But a closer look reveals an important limitation: Stakeholder commitments frequently unravel during periods of institutional and governmental change. In a recent article, I examine the phenomenon of corporations that publicly embrace prosocial and pro-stakeholder causes yet abandon those commitments at precisely the moments when they matter the most, such as during M&A activity and shifts in government power. The events that trigger stakeholder abandonment differ in important ways. Some are endogenous, arising from internal corporate decisions such as selling the company or taking the company public through an initial public offering (IPO). Others are exogenous, driven by external forces such as elections or regulatory shifts, with particularly significant changes following the re-election of President Donald Trump.

Despite a handful of differences, these moments share many features that help explain the shift in stakeholder treatment. They are moments of heightened risk and increased uncertainty. Uncertainty about financial impact, litigation, and the scope of the board’s fiduciary duties – including when the famous Revlon duties attach – has a chilling effect on stakeholder considerations in dealmaking activity. Government policies targeting diversity initiatives, sustainability efforts, and other stakeholder causes, regardless of the merits of these policies, likewise have a chilling effect on stakeholder governance following shifts in executive power. At the same time, many of these changes occur with limited transparency. Companies frequently reduce or abandon stakeholder initiatives without explicit disclosure in filings or transaction documents. Stakeholders who relied on earlier commitments may receive little notice that those commitments have been quietly scaled back.

Such abandonment is not necessarily evidence that stakeholder governance is illusory. Rather, it demonstrates that times of change are periods of rearranging priority among those with a stake in the corporation. Many players have an interest in the corporation – shareholders, of course, but also employees, suppliers, customers, and communities, among others. Each corporation will have implicitly established a hierarchy among its stakeholders in the ordinary course. This hierarchy will naturally differ between corporations. During times of change there is an implicit rearranging of the priority of stakeholder claims on the corporation’s resources, attention, and time. In an M&A transaction, it is the financing parties and shareholders whose claims are elevated, while the others are subordinated to the interests of these players. For example, financing parties may receive third-party beneficiary status for the purpose of certain provisions in a merger agreement (in addition to the terms of any lending agreement), and when Revlon is triggered, the board must attempt to get the best value reasonably available for its shareholders in the sale. Employees, by contrast, receive little protection in deals. They are not parties to the merger agreement, nor are they third-party beneficiaries or otherwise granted meaningful protection. Following Trump’s election to a second term, many stakeholder claims have been rearranged and reprioritized because of changing risks, particularly when it comes to employee diversity, customer safety, and climate impact.

When viewed in the context of changes in the priority given to differing stakeholder constituencies, it becomes clear that while stakeholders may get less consideration overall in times of transition, their interests are not eradicated entirely. For example, Trump recently announced a task force “to eradicate anti-Christian bias,” a favorable signal for religious (particularly Christian) views that has made it less risky for corporations to embrace certain religious causes. As a result, religious stakeholders now have more power and greater priority in the corporate stakeholder hierarchy. The reprioritization of stakeholder interests thus may explain why there has been no similar walking back of religious commitments, or other matters that may be considered “conservative” stakeholder interests, among for-profit corporations following Trump’s re-election.

This phenomenon raises important questions for corporate governance, securities regulation, and the debate over corporate purpose. To increase accountability and transparency in corporate governance, a range of doctrinal and policy proposals may prove useful, such as more disclosure, contractual obligations, and third-party certifications. Yet as currently structured, they provide neither durable commitments nor transparency about abandonment of commitments.  The result is that many companies continue to benefit from corporate goodwill – reputational capital built through stakeholder-oriented messaging – even after reneging on longstanding commitments.

Corporate stakeholders increasingly rely on companies’ public commitments to social and environmental goals. Yet those commitments often prove fragile when corporations face moments of transition. By examining the dynamics that drive this pattern, the article highlights the importance of transparency, institutional design, and accountability in modern corporate governance. Ultimately, the question addressed in the article is not whether companies should pursue stakeholder governance, but whether the commitments they make to employees, communities, and society, can – and should – be durable enough to withstand the pressures of change.

Caley Petrucci is an associate professor of law and co-director of the Center for Corporate and Securities Law at the University of San Diego School of Law. This post is based on her recent article, “Corporate Goodwill,” available here.

Notably, the scope of the covered statutes is broad—the Whistleblower Program would cover not only violations of AML requirements under the BSA and its implementing regulations, but also violations of sanctions programs administered by the Office of Foreign Assets Control (OFAC) and other national security regimes implemented under IEEPA, including the Outbound Investment Security Program (OISP) and the Justice Department’s Data Security Program (DSP).2 Individuals (including employees serving in compliance functions) who report violations through the Whistleblower Program may receive 10 to 30 percent of any monetary sanctions collected through subsequent enforcement actions (subject to certain conditions, including a minimum penalty amount).

In conjunction with the NPRM, FinCEN released an advisory on fraud schemes targeting federal and state health care benefit programs (the Health Care Fraud Advisory). The Health Care Fraud Advisory urges financial institutions to be vigilant in identifying health care fraud by criminal actors and transnational criminal organizations (TCOs)3 and encourages individuals to report suspected violations through the Whistleblower Program. Both the NPRM and the Health Care Fraud Advisory underscore the administration’s “whole-of-government effort to combat fraud, waste, and abuse involving [f]ederal payments.” As discussed in our client update, the administration’s specific focus on government benefits fraud was brought into sharp relief by FinCEN’s recent Geographic Targeting Order (GTO) in Minnesota.

We encourage all clients with exposure to the relevant AML, sanctions, and national security laws to closely review the NPRM, as the broad scope of the Whistleblower Program will likely increase compliance risk exposure for industry stakeholders and amplify pressure to voluntarily self-disclose violations (consistent with broader regulatory efforts in recent years). Public comments on the NPRM are due by June 1, 2026. Below, we provide a summary of the key takeaways from both the NPRM and the Health Care Fraud Advisory.

What would the NPRM do?

The NPRM would amend and replace FinCEN’s existing regulations governing rewards for individuals (31 CFR 1010.930) and fully implement the whistleblower framework established under AMLA and the AML Whistleblower Improvement Act of December 2022.4 While the core elements and general framework for FinCEN’s Whistleblower Program was already codified under those statutes – and FinCEN released a portal for whistleblower tips in February 2026 – FinCEN had not, until the issuance of the NPRM, implemented regulations governing the terms and procedures for the program.

Who is eligible for an award?

The NPRM would make awards available to “whistleblowers,” which are defined as individuals (both U.S. and non-U.S.) who provide, or any two or more individuals acting jointly who provide, “information relating to a possible violation of a covered statute or a possible conspiracy to violate a covered statute to Treasury or to DOJ, or to the employer of the individual or individuals, including as part of the job duties of the individual or individuals.” Legal entities and legal arrangements would not be eligible for whistleblower awards,5 and certain individuals are also excluded from eligibility, including government employees or persons who abuse the program.6 Although FinCEN primarily deals with financial institutions, whistleblower awards are available regardless of the industry of the violator.

Awards would be available for tips that lead to “covered actions,” which are judicial or administrative actions by Treasury or DOJ under a covered statute that have been successfully enforced and result in monetary sanctions exceeding $1,000,000.7 FinCEN would be responsible for determining award eligibility after the action has been “successfully enforced” (i.e., after there has been a final judgment and all appeals have been exhausted or the time for appeals has expired). Tips must be submitted to FinCEN through the agency’s “Tip, Complaint, or Referral” form on FinCEN’s online portal. To be eligible, a whistleblower’s tip must be based on “original information,” meaning, among other things, that it is based on the whistleblower’s “independent knowledge” or “independent analysis”8 of which the whistleblower is the “original source” (i.e., the information was not already known to Treasury or DOJ from a source other than the whistleblower). Eligible whistleblowers would receive 10 – 30 percent of monetary sanctions collected in a covered action, with a presumptive award at the 30 percent maximum when total sanctions do not exceed $15 million.

Implications for employers

Both U.S. and non-U.S. employees would be eligible to receive awards, including employees who serve in compliance and audit functions. Whistleblowers would remain eligible for an award if they previously provided information to their employer (or to a part of Treasury, other than FinCEN, or to DOJ), but they must also submit that same information to FinCEN within a “reasonable time” (to be defined by FinCEN). However, whistleblowers are subject to a 120-calendar-day waiting period to be eligible for an award if: (A) the whistleblower obtained the reported information because the whistleblower was an officer, director, trustee, or partner of an entity, or the whistleblower learned the information in connection with the entity’s processes for identifying, reporting, and addressing possible violations of law; or (B) the whistleblower obtained reported information because the whistleblower was an employee whose principal duties involve audit or compliance responsibilities, or an employee or individual associated with a firm retained to perform audit or compliance functions for an entity. The waiting period requires whistleblowers to wait at least 120 calendar days from the date they obtained information before providing it to FinCEN to be eligible for an award.

In effect, this 120-day waiting period allows employers to assess the information and decide if the violation should be disclosed to a regulator. Notably, the 120-day waiting period would not apply to employees in business-level functions – e.g., a U.S. or non-U.S. employee on a deal team would not be required to wait before submitting a tip regarding a violation of the OISP. Finally, the NPRM provides that a whistleblower is ineligible to receive an award if they obtained original information through a communication that was subject to attorney-client privilege or work product doctrine (or a similar legal concept provided for under foreign law), unless the disclosure is otherwise permitted by the applicable federal or state law and/or attorney conduct rules.

