement To Fraud Division With New Regulations and Priorities,” dated August 19, 2026, and available here. Tom Bednar contributed to the memorandum. 

Most of the legislative proposals envision importing some version of insider trading law from securities markets to prediction markets. In a new paper, we argue that adjustments in regulatory approach should be made to reflect the very profound differences between securities markets and prediction markets. The case for strict insider trading regulation in securities markets does not automatically translate to prediction markets. The distinctive regulatory challenge that prediction markets do present is that some, but not all, contracts on prediction markets create a serious moral hazard  of giving market participants an incentive to engage in corrupt, illegal, or dangerous actions in order to rig the outcome of the contract on the prediction market. These corruption-prone contracts, combined with other institutional features of prediction markets such as their small size and limited social utility, indicate that prediction markets require different regulatory priorities than securities markets.

The two markets differ profoundly in their economic and social importance. Securities markets allocate capital across the economy: U.S. public equities alone represent roughly $60 trillion in value, public markets supply about three-quarters of the financing for non-financial corporations, and a majority of American households hold equities. Prediction markets, by contrast, are zero-sum side bets with less than $500 million in outstanding contracts. They allocate no capital, finance no businesses, create no employment opportunities, and safeguard no precious savings or investment capital. Their one and only social product is informational: the probability estimate embedded in the contract price.

This distinction should make a difference in regulator priorities. In securities markets, the insider trading prohibition is best understood not as a mandate of informational “fairness”—a rationale the Supreme Court abandoned in Chiarella and Dirks—but as protection of property rights in valuable corporate information, a theory completed by the misappropriation doctrine in United States v. O’Hagan. Manipulation, meanwhile, as scholars have observed, is a somewhat remote, second-order concern on securities markets: Traders cannot manipulate prices because manipulative trading causes an artificial price spike that is inevitably too brief to allow profit-taking by a would-be manipulator.

While insider trading is the main priority on securities markets and manipulation is a minor concern, the regulation of prediction markets presents the opposite concerns.  Because the price of event contracts is the product, informed trading on such markets is not a system bug at all. It is the feature, the only feature, that makes the product interesting to market participants and socially valuable to the rest of us. Insider trading is not as serious a problem on prediction markets as it is on securities markets. Recent empirical work shows that roughly 3 percent of accounts—persistently skilled traders processing public information faster, arbitraging across contracts, and betting against the crowd’s biases—drive price accuracy, while amateur, recreational traders supply volume but almost no information. Insider trading in the legal sense does occur, but it is localized and sporadic: fewer than 1,000 flagged accounts out of 1.7 million, about two-tenths of one percent of volume.

In contrast, the available empirical evidence in finance indicates that insider trading is routine on securities markets. Such trading is estimated to occur in one in five mergers and acquisitions and one in 20 earnings announcements, at least four times the prosecution rate. Insider trading on securities markets is more likely when the information is more valuable, when more people possess it, and in more liquid stocks. Certain structural features of prediction markets, particularly traders’ lack of systematic access to informational advantages, thin order books, conspicuous positions, and severe non-market penalties for the very people who generally possess event information limit insider trading on prediction markets.

This is not to say that prediction markets are free of regulatory challenges. The payoff for corruption-prone event contracts turns on events a market participant can materially influence: a referee’s next call, the particular words a CEO utters on an earnings call, a congressman’s attendance at the State of the Union, whether a website suffers an outage. Such contracts are an invitation to corruption that after-the-fact trading surveillance cannot efficiently police. We note that this problem is not unfamiliar. Insurance law’s insurable-interest doctrine, dating to the Life Assurance Act 1774, answered the wager policy—a stranger’s bet on another’s life—not by prosecuting murder more vigorously but by refusing to allow such contracts at all. Thus, the appropriate deterrent is ex ante, not ex post. We propose the same regulatory approach for corruption-prone event contracts on prediction markets: the exclusion of such contracts at the listing stage in order to prevent the corrupt incentive from arising in the first place.

The hard cases confirm rather than undermine this framework. Trading on misappropriated corporate secrets is already punished under CFTC Rule 180.1, as the Google prosecution shows. Trading on classified information is a breach of public trust properly addressed by national-security, ethics, and fraud law.

We recommend a regime built from existing tools: Exclude corruption-prone contracts through rebuttable, categorical presumptions at listing; abandon  inequality of information as a listing consideration; leave participant-conduct rules primarily to exchanges, which internalize the relevant tradeoffs; police breaches of confidence at their source; and adopt a no-parity rule. The Commodity Exchange Act, organized around the listing decision, already contains the architecture this approach requires. What is needed is not new law, but attention to the right regulatory challenges.

Jonathan R. Macey is Sam Harris Professor of Corporate Law, Corporate Finance, and Securities Law at Yale Law School, and Luca Enriques is professor of business law at Bocconi University. This post is based on their recent paper, “Different Markets, Different Regulatory Priorities: Insider Trading, Manipulation, and Corruption-Prone Event Contracts in Prediction Markets,” available here.

The Supreme Court held in National Republican Senatorial Committee v. Federal Election Commissionthat Federal Election Campaign Act (FECA) limits on political party committees coordinating with candidates violate the committees’ First Amendment rights. Most commentary about the 6-3 ruling has focused on the fact that it will likely enhance the role that political parties will play in financing elections. But the decision has consequences that reach well beyond its impact on political parties.

Writing for the majority, Justice Brett Kavanaugh recognized and accepted that Congress has a compelling interest in stemming corruption—and the appearance of it—that can accompany large political contributions and expenditures and embraced the constitutionality of contribution limits and measures designed to prevent their circumvention. And Justice Kavanaugh stressed that  transparency and disclosure are central to advancing Congress’ interest in policing contribution limits and stemming corruption.

The Court explained that disclosure can “deter actual corruption and avoid the appearance of corruption by exposing large contributions and expenditures to the light of publicity.” It found “disclosure has become a much stronger anti-circumvention tool over time because of ‘modern technology,’ especially the Internet.”

For a host of reasons, both legal and business, public corporations share Congress’ interest in stemming corruption.

Transparency provides an internal safeguard for a company unwittingly engaging in political activity that might expose it to accusations of corruption. It also serves to protect companies from shakedowns by elected officials. Undisclosed contributions to tax-exempt, nonprofit advocacy organizations operating under Section 501(c)(4) of the Internal Revenue Code, and to trade associations operating under Section 501(c)(6), pose a heightened risk because a company typically loses control over how the contribution is used. It is becoming increasingly common for elected officials to be closely associated with, and even control, politically active 501(c)(4) social welfare organizations.  These officials and their allies are doing so to circumvent  the disclosure and limits that normally are required for direct political contributions to elected officials and candidates.

The importance of disclosure extends to other third-party groups such as Super PACs and so-called 527 committees, the respective parties governors’ associations, state legislative campaign committees and attorneys general associations. When companies give money to third-party groups, they lose control of it. They need to know the ultimate recipients of their contributions, and what the money enables, to assess any risk the contributions may pose. This is an essential element of due diligence and assessing whether the contribution advances the company’s interest and stated public values.

Exhibit A in the risks inherent for companies in “dark money” political spending is the scandal that shook FirstEnergy Corp. over efforts to bribe Ohio state officials to pass a $1 billion bailout of two affiliated nuclear plants. The indictment of two former top executives outlined a pattern of racketeering activity that included payment of more than $59 million to a 501(c)(4) entity.

Many companies have embraced transparency in their political spending, as reflected in an annual scorecard the Center for Political Accountability and The Wharton School’s Zicklin Center for Governance and Business Ethics has published since 2011. The 2025 Center for Political Accountability-Zicklin Index showed the number of all S&P 500 companies scoring 90 percent or above for their political spending disclosure and accountability was 112, a fourfold increase from 2015, the year the Index was expanded to cover the S&P 500.

