Richard Manfredi, Author at Gibson Dunn

From the Derivatives Practice Group: This month, we’ve seen both domestic and international activity in the Voluntary Carbon Markets space. This issue addresses both an ISDA response to IOSCO, and the CFTC’s Climate-Related Market Risk Subcommittee.

New Developments

The Market Risk Advisory Committee’s Future of Finance and Climate-Related Market Risk Subcommittees to Meet on March 15. Two subcommittees of the Market Risk Advisory Committee will hold public meetings on Friday, March 15 from 9:30 a.m. to 12:30 p.m. (EDT) at the CFTC’s Washington, D.C. headquarters. The Future of Finance Subcommittee and Climate-Related Market Risk Subcommittee will, separately, continue workstreams, including examining the potential risks that emerge in connection with increasing adoption of artificial intelligence in global financial markets and the risks that arise in connection with carbon derivatives markets with a particular focus on fraud and greenwashing, market integrity, product design, and disclosure. [NEW]
CFTC’s Global Markets Advisory Committee Advances Three Recommendations. On March 7, the CFTC’s Global Markets Advisory Committee (GMAC), sponsored by Commissioner Caroline D. Pham, advanced three new recommendations intended to (1) promote U.S. Treasury markets resiliency and efficiency, (2) provide resources on the upcoming transition to T+1 securities settlement, and (3) publish a first-ever digital asset taxonomy to support U.S. regulatory clarity and international alignment.
CFTC’s Market Risk Advisory Committee to Meet. The CFTC’s Market Risk Advisory Committee (MRAC) will meet on April 9 at 9:30 am ET. The MRAC will consider current topics and developments in the areas of central counterparty risk and governance, market structure, climate-related risk, and emerging technologies affecting derivatives and related financial markets.
CFTC Staff Issues Advisory Regarding FBOT Regulatory Filings. On March 1, the CFTC’s Division of Market Oversight announced that it issued an advisory notifying all foreign boards of trade (FBOTs) registered under Part 48 of the CFTC’s regulations that, beginning April 1, 2024, certain regulatory filings (covered filings) should be submitted through the CFTC’s online filings portal, which has been updated for FBOT use. The portal has been available to registered FBOTs for the submission of public filings since March 1. Covered filings will be accepted via email until March 31. Beginning April 1, FBOTs should submit all Covered Filings exclusively through the portal.
CFTC Extends Public Comment Period for Proposed Rule on Real-Time Public Reporting Requirements and Swap Data Recordkeeping and Reporting Requirements. On February 26, the CFTC announced that it is extending the deadline for the public comment period on a proposed rule that makes certain modifications to the CFTC’s swap data reporting rules in Parts 43 and 45 related to the reporting of swaps in the other commodity asset class and the data element appendices to Parts 43 and 45 of the CFTC’s regulations. The deadline is being extended to April 11, 2024. The proposed rule was published in the Federal Register on December 28, 2023, with a 60-day comment period scheduled to close on February 26, 2024.

New Developments Outside the U.S.

SFC Issues Guidance on Disciplinary Process Under Virtual Assets Regime. On February 28, Hong Kong’s Securities and Futures Commission (SFC) published a guide outlining the disciplinary process under the new licensing regime for virtual asset trading platforms (AMLO VATP Regime). Under the new regime, introduced via an amendment to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615), the SFC has the power to discipline its licensees, comprising firms, their responsible officers and those involved in their management, if it finds that such licensee’s conduct suggests that it is, or was at any time, guilty of misconduct or not fit and proper. The disciplinary process under the AMLO VATP Regime is based largely on the disciplinary process applicable to persons licensed by or registered with the SFC (including those involved in their management) under the Securities and Futures Ordinance (Cap. 571). The SFC indicated that when determining whether to take disciplinary action and the level of sanction, the SFC will consider, among other things, the nature and seriousness of the conduct, the amount of profits accrued or loss avoided, and circumstances specific to the firm or individual.

New Industry-Led Developments

ISDA Submits Response to IOSCO Voluntary Carbon Markets Consultation. On March 1, ISDA submitted a response to IOSCO’s Voluntary Carbon Markets Consultation Report. The response welcomes IOSCO’s work on developing good practices for regulation of voluntary carbon markets (VCMs), as well as its recognition of the critical role that financial market participants play in VCMs. ISDA explains that clear legal and regulatory categorization of voluntary carbon credits is key to building liquidity in order to support scaling VCMs and to develop safe, efficient markets in Voluntary Carbon Credit derivatives. [NEW]
ISDA Submits Response to the UK Financial Conduct Authority’s Money Market Funds Consultation. On March 8, ISDA responded to the UK Financial Conduct Authority’s (FCA) consultation on updating the regime for money market funds (MMF). In the response, ISDA highlights its support for using MMFs as collateral for non-cleared derivatives margin requirements and the advancement of tokenized MMFs to be used as collateral to increase collateral mobility, reduce collateral-related transaction costs and related settlement risks. [NEW]
ISDA Publishes Whitepaper Charting the Next Phase of India’s OTC Derivatives Market. On March 4, ISDA published a new whitepaper that explores the growth of India’s financial markets and makes a series of market and policy recommendations to encourage the further development of a safe and efficient over-the-counter (OTC) derivatives market. The whitepaper proposes several initiatives that industry participants and regulators could take that ISDA believes will create deeper and more liquid domestic derivatives markets and enhance risk management practices. The recommendations are centered on five key pillars: (1) Broaden product development, innovation and diversification; (2) Foster adoption of similar market and risk principles across regulatory regimes; (3) Enhance market access and diversification of participants in the OTC derivatives market; (4) Ensure growth in a safe and efficient manner; and (5) Encourage greater alignment with international principles and practices.
ISDA Extends Digital Regulatory Reporting InitiativeDRR: The Answer to Reporting Rule Rush. On February 26, ISDA reported that it has worked to extend its Digital Regulatory Reporting (DRR) initiative to cover the rush of reporting rules, which starts with Japan on April 1, followed by the EU on April 29, the UK on September 30 and Australia and Singapore on October 21. ISDA stated that iIn each case, regulators are revising their rules to incorporate globally agreed data standards in an effort to improve the cross-border consistency of what is reported and the format in which it is submitted – a process that started in December 2022 with the rollout of the first phase of the US Commodity Futures Trading Committee’s revised swap data reporting rules.

The following Gibson Dunn attorneys assisted in preparing this update: Jeffrey Steiner, Adam Lapidus, Marc Aaron Takagaki, Hayden McGovern, and Karin Thrasher.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Derivatives practice group, or the following practice leaders and authors:

Jeffrey L. Steiner, Washington, D.C. (202.887.3632, jsteiner@gibsondunn.com)

Michael D. Bopp, Washington, D.C. (202.955.8256, mbopp@gibsondunn.com)

Michelle M. Kirschner, London (+44 (0)20 7071.4212, mkirschner@gibsondunn.com)

Darius Mehraban, New York (212.351.2428, dmehraban@gibsondunn.com)

Jason J. Cabral, New York (212.351.6267, jcabral@gibsondunn.com)

Adam Lapidus – New York (+1 212.351.3869, alapidus@gibsondunn.com)

Stephanie L. Brooker, Washington, D.C. (202.887.3502, sbrooker@gibsondunn.com)

Roscoe Jones Jr., Washington, D.C. (202.887.3530, rjones@gibsondunn.com)

William R. Hallatt, Hong Kong (+852 2214 3836, whallatt@gibsondunn.com)

David P. Burns, Washington, D.C. (202.887.3786, dburns@gibsondunn.com)

Marc Aaron Takagaki, New York (212.351.4028, mtakagaki@gibsondunn.com)

Hayden K. McGovern, Dallas (214.698.3142, hmcgovern@gibsondunn.com)

Karin Thrasher, Washington, D.C. (202.887.3712, kthrasher@gibsondunn.com)

Attorney Advertising: These materials were prepared for general informational purposes only based on information available at the time of publication and are not intended as, do not constitute, and should not be relied upon as, legal advice or a legal opinion on any specific facts or circumstances. Gibson Dunn (and its affiliates, attorneys, and employees) shall not have any liability in connection with any use of these materials. The sharing of these materials does not establish an attorney-client relationship with the recipient and should not be relied upon as an alternative for advice from qualified counsel. Please note that facts and circumstances may vary, and prior results do not guarantee a similar outcome.