The NPRM also establishes anti-retaliation protections, which prohibit employers from directly or indirectly discharging, demoting, suspending, threatening, blacklisting, harassing, or otherwise discriminating against a whistleblower in the terms and conditions of employment or post-employment because of the whistleblower’s lawful actions in reporting the violation.

For employers, the NPRM and Whistleblower Program will increase the importance of implementing policies and procedures governing internal investigations, reporting, and issues management, as well as processes for regulatory engagement and voluntary self-disclosures. While the NPRM’s 120-day waiting period may allow companies to evaluate potential violations, at least in certain instances, the Whistleblower Program as a whole may increase pressure on companies to timely remediate and self-disclose violations to the government. This is consistent with broader efforts among federal regulators in recent years to encourage companies to submit voluntary self-disclosures of potential or confirmed violations of law. As described in our client update, for example, DOJ recently announced a new corporate-wide enforcement policy for all criminal cases that creates significant incentives for companies to self-report misconduct. DOJ’s National Security Division (NSD) also recently encouraged companies to “voluntarily self-disclose to NSD any potential criminal violations of U.S. law relating to matters conducted, handled, or supervised by the NSD,” including violations relating to U.S. export control laws and regulations or the Committee on Foreign Investment in the United States (CFIUS) regulations.9

The Health Care Fraud Advisory

On the same day it announced the NPRM, FinCEN also released the Health Care Fraud Advisory, which urges financial institutions “to be vigilant in identifying and reporting suspicious transactions potentially related to health care fraud schemes targeting Medicare, Medicaid, and other federal and state health care benefit programs.” Treasury framed both the Health Care Fraud Advisory and the NPRM as part and parcel of the administration’s efforts to reduce fraud, waste, and abuse.10 Both issuances follow FinCEN’s January 2026 GTO, which imposed expansive reporting requirements on banks and money services businesses in the Hennepin and Ramsey Counties of Minnesota. When announced, Treasury stated that the GTO was intended to address government benefits fraud in Minnesota, including the exploitation of child nutrition programs by TCOs.11

The Health Care Fraud Advisory, among other things, describes money laundering typologies and red flags associated with the exploitation of federal and state health care benefits programs, such as false and fraudulent claims for reimbursement. Notably, Treasury reported a 20% increase in suspicious activity reports related to heath care fraud in 2025 (relative to 2024) but stated that the reporting “likely represents only a small fraction of the illicit activity connected to health care fraud in the United States.”12 Health care fraud was similarly a key area of focus in Treasury’s recently released 2026 National Money Laundering Risk Assessment (consistent with prior years).13 The administration has made clear that targeting fraud in government benefits is both a policy and enforcement priority and has been willing to leverage its entire toolkit under the BSA to that end. This, in turn, will likely continue to raise the bar for financial institutions to detect and report suspected fraud.

Looking forward

The NPRM and Whistleblower Program may significantly increase exposure for companies under a wide range of national security laws. While whistleblower incentives have long been in place for violations of the BSA, the new whistleblower framework presents risks for a broader universe of companies beyond financial institutions that operate internationally (e.g., funds that engage in investments covered by the OISP). Moreover, although violations of export control laws and CFIUS rules would not be within the scope of the NPRM, it is plausible that similar whistleblower frameworks may one day follow for those regimes, given the continuing focus on corporate whistleblowing and self-disclosure.

The administration’s focus on health care and government benefits fraud is also likely to continue (and potentially accelerate) for the foreseeable future. While health care fraud is not directly in the scope of the covered statutes, we expect the administration would prioritize any tips with a nexus to fraud in government programs. FinCEN and other regulators are also likely to scrutinize compliance failures that result in undetected or unreported fraud against the government. Despite having endorsed a deregulatory approach in certain areas, the administration has signaled that it will enforce violations that overlap with its policy priorities.

ENDNOTES

¹ FinCEN, Whistleblower Incentives and Protections, 91 Fed. Reg. 16328 (Apr. 1, 2026).

² As noted below, violations of export control regulations would not be covered by the NPRM because they are implemented under statutory authorities that are not covered by the Whistleblower Program.

³ FinCEN, FIN-2026-A001, FinCEN Advisory on Health Care Fraud Schemes Targeting Medicare, Medicaid, and Other Federal and State Health Care Benefit Programs (March 2026), available at: https://www.fincen.gov/system/files/2026-03/FinCEN-Advisory-Health-Care-Fraud.pdf.

⁴ AMLA amended the BSA to establish a whistleblower framework for BSA violations comparable to other federal regulatory regimes (e.g., the Securities and Exchange Commission’s Whistleblower Program).  The AML Whistleblower Improvement Act of 2022 expanded this framework to cover violations of IEEPA, TWEA, and the Kingpin Act and established the Financial Integrity Fund—a $300 million revolving fund financed by collected penalties – to pay out awards to eligible whistleblowers.

⁵ FinCEN specifically refers to corporations, limited liability companies, and trusts as being ineligible for whistleblower awards.

⁶ Specifically, any person meeting the following requirements would not be eligible for the Whistleblower Program: any (1) member, officer, employee, or contractor of an appropriate regulatory or banking agency, Treasury, DOJ, a law enforcement agency, Congress (including a committee of Congress), or a self-regulatory organization, that is (2) acting in the normal course of their job duties.

⁷ Monetary sanctions “would include all qualifying monies agreed to or ordered to be paid by all defendants or respondents, and arising from all claims that are brought within that action without regard to which specific defendants or respondents, or which specific claims, were included in the action as a result of the information that the whistleblower provided.” The definition excludes, among other things, blocked and forfeited property. Any “related actions” based on the original information provided by a whistleblower would count towards the $1,000,0000 threshold (including actions taken by other federal or state authorities).

⁸ “Independent Knowledge” would be defined as factual information “known to the whistleblower that is not exclusively obtained from publicly available sources.” “Independent Analysis” would mean the “evaluation of information, including information that may be generally known or available to the public, by the whistleblower, acting alone or in combination with others, in a manner that results in material insights into or interpretations of the significance of such information that are not generally known or available to the public.”

⁹ DOJ, Press Release, Reporting Voluntary Self-Disclosures of Violations of National Security Laws Under the Department-wide Corporate Enforcement Policy (March 30, 2026), https://www.justice.gov/opa/pr/reporting-voluntary-self-disclosures-violations-national-security-laws-under-department-wide.

¹⁰ See FinCEN, Press Release, FinCEN Proposes Rule to Pay Whistleblowers (March 30, 2026), https://www.fincen.gov/news/news-releases/fincen-proposes-rule-pay-whistleblowers.

¹¹ U.S. Department of the Treasury, Press Release, Secretary Bessent Announces Initiatives to Combat Rampant Fraud in Minnesota (January 9, 2026), https://home.treasury.gov/news/press-releases/sb0354.

¹² U.S. Department of the Treasury, Press Release, Treasury Targets Fraud Schemes Exploiting Government Health Care Benefits (March 30, 2026), https://home.treasury.gov/news/press-releases/sb0426.

¹³ U.S. Department of the Treasury, 2026 National Money Laundering Risk Assessment (March 2026), https://home.treasury.gov/system/files/246/2026-NMLRA.pdf.

This post is based on a Davis, Polk & Wardwell LLP memorandum, “FinCEN whistleblower program would offer financial incentives to report AML, sanctions violations,” dated April 7, 2026, and available here. 

A significant portion of financial instruments that banking organizations hold in their trading book or on an available for-sale basis is subject to recurring fair value accounting.  Under Accounting Standards Codification (ASC) 820, this periodic re-valuation of financial instruments requires the firm to divide the instruments among three categories.  As JPMorgan’s financial statements explain:

A three-level fair value hierarchy has been established under U.S. GAAP for disclosure of fair value measurements. The fair value hierarchy is based on the observability of inputs to the valuation of an asset or liability as of the measurement date[:]

• • Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
  • Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
  • Level 3 – one or more inputs to the valuation methodology are unobservable and significant to the fair value measurement.[1]

Banking regulation and my own research relies on this categorization.  The importance of Level 3 instruments to a banking organization’s balance sheet serves as a proxy for complexity.

The remainder of this post presents and discusses the importance of Level 3 instruments between 2007 and 2024 to the balance sheets of the six largest U.S. banking organizations: Bank of America, Citibank, Goldman Sachs, JP Morgan, Morgan Stanley, and Wells Fargo.  These institutions are of central importance to discussions of systemic risk as they represent firms (a) that are too big to fail, and (b) with the greatest sophistication and hence expected involvement with complex instruments.

Figure 1

Figure 1 shows the substantial decline of Level 3 assets among assets subject to recurring fair valuation over the time period in question.  As reflected in Figure 2, a similar pattern of decline in complexity is observed if focusing exclusively on derivatives.  Although figures 1 and 2 aggregate data across the six institutions, individual institutions exhibit consistent trends.  As explored in the underlying paper, financial instruments subject to recurring fair valuation (i.e., the denominator) have increased in this period, while Level 3 instruments (i.e., the numerator) have declined.

Figure 2

            Over the period, derivatives have become an increasing component of overall Level 3 assets as reflected in Figure 3.

Figure 3

            The preceding observations answer some questions and raise others.  The valuation of major banking institutions’ balance sheets calls for less judgment during ordinary course operations now than it did during the crisis.  A number of post-Dodd Frank Act initiatives sought to reduce complexity.  These range from capital standards, to increased regulation of securitization, to comprehensive swap market regulation, to the Volcker Rule.  A potentially important component of these interventions is a G-SIB surcharge that, in part, bases higher capital requirements on a measure of complexity tied to the amount of Level 3 assets.  The focus on Level 3 assets in calculating extra capital requirements may explain why those assets have fallen more than Level 3 liabilities among the six institutions, as reflected in Figure 4.  Figure 4 presents assets in blue and liabilities in orange, with the y axis in billions USD.