In the wake of N.R.S.C. v. F.E.C., it can be expected that states will seek to expand disclosure requirements to contributions made to social welfare organizations and trade associations that engage in politics.  A number of states already have, including  New York, Connecticut, and Arizona. Legislation has been introduced in 38 states that would require greater disclosure for organization engaged in election advocacy

It is worth noting that the Court called for vigilant enforcement of the law’s earmarking rules, finding these rules essential to advancing disclosure and policing circumvention of the contribution limits.  As one major law firm, Skadden Arps, has noted, the Court’s “references to earmarking and disclosure rules as an important safeguard against quid pro quo corruption and circumvention of limits may mean donors could face increased scrutiny of party contributions, whether by the government or oversight groups, for indications that parties are acting as a conduit for contributions directed to benefit a particular candidate or campaign.”  This caution applies to any effort to circumvent the contribution limits.

Public companies should embrace the Court’s finding that disclosure is an essential tool in combatting corruption and not wait for legislation that compels it.

Karl Sandstrom is of counsel at Ashurst Perkins Coie. He formerly served on the Federal Election Commission and was chief election counsel in the U.S. House of Representatives. Bruce F. Freed is president of the Center for Political Accountability, an NGO that aims to bring transparency and accountability to corporate political spending.

The ECGTD is key to the EU’s ongoing efforts to prevent greenwashing in the sale of products to consumers, with greenwashing defined as making false or misleading claims about the sustainability credentials of a product or service.[1] To achieve its aims, which are to empower customers for the green transition through better protection against unfair practices and through providing better information to customers, the ECGTD amends two existing consumer protection laws, the Unfair Commercial Practices Directive (“UCPD”), to regulate misleading environmental claims and sustainability labels, and the Consumer Rights Directive (“CRD”), to improve the information to consumers given on guarantee rights and the repairability of the products they purchase. The European Commission (the “Commission”) has released FAQs on the ECGTD in June 2026 to aid interpretation.

Member States must apply the ECGTD in their national law from September 27, 2026.

Are Financial Services and Products Subject to ECGTD?

The UCPD, as amended by the ECGTD, is capable of applying to financial products and services which are sold to individual consumers. However, EU rules which govern financial products and services, in particular theSustainable Finance Disclosure Regulation (“SFDR”), which governs financial products’ sustainability claims, and the general conduct of business rules in the Markets in Financial Instruments Directive (“MiFID”), in particular for all communications to be fair, clear and not misleading, will prevail over the UCPD’s rules. Given the body of EU law now governing sustainability claims in financial products, it is unlikely that supervisors will apply the ECGTD as a means to enforce greenwashing claims in financial products.

Which Companies Are in Scope?

The ECGTD does not alter the scope of either the UCPD or CRD. The UCPD, as amended, applies to any company with “commercial practices” aimed at consumers, which are commercial communications, including advertising and marketing, or courses of conduct, connected with the promotion, sale or supply of a product to consumers. Commercial practices can be conducted before, during or after a consumer enters into a transaction with the company in scope.

As the UCPD, as amended by the ECGTD, only applies to commercial practices, it does not include mandatory claims made to fulfil a legal requirement, so reports under the Corporate Sustainability Reporting Directive are out of scope. The Commission’s FAQs note that, if a company uses information from its sustainability report in voluntary advertising or market directed at consumers, these types of communications are in scope.

The CRD applies to all contracts concluded between businesses and individual consumers.

Which Claims Are Covered?

As above, the ECGTD applies to unfair commercial practices made by businesses to consumers, including to communications relating to the sustainability characteristics of a product or brand. It applies to any type of environmental or social claim relating to a product which may be misleading, such as the product’s contribution to a low-carbon economy, which will now need to be explained in an implementation plan, or the durability or recyclability of a product, or the use of generic environmental claims, such as “climate friendly” or “green.”

The CRD applies to contracts between consumers and traders for the provision of goods or services, specifying pre-contract information, withdrawal rights, rules on delivery and risk and protection against hidden charges. The ECGTD amends the CRD to ensure that traders provide consumers with information on the existence of durability guarantees, software update periods, repairability and spare-parts availability, to promote more sustainable purchasing decisions.

What Are the Key Changes Under the ECGTD?

Unfair Commercial Practices Directive

The UCPD prohibits “unfair” commercial practices in the sale of a product (comprising any good or service), which are considered either misleading (containing false information, or omitting material information, about a product in its marketing) or aggressive (such as using undue influence on the consumer), limited to sales to individual consumers.

The ECGTD expands the definition of misleading practices to include false information in relation to products about their environmental or social characteristics, including making environmental claims about future environmental performance (such as transition to carbon or climate neutrality) without clear and objective commitments set out in a detailed implementation plan, which is regularly verified by an independent third-party expert,[2] and advertising sustainability benefits to consumers that are irrelevant and do not result from any feature of the product. Under the ECGTD changes, where a trader compares products and provides consumers with information on the environmental or social characteristics or circularity aspects of different products, it must provide information on its method of comparison and keep that information up to date. Traders must conduct a case-by-case assessment of any environmental or social claim to assess the risk of it being considered misleading.

The scope of environmental claims is broad, and includes messages or representations in any form, including text, pictorial, graphic or symbolic, such as labels, brand, product or company names, which state or imply that a product, product category, brand or trader has a positive or zero impact on the environment or is less damaging to the environment than other products, product categories, brands or traders, or has improved its impact over time. The Commission FAQs state that “implies” could include the layout or choice of colours when marketing a product, and use of images such as trees or green colours could be an implicit environmental claim in this context. Hence, companies should exercise caution when using icons, symbols or images that could be perceived as implicit environmental claims. There is no exclusion for brand or product names protected under intellectual property rights. An environmental claim will be considered as such if, as a whole, the product’s packaging, marketing and presentation is likely to lead the average consumer to believe the product or brand has a positive or zero impact on the environment.

The UCPD includes a list (in Annex I) of commercial practices which are considered intrinsically unfair and hence automatically prohibited, such as displaying a trust mark without prior authorisation. The ECGTD amends the list of commercial practices, to include (i) displaying a sustainability label on a product where the label is not based on an established third-party certification scheme[3] or has not been established by a public authority; (ii) making a generic environmental claim about an entire product or business when the claim concerns only an aspect of the product or business; and (iii) making claims about a product or service, such as a flight, being carbon neutral or positive which is based on offsetting greenhouse gas emissions, rather than on the actual emissions of the product.

In addition, the ECGTD prohibits “generic environmental claims,” which are environmental claims where the specification of the claim is not provided in clear and prominent terms – such as that a product is “environmentally friendly,” “green,” “energy efficient” or “biodegradable,” unless the company can demonstrate “recognised excellent environmental performance.” To demonstrate this, the product must comply with either: (i) the EU’s separate Ecolabel Regulation – for example, a generic claim concerning furniture recyclability must meet the EU Ecolabel criteria for the “Furniture and Bed Mattress” product group; (ii) national or regional EN ISO 14024 type 1 ecolabelling schemes officially recognised in EU member states (for example, Nordic Swan, Blue Angel or the Dutch Ecolabel); or (iii) the top environmental performance for a specific environmental characteristic in accordance with other EU laws, for example, the Energy Labelling Regulation. Non-generic claims which are accompanied by clear and prominent specifications, such as a claim that 100% of the energy used to produce the product comes from renewable sources, are not considered to be “generic” and are not subject to this requirement.

Consumer Rights Directive

As above, the ECGTD’s changes to the CRD introduce requirements for traders to disclose information to consumers on product durability, repairability and conformity, to support improvements to the EU circular economy.

Under the existing CRD, consumers benefit from a legal “guarantee of conformity,” for at least two years (and longer in certain Member States) where goods are defective or do not function as intended, entitling the consumer to remedies such as repair, replacement and, in some cases, a price reduction or refund. The ECGTD does not change the substance of the guarantee of conformity, but requires traders selling goods to consumers to display a standard, EU-wide harmonised notice which sets out the main elements of the guarantee of conformity and which traders must show in a prominent manner at point of sale.