Please join our team of Global Financial Regulatory experts as we discuss the latest legal and regulatory developments around the use of artificial intelligence (AI) by financial institutions across the world’s major financial centers. During this webcast, our market-leading team provides their insights into:

Regulatory issues and concerns in relation to the current and potential use cases of AI by financial institutions; and
The attitudes of financial regulators across the US, United Kingdom, Europe, Hong Kong, Singapore and the Middle East to the rapidly evolving use of AI by the institutions they regulate.

In addition, the team provides their predictions for the future of regulatory policy, supervision and enforcement in relation to the use of AI by financial institutions based on their extensive experience in these areas with the key global regulators.

PANELISTS:

William R. Hallatt (moderator) is a partner in the Hong Kong office. He is co-chair of the firm’s Global Financial Regulatory group and head of the Asia-Pacific Financial Regulatory practice. His full-service financial services regulatory practice provides comprehensive contentious and advisory support as a trusted advisor to the world’s leading financial institutions.

Michelle Kirschner is a partner in the London office, and co-chair of the firm’s Global Financial Regulatory group. She advises a broad range of financial institutions, including investment managers, integrated investment banks, corporate finance boutiques, private fund managers and private wealth managers at the most senior level. Michelle has a particular expertise in fintech businesses, having advised a number of fintech firms on regulatory perimeter issues.

Sara K. Weed is a partner in the Washington, D.C. office, and co-chair of the Global Fintech and Digital Assets Practice Group. Sara’s fintech’s practice spans both regulatory and transactional advice for a range of clients, including traditional financial institutions, non-bank financial services companies and technology companies.

Emily Rumble is an of counsel in the Hong Kong office, and is a member of the firm’s Global Financial Regulatory Practice Group. She advises firms on a wide range of contentious and non-contentious financial regulatory matters. Her contentious practice is focused on advising clients on their most significant regulatory investigations by the Hong Kong Securities and Futures Commission and Hong Kong Monetary Authority. Emily frequently advises a wide range of investment banking clients on complex non-contentious regulatory matters, with a particular focus on culture, conduct and governance matters.

Grace Chong is an of counsel in the Singapore office, and heads the Financial Regulatory practice in Singapore. She has extensive experience advising on cross-border and complex regulatory matters, including licensing and conduct of business requirements, regulatory investigations, and regulatory change. A former in-house counsel at the Monetary Authority of Singapore (MAS), she regularly interacts with key regulators, is closely involved in regional regulatory reform initiatives and has led discussions with regulators on behalf of the financial services industry.

Sameera Kimatrai is an English law qualified of counsel in the Dubai office, and a member of the firm’s Financial Regulatory Practice Group. She has experience advising governments, regulators and a broad range of financial institutions in the UAE including investment managers, commercial and investment banks, payment service providers and digital asset service providers on complex regulatory issues both in onshore UAE and in the financial free zones.

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Gibson Dunn’s Workplace DEI Task Force aims to help our clients develop creative, practical, and lawful approaches to accomplish their DEI objectives following the Supreme Court’s decision in SFFA v. Harvard. Prior issues of our DEI Task Force Update can be found in our DEI Resource Center. Should you have questions about developments in this space or about your own DEI programs, please do not hesitate to reach out to any member of our DEI Task Force or the authors of this Update (listed below).

Key Developments:

On March 12, 2024, the Fourth Circuit affirmed in part and vacated in part the district court’s decision in Duvall v. Novant Health, Inc., — F.4th —, 2024 WL 1057768 (4th Cir. Mar. 12, 2024). The plaintiff, a white male marketing executive, sued Novant, alleging that he was fired without cause from his management position because of his race and sex. At trial, the plaintiff relied on evidence that Novant maintained a “goal of remaking the workforce to look like the community it served,” and argued that his firing fit a pattern of similar actions by Novant. A jury found in the plaintiff’s favor and awarded him $10 million in punitive damages, in addition to back pay and other damages. Novant filed a post-trial motion for judgment as a matter of law and a motion to set aside the jury’s damages award. The district court denied the motion for judgment as a matter of law but granted in part Novant’s motion to set aside punitive damages, reducing the award to the Title VII statutory maximum of $300,000. Novant appealed to the Fourth Circuit, which affirmed the district court’s refusal to enter judgment as a matter of law because “[t]here was more than sufficient evidence for a reasonable jury to determine that Duvall’s race, sex, or both motivated Novant Health’s decision to fire him.” This evidence included that the plaintiff was “fired in the middle of a widescale D&I initiative” that sought to “embed diversity and inclusion throughout” the company, including by “employing D&I metrics,” committing to “adding additional dimensions of diversity to the executive and senior leadership teams,” and incorporating “a system wide decision making process that includes a diversity and inclusion lens.” But the appellate court held that the plaintiff failed to present sufficient evidence that Novant exhibited “malice or . . . reckless indifference” because the plaintiff did not present affirmative evidence that the decisionmaker in the plaintiff’s termination had any personal knowledge of federal antidiscrimination law. Because the plaintiff failed to show that the decisionmaker acted with malice or reckless indifference, the court set aside the award of punitive damages.

On March 11, 2024, the Tenth Circuit affirmed the dismissal of a white male former employee’s hostile work environment claims against the Colorado Department of Corrections, in Young v. Colorado Dep’t of Corrections, — F.4th —, 2024 WL 1040625 (10th Cir. Mar. 11, 2024). The former employee claimed that the Department of Corrections’ training materials for its “Equity, Diversity, and Inclusion” programs subjected him to a hostile work environment by, among other things, “stating that all whites are racist [and] that white individuals created the concept of race in order to justify the oppression of people of color.” The District Court dismissed the case for failure to state a claim and the Tenth Circuit affirmed, holding that the plaintiff had failed to allege that the DEI training, which only occurred once during the plaintiff’s employment, constituted severe and pervasive harassment. However, the court did note that “Mr. Young’s objections to the contents of the EDI training are not unreasonable: the racial subject matter and ideological messaging in the training is troubling on many levels. As other courts have recognized, race-based training programs can create hostile workplaces when official policy is combined with ongoing stereotyping and explicit or implicit expectations of discriminatory treatment. The rhetoric of these programs sets the stage for actionable misconduct by organizations that employ them.”

On March 6, 2024, the United States Court of Appeals for the Second Circuit affirmed the district court’s dismissal of medical advocacy association Do No Harm’s reverse discrimination claims against Pfizer based on lack of standing in Do No Harm v. Pfizer, Inc., — F.4th —, 2024 WL 949506 (2d Cir. Mar. 6, 2024). Suing on behalf of two anonymous members, Do No Harm alleged that Pfizer violated Section 1981, Title VII, and New York law by excluding white and Asian applicants from its Breakthrough Fellowship Program, which provides minority college seniors with summer internships, two years of employment post-graduation, mentoring, and a scholarship. In its opinion affirming the district court’s dismissal, the Second Circuit held that, under the “clear language” of Supreme Court precedent, an organization must name at least one affected member to establish Article III standing. The court explained that such a naming requirement ensures that the members are “genuinely” injured and “not merely enabling the organization to lodge a hypothetical legal challenge.” For a more fulsome discussion of this decision, see our March 11 Client Alert.

A district court in the Northern District of Texas issued an opinion on March 5, 2024, in Nuziard v. Minority Business Development Agency, No. 4:23-cv-00278-P, 2023 WL 3869323 (N.D. Tex.), holding that the racial presumption used in apportioning federal funds for minority business assistance violates the Fifth Amendment’s equal protection guarantee. Applying SFFA v. Harvard, the court held that the Minority Business Development Agency’s presumption of social or economic disadvantage does not satisfy strict scrutiny because, even though the Agency might have a compelling interest in addressing discrimination in government contracting, the Agency’s program for eliminating such discrimination was not narrowly tailored to achieve that interest. A more detailed discussion of this opinion can be found in our March 11 Client Alert.

On March 4, 2024, the Eleventh Circuit affirmed the district court’s order preliminarily enjoining operation of Florida’s “Stop WOKE Act” in Honeyfund.com, Inc. v. DeSantis, — F.4th —, 2024 WL 909379 (11th Cir. Mar. 4, 2024). Among other things, the “Stop WOKE Act” prohibits employers from requiring employees to participate in trainings that identify certain groups of people as “privileged” or “oppressors.” Florida argued that the Act did not fall within the purview of the First Amendment because it regulated conduct rather than speech. The Eleventh Circuit rejected this argument, holding that the law constituted both content and viewpoint discrimination that did not survive strict scrutiny. Writing for the court, Judge Britt C. Grant stated that “restricting speech is the point of the [Stop WOKE Act],” and opined that the merits of controversial views are “decided in the clanging marketplace of ideas rather than a codebook or a courtroom.”