Figure 4

If focusing on just Level 3 derivatives, the trends are similar, albeit liabilities come to exceed assets earlier, around 2013.[2]

As already noted, there has been growth in Level 1 and Level 2 instruments while use of Level 3 instruments shrunk. This may be due to genuine changes in operations or due to reclassification of Level 3 instruments to lower levels. Any reclassification would be due to either exploitation of accounting methodology (e.g., chicanery) or the emergence of new data sources that permit valuation of previously Level 3 instruments based on more observable inputs. For example, some of the derivative-market reform provides for public dissemination of swap data including pricing data; this can provide more objective grounds for valuation of instruments, moving them from Level 3 to lower levels. Beyond reclassification, some of the changes may be due to persistent changes in the values of various instruments. It may be that over the period, some substantial subset of Level 3 instruments has declined in value.

Other explanations for the decline relate to genuine decreases in Level 3 instrument-related activity.  Banking organizations may no longer provide the services that generate Level 3 instruments. This may reflect shrinking markets or a shift in the provision of those services to non-banking organizations (i.e., shadow banks).  If there is an absolute decline in activity, that is not necessarily concerning. Only if the Level 3 instruments were socially useful should the decline raise concerns. On the other hand, a shift in the activities to the shadow-banking sector may be troubling if those activities benefit from regulation.  For example, some Level 3 loans may have transitioned from banking organizations to private lenders where they implicate insurance company reserves.[3]

A major puzzle the trends pose is why the decline in Level 3 assets began well before the onset of regulatory interventions.  As far as I have been able to determine, no relevant Dodd-Frank Act regulatory changes took effect earlier than the end of 2012.  And yet significant declines in Level 3 assets preceded that period.  Several non-exclusive hypotheses may explain the decline in the pre-regulation period.

First, the banking regulators may have had substantial authority under preexisting law to encourage simplification.  Through supervisory efforts starting around 2008, banking regulators may have pressured financial institutions to shed complex assets and operations.  There is an important gap in our understanding of the financial crisis when it comes to understanding what financial regulators could have done ex ante and what they did do ex post as supervisors rather than as providers of financing and as resolution authorities.  These efforts may explain, among other things, the precipitous drop in the value of credit derivatives held by the top five banking organizations well before the onset of derivatives regulation, as reflected in Figure 5.[4]

Figure 5

Second, financial institutions themselves may have initiated efforts to simplify.  Pressure could have come internally or from shareholders.  The crisis forced high level executives to take responsibility for operations involving hard to value instruments such as re-securitizations and certain credit default swaps, potentially prompting a rethink and lower tolerance for complexity.  As an example of activity that was likely related to changing risk tolerance within institutions, some banking organizations sold off illiquid interests in hedge funds and other private funds before the Dodd-Frank Act passed and others sold off after enactment but before the multi-agency promulgation of the Volcker Rule.

Third, certain financial markets (e.g., asset backed securities) significantly declined after the financial crisis.  As overall market supply (or demand) for instruments declined, banking organizations came to hold less of them.

* * *

The Dodd Frank Act was drafted against the backdrop of a banking industry that was already being reshaped by efforts to simplify.  This implicates longstanding questions about the public-private dialectics of regulation and resistance to regulation.  Supervisory or private efforts prepared the ground for a number of Dodd-Frank Act interventions, potentially both softening industry resistance and signaling industry receptivity to limitations on banking activity.  I am deeply interested in the question of where law comes from, and the simplification of balance sheets before the onset of new regulation may illuminate how industry helps shape regulation rather than having regulation simply be imposed on it.

ENDNOTES

[1] JPMorgan Annual Report for 2024 at 182.

[2] Notably, this is not cause for alarm.  First, non-Level 3 assets can support Level 3 liabilities.  Second, Level 3 liabilities could come to exceed Level 3 assets if the latter are subject to heightened collateralization, reducing the value of Level 3 exposure.  The posting of collateral to major banking institutions reduces both their credit exposure to counterparties and their Level 3 asset values.

[3] James Politi, Eric Platt and Sujeet Indap, US Treasury Calls in Regulators for Talks on Private Credit Risks, Financial Times (April 1, 2026).

[4] Goldman Sachs and Morgan Stanley became bank holding companies in response to the crisis, so their data (drawn from Fed FRY9 repots) start later.

Ilya Beylin is an associate professor at Seton Hall Law School.  This post is based on his recent paper, “How Banking Institutions Have Become More Transparent After the Financial Crisis,” forthcoming in the Review of Banking and Financial Law and available here.

The ruling represents a significant development in the ongoing litigation over whether the CFTC is the exclusive regulator of predictions markets.  Given this decision, as well as the CFTC’s recent suits against Arizona, Connecticut, and Illinois, it seems increasingly likely that the question of the CFTC’s authority over prediction markets will ultimately be settled by the Supreme Court.

In this memorandum, we analyze the majority’s holding and situate this case within related litigation in other Circuits, including the potential for Supreme Court review of the CEA’s applicability to event contracts and whether the CEA preempts state regulation of event contracts.

Background

Kalshi operates a designated contract market (“DCM”) licensed by the CFTC in which individuals can trade “event contracts” (such DCMs are also known as “prediction markets”).  Kalshi’s event contracts “identify an event with multiple possible outcomes, a payment schedule for those outcomes, and an expiration date,” and their value “is determined by market forces, which means its price fluctuates from the time of its creation to its expiration based on perceptions about the event’s likelihood.”[2]   

The case arose after New Jersey’s Division of Gaming Enforcement sent Kalshi a cease-and-desist letter “stating that Kalshi’s listing of sports-related event contracts violated New Jersey’s constitution and gambling laws that prohibit betting on collegiate sports” and threatening “any measures available under New Jersey law” if Kalshi did not “promptly end its sports betting activities in New Jersey and void any existing wagers.”[3]  Kalshi immediately commenced an action in the U.S. District Court for the District of New Jersey seeking a preliminary injunction against enforcement of New Jersey’s gambling laws, which the District Court granted.

The Majority Opinion

The panel majority reached the following conclusions in affirming the District Court’s grant of a preliminary injunction:

• Kalshi’s Sports-Related Events Contracts Are “Swaps” Under the Commodity Exchange Act: The opinion began with the question of whether Kalshi’s sports-related events contracts are “swaps” under the CEA and thus subject to the CFTC’s jurisdiction.
  • Noting that the CEA defines “swap” to include “any agreement, contract, or transaction . . . that provides for any . . . payment[ ] or delivery . . . that is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence,” the Third Circuit determined as a matter of statutory interpretation that “swap” includes event contracts. In so holding, the Court rejected New Jersey’s argument that Kalshi’s event contracts are not “swaps” covered by the Act “because the outcome of a sports game is not ‘joined or connected’ with a financial, economic, or commercial instrument or measure.”[4] Opining that New Jersey “raises the bar beyond what the Act requires,” the Court reasoned that, under the plain text of the CEA, “the relevant event or occurrence need only be ‘associated with a potential financial, economic, or commercial consequence,’” and stated that the “outcome of a sports event certainly can be associated with” such a consequence, pointing to the “numerous affected stakeholders, including sponsors, advertisers, television networks, franchises, and local and national communities.”[5]  Ultimately, the opinion concluded:  “[b]ecause Kalshi’s sports-related contracts are traded on a CFTC-licensed DCM and depend on event outcomes associated with economic consequences, they fit within the Act’s definition of ‘swaps’ subject to the CFTC’s jurisdiction.”[6]
  • The opinion also rejected New Jersey’s argument that the Court’s holding would enable “anything from bingo games to ping-pong matches [to] fall under the CFTC’s jurisdiction.”[7] The Court noted that “[i]n such far-fetched scenarios, Congress’s express delegation to the CFTC and the Securities and Exchange Commission to ‘further define’ swaps would prove useful.”[8]
  • The opinion did not give much interpretive weight to the “special rule” for event contracts implemented by the Dodd-Frank Act, which gives the CFTC discretionary power to review and prohibit six categories of contracts if it concludes that they are “contrary to the public interest,” including contracts that involve “gaming” or “other similar activity determined by the [CFTC], by rule or regulation, to be contrary to the public interest.”[9] The Court emphasized that, while the CFTC “has codified this power in a regulation” (i.e., Rule 40.11[10]), the CFTC “has not yet acted to review or prohibit any sports-related event contracts.”[11]
• The Commodity Exchange Act Impliedly Preempts State Regulation of Designated Contract Markets: The Third Circuit also agreed with the District Court that the CEA preempts state regulation of DCMs.
  • First, the opinion agreed with the District Court “defining the scope of field preemption as the regulation of trading on a DCM (as a form of futures trading) rather than as gambling (a broader and traditional state-regulated field)” and affirmed the subsequent holding that the Act impliedly preempted state regulation of DCMs.[12] The Court explained that “the [CEA] grants the CFTC exclusive jurisdiction over ‘swaps . . . traded or executed on a [DCM],’ which includes Kalshi’s sports-related event contracts.”[13] The Court further noted that the CEA’s limiting principle—that it “shall [not] supersede or preempt . . . the application of any Federal or State Statute . . . to any transaction . . . that is not conducted on or subject to the rules of a registered entity”[14]—“does not apply” because “registered entities include DCMs.”[15]
  • In addition to field preemption, the Third Circuit held that conflict preemption applies because New Jersey’s regulation of sports-related event contracts on CFTC-licensed DCMs “would create an obstacle to executing the [CEA].”[16] The Court found such an obstacle because enforcement of New Jersey’s laws “would prohibit Kalshi, which operates a licensed DCM under the exclusive jurisdiction of the CFTC, from offering its sports-related event contracts in New Jersey” and thereby create “exactly the patchwork [of state regulations] that Congress replaced wholecloth by creating the CFTC.”[17]
  • In a footnote, the Court explained it did not address the parties’ arguments related to whether the CEA preempts all state gambling regulation (as opposed to state regulation of DCMs) “because Kalshi does not argue that the Act preempts all state gambling regulation.”[18]