In addition, where a producer of a good offers a “commercial guarantee of durability,” meaning a voluntaryguarantee, at no additional cost to the consumer, covering the entire good and lasting more than two years and communicates this information to the trader, the ECGTD requires this to be communicated to consumers using a separate harmonised label. The design and content of the harmonised notice and harmonised label are established under a separate EU law.

Separately, the amended CRD also requires traders to provide a “repairability score” for goods, which expresses a good’s capacity to be repaired, based on harmonised EU requirements. As this is product-specific and will apply when the EU has adopted harmonised repairability-score requirements for the goods in question, it does not yet apply in practice to many product categories. Traders may also have to give consumers other durability- and repairability-related information, for example, the availability and estimated cost of spare parts and the minimum period for which software updates will be provided, but only to the extent the producer has made that information available to the trader.

What Are the Sanctions for Companies in Breach?

The ECGTD does not introduce any new penalties and relies on the existing enforcement regimes under the UCPD and CRD, which give Member States discretion to set their own penalties for breaches.

What Are the Practical Implications for Companies?

Although making misleading claims on environmental and social considerations is already covered by the existing provisions of the UCPD, under its general prohibition on making misleading claims, the ECGTD defines businesses’ obligations with regard to consumer-facing environmental and social matters and is a key step in the EU fight against greenwashing. In practical terms, EU companies should revisit how they substantiate and present consumer-facing environmental and social claims across their products and services.

If a company wishes to re-use a claim from a report that it is required to publish, such as from its corporate sustainability reporting, in a consumer-facing context, it should ensure that this claim is accompanied by clear specifications and context, given the ECGTD’s prohibition of generic claims. Companies should also consider changes to their compliance mechanisms, in particular the case-by-case assessment requirements referred to above.

Companies can begin to prepare well in advance of the 27 September 2026 application date by establishing governance arrangements for claims sign-off; checking all consumer-facing communications to identify and withdraw or re-substantiate noncompliant claims; building robust evidence and documentation for claims; reviewing product design to avoid early-obsolescence features; engaging suppliers to secure primary data and certifications; and training relevant teams on the new prohibitions.

In practice, companies should start by checking all consumer-facing communications, including packaging, advertising, websites, social media and point-of-sale materials, to identify environmental and social claims and any sustainability labels currently in use. Each claim should be assessed against the ECGTD’s requirements: generic claims must be withdrawn or replaced with specific, substantiated statements; future-performance claims must be supported by implementation plans with measurable targets and third-party verification; and any sustainability labels not based on an approved certification scheme should be removed. Where claims are retained, companies should build and maintain a file containing the underlying evidence, methodology and any third-party assurance, so that claims can be defended if challenged by regulators, competitors or consumer groups.

Companies should also embed ongoing compliance into their operating model. This includes establishing clear internal approval workflows for new claims, with sign-off from legal, compliance, sustainability and marketing functions before any consumer-facing communication is published. Supply-chain engagement is also important: companies should work with suppliers to secure the primary data, certifications and traceability needed to substantiate claims, and consider updating supplier contracts to include representations, audit rights and indemnities relating to environmental information. Finally, companies should monitor national transposition across the Member States in which they operate, as variations in timing, scope and penalty levels may require tailored approaches. Treating compliance as an ongoing exercise rather than a one-off project will help companies respond to regulatory developments and maintain defensible claims over time.

ENDNOTES

[1]      The ECGTD was originally intended to be one of two EU greenwashing laws, the other being the “Green Claims Directive.” The European Commission adopted a proposal on this in 2023 and announced its withdrawal in June 2025. The Green Claims Directive remains on the Commission’s agenda for 2026, although it is unclear whether this will proceed.

[2]      The Commission FAQs state that the third-party expert should be free from conflicts of interest and possess experience and competence in environmental issues. “Regular” verification means annual or biennial, or if significant changes occur.

[3]      A recital to the ECGTD states that companies should, before displaying a sustainability label based on a third-party certification scheme, ensure that it meets minimum transparency and credibility standards, including objective monitoring of compliance with the scheme, which should be carried out by a competent and independent third party.

This post is based on a Debevoise & Plimpton LLP memorandum, “Preparing for the Empowering Consumers for the Green Transition Directive,” dated July 7, 2026, and available here, 

Our answer builds on Total Governance, the framework one of us introduced with Daniel Greenwood, which reimagines the public corporation as a civic institution animated by overlapping stakeholder roles rather than by capital alone. Total Governance argues that individuals do not experience the corporation in just one way. The same person may be a shareholder, an employee, a customer, and a member of a community whom the corporation affects. Total Governance showed that when these roles converge, ordinary people can exert real influence over firm behavior, regardless of whether they hold a single share. The same is true when shareholders, employees, customers, and members of a community coordinate their actions to pursue common goals.

Our new article takes that insight a step further. We conceptualize the mechanism that harnesses the power of stakeholders of different categories to pursue superordinate goals. We call that mechanism values primacy.

From Total Governance to Values Primacy

Values primacy is the governance paradigm in which stakeholders identify shared values and goals that cut across formal categories, and then coordinate their actions around those values to exert durable institutional power. It is not simply a claim that stakeholders matter. It is a claim about how stakeholder power becomes binding rather than performative.

Corporate law has long relied on a convenient fiction: that shareholders want returns, employees want wages, and consumers want price and quality, full stop. That taxonomy is analytically tidy, but it does not describe how human beings actually behave. A retail investor is also a parent, a neighbor, and often a citizen with commitments to racial justice, climate stability, or product safety. When stakeholders across categories converge on the same goal, each category can hold the other categories accountable, and firms can no longer treat one constituency’s demand as an isolated, manageable annoyance.

Superordinate goals do real work here. Drawing on classic social psychology and on more recent organizational scholarship, we show that such goals are objectives that are highly compelling to groups that might otherwise be in tension, but that cannot be achieved by any one group acting alone. Racial justice, climate stability, and product safety are not “special interests” of a particular stakeholder category. They are goals that shareholders, workers, consumers, and communities frequently hold in common, even when corporate law insists on treating them as adversaries.

Reversibility as a Design Failure

The article’s second contribution is diagnostic. We introduce the concept of reversible governance to describe corporate commitments that are structurally nonbinding and therefore vulnerable to rollback whenever they become politically inconvenient. Target’s silent retreat is the paradigm case, but it is not an outlier. It is the predictable output of a governance system built around quarterly reporting cycles, management discretion, and a doctrinal architecture that treats stakeholder interests as optional.

We examine Tesla and Meta as complementary case studies in reversibility, though for different structural reasons. At Tesla, high exit costs (e.g., the transaction costs of switching from Tesla to a different make) for consumers and concentrated founder control mean stakeholder discontent rarely translates into consequence. At Meta, infrastructural entrenchment (social media are “sticky,” especially when they are folks’ favorite way to share photos and keep in contact) means that users do not simply purchase a product, they inhabit a platform, which makes coordinated exit nearly impossible. In both cases, the failure is not a failure of stakeholder conviction. It is a failure of governance design.

Set against this backdrop, the 2025 proxy season becomes instructive rather than anomalous. Where shareholder values were embedded in structured, cross-stakeholder engagement, as at Apple, Levi Strauss, and Costco, firms resisted politically motivated rollback. Where commitments remained symbolic, as at Target, they collapsed at the first sign of pressure. The difference is not sentiment. It is institutional design.

Values Primacy as a Complement to Director Primacy

Values primacy is a complement to, rather than a challenge to, existing models of board authority. We engage directly with Stephen Bainbridge’s Director Primacy framework and with the Team Production model to show that values primacy operates most usefully at the margins of firm decision-making, where cross-stakeholder alignment supplies information that boards cannot easily obtain through conventional financial metrics alone. Directors retain authority over core strategy and capital allocation. Values primacy instead offers an early warning system, drawing on the Boeing 737 MAX crisis to illustrate how converging stakeholder concerns, from engineers to investors to passengers, can signal risk long before it appears on a balance sheet.