Representatives James Comer (R-Ky.) and Pat Fallon (R-Tex.) sent a letter on March 1, 2024, to the EEOC “to better understand EEOC’s current posture ensuring the enforcement of longstanding prohibitions on racially discriminatory policies in employment practices.” Acting in their capacities as the Chair of the Committee on Oversight and Accountability and Chair of the Subcommittee on Economic Growth, Energy Policy, and Regulatory Affairs, respectively, Reps. Comer and Fallon referenced statements by government officials in the wake of SFFA v. Harvard, including comments by EEOC Commissioner Andrea Lucas and a letter by a group of Republican state attorneys general—both of which warned corporate leaders about the decision’s implications for corporate diversity programs. Emphasizing that the EEOC must take all possible steps to “prevent and end unlawful employment practices that discriminate on the basis of an individual’s race or color,” Reps. Comer and Fallon demanded that, by no later than March 15, 2024, the EEOC produce various documents and information, including Title VII enforcement guidance disseminated to employers, internal training materials, any documents containing “numerical accounting of enforcement actions” related to Title VII race discrimination, and any documents or communications related to SFFA v. Harvard. Reps. Comer and Fallon also instructed the EEOC to provide a staff-level briefing on the matter no later than March 8, 2024.

On February 29, 2024, Brian Beneker, a heterosexual, white male writer, sued CBS, alleging that its de facto hiring policy discriminated against him on the bases of sex, race, and sexual orientation in Beneker v. CBS Studios, Inc., No. 2:24-cv-01659 (C.D. Cal. 2024). In his complaint, Beneker alleges that CBS violated Section 1981 and Title VII by refusing to hire him as a staff writer on the TV show “Seal Team,” instead hiring several black writers, female writers, and a lesbian writer. Beneker is requesting a declaratory judgment that CBS’s de facto hiring policy violates Section 1981 and/or Title VII, injunctions barring CBS from continuing to violate Section 1981 and Title VII and requiring CBS to offer Beneker a full-time job as a producer, and damages. Beneker is represented by America First Legal (AFL).

Indiana Senate Bill 202 (S.B. 202) passed both chambers of the Indiana General Assembly with amendments and was sent to Governor Eric Holcomb’s desk on February 29, 2024. If enacted, S.B. 202 will direct the boards of trustees of state higher education institutions to refocus diversity committees and tenure decisions on “intellectual diversity”; prohibit traditional diversity statements in admissions, hiring, and contracting; dictate a policy of neutrality with respect to institutional viewpoints; and require annual reporting on DEI-related operations and spending. The American Association of University Professors has called for a veto of the bill, and DePauw University filed a formal opposition. Governor Holcomb has until March 15, 2024 to sign or veto the bill.

On February 28, 2024, the Wisconsin Institute for Law & Liberty (WILL) called upon the Board of Regents of the University of Wisconsin to investigate and reform various race-based programs implemented by the University and to make a public statement clarifying that the University does not condone such “discriminatory” programs. WILL commended the University’s initial compliance with the SFFA decision as it related to admissions and hiring, but identified ten examples of programs––including awards, scholarships, fellowships, internships, group therapy services, a mentorship program, and a housing program––that WILL alleges continue to consider race as either the sole criterion for eligibility or as one of multiple factors. WILL argues that these programs violate SFFA and has called for them to be opened to all students.

The Equal Protection Project (EPP) of the Legal Insurrection Foundation sent a letter on February 26, 2024, to the Office of Civil Rights (OCR) at the U.S. Department of Education, alleging that Western Illinois University (WIU) offers sixteen discriminatory scholarships. The letter complains that the scholarships restrict eligibility or give preference to black and Latino students and students that identify as LGBTQI+. EPP argues that these scholarships discriminate on the basis of race in violation of Title VI and on the basis of sex and sexual orientation in violation of Title IX. Because WIU is a public university, EPP also alleges that the scholarships violate the Equal Protection Clause of the Fourteenth Amendment. EPP has asked OCR to open a formal investigation into the University and impose any remedial relief that the law permits in holding the University accountable for its alleged misconduct.

Media Coverage and Commentary:

Below is a selection of recent media coverage and commentary on these issues:

New York Times, “Can You Create A Diverse College Class Without Affirmative Action?” (Mar. 9): Writing for the New York Times, Aatish Bhatia and Emily Badger report on an analysis the Times performed in conjunction with Sean Reardon, a professor at Stanford, and Demetra Kalogrides, a Stanford senior researcher, using statistical data to model four potential alternatives to “race-conscious” college admissions: (1) giving preference to low-income students; (2) giving preference to low-income students who attend higher poverty schools; (3) giving preference to students who outperform their peers with similar disadvantages; and (4) expanding the applicant pool. Each scenario focuses on increasing economic diversity as a means to bolster the number of minorities enrolled in the most elite colleges. According to the analysis, the fourth scenario that focuses on targeted recruiting by elite universities in areas with a critical mass of historically disadvantaged students best mirrors the minority admissions rate at elite colleges pre-SFFA. The authors note the logistical and financial challenges universities face in broadening their recruiting approaches. But as Jill Orcutt, the global lead for consulting with the American Association of Collegiate Registrars and Admissions Officers, observes, “this kind of outreach” is “everything.”
Bloomberg Law, “Business Is Booming for DEI Lawyers as Firms Ask ‘What’s Legal?’” (March 5): Simone Foxman of Bloomberg News reports on the increase in corporations seeking the help of law firms to navigate the tumultuous landscape of diversity, equity, and inclusion programs following SFFA. NYU Law Professor Kenji Yoshino explained that he sees “no end in sight” for companies seeking help from attorneys to navigate the emerging DEI landscape. Gibson Dunn Partner and Labor & Employment Group Co-Chair Jason Schwartz observed that “[l]ots of clients are wanting to do audits, review all DEI efforts, board diversity, socially conscious investing to assess risk and figure out what—if any—changes they want to make . . . There is a never ending tide.” Now, more than ever, corporations are deciding to revisit their previous DEI efforts with the help of subject-matter experts to minimize risks and liability while retaining the benefits of these programs.
JDJournal, “The Changing Landscape of Corporate Diversity, Equity, and Inclusion Programs” (March 5): JDJournal’s Maria Lenin Laus reports on the corporate world’s increased demand for DEI specialists following the “intensifying backlash against DEI initiatives, fueled by conservative groups and influential figures like Bill Ackman and Elon Musk.” She observes that “the discourse surrounding [DEI] programs has escalated to unprecedented levels, resulting in a surge in demand for specialists in this field.” She identifies Gibson Dunn’s Jason Schwartz as a specialist who has experienced a significant uptick in inquiries from the corporate world as companies seek to engage those with expertise in this rapidly evolving space.
BNN Bloomberg, “Wall Street’s DEI Retreat Has Officially Begun” (March 3): Writing for BNN Bloomberg, Max Abelson, Simone Foxman, and Ava Benny-Morrison examine how major companies have made public shifts away from their diversity and inclusion initiatives in the wake of “[t]he growing conservative assault on DEI.” As an example, the authors note Bank of America’s efforts to broaden eligibility for certain internal programs that previously had focused on women and minorities. The article pinpoints the Supreme Court’s decision in SFFA as the inflection point for increased scrutiny of diversity initiatives on Wall Street. In the authors’ view, DEI swiftly declined in importance to many corporations following the decision. But spokespeople for BNY Mellon, JPMorgan, and Goldman Sachs each reasserted their commitment to promoting an inclusive workplace with people from diverse backgrounds. And the article notes that no corporations have yet “signaled a full-blown retreat” from DEI.
NBC News, “University of Florida eliminates all diversity, equity and inclusion positions due to new state rule” (March 2): NBC News’s Rebecca Cohen reports on an administrative memo issued by the University of Florida that declared that the University has “eliminated all diversity, equity, and inclusion positions” to comply with Florida Board of Governor’s regulation 9.016. The University reallocated $5 million in funds previously dedicated to DEI initiatives and terminated the employment of dozens of university employees working in DEI-focused offices. Florida Governor Ron DeSantis took to “X” to celebrate the move, stating “DEI is toxic and has no place in our public universities. I’m glad that Florida was the first state to eliminate DEI and I hope more states follow suit.” But the decision has received much criticism from other politicians, with Congressional Black Caucus Chairman Steven Horsford saying University of Florida’s decision “is far out of step with the standards and values expected of a public institution of higher education.”