The Dissent

In dissent, Judge Jane R. Roth did not decide the “thorny issue” of “whether Kalshi’s sports-event contracts fall within the statutory definition of swaps,” but asserted that such products are gambling, that the “presumption against preemption” applies, and thus that neither field nor conflict preemption precludes application of New Jersey’s gambling laws to Kalshi’s products.[19]  Judge Roth, expressing the view that Kalshi’s products constituted gambling, observed that, historically, “gambling regulation has been largely left to the state legislatures” and that the “presumption against preemption applies with special force when Congress has legislated in a field traditionally occupied by the states.”[20]

Accordingly, Judge Roth remarked that field preemption did not apply because, while “federal law occupies the field of DCM trading,” “DCM trading is a subfield of futures trading” and the CFTC’s “occupation of the subfield of DCM trading is insufficient to preempt state gambling laws because of the presumption against preemption.”[21]  She further noted that field preemption is inapplicable because the “existence of two savings clauses in the Act” is “evidence of Congress’s intent to allow a certain amount of complementary state regulation in this field.”[22]

Opining that conflict preemption also did not apply, Judge Roth explained that “New Jersey’s gambling laws arguably complement” congressional objectives because, through Dodd-Frank’s special rule, “Congress intended to prohibit gambling on DCMs, and the CFTC effectuated that intention through its enactment of Rule 40.11[].”[23]  She additionally wrote that Kalshi could comply with both federal and New Jersey law.[24]

Related Litigation & Looking Ahead

This case is one of numerous cases working their way up through federal and state courts considering the CEA’s applicability to event contracts and whether the CEA prevents states from enforcing their gambling laws against event contracts.

The CFTC has participated in this litigation and weighed in on the side of preemption, asserting that it has “exclusive jurisdiction over CFTC-regulated [DCMs].”[25]  On April 2, 2026, the CFTC sued Arizona, Connecticut, and Illinois alleging that the CEA preempts the application of those states’ gambling laws to event contracts offered by DCMs.[26]  Earlier, in February 2026, the Commission filed an amicus brief in a pending Ninth Circuit case asserting its intention to prevent states from “re-characterizing swaps trading on DCMs as illegal gambling.”[27]

On the private side, including this case, prediction market participants have filed suits against 11 states alleging that the CEA preempts enforcement of state gambling laws to their event contracts.[28]  In those actions, some courts have found preemption under the CEA, but others have not.[29]  Notably, states themselves have leveraged their gambling laws to sue businesses offering event contracts,[30] with some states obtaining injunctive relief barring those businesses from offering event contracts in the state.[31]  These cases are percolating up to the federal courts of appeal, including several currently pending before the Ninth Circuit,[32] and may result in divergent answers across Circuits.

In sum, the CEA’s applicability to event contracts and its preemptive effect on state gambling laws are live issues that have divided courts, are a genuine concern for the CFTC, and may generate a circuit split—teeing up the questions for Supreme Court resolution.

ENDNOTES

[1] Specifically, in KalshiEX LLC v. Flaherty, No. 25-1922, the Third Circuit affirmed the District Court’s grant of a preliminary injunction in favor of KalshiEX LLC (“Kalshi”).

[2] KalshiEX LLC v. Flaherty, No. 25-1922, Slip. Op. at 2 (3d Cir. Apr. 6, 2026).

[3] Id.

[4] Id. at 7 (quoting 7 U.S.C. § 1a(47)(A), (A)(ii)).

[5] Id. at 8.

[6] Id.

[7] Id.

[8] Id. (quoting 15 U.S.C. § 8302(d)(1)).

[9] Id. at 6 (quoting 7 U.S.C. §§ 7a-2(c)(5)(C)(i)(V)–(VI)).

[10] 17 C.F.R. § 40.11.

[11] Flaherty, Slip. Op. at 6–7.

[12] Id. at 9–11.

[13] Id. at 10 (quoting 7 U.S.C. § 2(a)(1)(A)).

[14] 7 U.S.C. § 16(e)(1)(B)(i).

[15] Flaherty, Slip. Op. at 10.

[16] Id. at 12–14.

[17] Id. at 13.

[18] Id. at 10 n.2.

[19] Flaherty, No. 25-1922, Slip. Op. at 2–3 (Roth, J., dissenting).

[20] Id. at 4 & n.12, 7–8.

[21] Id. at 8–10.

[22] Id. at 12–14.

[23] Id. at 17–19.

[24] Id. at 15–16.

[25] Brief for CFTC as Amicus Curiae Supporting Appellant at 2, N. Am. Derivatives Exch., Inc. v. Nevada, No. 25-7187 (9th Cir. Feb. 17, 2026), available here.

[26] CFTC, CFTC Sues Trio of States to Reaffirm its Exclusive Jurisdiction Over Prediction Markets (Apr. 2, 2026), available here; see also United States v. Arizona, No. 2:26-cv-02246 (D. Ariz.); United States v. Connecticut, No. 3:26-cv-00498 (D. Conn.); United States v. Illinois, No. 1:26-cv-03659 (N.D. Ill).

[27] Brief for CFTC as Amicus Curiae Supporting Appellant at 2, N. Am. Derivatives Exch., Inc. v. Nevada, No. 25-7187 (9th Cir. Feb. 17, 2026), available here.

[28] These states are Arizona, Connecticut, Iowa, Maryland, Michigan, Nevada, New Jersey, New York, Ohio, Tennessee, and Utah.  KalshiEX, LLC v. Hendrick, No. 2:25-cv-00575 (D. Nev. Mar. 28, 2025); KalshiEX LLC v. Flaherty, No. 1:25-cv-02152 (D.N.J. Mar. 29, 2025); KalshiEX LLC v. Martin, No. 1:25-cv-01283 (D. Md. Apr. 21, 2025); KalshiEX LLC v. Williams, No. 1:25-cv-08846 (S.D.N.Y. Oct. 28, 2025); KalshiEX LLC v. Schuler, No. 2:25-cv-01165 (S.D. Ohio Oct. 7, 2025); KalshiEX LLC v. Cafferelli, No. 3:25-cv-02016 (D. Conn. Dec. 3, 2025); KalshiEX LLC v. Orgel, No. 3:26-cv-00034 (M.D. Tenn. Jan. 9, 2026); KalshiEx LLC v. Cox, No. 2:26-cv-00151 (D. Utah Feb. 23, 2026); KalshiEX LLC v. Bird, No. 4:26-cv-00109 (S.D. Iowa Mar. 11, 2026); KalshiEX LLC v. Johnson, No. 2:26-cv-01715 (D. Ariz. Mar. 12, 2026); QCX, LLC v. Nessel, No. 1:26-cv-00710 (W.D. Mich Mar. 4, 2026).

[29] Compare KalshiEX LLC v. Orgel, No. 3:26-CV-00034, 2026 WL 474869, at *7–10 (M.D. Tenn. Feb. 19, 2026) (finding Kalshi’s sports event contracts are swaps under the CEA and conflict preemption applies to Tennessee’s gambling laws), and KalshiEX LLC v. Flaherty, 2025 WL 1218313, at *6 (D.N.J. Apr. 28, 2025), with N. Am. Derivatives Exch., Inc. v. Nevada on Rel. of Nev. Gaming Control Bd., No. 2:25-CV-00978, 2025 WL 2916151, at *9 (D. Nev. Oct. 14, 2025) (finding certain event contracts are not swaps under the CEA), and KalshiEX LLC v. Martin, 793 F. Supp. 3d 667, 676–86 (D. Md. 2025) (finding the CEA did not preempt Maryland’s gambling laws), and KalshiEX, LLC v.Hendrick, 2025 WL 3286282, at *3 (D. Nev. Nov. 24, 2025) (holding that “event contracts that turn on the outcomes of sporting events are not swaps”), and KalshiEX LLC v.Schuler, No. 2:25-cv-01165, 2026 WL 657004, at *4–10 (S.D. Ohio Mar. 9, 2026) (finding sports-event contracts are not swaps within the CFTC’s exclusive jurisdiction and, alternatively, concluding that the CEA does not preempt Ohio’s gambling laws).

[30] Nevada ex rel. Nev. Gaming Control Bd. v. KalshiEX, LLC, No. 260000050-1B (Nev. 1st Judic. Dist.); Nevada ex rel. Nev. Gaming Control Bd. v. Blockratize, No. 26-OC-00012-1B (Nev. 1st Judic. Dist.); Nevada v. Coinbase Financial Markets, Inc., No. 26-OC-0030-1B (Nev. 1st Judic. Dist.); Commonwealth of Massachusetts v. KalshiEX LLC, No. 2584CV02525 (Mass. Super. Ct.); Nessel v. KalshiEX LLC, No. 1:26-cv-00731 (W.D. Mich.); State of Washington v. KalshiEX, LLC, No. 2:26-cv-01062 (W.D. Wash.).