We also propose institutional mechanisms to move firms from reversible governance toward genuine values primacy, including stakeholder advisory councils, participatory disclosure practices, and cross-stakeholder digital coordination platforms modeled on existing investor forums. These are not calls for governance by referendum. They are proposals for converting diffuse public sentiment into a governance input that boards can systematically use.

Why This Matters for Practitioners and Boards

For directors and general counsel, the practical takeaway is straightforward. Values-based commitments that live only in press releases and sustainability reports are largely reversible. Commitments embedded in charters, board mandates, procurement standards, or binding governance architecture, of the kind pioneered by firms like Patagonia, prove far more resistant to ideological volatility. Ben & Jerry’s complicates that picture in a useful way. Founders Cohen and Greenfield embedded their social mission in the 2000 acquisition agreement itself, through an independent board designed to survive any change in ownership—and it held for two decades before the current litigation, in which the independent directors allege that Unilever and its spun-off Magnum Ice Cream Company engineered their removal. The lesson is not that structural embedding fails, but that it is only as durable as the coalition prepared to enforce it. As shareholder activism, consumer boycotts, and employee mobilization intersect in real time, boards that treat stakeholder coordination as governance information, rather than as reputational risk to be managed away, will be better positioned to anticipate disruption rather than merely endure it.

Carliss Chatman is a professor at Southern Methodist University’s Dedman School of Law, and Sergio Alberto Gramitto Ricci is an associate professor at Hofstra University’s Maurice A. Deane School of Law. This post is based on their new article, “Values Primacy & Total Governance Through Activism,” available here

Background of Timing Agreements in Second Request Investigations

Timing agreements can give merging parties and DOJ greater certainty during Second Request investigations. After the parties substantially comply with a Second Request, the HSR Act provides a 30-day post-compliance waiting period. In the modern e-discovery era, productions may involve millions of documents and substantial volumes of data, and timing agreements can provide DOJ with additional review time beyond the 30-day period that generally begins upon substantial compliance. Parties may also need to update collections and make rolling productions as the investigation proceeds in order to comply with the broad scope of the Second Request. Timing agreements will trade reduced compliance burdens and procedural certainty for additional review time: DOJ may agree to limit custodians, date ranges, business units, or depositions, among other accommodations. In exchange the parties typically commit to not close for a certain period of time and accept procedural and litigation-related terms.

New Model Timing Agreement: Optional Expedited Consideration Process

The new model timing agreement is a direct response to a negotiating process that had become so burdensome that many parties were increasingly choosing to substantially comply without a timing agreement, giving the agencies only 30 days to review the production. DOJ describes the revised model timing agreement as a return to targeted Second Request investigations intended to focus review on potentially dispositive issues and reduce burdens. The Expedited Consideration section is optional, and DOJ has stated that it remains open to good-faith negotiations over Second Request modifications in all cases. The new model timing agreement’s expedited consideration process includes the following key features[2]:

• DOJ identifies priority custodians, specifications, and data for an initial Priority Production. The current draft model provides no default caps, or other details regarding how many custodians or specifications will be designated as priorities;
• Before producing materials, the parties must describe their search and collection methodology and then make rolling productions. Each party must certify that its Priority Production is complete;
• Only a streamlined “metadata” privilege log is required with the Priority Production, although DOJ may request a more detailed log covering no more than 5% of the documents on the priority privilege log. A full privilege log is required if the investigation continues; and
• DOJ will offer a Front Office meeting within 21 days after the Priority Production Date and, within 14 days after that meeting, will notify the parties whether it intends to: (1) close the investigation; (2) narrow the scope of the Second Request based on the information received; or (3) require full compliance with the Second Request. The model sets no deadline for negotiating or completing the Priority Production, so the stated 35-day review period begins only after both parties complete and certify that production. DOJ retains sole discretion over the outcome, and the periods may be changed by written agreement.

If DOJ does not resolve the investigation through the expedited consideration process, the full timing agreement governs the path to substantial compliance. Key terms include:

• The earliest closing date that is 60 days after substantial compliance. The previous model timing agreement provided 90 days;
• Negotiated limits on custodians and depositions (though indicative numbers are not provided in this model). The previous model timing agreement suggested limiting document custodians to around 20, with the right to add 5 more, and included a cap on depositions at 12;
• Production of all documents not subject to the privilege review at least 30 days before certifying substantial compliance and certain granular data at least 45 days before certifying substantial compliance; and
• A complete privilege log at least 5 days before certifying substantial compliance; and
• Written notice to DOJ 14 days before closing, absent DOJ’s written agreement to a shorter period.

In addition, as with DOJ’s previous model timing agreement, the revised timing agreement requires the parties to agree to certain litigation rights, which include:

• Agreeing not to seek a declaratory judgment action against DOJ;
• Agreeing not to close the transaction until 10 days after final judgment by the court (instead of forcing DOJ to obtain a TRO); and
• Foregoing the argument that the length of DOJ’s investigation or the volume of materials reviewed should limit DOJ’s ability to seek additional discovery.
• Key Considerations

While the revised model timing agreement on its face expedites DOJ review, parties should carefully consider whether the expedited track fits the transaction, the available evidence, and the deal timetable before agreeing to its terms.

• Is the issue set sufficiently discrete? The expedited procedure is likely most promising when DOJ’s concerns turn on a limited number of dispositive issues and the parties can produce the relevant documents and data quickly. For a complex or data-intensive investigation, the additional phase could lengthen the overall process.
• What will the Priority Production require? The model provides no default limits on priority custodians or specifications, and the required search may include data, shared repositories, predecessor and successor files, and supporting personnel. Parties should obtain enough details early in the process to estimate cost, timing, and likelihood of an early resolution.
• How should the parties prepare for full compliance? Parties should consider whether it is strategically beneficial to continue collection, review, data, and privilege work in parallel so that an unfavorable expedited decision does not create a five-week pause, even when parties believe there is a good chance the transaction will be cleared with the expedited procedure. Only picking up work toward full compliance after a potential five-week pause would delay substantial compliance. In continuing to work toward full compliance, parties will still get the benefit of not having to produce the incremental documents in the event of approval based on the Priority Production but will likely need to incur at least some of the costs associated with that additional work, limiting the benefits of the expedited procedure.
• How does the process fit the merger agreement? The potential additional phase, the 60-day no-close commitment, and day-for-day extensions should be tested against the outside date, regulatory covenants, financing commitments, reverse termination fee, and other regulatory approvals.
• What is the impact of the litigation concessions to this matter? The agreement removes the need for DOJ to seek interim relief to prevent closing during litigation. Agreeing to give that up may be a material concession when closing flexibility matters, although it may carry less practical weight where other regulatory approvals may already prevent closing.
• How should advocacy be sequenced? The Priority Production should be built around the factual and economic issues most likely to be dispositive, with company witnesses, data personnel, and any economic analyses prepared early enough to support Front Office engagement.
• Does the transaction face DOJ or FTC review? This new expedited review procedure applies only to transactions reviewed by DOJ. Transactions facing review by the Federal Trade Commission (FTC) remain subject to the FTC’s model timing agreement, which does not contain this new process.[3]

The revised model offers a potentially valuable path to an earlier decision, but its benefit will likely come down to the scope of the production, the speed with which the parties can complete their productions, and the likelihood that a focused record can resolve DOJ’s concerns. Parties should evaluate their options early, negotiate the scope carefully, preserve momentum toward full compliance, and align the timing agreement with the transaction’s broader closing strategy.

ENDNOTES

[1] Justice Department Resumes Targeted HSR Merger Review Process, Dep’t of Justice (July 23, 2026), https://www.justice.gov/opa/pr/justice-department-resumes-targeted-hsr-merger-review-process.

[2] Revised Model Timing Agreement, Dep’t of Justice (July 23, 2026), https://www.justice.gov/atr/media/1453731/dl?inline.