Case Updates:

Below is a list of updates in new and pending cases:

1. Contracting claims under Section 1981, the U.S. Constitution, and other statutes:

Do No Harm v. Lee, No. 3:23-cv-01175-WLC (M.D. Tenn. 2023): On November 8, 2023, Do No Harm, a conservative advocacy group representing doctors and healthcare professionals, sued Tennessee Governor Bill Lee, challenging state policies for appointing positions on the Tennessee Board of Podiatric Medical Examiners. Under Tennessee law dating back to 1988, the governor must “strive to ensure” that at least one board member of the six-member board is a racial minority. Do No Harm brought the challenge under the Equal Protection Clause and requested a permanent injunction against the law.
- Latest update: On February 2, 2024, Governor Lee moved to dismiss the complaint for lack of standing, arguing that (1) Do No Harm had not established that any of its members had been injured by the policy, since all seats reserved for practitioners on the board had been filled, precluding any chance for a Do No Harm member to be considered and rejected, and (2) the board currently has a member who belongs to a racial minority so there are no race-related barriers to board membership until the member’s term ends in 2027. On February 16, Do No Harm filed a response, arguing that (1) it satisfied standing requirements via anonymous declarations from Member A and Member B, and (2) the defendant did not provide sufficient evidence that a current board member is African American. On March 1, 2024, the defendant filed a reply, arguing that Do No Harm lacked standing because “pseudonymity is not a free pass to standing in the [Sixth] Circuit,” and contesting the plaintiff’s factual allegations regarding the board member’s race.
Nistler v. Walz, No. 24-cv-186-ECT-LIB (D. Minn. 2024): On January 24, 2024, Lance Nistler, a white, male farmer in Minnesota, sued Governor Walz and the Commissioner of the Minnesota Department of Agriculture, alleging that the state’s Down Payment Assistance Program (DPAP) violates the Equal Protection Clause. The DPAP grants farmers up to $15,000 to help purchase their first farms and prioritizes “emerging farmers,” including women, persons with disabilities, members of a community of color, and members of the LGBTQIA+ community. Plaintiff alleges that he applied, and was otherwise qualified, for the DPAP but was denied acceptance solely because of his race and gender. On February 13, Governor Walz was dismissed as a party.
- Latest update: On February 15, the Commissioner filed an answer, denying that the plaintiff would have received the grant if he had been a different race or gender, and denying that any stated preference for “emerging farmers” is not a “compelling state interest.”
Students for Fair Admissions v. U.S. Military Academy at West Point, No. 7:23-cv-08262 (S.D.N.Y. 2023): On September 19, 2023, SFFA sued West Point, relying on the Supreme Court’s decision in SFFA v. Harvard in arguing that the military academy’s affirmative action program violated the Fifth Amendment by taking applicants’ race into account when making admission decisions. SFFA also filed a motion for preliminary injunction to halt West Point’s affirmative action program during the course of the litigation. The district court denied SFFA’s request and the Second Circuit affirmed the district court’s order. On February 2, 2024, the Supreme Court denied SFFA’s request for an emergency order overturning the district court’s decision.
- Latest update: On February 19, 2024, SFFA filed an amended complaint, re-alleging that West Point’s consideration of race in the admissions process violates the Equal Protection Clause because race is “determinative for hundreds of applicants each year.” SFFA further argues that West Point’s justifications for its affirmative action program, including unit cohesion, battlefield lethality, recruitment, retention, and preservation of public legitimacy, are not furthered by admission based on race. West Point’s response to the complaint is due on April 22, 2024.
Do No Harm v. Edwards, No. 5:24-cv-16-JE-MLH (W.D. La. 2024): On January 4, 2024, Do No Harm sued Governor Edwards of Louisiana over a 2018 law requiring a certain number of “minority appointee[s]” to be appointed to the State Board of Medical Examiners. Do No Harm brought the challenge under the Equal Protection Clause and requested a permanent injunction against the law.
- Latest update: On February 28, 2024, Governor Edwards answered the complaint, denying all allegations including allegations related to Do No Harm’s standing.
Do No Harm v. National Association of Emergency Medical Technicians, No. 3:24-cv-11-CWR-LGI (S.D. Miss. 2024): On January 10, 2024, Do No Harm challenged the diversity scholarship program operated by the National Association of Emergency Medical Technicians (NAEMT). NAEMT awards up to four $1,250 scholarships to “students of color . . . who intend to become an EMT or Paramedic.” Do No Harm requested a temporary restraining order, preliminary injunction, and permanent injunction against the program. On January 23, 2024, the court denied Do No Harm’s motion for a TRO and expressed skepticism that Do No Harm had standing to bring its Section 1981 claim, because the Do No Harm member had “only been deterred from applying, rather than refused a contract.”
- Latest update: On February 29, 2024, NAEMT filed its answer and a motion to dismiss the complaint, arguing that Do No Harm and anonymous Member A lacked standing to bring the case and, in the alternative, that Do No Harm had failed to state a viable Section 1981 claim because NAEMT did not prevent Member A from applying due to her race. Also on February 29, 2024, Do No Harm withdrew its motion for a preliminary injunction, explaining that NAEMT had agreed not to close the application window or select scholarship recipients until the litigation is resolved.

2. Employment discrimination and related claims:

Bresser v. The Chicago Bears Football Club, Inc., No. 1:24-cv-02034 (N.D. Ill. 2024): On March 11, 2024, a white male law student filed a complaint against the Chicago Bears, alleging that the team refused to hire him as a “diversity legal fellow” based on his race and sex. The plaintiff alleges that, despite meeting the substantive job qualifications, the Bears rejected his application after a Bears employee viewed his LinkedIn profile, which contains his photo. The complaint asserts claims for race and sex discrimination under Title VII, Section 1981, and Illinois law, as well as conspiracy claims under Sections 1985 and 1986.
- Latest update: According to the docket, it does not appear that the complaint has yet been served.
Langan v. Starbucks Corporation, No. 3:23-cv-05056 (D.N.J. 2023): On August 18, 2023, a white female former employee filed a complaint against Starbucks, claiming she was wrongfully accused of racism and terminated after she rejected Starbucks’ attempt to deliver “Black Lives Matter” T-shirts to her store. The plaintiff alleged that she was discriminated and retaliated against on the basis of her race and disability as part of a policy of favoritism toward non-white employees. On December 8, 2023, Starbucks filed its motion to dismiss arguing that certain claims are beyond the statute of limitations, and that the plaintiff failed to plead a Section 1981 claim because she did not plead facts distinct from those supporting her Title VII claims and did not show that race was the but-for cause of the loss of a contractual interest.
- Latest update: On January 28, 2024, the plaintiff opposed Starbucks’ motion to dismiss, arguing that her claims were not time-barred and advocating for a different standard to be applied to her Section 1981 claim. On February 23, 2024, Starbucks filed its reply, reiterating that certain claims were time-barred and others should be dismissed because they failed to state a claim.
King v. Johnson & Johnson, No. 2:24-cv-968-MAK (E.D. Pa. 2024): On March 6, 2024, a fifty-nine year-old white male former employee sued Johnson & Johnson alleging violations of Title VII, Section 1981, and the ADEA. The plaintiff alleged that Johnson & Johnson reassigned him to a position that provided no career advancement opportunities, refused to hire him for any of the 30 internal positions for which he applied and was qualified, and ultimately terminated his employment as part of a corporate restructuring. The plaintiff alleged that each of these adverse employment actions can be traced to Johnson & Johnson’s DEI initiative, which has “vilified/stereotyped Caucasian males as problematic and inherently unaligned with the DEI program.”
- Latest update: According to the docket, it does not appear that the complaint has yet been served.

3. Actions against educational institutions:

Chu, et al. v. Rosa, No. 1:24-cv-75 (N.D.N.Y. 2024): On January 17, 2024, a coalition of education groups sued the Education Commissioner of New York, alleging that its free summer program discriminates on the bases of race and ethnicity. The Science and Technology Entry Program (STEP) permits students who are Black, Hispanic, Native American, and Alaskan Native to apply regardless of their family income level, but all other students, including Asian and white students, must demonstrate “economically disadvantaged status.” The plaintiffs sued under the Equal Protection Clause and requested preliminary and permanent injunctions against the enforcement of the eligibility criteria.
- Latest update: The defendant’s response to the complaint is due March 18, 2024.