[31] E.g., Commonwealth v. KalshiEX, LLC, No. 2584CV02525, 2026 BL 19365, at *4 (Mass. Super. Ct. Jan. 20, 2026); see also Nate Raymond, Nevada judge extends ban on Kalshi operating prediction market in state, Reuters (Apr. 3, 2026), available here.

[32] E.g., Blue Lake Rancheria v. Kalshi, Inc., No. 25-7504 (9th Cir.); N. Am. Derivatives Exch., Inc. v. Nevada, No. 25-7187 (9th Cir.); KalshiEX, LLC v. Hendrick, No. 25-7516 (9th Cir.).

This post is based on a Paul, Weiss, Rifkind, Wharton & Garrison LLP memorandum, “A Divided Third Circuit Holds That the CFTC Has Exclusive Jurisdiction Over Sports-Related Event Contracts,” dated April 6, 2026, and available here. 

Policy Announcements

I. Enforcement Priorities

Miller announced that the Division would concentrate its resources on five enforcement priority areas: insider trading, market manipulation, market abuse and disruptive trading, retail fraud, and willful AML and KYC violations. Miller framed the announcement by stating that “[t]he era of regulation by enforcement is over,” and that the Division would “relentlessly focus on serious violations, especially fraud and market manipulation.”

The first priority is insider trading, which Miller described as “illegal under the CEA and our regulations in all our markets, including the prediction markets” and carrying “serious consequences for market integrity and trust.” Because the CFTC’s markets are “price-discovery markets, not disclosure-based markets,” the Division will “only be prosecuting cases against those who tip or trade with misappropriated information,” not those who legitimately use their own knowledge to make trading decisions.

The second priority is market manipulation, which Miller described as “fundamental to a market regulator’s mission” to combat, given that “[p]roperly functioning markets are efficient, create appropriate prices for essential goods, and provide accurate price signals,” while “market manipulation can drive up costs, distort price signals, erode trust, and impose costs on consumers.” Miller identified the energy markets as a particular area of focus, characterizing manipulation there as “particularly and perhaps uniquely harmful” given “inelastic demand and limited substitutability,” and noting that “price increases in energy markets can also have broad inflationary effects because energy costs ripple through the economy.”

The third priority is market abuse and disruptive trading, including “spoofing, disruptive trading during a closing period, and wash trading,” conduct Miller described as reducing efficiency, distorting price signals, and raising prices in the same manner as outright manipulation.

The fourth priority is retail fraud. The Division will continue to target “retail fraud in its various forms, from Ponzi schemes to commodity pool frauds, pig-butchering, impersonation frauds, and ‘phishing’ attacks directed at individuals” through “a large task force dedicated to this priority,” with Miller noting that such schemes increasingly employ “AI-created images and videos, targeted communications on social media platforms, and fake websites and phone applications that duplicate the websites and apps of major banks and crypto asset firms.”

The fifth priority is willful AML and KYC violations, which Miller described as “key tools in fighting crime and protecting our markets” and “essential in combatting terrorism, narcotrafficking, fraud, and other serious illegal activity.” Miller emphasized that the Division is “not prioritizing technical violations, but rather those who willfully decide to break these essential laws,” with criminal referrals to be made as appropriate.

II. Insider Trading in the Prediction Markets

Miller announced that the Division would treat insider trading in the prediction markets as a live enforcement priority, stating that there is “a myth in the mainstream media and social media that insider trading law doesn’t apply in the prediction markets” and characterizing this view as flatly wrong. Miller described the prohibition as “not some abstract theory” but “a straightforward application of the law” and organized his remarks around the legal basis for the prohibition, its application to prediction markets, and its limits.

The legal basis rests on Section 6(c)(1) and Rule 180.1, which Miller explained “were created as part of the Dodd-Frank reforms as part of a deliberate effort to expand the CFTC’s authority” and “are explicitly modeled after Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5,” incorporating “the anti-fraud provisions, and insider trading, into the commodity, futures, and swap markets.” The applicable theory is misappropriation, under which “liability attaches when an individual: (1) possesses material non-public information; (2) misappropriates that information by trading on or tipping in breach of a duty of trust and confidence owed to the source of the information; and (3) does so with scienter,” with such trading required to be in connection with a contract for the sale or purchase of a commodity, future, or swap in interstate commerce.

As to application, Miller stated that event contracts are swaps under the broad statutory definition, meaning that “Section 6(c)(1) and Rule 180.1 prohibit insider trading in the prediction markets.” Miller cited a recent example from the Kalshi Designated Contract Market involving “an individual [who] traded a contract related to a YouTube channel while having an employment relationship with the subject of the contract” and who “appeared to have access to material non-public information related to his trades,” and flagged particular concern around “contracts based on the actions or status of a person or small group of people,” such as injury contracts, which “present both manipulation and insider trading risk.” Miller also noted that the Division would police the illegal use of government information in the prediction markets, including conduct prohibited under the STOCK Act and the so-called “Eddie Murphy Rule” under Section 4c(a)(4) of the CEA.

As to limits, Miller was clear that the prohibition “is only about misappropriated information,” and that “in our markets, you are absolutely entitled to trade on MNPI that you rightfully own,” with the Division exercising “prosecutorial discretion and not dedicate our resources to trivial cases or cases where there is no clear breach of duty.”

III. New Staff Advisory on Cooperation

Miller announced that the Division would soon issue a new Staff Advisory on Cooperation, rescinding the current policy issued in February 2025, with changes designed “to further incentivize cooperation, to simplify our approach, and, hopefully, to be fairer to the parties with which we interact.” The new policy has three key features: a revised declination framework, a new self-reporting standard, and a binary cooperation requirement.

Under the declination framework, a party that (i) self-reports, (ii) cooperates fully, and (iii) remediates fully, “including committing to ongoing reporting of violative conduct, and follows our guidelines on remediation and disgorgement,” will, “absent aggravating circumstances,” receive “a clear path to a declination,” to be issued upon completion of the party’s cooperation. Aggravating circumstances precluding eligibility include “pervasive intentional or reckless conduct by ownership or senior-most management” and “[r]ecidivist activity involving intentional or reckless conduct.”

To qualify, a party must self-report “in a prompt, timely, and good-faith fashion, even where the party needs more time to investigate, regardless of whether the CFTC already knew about the issue confidentially.” The window will close, however, where “the information is public or the party knows or suspects that there is an imminent disclosure from another source,” including “a whistleblower, a government investigation by another agency, a Self-Regulatory Organization investigation, or a press report.”

Under this policy cooperation itself will be binary, described by Miller as “[l]ike jumping into a lake; you’re either in a hundred percent or you’re out.” Full cooperation requires disclosing all relevant non-privileged information, sharing internal investigation findings without breaching privilege or work-product protections, making personnel available for interviews, preserving all records including ephemeral messages, undertaking good-faith efforts to secure documents located overseas, and continuing to report. Full remediation is also required, including analyzing the conduct, identifying and remediating root causes, implementing appropriate compliance program changes, disciplining relevant employees, providing full restitution to injured parties, and disgorging ill-gotten gains.

Implications

Miller’s remarks carry several practical implications for market participants. Most immediately, although CFTC enforcement actions have declined since the beginning of 2025, Miller suggests that companies and individuals active in CFTC-regulated markets should not assume that this trend will continue. And despite reports of significant staff attrition within the Division, Miller said the Division is actively hiring to replenish the enforcement ranks.

For prediction market participants in particular, the remarks signal a significant enforcement focus on these markets. The CFTC views insider trading in these markets as an enforcement priority, and Miller unequivocally stated the Division’s commitment to devoting significant resources to policing those markets. Those who access and trade on information obtained through employment relationships, confidentiality agreements, or government positions should treat such activity as carrying real civil and criminal risk.

The new cooperation policy creates a meaningful but time-sensitive incentive to act. Perhaps most notably, a self-report accompanied by full cooperation and remediation will now come with a presumption (absent aggravating circumstances) of a declination. This change helpfully clarifies one of the most difficult aspects of an assessment of whether to self-report, which is how an entity will be treated following any self-report. From a timing perspective, the path to a declination will close the moment information becomes public, a whistleblower comes forward, another agency opens an investigation, or a press report is published. Companies that become aware of potential violations should promptly assess whether they remain within the self-reporting window. If they do, the cooperation standard is demanding and binary: partial or selective cooperation will not suffice, and the decision to engage the Division should be made with that commitment in mind.

This post is based on a Sullivan & Cromwell LLP memorandum, “CFTC Division of Enforcement Announces Five Priority Areas, Insider Trading Framework for Prediction Markets and Revised Cooperation Policy,” dated April 1, 2026, and available here.

In a new article, I argue that the ESG controversy has exposed a deeper problem. We lack a clear framework for understanding what materiality actually means.

The Limits of the Traditional Materiality Framework

U.S. securities law is built on disclosure. Public companies must provide investors with information that is “material,” meaning information that would affect the “total mix” available to a reasonable investor. That formulation, derived from TSC Industries, Inc. v. Northway, Inc. and refined in Basic Inc. v. Levinson, has prevailed for decades.

In practice, however, materiality is often treated as synonymous with financial significance. Critics of ESG disclosures rely heavily on this assumption, arguing that ESG information is nonfinancial, values-driven, and therefore immaterial. From this perspective, requiring ESG disclosure represents a departure from the core mission of securities law.

But this framing is incomplete. Materiality has never been strictly limited to financial metrics. Courts have long recognized that certain nonfinancial facts – such as risks associated with key personnel or corporate misconduct – can be material if they would matter to investors. At the same time, not all information that might be socially or politically important belongs in securities disclosure.