[3] FTC Model Timing Agreement (Public Version), Fed. Trade Comm’n, https://www.ftc.gov/system/files/attachments/merger-review/ftc_model_timing_agreement_2-27-19_0.pdf.

This post is based on a Morrison & Foerster LLP memorandum, “DOJ Revives Expedited Second Request Review – But at a Cost,” dated August 13, 2026, and available here. 

The CFTC has generally acquiesced in these self-certifications from Kalshi and other prediction markets, although it should reject the certifications if they do not conform to the Commodity Exchange Act.[1] This process of self-certification and acquiescence does not involve final agency action that can be challenged by someone, assuming anyone has standing, motive, and resources to mount a challenge.  The current approach is especially suspect because the CFTC has taken an aggressive stance in defending prediction markets against state regulation, raising the possibility that acquiescence in product mis-classification is not neglect but regulatory collusion with an upstart industry.

Prediction products pose several issues related to the regulatory jurisdiction of the CFTC.  One issue that has received insufficient attention is whether these products are “swaps,” as certified to the CFTC.  This post aims to raise two alternatives in this respect. First, the products may qualify under the carveout from the swap definition available for consumer products.  Second, a subset of these products are likely securities.  Determining the contours of the “swap” definition requires agency deliberation.  As discussed below, some of these products may be “security-based swaps”—a determination that must be accomplished through joint action by the CFTC and SEC (with consultation from the Fed).[2]

Are Wagers Swaps?

The Dodd-Frank Act brought swaps within the jurisdiction of the CFTC.  In doing so, it carved out security-based swaps (i.e., swaps that settle based on a single security or a narrow index of securities) and many other securities into a separate category governed by the SEC.[3]  So called “mixed-swaps” have features of both swaps and security-based swaps and are governed by both the CFTC and SEC.  In establishing the regulatory framework for these derivatives, Congress commanded the CFTC and SEC (in consultation with the Fed) to promulgate rules further defining the terms “swap,” “security-based swap,” and “mixed swap.”  The agencies completed this rulemaking in 2012 (the “Definitional Rulemaking”).[4]

The definition of the term “swap” is exceptionally lengthy and broad.[5]  It partly reflects the trauma of the Great Financial Crisis of 2007-08 and the suspicion of finance it engendered.  However, in defining “swap” and related terms in the Definitional Rulemaking, the CFTC and SEC (jointly, the “Commissions”) included a number of carveouts.  The Commissions reasoned that “swap” and related terms were meant to capture the types of instruments that precipitated the Great Financial Crisis.[6]  Accordingly, the Commissions determined that consumer transactions were meant to be excluded.[7]  This applies to wagers entered into for entertainment purposes, which captures the majority of contracts listed on prediction markets like Kalshi.[8]  The CFTC should not revisit this carveout without re-enlisting the SEC (and the Fed’s advice), and should not bless prediction-market views as to whether borderline instruments qualify as swaps without prior formal deliberation.[9]

Indeed, viewing a common wager such as on a sports match as a “swap” has absurd and tectonic effects.[10]  Market regulation limits some financial activity to subsets of parties, with readers likely being more familiar with restrictions enabling only accredited investors and qualified clients to partake of certain securities transactions.  The Commodity Exchange Act (CEA) has a concept of “eligible contract participant” (ECP), which generally captures certain regulated entities and persons with $10 million or more. [11]  It is unlawful to enter into a swap with a person who is not an ECP, except on a regulated derivatives exchange.[12]  If wagers on sports games are indeed swaps, then millions of CEA violations occur annually at Caesars, on Fan Duel, and in similar venues because those wagering do not meet the $10 million threshold.[13]  Similarly, venues offering sports betting would be violating the CEA through not registering with the CFTC as exchanges.

Many states are currently battling the federal government to subject Kalshi and other prediction markets to state gambling regulation.  In waging this battle, the states have won in a few cases on the basis of the transactions not being captured by the broad definition of swap.[14]  In many other cases, the states lost on the question of whether instruments that prediction markets offer are swaps.[15]  The states would be better off including arguments that the transactions are not swaps based on the exemption for consumer transactions buried in the Definitional Rulemaking.[16]

Are Wagers on Firm Performance Swaps or Securities?

Congressional language seeking to govern wide swaths of financial market activity should be expected to be imprecise and knotty.  It is difficult to classify many existing products let alone anticipate financial innovation.  So there is some ambiguity in the application of key terms.  The CFTC and DOJ in their cases against the states and others have a reasonable argument that many products traded on prediction markets are swaps.  There is less room to argue, however, that certain contracts that settle based on the activities of individual firms are swaps rather than securities.  In this context, there is a high probability that some prediction products have been mis-certified to the CFTC while the CFTC and the SEC have been at best firmly looking the other way.[17]

To the extent they are allowing derivative exchanges to mis-certify products as swaps rather than securities, the Commissions are compromising the distinct protections the securities regime provides to market participants, including (a) distinct oversight for insider trading, other fraud, and manipulation, and (b) distinct obligations of intermediaries aimed at market integrity.  The regimes governing advertising also differ in important ways, including with respect to those promoting products in return for consideration.[18]  Moreover, the SEC has developed resources for market oversight directed at capital formation, investor protection, and market integrity that the CFTC cannot match in any reasonable period of time.[19]  There are solid grounds to view ongoing mis-classification as contributing to conduct that is malum in se rather than malum prohibitum.

The definition of “swap” carves out any “security-based swap” and, more broadly, securities such as options on securities.[20] Under Securities Exchange Act of 1934 Section 3(a)(68), the definition of security-based swap includes “any agreement, contract or transaction that . . . is a swap . . . and is based on . . . the occurrence, nonoccurrence, or extent of the occurrence of an event relating to a single issuer of a security . . . provided that such event directly affects the financial statements, financial condition, or financial obligations of the issuer.”  An issuer, for these purposes, does not need to be a public company and can be any firm that issued securities (e.g., a private company that issues common stock or bonds).

Prediction markets list a variety of so called “key performance indicator” (KPI) contracts that settle on specific issuers’ activities, such as whether Apple releases a new iPhone model or whether Tesla makes in excess of a specified number of vehicle deliveries.[21]  Some of these contracts even settle based on whether an issuer is acquired or undergoes an IPO.[22]  It is hard to see how these agreements do not “directly affect[] the financial statements, financial condition, or financial obligations” of the issuers specified in the contracts, although admittedly the qualifier “directly” injects ambiguity into the analysis.[23]  I believe these contracts are likely securities rather than CFTC governed swaps and likely require prediction markets that offer them to operate subject to registration and compliance obligations under SEC rules.

In the absence of required SEC registration, a number of states have a solid argument that with respect to these contracts, CFTC preemption does not apply to securities contracts, and exchanges like Kalshi are flouting state law (e.g., blue sky law and perhaps gambling law).  A prediction market violating SEC requirements may also be subject to private rights of action for the consequences of operating as an unlicensed securities exchange, violating federal securities laws and state securities blue sky laws and improperly dealing security-based swaps to its retail customers.[24]  A violation of securities laws can put a prediction market’s license to operate and raise financing in jeopardy.[25]

Why would Kalshi and potentially other upstart prediction markets run these risks?  Its KPI contracts don’t provide much in the way of revenues.