DEI Legislation

Our DEI Task Force is tracking state and federal legislative developments relating to DEI. These developments span a variety of DEI-related bills, including those involving diversity statements, DEI officers and training, DEI contracting and funding, and regulation of higher education.

DEI Legislation Map

12		7		2		3		14		18
Enacted at least one anti-DEI bill		Passed at least one anti-DEI bill in at least one chamber		Enacted at least one pro-DEI bill		Passed at least one pro-DEI bill in at least one chamber		Introduced at least one bill		No bills this session

Current as of March 13.

The following Gibson Dunn attorneys assisted in preparing this client update: Jason Schwartz, Mylan Denerstein, Blaine Evanson, Molly Senger, Zakiyyah Salim-Williams, Matt Gregory, Zoë Klein, Mollie Reiss, Alana Bevan, Marquan Robertson, Elizabeth Penava, Skylar Drefcinski, Mary Lindsay Krebs, David Offit, and Lauren Meyer.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Labor and Employment practice group, or the following practice leaders and authors:

Jason C. Schwartz – Partner & Co-Chair, Labor & Employment Group
Washington, D.C. (+1 202-955-8242, jschwartz@gibsondunn.com)

Katherine V.A. Smith – Partner & Co-Chair, Labor & Employment Group
Los Angeles (+1 213-229-7107, ksmith@gibsondunn.com)

Mylan L. Denerstein – Partner & Co-Chair, Public Policy Group
New York (+1 212-351-3850, mdenerstein@gibsondunn.com)

Zakiyyah T. Salim-Williams – Partner & Chief Diversity Officer
Washington, D.C. (+1 202-955-8503, zswilliams@gibsondunn.com)

Molly T. Senger – Partner, Labor & Employment Group
Washington, D.C. (+1 202-955-8571, msenger@gibsondunn.com)

Blaine H. Evanson – Partner, Appellate & Constitutional Law Group
Orange County (+1 949-451-3805, bevanson@gibsondunn.com)

An overview of intellectual property considerations in M&A transactions, which can impact valuation and the ability to operate after closing.

In today’s M&A transactions, intellectual property (“IP”) represents an increasingly critical component of a target company’s value. Therefore, during the due diligence process it is important to understand what IP a potential target actually owns, what third-party IP it relies on, whether the target may be infringing a third party’s IP, as well as how the proposed transaction could impact the buyer’s rights in the target’s IP.

Below, we highlight several IP considerations and red flags in U.S.-based M&A transactions. For transactions involving non-U.S. target companies or businesses, local law considerations may need to be assessed.

Scope of IP; Impact of Transaction Structure

Understanding the scope of IP that will be included in a particular transaction, and confirming whether the target company or seller actually owns the IP that it purports to own or sell, should be a primary concern for a potential buyer. A buyer should conduct global database searches to confirm the registered IP held by a target company or seller, as well as to identify any chain of title issues, recorded liens, and any legal or regulatory proceedings that may have been initiated with respect to such IP.

In an equity purchase transaction, the buyer will typically acquire all of the target’s (or its parent’s) equity interests, and therefore inherit all of the target’s IP holdings automatically by virtue of the transaction. Conversely, in a transaction structured as a purchase of assets, a buyer will only acquire the IP that is expressly transferred under the purchase agreement. As such, it is critical to understand what IP is included and what IP (if any) will remain with the seller, and confirm that the transferred IP is sufficient to operate the target’s business.

It is also important to review any outbound licenses to determine whether the target has granted to a third party any exclusivity or ownership rights in the target’s IP, and understand whether any of the target company’s contracts contain a “springing license” that could grant to a third party IP rights by virtue of the consummation of the proposed transaction, as this could impact the valuation of the target company.

In addition to understanding what IP a target owns, it is important for a buyer to understand what third-party licenses are required to operate the target’s business. A buyer should review those licenses to identify any restrictions on the buyer’s ability to receive the benefit of those licenses post-closing. While license agreements will often flow through automatically in a transaction structured as an equity purchase, in an asset purchase scenario each license agreement must be expressly assigned by the seller to the buyer, which in many cases may require the consent of a third party. Moreover, even in an equity purchase scenario, it is important to diligence and understand any change in control restrictions, including anti-assignment provisions, that may be triggered by the proposed structure. Unlike typical contracts, IP licenses are considered to be personal to the licensee and by default are not transferable without the consent of the licensor. Proper review of a business’s material license agreements is critical to avoid last minute surprises or situations in which a third party can create unanticipated hurdles to a smooth deal closing. If consent cannot be obtained, it is important to understand the effect losing the IP rights (or license fees or royalties) will have on the target’s business, as this may impact the deal’s valuation.

Comingling of Intellectual Property

In some instances, a seller may have comingled certain IP among the business it proposes to sell and the businesses it plans to retain. In such instances, both the buyer and the seller may need continued access to that IP following the closing of the transaction. Comingling of IP in this manner may require the buyer and seller to negotiate an ongoing license agreement between them, which will typically establish clearly defined purposes for which each party may (and may not) use the IP going forward. In some cases, the parties may negotiate time-limited restrictive covenants in addition to such ongoing license agreements. Restrictive covenants should always be reviewed by an antitrust expert to confirm they are drafted in an enforceable manner.

Treatment of IP in Employee and Consultant Agreements

It is important to evaluate the target’s forms of employee and independent contractor invention assignment agreements to confirm that such individuals have properly assigned to the target all applicable IP rights – or, if not, to identify critical gaps that must be remediated before the transaction can close. Best practice is that such agreements should contain presently effective assignment language that makes the IP assignment from the employee or contractor to the target company effective immediately, rather than requiring any future execution of documents. Companies hoping to be acquired in the near future may wish to review these forms and improve them before any deficiencies turn into a deal hurdle. Founders in particular should ensure that their companies are the proper owners of any founder-created IP, as buyers and even potential investors will be on the lookout for any possibility that a founder could replicate the business under a new company.

If any IP development work is performed outside of the United States, it is advisable to consult with local counsel in the relevant jurisdiction to ensure that the invention assignment provisions are enforceable under local law.

AI Generated Content

As companies are increasingly relying on artificial intelligence (“AI”), a buyer should review whether and how the target company uses AI in its business. Recently, the U.S. Copyright Office clarified its practices for examining and registering works containing material generated by AI. However, the use and ownership of AI is an area of the law that is currently under development as the legal system attempts to catch up with this new technology. If a target relies on AI tools to generate content considered material to the business value, careful analysis should be undertaken to determine whether the AI outputs are actually copyrightable, or whether they will be deemed outside the scope of copyright protection. Further, it is important to understand the inputs a target company uses to train its AI, as certain uses of third-party copyrighted materials can lead to claims of infringement or misappropriation.

Joint Ownership

Joint ownership of IP creates complications that many buyers and sellers may wish to avoid. For example, each joint owner of a patented invention can independently sell, license or otherwise exploit the patent without any duty to account to or seek consent from any other joint owner (including the right to license the patent to a third party that is in an infringement dispute with the other party over such patent). A buyer should therefore pay special attention to agreements that cover joint ventures or joint development of IP or technology, and growth-stage companies looking to make themselves attractive to future buyers should carefully weigh the benefits and potential risks of joint ownership before entering into any such arrangements.

Upward-Reaching Affiliate Issue

A buyer (especially if it has a valuable patent monetization program) should conduct a careful review of a target company’s license agreements – particularly any with the buyer’s direct competitors – to identify provisions that may become binding on the buyer of the target company upon closing. In many agreements, the term “affiliate” is defined broadly to include any entity that controls, is controlled by or is under common control with the licensor, such that, upon closing, the license granted by the target could be deemed to encompass the buyer’s entire IP portfolio as well.

Adequate Protection of Trade Secrets (Including Source Code)

For many companies, trade secrets are their most valuable IP asset. Therefore, it is important for a buyer to confirm that such trade secrets are adequately protected, including the source code to the target’s proprietary software. A buyer should confirm that all employees and contractors, as well as other third parties with access to the target company’s trade secrets, have executed non-disclosure agreements, and should review such agreements to ensure that they reasonably protect the target company’s trade secrets and other confidential information and prohibit recipients thereof from disclosing such information. It is also important for a buyer to confirm that the target company has industry-standard controls in place, including appropriate organizational, administrative, technical and physical measures, to ensure the confidentiality and security of the IT systems that house its trade secrets and other confidential information. If proprietary software is the target’s most valuable IP asset, the buyer should also confirm that the source code to the software has not been disclosed to (and is not required to be disclosed to) any third parties and review any source code escrow agreements to confirm that the proposed transaction would not trigger a release.