The problem, then, is not simply whether ESG is material. It is that materiality itself is doing too much conceptual work without sufficient structure.

A Taxonomy of Materiality

To bring greater clarity to this debate, the article introduces a taxonomy that separates materiality into three distinct, but overlapping, categories: substantive, regulatory, and procedural.

Substantive materiality reflects the traditional understanding of the concept. It includes information that affects a firm’s financial performance, risk profile, or valuation. This category captures the core of what investors have historically cared about, but it is not limited to purely financial data. Nonfinancial information can also be substantively material if it affects economic outcomes.

Regulatory materiality refers to information that becomes material because the law requires its disclosure. Once disclosure is mandated, failure to comply creates legal and financial risk. In this way, regulation can transform information that might otherwise seem immaterial into something that has real economic consequences.

Procedural materiality – the article’s central contribution – captures information that investors themselves demand. Investors express these demands through shareholder proposals, engagement with management, and participation in the regulatory process. When investors consistently seek certain types of information, they are signaling that the information is important to their decision-making.

These three categories overlap, but they are not coextensive. Distinguishing among them helps explain how disclosure regimes develop and why some forms of disclosure are more controversial than others.

Conflict Minerals and ESG: A Tale of Two Disclosure Regimes

The article illustrates this taxonomy by comparing two prominent disclosure regimes: conflict minerals and ESG.

The conflict-minerals disclosure requirement, enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, required companies to disclose whether their products contained minerals from warring regions in the Democratic Republic of Congo. The purpose of the rule was humanitarian – to reduce violence and human rights abuses. At the time of its adoption, the requirement was not driven by investor demand and did not clearly affect firm value. It is best understood as an example of regulatory materiality without underlying substantive or procedural support. Over time, however, the requirement generated compliance costs, reputational pressures, and other financial consequences. In this way, regulatory materiality created downstream substantive effects.

ESG presents a stark contrast. Rather than originating with legislators, ESG emerged from investors themselves. Institutional investors, asset managers, and other market participants began demanding information about environmental risks, social practices, and governance structures. Regulators have, in many respects, responded to this demand.

As a result, ESG satisfies all three categories of materiality. First, many ESG factors are substantively material because they affect risk, cost of capital, and long-term value. Second, ESG disclosure requirements are increasingly mandated by jurisdictions around the world, creating regulatory materiality. Third, and most important, ESG is procedurally material because investors have consistently demanded this information.

This bottom-up origin distinguishes ESG from conflict minerals and helps explain why ESG disclosures are more plausibly grounded in the logic of securities law.

Why the Taxonomy Matters

The taxonomy offers several insights for debates about corporate disclosure.

First, it shows that the legitimacy of a disclosure regime depends not only on its content, but also on its origin. Disclosure mandates that arise from investor demand are more consistent with the investor-protection rationale of securities law than those imposed purely to serve external policy goals.

Second, it reframes the ESG debate. When viewed this way, the question is not whether ESG information is material. It is how different types of materiality interact and whether disclosure should be mandated.

Third, the taxonomy provides a framework for analyzing future disclosure controversies. As new issues emerge – ranging from cybersecurity to artificial intelligence to human capital – courts and regulators will confront questions about what information belongs in securities filings. Understanding the different types of materiality can help guide those decisions.

Moving Forward

The concept of materiality has always been flexible, evolving alongside markets and investor expectations. The ESG debate is simply the latest context in which its boundaries are being tested.

By disaggregating materiality into substantive, regulatory, and procedural components, my article offers a more precise way to understand that evolution. It highlights the role of investors – not just courts and regulators – in shaping what information matters.

Ultimately, if investors are demanding information to inform their investment decisions, that demand itself is strong evidence that the information belongs in the “total mix.” The challenge is not determining whether such information is material but deciding how the law should respond.

Karen E. Woody is a professor at Washington and Lee University School of Law. This post is based on her recent article, “A Taxonomy Of Materiality,” available here.

Payscale is notable because it is among the first rulings to address the Chancery Court’s recent trend of applying heightened standards to the enforceability of restrictive covenants very early in litigation.  The Court did not address standards for other early-stage motions like temporary restraining orders and preliminary injunctions, but Delaware courts may look to Payscale’s reasoning in addressing burdens, allegations, and evidence in these other early-litigation contexts.

Background

In 2021, Erin Norman rejoined Payscale Inc., eventually becoming a Senior Director of Sales overseeing the western United States.  Norman signed incentive equity agreements with Payscale’s holding company, Topco, receiving Profit Interest Units (PIUs).  At the time of issuance, the PIUs were valued at $0, but they were structured to vest and potentially gain significant value upon a sale of the company.

In exchange for her PIUs, Norman agreed to an 18-month nationwide noncompete after the date of her separation from Payscale, along with nonsolicit and confidentiality provisions.  Norman resigned in December 2023, and, roughly ten months later, Payscale discovered she had joined its direct competitor BetterComp, Inc.

Payscale sued Norman and BetterComp in the Delaware Court of Chancery for breach of contract and tortious interference.  Payscale sought a temporary restraining order, which the Chancery Court denied, though the court granted expedited discovery.  In the midst of that process, Norman and BetterComp moved to dismiss Payscale’s complaint under Delaware Chancery Court Rule 12(b)(6), which the Chancery Court granted.  In doing so, the Chancery Court found Norman’s noncompete was facially unenforceable because it had a broad geographic (nationwide) and temporal (18 month) scope, the consideration in PIUs Norman received in exchange was “vanishingly small,” and the nonsolicit and confidentiality claims were conclusory.  Payscale appealed.

Opinion & Conclusions

The Delaware Supreme Court reversed and remanded.  It ruled that the Chancery Court misapplied Delaware’s minimal pleading burden by improperly drawing factual inferences against the employer to find Norman’s noncompete “unenforceable” based on its interpretation of the language in that contract.

• Allegations in Support of Scope: The Supreme Court found it was reasonably conceivable that an 18-month nationwide noncompete could be enforceable.  The Court emphasized Payscale’s specific allegations regarding Norman’s senior role, her access to confidential customer-pricing models, and her involvement in company-wide strategic decisions.  It also noted that the 18-month duration was tethered to a legitimate business interest, as Payscale had pleaded that its high-value “enterprise” contracts typically run for three years (36 months).
• Contingent Equity: The Supreme Court also found the Chancery Court erred by dismissing Payscale’s noncompete claim based on what Norman and BetterComp advocated was the “vanishingly small” value of her PIUs.  The Supreme Court clarified that the lower court erroneously conflated the legal requirement for consideration in exchange for contract formation with the equitable balancing test used to assess reasonableness of a restrictive covenant.  Even contingent consideration—like PIUs valued at $0 when the contract was signed—is sufficient to form a contract.  Weighing the actual value of that consideration against the burden of the restrictive covenant requires a more developed factual record, not a dismissal on the pleadings.
• Circumstantial Allegations: The Supreme Court also revived Payscale’s nonsolicit and confidentiality claims. Payscale sufficiently pleaded that BetterComp aggressively recruited former Payscale employees and that Payscale lost at least five high-value enterprise customers to BetterComp shortly after Norman’s arrival.  The Court noted that without discovery, an employer cannot be expected to plead more particularized facts about a competitor’s internal practices.
• Tortious Interference Claims:  Because the breach of contract claims against the former employee survived, the Court also reinstated Payscale’s tortious interference claim against BetterComp.

Key Takeaways

In disputes involving restrictive covenants—and specifically noncompetes—subject to Delaware law, Payscale offers the following takeaways:

• Nationwide Restrictions and Duration Tied to Business Realities: Restrictive covenant provisions—like a nationwide scope—tied to specific business metric allegations can potentially support reasonableness at the pleading stage.  For example, the Supreme Court’s approval of Payscale’s 18-month nationwide noncompete allegations was due, in part, to Payscale linking that 18-month duration to the typical three-year duration of its “enterprise” customer contracts.
• Contingent Equity Can Remain Viable Consideration: Contingent equity, like PIUs, can remain valid consideration for restrictive covenants, even if such equity holds zero value when issued.
• Circumstantial Allegations Can Be Sufficient: In some cases, circumstantial evidence—such as the sudden departure of specific key clients immediately following a former executive’s move to a competitor—can be sufficient to unlock further discovery.
• Pleading Standards Govern Early Motion Practice, Rather Than Merits Enforceability: Payscale reminds Delaware courts to decide early-stage motions pursuant to the specific standards and burdens that govern during this stage of litigation—on a motion to dismiss, as in Payscale, courts must accept a plaintiff’s well-pleaded facts regarding an employer’s nationwide operations and protectable interests, rather than deciding ultimate enforceability questions on the merits.

This post is based on a Gibson, Dunn & Crutcher LLP memorandum, “Delaware Supreme Court Revives Nationwide Noncompete at Pleading Stage, Reaffirming That Well-Pleaded Allegations Govern Motions to Dismiss,” dated March 31, 2026, and available here. 

Until about a decade ago, most founders and investors maneuvered around this problem with the convertible note: an instrument that looked like a loan but was never meant to be one. Investors would write checks that technically accrued interest and came due on some maturity date, while everyone knew that the fledgling startup would never be able to repay it in cash. The “loan” was really an advance payment for preferred stock that the parties hoped would be when the startup raised “real” financing. The deal was structured to allow the founders and investors to defer negotiations over stock price and investor rights so that early financings could close quickly and cheaply. However, the debt-based structure proved complex to operate and created undesirable friction where startups were not ready to issue stock when the note matured.