One reason may be that prediction market lawyers read the qualifier “directly” differently than I do.  To this point, I observe that “directly” does not speak to magnitude.  Congress did not require a “substantial” or “significant” effect for the financial position of an issuer.  Rather, Congress sought to avoid classification as a security-based swap grounded in an attenuated connection.  For example, oil prices have an effect on airlines but a contract on oil prices does not have a “direct” effect on Delta, United, or their competitors.[26]  Directly speaks to the tightness of the nexus between the event driving settlement and the financial position of an issuer.  This line between CFTC derivatives and securities is long established and workable.  Instruments on interest rates, currency exchange rates, and many other variables are traditionally within the purview of the CFTC notwithstanding that they have an indirect impact on a variety of issuers.  In contrast, a contract settling on even a small event in a specific issuer’s financial life has a “direct,” albeit small, effect on the issuer’s financial position.[27]

The reason for the mis-certification of securities as swaps may be unrelated to a bona fide debate as to the ambiguity in the definition of security-based swap.  Rather, the reason may be that prediction markets face a much bigger definitional problem, which they are seeking to avoid by ignoring the border between swaps and securities rather than acknowledging that the nuanced border exists.  The majority of prediction market revenue comes from sports betting.  Many of the wagers are on matches between professional sports teams.  Professional sports teams tend to be operated by entities that have issued securities (i.e., issuers).  For example, a prediction market on a New York Knicks game trades a contract that is based on an occurrence of an event directly affecting the financial statements, financial condition, or financial obligations of Madison Square Garden Sports Corp.  The contracts that prediction markets hosted on the Knicks may well have been security-based swaps and not swaps.  Generally, at least on a qualitative level, an entity operating a sports team will do better financially when the team wins, although the extent to which a victory impacts financial performance may differ between, e.g., regular season games and playoff games.  The same is true for other contracts on the operating results of entities that have issued securities, whether or not those entities are publicly held.  For example, a wager on the performance of a movie at the box office may be a security-based swap with respect to the entity housing the studio that produced the movie.  It may come as a surprise to many, but some of the huge betting markets the CFTC has been aggressively defending may be substantially outside of its jurisdiction and subject to SEC supervision.

What Are the Consequences of Regulation by Non-Enforcement?

Justice delayed is justice denied, even if the Commissions do eventually sort prediction products into their appropriate categories.  In the meantime, market expectations get established and trading occurs outside the congressionally designated regulatory environment.  The Commissions’ approach to startup prediction markets is protective, and the partiality in the application of law is troubling.  It can also contribute to socially corrosive narratives.

When the SEC failed to enforce registration requirements on crypto projects in the first Trump administration, subsequent enforcement on the part of the Biden administration came to be criticized as “regulation by enforcement.”[28]  Industry participants and people generally are entitled to a stable legal environment that changes through Constitutionally prescribed channels rather than based on prosecutorial commitments that change with the Executive.[29]  When one administration categorically abandons application of laws the president or her appointees disfavor, the next administration is left in an awkward position.  If the Commissions do not tidy up the border between swaps and other instruments soon, they will leave a mess that will be politically costly for their successors to clean up.  And the longer the mess lasts, the longer markets go without the regulation that Congress and prior agency and industry efforts developed.

ENDNOTES

[1] 7 U.S.C. § 7a-2(c)(2). See Dodd Frank Act § 718 (providing for joint CFTC & SEC process in evaluating novel financial products that may involve the jurisdiction of both agencies).  There is a solid argument that many prediction products are not novel but repackage or merely relabel instruments well known to the market (e.g., gambling products, options, futures).

[2] Dodd Frank Act § 712(d).

[3] 7 U.S.C. § 1a(47)(B).

[4] “Further Definition of ‘Swap,’ ‘Security-Based Swap,’ and ‘Security-Based Swap Agreement’; Mixed Swaps; Security-Based Swap Agreement Recordkeeping”, 77 Fed. Reg. 48208 (Aug. 13, 2012).

[5] 7 U.S.C. § 1a(47)(A).

[6]Definitional Rulemaking at 48307-08 (“Prior to the adoption of Title VII [of the Dodd-Frank Act], swaps and security-based swaps were by and large unregulated. . . .In the fall of 2008, an economic crisis threatened to freeze U.S. and global credit markets. The Federal government intervened to buttress the stability of the U.S. financial system. The crisis revealed the vulnerability of the U.S. financial system and economy to widespread systemic risk resulting from, among other things, poor risk management practices of certain financial firms and the lack of supervisory oversight for financial institutions as a whole. More specifically, the crisis demonstrated the need for regulation of the over-the-counter derivatives markets. On July 21, 2010, President Obama signed the Dodd-Frank Act into law. Title VII of the Dodd-Frank Act established a comprehensive new regulatory framework for swaps and security-based swaps. . . Several commenters to the ANPR issued by the Commissions regarding the definitions expressed a concern that the product definitions could be read broadly to include certain types of transactions that previously had never been considered swaps or security-based swaps. In response to those comments, the rules and interpretations clarify that certain traditional insurance products, consumer and commercial agreements, and loan participations are not swaps or security-based swaps, which will increase legal certainty and lower the costs of assessing whether a product is a swap or security-based swap for market participants. In this regard, the rules and interpretations are intended to reduce unnecessary burdens on persons using such agreements, contracts, or transactions, the regulation of which under Title VII may not be necessary or appropriate to further the purposes of Title VII.”)

[7] Definitional Rulemaking at 48318 (“The Commissions are stating that certain customary consumer and commercial transactions that have not previously been considered swaps or security-based swaps do not fall within the statutory definitions of those terms. Specifically with regard to consumer transactions, the Commissions are adopting as proposed the interpretation that certain transactions entered into by consumers (natural persons) as principals or their agents primarily for personal, family or household purposes would not be considered swaps or security-based swaps.”).

[8] Ex-CFTC general counsel, Rob Schwartz, has a creative and powerful counterargument. Robert A. Schwartz, Federal Preemption in Sports Prediction Market Litigation: This Shouldn’t be a Jump Ball, Futures and Derivatives Law Report (March 2026).  The argument rests on 7 U.S.C. 1a(47)(iv), which provides that the term “swap” includes “an agreement, contract, or transaction that is, or in the future becomes, commonly known to the trade as a swap.” Under that argument, even if prediction products were not swaps at the outset, those that trade on derivative exchanges have been self-certified as swaps and become known as swaps.  As a result, a combination of self-interested labeling on the part of exchanges and tacit agency approval can expand the term swap as terminology becomes established within an industry.

[9] In joining litigation alongside prediction markets against states, the CFTC stridently asserted that event contracts are swaps and only later sought input on the question through a request for comment.

[10] There is at least one important distinction between a traditional sports wager and contracts traded on prediction markets.  The distinction is that sports wagers lock an individual into a position whereas a contract on prediction markets can generally be sold before it settles based on prevailing market prices at the time of sale.  Distinctions such as these may separate contracts traded on prediction markets from traditional sports wagers, strengthening the argument that prediction market contracts are swaps.

[11] 7 U.S.C. § 1a(18).

[12] 7 U.S.C. 2(e) (“It shall be unlawful for any person, other than an eligible contract participant, to enter into a swap unless the swap is entered into on, or subject to the rules of, a board of trade designated as a contract market under section 7 of this title.”)

[13] See Dave Aron & Matt Jones, States’ Big Gamble on Sports Betting, 12 UNLV Gaming Law Journal 53 (2021) (presciently arguing that CFTC swap regulation may indeed displace state gambling regulation).

[14] See, e.g., KalshiEx v. Hendrick, No. 2:25-cv-00575-APG-BNW, slip op. at 11-20 (D. Nev. Nov. 24, 2025); KalshiEx v. Schuler, No. 2:25-cv-1165, slip op. at 8-13 (S.D. Ohio Mar. 9, 2026); Coinbase Fin. Mkts. v. Nessel, No. 4:25-cv-14092, slip op. at 21-29 (E.D. Mich. Aug. 6, 2026).

[15] See, e.g., KalshiEx v. Flaherty, No. 25-1922, slip op. at 7-8 (3d Cir. Apr. 6, 2026) (referencing exemption for consumer contracts); KalshiEx v. Orgel, No. 3:26-cv-00034, slip op. at 13-17 (M.D. Tenn. Feb. 19, 2026); KalshiEx v. Johnson, No. CV-26-01715-PHX-MTL, slip op. at 2-3 (D. Ariz. Apr. 10, 2026); CFTC v. Minnesota, No. 26-cv-02661, slip op. at 22 (D. Minn. July 27, 2026).