IP-related Disputes

Finally, a buyer should review any IP-related lawsuits, settlements, and coexistence arrangements, as well as any claims of IP infringement, including in the form of offers or invitations to obtain a license or requests for indemnification, and ascertain the status and materiality of, as well as the likely cost associated with resolving, any pending disputes.

Settlement agreements may include a covenant not to sue, whereby the target company agrees not to assert its IP rights against the counterparty for particular uses or products. A buyer should consider how this would impact its rights in the acquired IP, as well as whether an overly broad definition of “affiliate” could cause the buyer to be similarly bound not to enforce its IP against the other party, either of which could affect the target company’s valuation depending on the buyer’s go-forward plans.

The following Gibson Dunn lawyers prepared this update: Daniel Angel, Meghan Hungate, Robert Little, Saee Muzumdar, and Sarah Scharf.

Gibson Dunn lawyers are available to assist in addressing any questions you may have about these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Mergers & Acquisitions, Private Equity, or Technology Transactions practice groups, or the following authors and practice leaders:

Technology Transactions:
Daniel Angel – New York (+1 212.351.2329, dangel@gibsondunn.com)
Carrie M. LeRoy – Palo Alto (+1 650.849.5337, cleroy@gibsondunn.com)
Meghan Hungate – New York (+1 212.351.3842, mhungate@gibsondunn.com)

Mergers and Acquisitions:
Robert B. Little – Dallas (+1 214.698.3260, rlittle@gibsondunn.com)
Saee Muzumdar – New York (+1 212.351.3966, smuzumdar@gibsondunn.com)

Private Equity:
Richard J. Birns – New York (+1 212.351.4032, rbirns@gibsondunn.com)
Wim De Vlieger – London (+44 20 7071 4279, wdevlieger@gibsondunn.com)
Federico Fruhbeck – London (+44 20 7071 4230, ffruhbeck@gibsondunn.com)
Scott Jalowayski – Hong Kong (+852 2214 3727, sjalowayski@gibsondunn.com)
Ari Lanin – Los Angeles (+1 310.552.8581, alanin@gibsondunn.com)
Michael Piazza – Houston (+1 346.718.6670, mpiazza@gibsondunn.com)
John M. Pollack – New York (+1 212.351.3903, jpollack@gibsondunn.com)

The 2024 presidential and congressional elections could bring seismic shifts in the way government interacts with individuals, businesses, and other entities. While the results of those elections cannot be predicted with certainty, it is not too soon to start preparing for possible scenarios. This webcast examines how public policy issues, congressional investigations, and administrative actions are likely to be shaped by the 2024 elections.

PANELISTS:

Michael Bopp is a partner in the Washington, D.C. office of Gibson, Dunn & Crutcher. He chairs the Congressional Investigations Practice Group practice and he is a member of the White Collar Defense and Investigations Crisis Management Practice Groups. He also co-chairs the firm’s Public Policy Practice Group and is a member of its Financial Institutions Practice Group. Mr. Bopp’s practice focuses on congressional investigations, internal corporate investigations, and other government investigations. Michael spent more than a dozen years on Capitol Hill including as Staff Director and Chief Counsel to the Senate Homeland Security and Governmental Affairs Committee under Senator Susan Collins (R-ME). Michael is a member of the bars of the District of Columbia and the State of New York.

Roscoe Jones is a partner in Gibson, Dunn & Crutcher’s Washington, DC office, co-chair of the Firm’s Public Policy Practice Group, and a member of the Congressional Investigations Practice Group. Roscoe’s practice focuses on promoting and protecting clients’ interests before the U.S. Congress and the Administration, including providing a range of public policy services to clients such as strategic counseling, advocacy, coalition building, political intelligence gathering, substantive policy expertise, legislative drafting, and message development. Roscoe spent a decade on Capitol Hill as a chief of staff, legislative director and senior counsel advising three US Senators and a member of Congress, including Senators Feinstein, Booker and Leahy and Rep. Spanberger. Roscoe is a member of the bars of the State of Maryland and District of Columbia and admitted to practice before the United States Courts of Appeal for the Fourth, Ninth, and Eleventh Circuits.

Stuart F. Delery is a partner in Gibson, Dunn & Crutcher’s Washington, DC office, where he is a member of the firm’s Litigation Department and Co-Chair of the Crisis Management Practice Group and Administrative Law and Regulatory Practice Group. Prior to re-joining the firm, Stuart served as White House Counsel for President Biden from 2022-2023. As Counsel to the President, he advised the President on the full range of constitutional, statutory, and regulatory legal issues, including on questions of presidential authority, domestic policy, and national security and foreign affairs. He managed responses to high-profile congressional and other investigations, and he assisted the President in nominating and confirming federal judges. Stuart also served as Deputy Counsel to the President from 2021-2022. Stuart is an experienced appellate and district court litigator who brings 30 years of experience at the highest levels of government and the private sector to help clients navigate major matters that present complex legal and reputational risks, particularly matters involving difficult statutory, regulatory and constitutional issues. His practice focuses on representing corporations and individuals in high-stake litigation and investigations that involve the federal government across the spectrum of regulatory litigation and enforcement. Stuart is a member of the District of Columbia bar.

Amanda H. Neely is of counsel in the Washington, D.C. office of Gibson, Dunn & Crutcher and a member of the Public Policy Practice Group and Congressional Investigations Practice Group. Amanda previously served as Director of Governmental Affairs for the Senate Homeland Security and Governmental Affairs Committee and General Counsel to Senator Rob Portman (R-OH), Deputy Chief Counsel to the Senate Permanent Subcommittee on Investigations, and Oversight Counsel on the House Ways and Means Committee. She has represented clients undergoing investigations by congressional committees including the Senate Permanent Subcommittee on Investigations and the Senate Health, Education, Labor, and Pensions Committee. Amanda is admitted to practice law in the District of Columbia and before the United States Courts of Appeals for the District of Columbia Circuit and the Eleventh Circuit.

Danny Smith is of counsel in the Washington, D.C. office of Gibson, Dunn & Crutcher and a member of the Public Policy practice group. Danny’s practice focuses on advancing clients’ interests before the U.S. Congress and the Executive Branch. He provides a range of services to clients, including political advice, intelligence gathering, policy expertise, communications guidance, and legislative analysis and drafting. Prior to joining Gibson Dunn, Danny worked for Senator Cory Booker (D-NJ) for nearly a decade, most recently as his Chief Counsel on the Senate Judiciary Committee, Subcommittee on Criminal Justice and Counterterrorism. Danny is admitted to practice law in the District of Columbia and the state of Illinois.

MCLE CREDIT INFORMATION:

This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.0 credit hour, of which 1.0 credit hour may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour in the General category.

Gibson, Dunn & Crutcher LLP is authorized by the Solicitors Regulation Authority to provide in-house CPD training. This program is approved for CPD credit in the amount of 1.0 hour. Regulated by the Solicitors Regulation Authority (Number 324652).

Neither the Connecticut Judicial Branch nor the Commission on Minimum Continuing Legal Education approve or accredit CLE providers or activities. It is the opinion of this provider that this activity qualifies for up to 1 hour toward your annual CLE requirement in Connecticut, including 0 hour(s) of ethics/professionalism.

Application for approval is pending with the Colorado, Illinois, Texas, Virginia and Washington State Bars.

Join us for a 60-minute briefing covering key aspects of the SEC’s adoption of the climate change disclosure rule. Gibson Dunn Partners Beth Ising, Tom Kim, Gene Scalia and David Woodcock discuss key aspects of the final rule, what companies need to prioritize in order to prepare for compliance, key implementation challenges and the prospects for litigation.