In 2013, Y Combinator, one of Silicon Valley’s most successful and influential tech accelerators, created a substitute for convertible notes, an instrument that was essentially a convertible note stripped of its debt-like mechanics. The instrument was still based on providing the investment amount first and converting it into preferred stock in a future financing round. However, unlike the note, it had no maturity date by which it had to convert or be repaid, and it did not accrue interest. The new instrument was branded as the “Simple Agreement for Future Equity,” or “SAFE.” And the SAFE did exactly what every Y Combinator startup hopes its own product will do: It gained market share fast, won over founders and investors alike, and became the undeniable market standard for very-early-stage financing.

As SAFEs proliferated, courts encountered them with increasing frequency. In a new paper, I argue that emerging case law suggests that SAFEs may have become victims of their clever branding. Courts generally seem to grasp that SAFEs are not stock but may only provide for “future equity,” such that shareholder status only follows from a conversion event. What they tend to miss is that this is only part of the picture. Before conversion, SAFEs are designed to deliver preferred stock economics without preferred stock governance. SAFEs give their investors a well-defined claim on the startup’s assets, broadly similar to that held by later startup investors holding preferred stock, while allowing both sides to defer or avoid the control rights and fiduciary duties that come with being a shareholder. Courts that fail to appreciate this design choice risk either stripping SAFEs of aspects of their economic substance or saddling holders with governance rights they never asked for. Either way, the result risks eroding the qualities that made SAFEs such an elegant solution to the challenges of early-stage finance.

The paper begins by laying out the problem that the SAFE was created to solve. Investing in early-stage startups is an inherently risky business. Founders almost always have a significant information advantage over investors, outcomes are wildly unpredictable, and once money is in the door, the interests of founders and investors start to pull in different directions. Traditional VC deals address these tensions by giving investors preferred stock bundled with a set of protective rights. This works well enough once a company has reached a certain level of maturity, but it falls apart at the earliest stages. Negotiating and executing a full venture deal demands time and resources which are hard to justify when  the investment amounts involved are still small. Pricing the startup’s stock is another obstacle: At such an early point, any valuation is little more than a guess. Lastly, a standard venture deal would hand investors governance rights that early investors do not need or want when the startup is still in experimentation mode.

The paper then traces how these constraints pushed the market away from common-stock seed rounds toward deferred-equity instruments. Common-stock deals were leaner and less complex than traditional preferred stock deals but still forced founders and investors to settle on a valuation and still burdened investors with shareholder status, which meant a statutory rights and protections package that served no purpose at that stage. Convertible notes came next, offering a way to get deals done quickly while kicking the valuation question down the road but achieved this by wrapping the investment in a debt instrument, which introduced its own complications. The success of SAFEs reflects the market’s frustration with those complications. By dropping the debt features of notes while holding onto their business logic, SAFEs managed to accomplish the same goals of deferring valuation, keeping transaction costs low, and avoiding premature governance structures without the baggage that came with a debt-based structure.

The paper then takes a close look at the SAFE’s conversion and payout mechanics, since this is where courts tend to get things wrong. It walks through the process by which SAFEs convert into shares and how SAFE holders get paid out at exit, drawing distinctions between discount-based SAFEs and the two versions of valuation-capped SAFEs that Y Combinator has put out over the years. It shows that modern SAFEs give their holders a well-defined slice of the startup’s economic upside, along with liquidation preferences and antidilution protections that are broadly comparable to those enjoyed by preferred stockholders, even if by other means. SAFEs are, therefore, more than just placeholders waiting to become future equity. A better way to think about them is as a kind of stockless preferred stock.

Finally, the paper traces how courts have begun to reason about SAFEs, and where that reasoning has gone off course. By emphasizing what SAFEs are not (not yet stock, not conferring shareholder status) rather than what they are (embodying preferred stock-like economic claims unbundled from governance rights), courts have either discounted their economic substance or treated their minimal-governance structure as a gap to be filled rather than a design choice to be respected.

In LifeVoxel, a U.S. District Court for the Southern District of California  held that a SAFE holder making a Rule 10b-5 fraud claim must show economic loss and loss causation by showing that the SAFE will never convert, presumably based on the assumption that SAFEs have no trackable economic value prior to their conversion. SAFEs, however, certainly have economic value while outstanding, the components of which are essentially similar to those comprising the economic value of preferred stock. Estimates of that value may be contestable, but that does not make them conceptually impossible.

A related error involves classifying SAFEs as debt. In Rhodium Encore, a U.S. Bankruptcy Court for the Southern District of Texas pointed to the priority that certain SAFE payouts receive over common stock as grounds for treating SAFE investors as holding claims in bankruptcy. But the court glossed over the absence of anything uniquely debt-like in the SAFE’s liquidation preferences. In fact, the SAFE was designed to mirror the liquidation preference of standard, VC-style preferred stock. And preferred stock, even the kind with features that are significantly more debt-like than what VC-style preferred stock offers, have been treated as equity in bankruptcy.

On fiduciary duties, courts have been broadly correct to rule that SAFE holders are not owed such duties before conversion, since they are not shareholders, and deny offering such protections under a “prospective shareholder” theory. That result preserves an important feature of early-stage finance: offering founders and investors a menu of governance choices. Investors who want fiduciary protections can insist on a stock-based deal, while those who place less weight on fiduciary oversight can choose non-stock instruments such as notes or SAFEs. Problems start where courts deny fiduciary duties at the front end but end up recreating them through the back door by stretching contractual doctrines like the implied covenant of good faith to police management discretion. Doing so, they collapse the menu of choices and ignore how the founders and investors have chosen, of all available early-stage investment instruments, to use precisely the alternative that provides its holders with the fewest governance rights.

The paper makes three contributions to the literature. First, it offers a theory of the problems SAFEs were built to solve in early-stage finance and why they provided such an effective solution. Second, based on a close analysis of how SAFEs convert and pay out, the paper develops a descriptive model of SAFEs as “stockless preferred stock.” Finally, it uses these insights to assess, for the first time in the legal literature, the growing body of SAFE case law.

Gad Weiss is a Wagner Fellow at NYU’s Pollack Center for Law & Business. It is based on his recent working paper, “Safeonomics,” forthcoming in the Yale Journal on Regulation and available here.

Fiscal Year 2025 Results & Supporting Context

During fiscal year 2025, the Commission filed 456 enforcement actions, including 303 standalone actions and 69 “follow-on” administrative proceedings seeking to bar or suspend individuals from certain functions in the securities markets based on criminal convictions, civil injunctions, or other orders, and obtaining orders for monetary relief totaling $17.9 billion. These enforcement actions addressing a broad range of misconduct demonstrate the Commission’s prioritization of cases that directly harm investors and the integrity of the U.S. securities markets, including offering frauds, market manipulation, insider trading, issuer disclosure violations, and breaches of fiduciary duty by investment advisers.

The results do not include the 1,095 matters in which potentially violative conduct was investigated and which were closed, the several matters where market participants remediated their practices, or cases that were otherwise not pursued.

FY 2025 was a unique period of transition for the enforcement division never experienced before in modern SEC history. It was characterized by an unprecedented rush to bring a significant number of cases in advance of the presidential inauguration[1] and the aggressive pursuit of novel legal theories under the prior Commission.

This period brought about the current Commission’s resolution of prior cases that were not sufficiently grounded in the federal securities laws. The current Commission deliberately refocused the enforcement program on matters of fraud—cases that inherently require more time and resources to develop and bring, often requiring up to two or more years to manifest results.

Since fiscal year 2022, the prior Commission brought 95 actions and $2.3 billion in penalties against firms for book-and-record violations, specifically failing to maintain and preserve off-channel communications. Together with seven crypto firm registration-related and six ‘definition of a dealer’ cases, these cases identified no direct investor harm from those violations, produced no investor benefit or protection, and demonstrate what the current Commission views as a misinterpretation of the federal securities laws, a misallocation of Commission resources, and a bias for volume of cases brought versus matters of investor protection. This year’s enforcement results clarify the flaws of these actions and their respective penalties and re-establish the definition and measure of enforcement effectiveness, grounded in Congress’s original intent and focused on bringing actions that actually prevent investor harm instead of headlines and inflated numbers.

Going forward, enforcement priorities and results will be linked to the Commission’s and the Division’s core mandate, and will thus contemplate the following elements to fulfill its mission: Standing up to fraud in its many forms and those market participants engaged in such misconduct; addressing the fraudulent and manipulative conduct of the parties in question through appropriate remediation; and repaying investors’ losses when harmed.

“Over the past year, the Commission has put a stop to regulation by enforcement and recentered its enforcement program on the Commission’s core mission by prioritizing cases that provide meaningful investor protection and strengthen market integrity,” said SEC Chairman Paul S. Atkins. “We have redirected resources toward the types of misconduct that inflict the greatest harm—particularly fraud, market manipulation, and abuses of trust—and away from approaches that prioritized volume and record-setting penalties over true investor protection. A key part of this course correction is a renewed emphasis on holding individual wrongdoers accountable, which promotes stronger deterrence and better safeguards investors. I am proud of the staff’s work in advancing an enforcement program grounded in sound judgment, clear legal authority, and the real-world needs of the investing public.”

“I fully support the move away from using enforcement as a tool for policymaking, and the return to the Commission’s historical norms,” said SEC Commissioner Mark T. Uyeda. “We will remain focused on coherent and transparent policymaking, as well as meaningful engagement with market participants to promote compliance, and wield the authority of enforcement in a more appropriate manner, guided by investor protection above all.”