[16] In addition, swaps – as the term is used in finance – generally entail streams of payments rather than just payments at execution and settlement.  For this reason, event contracts (i.e., prediction products) and other binary options don’t fit well with background notions as to what swaps are.  However, the statutory definition of swap likely sweeps beyond the colloquial notion of “swap” in finance.

[17] This may be coming to a head.  The SEC and CFTC issued a joint request for comment on the treatment of a variety of financial products including KPI binary options. Joint Request for Comment on Further Definition of ‘‘Swap’’ and ‘‘Security- Based Swap’’ and on Alternative Compliance, 91 Fed. Reg. 37873 (June 24, 2026).  Shortly afterwards, the CBOE filed to launch certain KPI binary options with the SEC as options rather than swaps or security-based swaps.  CBOE, Notice of Filing of a Proposed Rule Change To Amend its Rules To Permit the Listing of Binary Options Overlying Key Performance Indicators (‘‘KPIs’’) Reported by Certain Issuers of Stock (‘‘Binary KPI Options’’), 91 Fed. Reg. 43418 (July 15, 2026).  Kalshi responded by seeking to defer the approval of CBOE’s binary options that would treat prediction products related to issuer financial performance as securities. https://www.sec.gov/comments/SR-CBOE-2026-061/srcboe2026061-993079-3105906.pdf.

[18] There are no restrictions under the CEA akin to the requirements under Section 17(b) of the Securities Act that a promoter of a product disclose compensation from the issuer of the product.  This leads to a free-for-all in prediction market advertisement from influencers.

[19] For example, prediction products pose new issues related to insider trading that the SEC has a history of managing.  Insider trading on issuer information (e.g., product development, financial results, M&A activity, drug trials) is a longstanding enforcement area for the SEC (and FINRA).  Prediction products interact with other securities in this respect.  In some cases, prediction products can be a preferred means to carry out insider trading.  For example, an insider with positive news about a product release can trade in the issuer’s equity; but then the insider faces risks of adverse news emerging contemporaneously.  Prediction products remove that risk, allowing a trader with information about a firm event to trade exclusively on that event without the risk of other developments impacting trading returns. For this reason, prediction products may pose unique insider trading risks to securities and other financial markets.  Some of the controversy related to insider trading in prediction markets may also relate to a new class of traders with insider information emerging – a class that has had little exposure to insider trading law through training and other acculturation.

[20] 7 U.S.C. § 1a(47)(B)(x) (excluding security-based swaps other than mixed swaps from the definition of swap); § 1a(47)(B)(iii) (excluding options on securities “including any interest therein or based on the value thereof” from the definition of swap).

[21] See, e.g., https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts/52713 (Tesla vehicle production within a quarter self-certified as swap); https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts/55561 (will Apple release a new product self-certified as swap); https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts/61151 (will manufacturer get a certain result in an FDA drug trial)  There is a related issue with respect to exchange-traded options that settle on broad indices of securities, which may be SEC governed security-options rather the CFTC governed derivatives.

[22] https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts/57611 (initial public offerings); https://www.cftc.gov/IndustryOversight/IndustryFilings/TradingOrganizationProducts/57613 (will company X acquire company Y).

[23] NASDAQ has written to the CFTC and SEC requesting delisting of various KPI contracts from derivatives exchanges that do not comply with parallel SEC requirements.  https://www.sec.gov/comments/2026-08/s7202621-993799-3110066.pdf.

[24] Some may argue that CFTC regulated prediction markets do not enter into transactions with their users.  This is substantively false.  Prediction markets are direct counterparties to their users via the derivatives clearing organizations that clear the binary options.  And prediction markets take fees from transactions, just as sports books or dealers do.

[25] See, e.g., 17 C.F.R. Part 38 Subpart P (Governance Fitness Standards); SEC Regulation D, Rule 506(d) (bad actor disqualification in the context of private placements).

[26] In contrast, a contract on the average price a specific airline pays for jet fuel could be a security.

[27] The argument that KPI contracts represent securities is arguably stronger when the KPI is an event identified in the issuer’s reporting to investors as material.

[28] Kevin S. Schwartz et al., Wachtell Lipton Discusses Prospects of Legal Clarity for Cryptoassets (Dec. 3, 2024) (“A resilient cryptoasset industry is emerging from weathering years of headwinds — from edicts prohibiting the banking of the industry, to an SEC leadership bent on aggressive regulation-by-enforcement in lieu of transparent rulemaking.”)

[29] See also CFTC Joins Gemini Trust Company LLC in Motion for Relief from Judgment (May 27, 2026) online at https://www.cftc.gov/PressRoom/PressReleases/9236-26.

Ilya Beylin is an associate professor at Seton Hall Law School. 

Given the progress made in Congress to date on market structure legislation, let me be clear up front: legislation remains indispensable to enacting “future-proofed” rules of the road that are durable enough to protect the work we are undertaking today from being unwound by a future rogue regulator. The SEC has and will continue to support Congress in delivering the CLARITY Act to President Trump’s desk.

Crypto asset markets have exploded since the advent of Bitcoin in 2008, yet the Commission until now has not taken meaningful steps to adapt its rules for this novel asset class. In fact, in the past, it actively undermined capital formation with regard to this asset class in the form of regulation by enforcement and disingenuous offers to “come in and register.” As a result, issuers that raise capital by selling non-security crypto assets that are subject to an investment contract have had to conform to existing SEC rules, which were not adopted with these assets in mind, and many of which originated in the 1930s.

This “square peg in a round hole” approach has caused unnecessary complications and, in turn, has impeded capital formation and innovation in the crypto asset markets. In comparison, our international counterparts have been more nimble and have accommodated these new technological innovations, of course without the benefits to American investors or American legal and investor-protection standards. Thus, it has driven investment offshore, limiting the type of protections that we can provide investors here, and sometimes resulting in investors watching their money completely disappear. Moreover, this approach has resulted in significantly lower American participation and domestic investment.

Today, we are charting a new course with a package of exemptions that would facilitate capital formation and allow crypto asset innovation to flourish in the United States in the years ahead. We are charting a road to invite innovators back to the United States.

Today’s proposal would create a fit-for-purpose framework—consistent with the Commission’s recent interpretation1—for non-security crypto assets that are subject to an investment contract. Specifically, the proposed rules include tailored offering exemptions, as well as a safe harbor that would provide clarity for issuers, investors and other market participants as to when the related investment contract ceases to exist. Of course, the proposed rules include certain conditions that preserve core investor protections.

The proposed rules include two offering exemptions tailored for innovations in the crypto asset markets: a “startup exemption,” which would allow for offerings up to $5 million during a four-year period, and a “fundraising exemption” allowing for offerings of up to $75 million each year.

Each proposed exemption includes principles-based disclosure requirements tailored to the unique aspects of crypto assets. The proposed fundraising exemption also requires disclosures regarding an issuer’s financial condition, including financial statements that must be audited at certain capital raising thresholds.

Additionally, the proposed rules include an “investment contract safe harbor.” Under this safe harbor, if the issuer certifies to the Commission that it has ceased or terminated all essential managerial efforts that it promised to undertake under the investment contract and satisfies certain other conditions, then the Commission would no longer deem the non-security crypto asset to be subject to an investment contract and, therefore, no longer subject to the authority of the Commission.

This is common-sense regulation: minimum effective dose, maximum freedom to build, and durable clarity under existing law. It will keep investor protection central while ensuring American markets, not foreign jurisdictions, write the next chapter of financial innovation.

Lastly, I would like to recognize Commissioner Peirce for her years of principled leadership on these issues. She has long championed the concepts of this proposal through her safe harbor proposal, and today’s action is a fulfillment of her original idea.2 Commissioner Peirce’s steadfast commitment to thoughtful, innovation-forward policymaking laid much of the groundwork for Regulation Crypto Assets, and the Commission’s progress would not have been possible without her persistence and vision.