Topics discussed:

Primary differences between the proposed and final rules
Companies and transactions covered by the rule and exemptions, exceptions, and exclusions
Timing and transition periods
Open/unresolved issues
Key implementation and compliance priorities
Potential litigation

PANELISTS:

Elizabeth Ising is a partner in Gibson Dunn’s Washington, D.C. office and Co-Chair of the firm’s Securities Regulation and Corporate Governance and its ESG (Environmental, Social & Governance) practices. She also is a member of the firm’s Hostile M&A and Shareholder Activism team and Financial Institutions practice group. She advises clients, including public companies and their boards of directors, on corporate governance, securities law and, ESG and sustainability matters and executive compensation best practices and disclosures. Representative matters include advising on Securities and Exchange Commission reporting requirements, proxy disclosures, SASB and TCFD disclosures, director independence matters, proxy advisory services, board and committee charters and governance guidelines and disclosure controls and procedures. Ms. Ising also regularly counsels public companies on shareholder activism issues, including on shareholder proposals and preparing for and responding to hedge fund and corporate governance activism. She also advises non-profit organizations on corporate governance issues.

Thomas J. Kim is a partner in the Washington D.C. office of Gibson, Dunn & Crutcher, LLP, where he is a member of the firm’s Securities Regulation and Corporate Governance Practice Group. Mr. Kim focuses his practice on a broad range of SEC disclosure and regulatory matters, including capital raising and tender offer transactions and shareholder activist situations, as well as corporate governance, environmental social governance and compliance issues. He also advises clients on SEC enforcement investigations – as well as boards of directors and independent board committees on internal investigations – involving disclosure, registration, corporate governance and auditor independence issues. Mr. Kim has extensive experience handling regulatory matters for companies with the SEC, including obtaining no-action and exemptive relief, interpretive guidance and waivers, and responding to disclosures and financial statement reviews by the Division of Corporation Finance. Mr. Kim served at the SEC for six years as the Chief Counsel and Associate Director of the Division of Corporation Finance, and for one year as Counsel to the Chairman.

Eugene Scalia is a partner in the Washington, D.C. office of Gibson, Dunn & Crutcher, co-chair of the firm’s Administrative Law and Regulatory Practice Group, and a senior member of the firm’s Labor and Employment Practice Group and Financial Institutions Practice Group. He returned to the firm after serving as U.S. Secretary of Labor from September 2019 to January 2021. Mr. Scalia has a nationally-prominent practice in two areas: Labor and employment law, and advice and litigation regarding the regulatory obligations of federal administrative agencies. He also has extensive appellate experience. Federal regulatory actions he has challenged include the SEC’s “proxy access” rule; the CFTC’s “position limits’” rule; MetLife’s designation as “too big to fail” by the Financial Services Oversight Council; the Labor Department’s “fiduciary” rule; and OSHA’s “cooperative compliance program.”

David Woodcock is a partner in the Dallas and Washington offices of Gibson, Dunn & Crutcher. He is a co-chair of the firm’s Securities Enforcement Practice Group, and a member of the firm’s Securities Regulation and Corporate Governance, Accounting Firm Advisory and Defense; White Collar Defense and Investigations; Energy, Regulation and Litigation; Securities Litigation; and Oil and Gas Practice Groups. His practice focuses on internal investigations and SEC defense, with a particular emphasis on accounting and financial reporting, corporate compliance, and audit/special committee investigations. Mr. Woodcock regularly advises clients on corporate securities and governance, the role of the board, shareholder activism, and ESG-related issues, including the energy transition, climate disclosures, enterprise risk management practices, cybersecurity, and related U.S./European regulations. He also counsels investment advisors and private equity funds in the context of SEC examinations and investigations, ESG matters, and portfolio due diligence and compliance.

MCLE CREDIT INFORMATION:

This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.0 credit hour, of which 1.0 credit hour may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour in the General category.

Application for approval is pending with the Colorado, Illinois, Texas, Virginia and Washington State Bars.

We are pleased to provide you with Gibson Dunn’s ESG update covering the following key developments during February 2024. Please click on the links below for further details.

I. GLOBAL

Global Reporting Initiative revises biodiversity standards

On January 25, 2024, the Global Reporting Initiative (GRI) published a revised biodiversity standard, GRI 101: Biodiversity 2024, which updates and replaces GRI 304: Biodiversity 2016. The standard aims to deliver transparency throughout the supply chain, location-specific reporting on impacts, new disclosures on direct drivers of biodiversity loss and requirements for reporting impacts on society. The standard will come into force on January 1, 2026.

International Swaps and Derivatives Association Climate Risk Scenario Analysis for the Trading Book – Phase 2

On February 12, 2024, the International Swaps and Derivatives Association (ISDA) published Phase 2 of its “Climate Risk Scenario Analysis for the Trading Book“. This Phase 2 publication follows the development of the conceptual framework published in 2023, which was used to develop three short-term climate scenarios for the trading book – physical, transition and combined. The scenarios are intended to support banks in their climate scenario analysis capabilities and now cover a range of market risk factors, including country and sector specific parameters.

Loan Market Association issues guidance on external review process for Sustainability-Linked Loans

On January 25, 2024, the Loan Market Association (LMA) issued an updated version of its external review guidance for green, social, and sustainability-linked loans, superseding its 2022 edition. The guidance aims to streamline the process of external reviews in sustainable finance by establishing common terminology and standard review procedures. The guidance also sets out ethical and professional principles for external reviewers, including integrity, objectivity, and professional competence and addresses the organization requirements for review providers. Detailed content guidelines are also provided to promote consistency in terminology usage.

International Ethics Standards Board for Accountants launches public consultation on new ethical benchmark for sustainability reporting and assurance

The International Ethics Standards Board (IESBA), the independent global standards-setting board, has initiated a consultation on two Exposure Drafts, outlining a suite of global standards on ethical considerations in sustainability reporting and assurance. The first Exposure Draft, International Ethics Standards for Sustainability Assurance (IESSA), revises the existing Code Relating to Sustainability Assurance and Reporting. The second Exposure Draft, Using the Work of an External Expert, proposes an ethical framework for assessing external experts in sustainability matters. These standards aim to establish guidelines for sustainability assurance practitioners and professional accountants involved in reporting, aiming to combat greenwashing and enhance trust in sustainability information.

ISSB to assess jurisdictions’ level of alignment with standards

The International Sustainability Standards Board (ISSB) plans to assess the degree of alignment between jurisdictions choosing to implement its disclosure standards on both sustainability (IFRS S1) and the climate (IFRS S2). These measures were announced in the ISSB’s preview document of its Inaugural Jurisdictions Guide. The Guide will aid jurisdictions in their adoption of IFRS S1 and IFRS S2 and also intends to reduce the fragmentation and variation in the adoption of ISSB standards between jurisdictions. ISSB expects the alignment assessment to be part of its future jurisdictional profiles tool, which will describe the broad approach of each jurisdiction and any deviations from ISSB standards. As at December 2023, nearly 400 organizations from 64 different jurisdictions had committed to advancing the adoption or use of the ISSB standards, in addition to 25 stock exchanges and over 40 professional accounting organizations and audit firms.

II. UNITED KINGDOM

UK departs International Energy Charter Treaty

On February 22, 2024, the United Kingdom Government announced that it would leave the Energy Charter Treaty (ECT) after failed efforts to update the Energy Charter Treaty and align it with net zero ambitions. With European Parliament elections in 2024, the modernization of the treaty may be delayed indefinitely. A number of European Union member states, including France, Spain and the Netherlands, have already withdrawn or announced their withdrawal from the treaty.[1]

UK Financial Conduct Authority launches webpage for sustainability disclosure and labelling regime

As reported in our Winter Edition, the Financial Conduct Authority (FCA) recently published its policy statement containing rules and guidance on sustainability disclosure requirements and investment labels. On February 2, 2024, the FCA launched a new webpage setting out how firms should consider the regime and the steps to take ahead of the rules coming into effect. The FCA has highlighted that from May 31, 2024, firms are required to ensure that sustainability references are fair, clear and not misleading and proportionate to the sustainability profile of the product and service. Firms subject to the naming and marketing rules for asset managers are not required to meet the additional requirements until December 2, 2024. From July 31, 2024, firms may begin to use a label – though there is no deadline to use labels, firms must ensure that they meet the naming and marketing requirements for products using sustainability-related terms without labels by December 2, 2024.

Chartered Governance Institute publishes model terms of reference and guidance for ESG committees

The Chartered Governance Institute (CGI, formerly ICSA) published its model terms of reference and guidance for board-level ESG and sustainability committees. Although the new UK Corporate Governance Code (also referred to above) does not require companies to have an ESG committee at board level, the sample terms are designed to assist companies in setting out the scope, roles and responsibilities of board-level ESG and sustainability committees, which can be tailored to the needs of each company. The model terms will also assist companies in highlighting areas which may overlap with the remits of other committees and define the remit of the ESG committee to avoid such overlap.