Supporting Detail

In connection with its fiscal year 2025 enforcement actions, the Commission obtained orders for monetary relief totaling $17.9 billion, of which was $10.8 billion in disgorgement of ill-gotten gains and prejudgment interest and $7.2 billion in civil penalties. And some of the actions in which the Commission obtained orders for monetary relief included disgorgement amounts that the Commission deemed satisfied, in whole or in part, by a court order in a separate non-SEC action (e.g., a restitution or forfeiture order in a parallel criminal proceeding). After excluding these “deemed satisfied” amounts, which historically had not been broken out or excluded in annual Commission statistics, and the judgments against Robert Allen Stanford and other defendants in the Commission’s long-running litigation concerning their $8 billion Ponzi scheme, the monetary relief obtained in fiscal year 2025 totaled $1.4 billion in disgorgement and prejudgment interest and $1.3 billion in civil penalties.

In fiscal year 2025, some market participants self-reported violations, co-operated meaningfully[3] with the Division’s investigations, and/or remediated[4] securities law violations. As a result, the Division recommended, and the Commission approved, resolutions imposing reduced civil penalties[5] or declined to recommend an enforcement action against a party. During fiscal year 2025, the Commission returned approximately $262 million to harmed investors and awarded approximately $60 million to 48 individual whistleblowers. In addition, the SEC received a record 53,753 tips, complaints, and referrals in fiscal year 2025, nearly 19 percent more than in the prior fiscal year.

Protecting Retail Investors

The fiscal year 2025 enforcement results demonstrate the Commission’s focus on protecting the interests of retail investors, who may be particularly vulnerable to securities fraud, while prioritizing identifying and remedying fraudulent conduct. The Division devoted significant resources to this critical area in fiscal year 2025 and brought actions to address conduct involving fraudsters who targeted veterans, seniors, and members of a religious community.

The Division filed several noteworthy actions, including:

• Paramount Management Group, LLC, Prestige Investment Group, LLC, and their founder, Daryl F. Heller, in connection with a Ponzi scheme that allegedly defrauded approximately 2,700 investors, many of whom were retail investors, and resulted in $400 million in investor losses;
• First Liberty Building & Loan, LLC and its owner, Edwin Brant Frost IV, in connection with an alleged Ponzi scheme that defrauded approximately 300 investors of more than $140 million;
• Nightingale Properties, LLC and its founder Elchonon “Elie” Schwartz in connection with allegedly raising $60 million from approximately 700 retail investors through false representations and misappropriating more than $52 million in investor funds;
• Massachusetts-based biopharmaceutical company Allarity Therapeutics, Inc. for disclosure failures that concealed from the investing public a harsh critique levied by the FDA regarding the company’s flagship cancer drug candidate; and
• Vanguard Advisers, Inc., a registered investment adviser, for failing to adequately disclose conflicts of interest when recommending to prospective and existing clients that they enroll in a fee-based advisory service that provided ongoing portfolio management of their accounts.

Holding Individual Wrongdoers Accountable

In fiscal year 2025, the Commission prioritized charging individuals for violating federal securities laws and will continue to do so. Of the standalone actions filed during this past fiscal year, approximately two-thirds involved charges against one or more individual bad actors (a 27 percent year-over-year increase), and nearly nine out of every 10 standalone actions filed under Acting Chairman Uyeda and Chairman Atkins involved individual charges. The Commission also obtained orders barring 119 individuals from serving as officers and directors of public companies.

Holding individual wrongdoers accountable benefits the investing public by seeking to provide specific and general deterrence, and, particularly where injunctive and other non-monetary remedies are imposed, protecting markets and investors from future misconduct by those same bad actors.

Combatting Securities Fraud Wherever it Occurs

The Commission continued to pursue enforcement actions involving potential market manipulation, such as account takeover and “pump-and-dump” or “ramp-and-dump” schemes involving foreign-based companies and gatekeepers. In September 2025, the Commission formed the Cross-Border Task Force to help address the serious threat that fraudsters located abroad pose to U.S. investors and markets, and several enforcement actions from fiscal year 2025 demonstrate the Commission’s commitment to pursuing transnational fraud that harms American investors.

Safeguarding Markets from Abusive Trading

Central to the Commission’s enforcement efforts are detecting and deterring market abuses, including insider trading, market manipulation, and myriad other practices that interfere with fair, orderly, and efficient markets.

In fiscal year 2025, the Commission brought a number of actions covering a wide range of abusive trading practices, including against a California resident for allegedly conducting a manipulative trading scheme known as “spoofing” through which he obtained approximately $234,000 in ill-gotten gains.

The Commission also filed insider trading charges against, among others:

• a former Vice President of Drug Safety and Pharmacovigilance at a biopharmaceutical company;
• a former investor relations executive and two others; and
• a former Head of Equity Trading at an investment firm.

Deploying Resources Judiciously as to Emerging Technologies

In fiscal year 2025, the Commission made a necessary course correction in its approach to enforcing the federal securities laws in the context of crypto assets.[6] The Division remains committed to detecting, deterring, and bringing actions against those seeking to take advantage of investors by misusing new technologies. In February 2025, the Commission announced the launch of the Cyber and Emerging Technologies Unit to complement the work of the Crypto Task Force and to protect investors by combatting misconduct as it relates to securities transactions involving blockchain technology, AI, account takeovers, cybersecurity, and other areas.

During fiscal year 2025, the Division charged:

• New York City-based Unicoin, Inc. and four of its current or former top executives for alleged false and misleading statements in an offering of certificates that purportedly conveyed rights to receive crypto assets called Unicoin tokens and in an offering of Unicoin, Inc.’s common stock;
• PGI Global founder Ramil Palafox for allegedly orchestrating a $198 million crypto asset and foreign exchange fraud scheme that involved the offer and sale of “membership” packages, which he claimed guaranteed investors high returns from supposed crypto asset and foreign exchange trading, and for misappropriating more than $57 million; and
• The founder and former CEO of artificial intelligence company Nate, Inc. with fraudulently soliciting investments and raising more than $42 million through the sale of company stock by allegedly making false and misleading statements about the company’s use of artificial intelligence.

Litigation Highlights

The Division prevailed in several cases at trial and on summary judgment in fiscal year 2025, including:

Trial Victories

• SEC v. Gallagher (S.D.N.Y.) – In 2021, the Commission charged defendant Steven M. Gallagher with allegedly committing securities fraud through a scheme to manipulate stocks using Twitter. In September 2025, after a nine-day trial, the jury found Gallagher liable for securities fraud and manipulative trading. As demonstrated at trial, between December 2019 and October 2021, Gallagher used his Twitter account to encourage his numerous followers, including many retail investors, to buy stocks in which Gallagher had already amassed holdings. Gallagher then sold those stocks while he continued to recommend others buy them, never disclosing that he was selling the stocks. Gallagher repeated this pattern with more than 30 microcap stocks, making illicit trading profits in excess of $2.6 million. For two of these stocks, Gallagher was also found to have engaged in manipulative trading by “marking the close” – a strategy involving placing end-of-day orders to buy stock at above-market prices to artificially increase the stock’s price.
• SEC v. Minuskin, et al. (S.D. Cal.) – In 2022, the Commission charged defendant Thomas F. Casey and other co-defendants for their alleged roles in a fraudulent securities offering that targeted retirees’ retirement accounts. In June 2025, after a five-day trial and less than two hours of deliberation, the jury found Casey liable for inducing more than 200 people to invest in excess of $10 million into Golden Genesis, a venture to supposedly create blood banks for selling human plasma from young donors for anti-aging treatments, based on false claims including that the investments would generate guaranteed high returns and be secured by the company’s assets. As demonstrated at trial, the funds were not secured, and Casey used investor funds to compensate himself and to prop up the scheme by paying back other investors, causing approximately $8 million in losses to the victims.
• SEC v. Cutter Financial Group, et al. (D. Mass.) – In 2023, the Commission charged Massachusetts-based investment adviser Jeffrey Cutter and his advisory firm, Cutter Financial Group, LLC, for allegedly recommending that their advisory clients invest in insurance products that paid a substantial up-front commission without adequately disclosing the defendants’ financial incentive to sell the products. In April 2025, after a seven-day trial, the jury found Cutter and his firm liable for violating Section 206(2) of the Investment Advisers Act of 1940. The jury found for the defendants on claims the Commission alleged under Sections 206(1) and (4) of the Act.

Summary Judgment Victories

• SEC v. Brown, et al. (N.D. Tex.) – In 2024, the Commission charged defendants Matthew Brown and his company for allegedly engaging in a fraudulent scheme to submit and publicly tout a bogus offer to invest $200 million in Virgin Orbit Holdings, Inc., which was on the verge of bankruptcy. Among other things, to convince Virgin Orbit that the offer was legitimate, the Commission’s complaint alleged that Brown sent Virgin Orbit a fabricated screenshot of his company’s bank account purporting to show a balance of more than $182 million, when the bank account had less than $1. In August 2025, the court granted the Commission’s motion for summary judgment and found that Brown and his company violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
• SEC v. Melton, et al. (M.D.N.C.) – In 2023, the Commission charged recidivist Marshall Melton and a business he controlled with allegedly conducting an offering fraud that largely targeted older investors. In April 2025, the court granted the Commission’s motion for summary judgment and found that Melton and his business violated the antifraud provisions of the federal securities laws by raising funds purportedly for a real estate development project without disclosing to investors that he actually was using the funds for personal and unrelated expenses. The court also found that the defendants had an affirmative duty to disclose Melton’s securities disciplinary history.

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