Thank you to the following members of the Commission staff for their work on this proposal.

Division of Corporation Finance
Jim Moloney, Sebastian Gomez Abero, Christina Thomas, Luna Bloom, Valian Afshar, Andy Schoeffler, Patrick Faller, John Fieldsend, Irene Paik, Nolan McWilliams, Isabel Rivera, Heather Rosenberger, Melissa Raminpour, Todd Hardiman, Sharon Blume, Jeb Byrne, Kenisha Nicholson, Max Corey, Michael Coco, Michael Seaman, Adam Turk, Jonathan Ingram, Todd Canali, Anna Abramson, Jessica Ansart, and Doris Gama

Division of Economic and Risk Analysis
Joshua T. White, Oliver Richard, Lauren Moore, Charles Woodworth, Lyndon Orton, Timothy Dodd, Jill Henderson, Vladimir Ivanov, Caroline Schulte, Donald Edmond, Julie Marlowe, Navin Jayaram, Paul Yin, Evan Avila, and Michael Pessin

Crypto Task Force
Richard Gabbert, Taylor Lindman, Taylor Asher, Sumeera Younis, Landon Zinda, Robert Teply, Mark Sater, Laura Powell, Rachel Li, Phil Raimondi, and Ileana Ciobanu

Office of General Counsel
J. Russell McGranahan, Bryant Morris, Dorothy McCuaig, Evan Jacobson, Ken Alcé, David Lisitza, Ezekiel Hill, and Rebecca Orban

Office of Chief Accountant
Kurt Hohl, Shaz Niazi, Michal Dusza, Sheri York, Gaurav Hiranandani, Greg Hillson, Barry Kanczuker, Fariba Nasary, and Megha Dsa

EDGAR Business Office
Jed Hickman, Rosemary Filou, and Laurita Finch

Division of Investment Management
Brian Daly, Sarah ten Siethoff, Brian Johnson, Zeena Abdul-Rahman, Bradley Gude, Robert Holowka, and Taylor Evenson

Division of Trading & Markets:
Jamie Selway, Tyler Raimo, and Megan Mitchell

The transformation has produced an unresolved legal question: When an event contract functions primarily as a sports wager, should it receive the same federal treatment as a contract designed to generate economic information or hedge financial risk?

From Information Markets to Sports Wagering

The original justification for prediction markets was largely informational. Market prices aggregate dispersed information and produce probabilistic estimates of future events. That rationale is particularly strong for contracts involving inflation, interest rates, employment, corporate earnings, and other economic variables. A company may use such a market to hedge an identifiable risk, while policymakers and investors may use price discovery as an additional forecasting signal.

Sports contracts present a different case. A contract paying $100 if a particular team wins a game may have the same structure as a contract paying $100 if inflation exceeds a specified level. However, the economic functions can be quite different. The former may be primarily recreational wagering, while the latter can generate information relevant to economic decision-making.

That distinction matters because sports contracts on Kalshi now represent 80% of prediction market activity. As these platforms have become mass-market venues, their economic identity has grown and shifted (Kalshi was valued at $22 billion after a May 2026 financing round). The question is whether their legal classification should also shift. This question sits at the heart of a broader policy debate: whether these markets are genuinely “derivatives or wagers,” which is a distinction that regulators and courts have yet to resolve with clarity.

The Emerging Preemption Conflict

The Commodity Exchange Act (CEA) gives the Commodity Futures Trading Commission (CFTC) broad authority over derivatives markets. Section 5c(c)(5)(C) also authorizes the agency to prohibit certain event contracts involving gaming and other enumerated activities when they are contrary to the public interest. In June 2026, the CFTC proposed amendments to Regulation 40.11 establishing a framework for making those public-interest determinations. The proposal recognizes that event contracts can implicate both financial market regulation and activities traditionally regulated by the states.

The courts are now confronting the related question of preemption. In KalshiEX LLC v. Flaherty, the U.S. Court of Appeals for the Third Circuit held in April 2026 that Kalshi was likely to prevail in challenging New Jersey’s attempt to regulate its sports event contracts. The court concluded, at the preliminary-injunction stage, that the CEA likely preempted New Jersey law as applied to those contracts.

The decision is important, but it should not be mistaken for the final word. Related litigation in the Sixth and Ninth circuits raises similar questions, while the CFTC continues to defend federal jurisdiction. The competing positions are straightforward: The CFTC and prediction-market operators emphasize Congress’ allocation of derivatives regulation to the federal government, while the states emphasize their traditional authority to regulate gambling.

Why Murphy Matters

The preemption question cannot be resolved without confronting Murphy v. National Collegiate Athletic Association, in which the Supreme Court invalidated the federal prohibition on state authorization of sports gambling. Murphy emphasized the constitutional limits on Congress directing state governments in an area traditionally governed by state law.

Prediction markets present a different statutory mechanism because the CEA can preempt conflicting state law when Congress has validly exercised federal authority. The issue, therefore, is not whether states possess general immunity from federal financial regulation. They plainly do not.

The harder question is whether Congress intended the CEA to occupy the field when the regulated activity is fundamentally recreational wagering rather than financial risk transfer or price discovery. That distinction is critical. Federal preemption is easier to justify when an event contract functions as a financial instrument. It is harder to justify when federal regulation effectively creates a nationwide sports betting regime without an explicit congressional decision to displace the states’ traditional authority over gambling. The doctrinal mechanism is the presumption against preemption that governs fields of traditional state concern—a federalism clear-statement principle under which the CEA’s exclusive-jurisdiction clause should not be read to displace state gambling law absent an unmistakable congressional directive.

A Functional Approach

A better approach would distinguish between event contracts according to their economic function, which is an idea that has gained traction even within the prediction market industry itself. A recent CLS Blue Sky post by Laufer and Saad-Diniz, for example, proposes “social impact prediction (SIP) markets” designed to generate forward-looking signals about corporate sustainability commitments. Their argument underscores a point that regulators have been slow to accept, that the same contractual form can serve fundamentally different purposes.

Under a functional framework, the regulatory treatment would turn on what the market actually does and not on what the contract is called.

Information and financial markets. Contracts involving macroeconomic indicators, financial variables, corporate events, and other economically significant outcomes should remain subject to federal oversight. These markets can provide useful information and facilitate risk management. Federal surveillance and market-integrity requirements are appropriate.

Recreational wagering markets. When the principal purpose of a contract is wagering on sports or entertainment rather than information aggregation or financial hedging, state gaming regulation or a coordinated federal-state framework may be more appropriate.

This functional approach would not require abandoning federal regulation. It would require recognizing that identical mechanics do not necessarily produce identical economic functions. The CFTC’s own June 2026 proposal recognizes that event contracts serve different functions. It lists economic and financial indicators as categories that would generally fall outside the public-interest prohibition. Yet the proposal stops short of a true functional test because it would also largely permit broad sports-outcome contracts under federal jurisdiction, treating them as not contrary to the public interest. That moves in the opposite direction from the approach urged here. The agency should go further and ask whether a contract’s dominant economic function is wagering and acknowledge that sports contracts belong in a different regulatory lane altogether.

The Question for Regulators

The rapid growth of prediction markets has created a temptation to treat all event contracts alike because the contracts share similar technical and legal structures. But identical mechanics do not necessarily produce identical economic functions.

The more useful question is therefore not whether a contract is labeled a “prediction market” or an “event contract.” It is what the market actually does.

If prediction markets generate economically valuable information and facilitate financial risk transfer, federal derivatives regulation has a strong justification. If they function primarily as mass-market sportsbooks, the case for federal preemption of state gambling law becomes weaker.

The CFTC’s rulemaking and the emerging litigation provide an opportunity to establish that distinction. The future of prediction markets may ultimately depend not on choosing between federal and state regulation, but on recognizing that financial information markets and recreational wagering markets are not the same thing and should not necessarily be regulated as though they are.

David Krause is an emeritus associate professor of finance at Marquette University.