Pensions and Lifetime Savings Association updates the Stewardship and Voting Guidelines

The Pensions and Lifetime Savings Association published its updated 2024 Stewardship and Voting Guidelines. The Guidelines have been updated to reflect the 2024 version of the UK Corporate Governance Code published by the Financial Reporting Council (FRC) and related guidance and they provide a framework for pension scheme trustees and investors to hold companies accountable during annual general meetings. The 2024 edition identifies five key themes: social factors, cybersecurity, artificial intelligence, biodiversity, and dual-class asset structures.

Financial Reporting Council launches review of the UK Stewardship Code 2020

On February 27, 2024, the FRC announced that it would commence a fundamental review of the UK Stewardship Code in accordance with a policy statement it issued on November 7, 2023. The Code’s stated purpose is to set high stewardship standards for asset owners and managers and also includes six principles for service providers. There are currently 273 signatories representing £43.3 trillion assets under management. Given the potential for a fundamental revision of the Code in 2024, the FRC are launching the review process in three phases: a targeted outreach to issuers, asset managers, asset owners and service providers; a public consultation in summer 2024; and the publication of a revised Code in early 2025. The Code will operate as usual throughout the review process. The Stewardship Code was last revised in 2019, taking effect from January 1, 2020. The significant revisions introduced at that time included signatories to integrate stewardship and investment including ESG matters and also required disclosure of important issues for assessing investments including ESG issues.

III. EUROPE

New EU regulation on ESG ratings activities

On February 5, 2024, the European Parliament and the European Council announced a provisional agreement on new rules for regulating ESG rating activities by improving transparency and integrity of operations of rating providers and preventing potential conflicts of interest. The provisional agreement provides that EU ratings providers will be authorized and supervised by the European Securities and Markets Authority (ESMA), and third-country ratings providers will need to be registered in the EU’s registry, be recognized on quantitative criteria or obtain an endorsement of their ESG ratings by an EU-authorized ratings provider. A temporary lighter-touch regime would apply for three years for small ESG ratings providers. The provisional agreement remains subject to the European Council and European Parliament’s formal adoption procedure. Once adopted and published in the Official Journal, the regulation will apply 18 months after its entry into force.

Vote on Corporate Sustainability Due Diligence Directive fails

As reported in our Winter Edition, there was a provisional agreement on the Corporate Sustainability Due Diligence Directive (CSDDD) in December 2023. The final text of the CSDDD was published on January 30, 2024. On February 28, 2024, the CSDDD failed to secure a qualified majority among EU member states. The CSDDD will need to be renegotiated and voted on by the European Council before it can be voted on by the European Parliament by the March 15, 2024 deadline.

Internal Market and Environment committees adopt position on how EU firms can validate their green claims

On February 14, 2024, the European Parliament announced that the Internal Market and Environment committees adopted their position on the rules relating to how firms can validate their environmental marketing claims. The rules require companies to seek approval before using environmental marketing claims, which claims are to be assessed by accredited verifiers within 30 days. Companies may be excluded from procurements for non-compliance, or could lose their revenues or face fines of at least 4% of their annual turnover. Confirming the EU ban on greenwashing, the rules specify that companies could still mention offsetting schemes if they have reduced emissions to the extent possible and use these schemes only for residual emissions. The rules are due to be voted on at the next plenary session of the European Parliament.

European Council and European Parliament strike deal to strengthen EU air quality standards

On February 20, 2024, the European Council announced that the presidency and the European Parliament’s representatives had reached a provisional political agreement on EU air quality standards, with the aim of a zero-pollution objective and net zero by 2050. The provisional agreement will next be submitted to the member states’ representatives in the European Council and to the European Parliament’s environment committee for endorsement. Once approved, it will need to be formally adopted by the European Council and the European Parliament, following which it will be published in the EU’s Official Journal and will enter into force. Following publication, each member state will have two years to transpose the directive into national law.

Provisional agreement on postponing sustainability reporting standards for listed SMEs and specific sectors

On February 8, 2024, the European Council and the European Parliament announced a provisional agreement to delay by two years the adoption of the European Sustainability Reporting Standards (ESRS) for certain sectors, small and medium sized enterprises and certain thirty-country companies, under the Corporate Sustainability Reporting Directive (CSRD) – which will now be adopted in June 2026. Application to third-country companies remains unchanged otherwise, i.e. reporting obligations under the CSRD and linked ESRS will apply for financial years commencing on or after January 1, 2028. The provisional agreement remains subject to endorsement and formal adoption by both the European Council and European Parliament and publication.

European Commission recommends 90% net GHG emissions reduction target by 2040

On February 6, 2024, the European Commission published a detailed impact assessment and based on its assessment and under the EU Climate Law framework, it recommended a reduction of 90% net greenhouse gas emissions by 2040 compared to 1990 levels. The EU Climate Law entered into force in July 2021 and enshrined in legislation the EU’s commitment to reach climate neutrality by 2050. The EU Climate Law also requires the European Commission to propose a climate target for 2040 within six months of the first Global Stocktake of the Paris Agreement (which took place in December 2023). Following adoption of the 2040 target, under the next Commission, the target will form the basis for the EU’s new Nationally Determined Contribution under the Paris Agreement.

European Council and European Parliament reach deal on Net-Zero Industry Act

On February 6, 2024, the European Council and the European Parliament announced a provisional agreement on the Net-Zero Industry Act (NZIA), a regulation aimed at boosting clean technology industries across Europe. Proposed in March 2023 as part of the Green Deal Industrial Plan, the NZIA targets scaling up manufacturing of key technologies for climate neutrality, including solar, wind, batteries, and carbon capture. The NZIA includes streamlined permit procedures for large projects, setting maximum timeframes of 18 months for projects exceeding one gigawatt and 12 months for smaller ventures. It promotes the establishment of net-zero acceleration “valleys” with the aim to create clusters of net-zero industrial activity. The NZIA also contains incentives for green technology purchases and defines sustainability and resilience criteria for public procurement. The provisional agreement remains subject to endorsement and formal adoption by both the European Council and European Parliament and publication.

Sweden proposes delays to Corporate Sustainability Reporting Directive reporting start date

Even as the European Union’s Corporate Sustainability Reporting Directive (CSRD) has been finalized at the EU level, its transposition into national law faces delays in many member states. In Sweden, the government has proposed legislation on February 15, 2024, to postpone CSRD reporting for Swedish companies by one year. The draft proposes applying reporting rules to listed firms with over 500 employees for the fiscal year starting after June 2024, with reporting commencing from the 2025 financial year. This is a deviation from the EU directive, which mandates reporting on data from the 2024 financial year. This proposal remains subject to approval by the Swedish Parliament.

European Parliament adopts Nature Restoration Law

By a close vote of 329 votes in favour, 275 against and 24 abstentions, on February 27, 2024, the European Parliament adopted a new nature restoration law which sets a target for the European Union (EU) to restore at least 20% of the EU’s land and sea areas by 2030 and all ecosystems which are in need of restoration by 2050. To reach these targets member states will need to restore by 2030 at least 30% of habitats covered by the proposed new law which includes wetlands, grasslands, rivers, lakes, coral beds and forests. The habitat restoration targets increase to 60% by 2040 and 90% by 2050. Member states will also be required to adopt national restoration plans detailing how they intend to achieve these targets. The proposed new law is subject to and conditional upon the European Council adopting the new text which will then be published in the EU Official Journal and enter into force 20 calendar days thereafter.

IV. NORTH AMERICA

Securities and Exchange Commission adopts sweeping new climate disclosure requirements for public companies

On March 6, 2024, the Securities and Exchange Commission (SEC or Commission), in a divided 3-2 vote along party lines, adopted final rules establishing climate-related disclosure requirements for U.S. public companies and foreign private issuers in their annual reports on Form 10-K and Form 20-F, as well as for companies looking to go public in their Securities Act registration statements. The Commission issued the Proposing Release in March 2022, which we previously summarized here, and received more than 22,500 comments (including more than 4,500 unique letters) from a wide range of individuals and organizations. The Adopting Release is available here and a fact sheet from the SEC is available here. Further details on these new requirements can be found in our recent Client Alert published on March 8, 2024.

Canadian Sustainability Standards Board launches public consultation on sustainability standards

On February 6, 2024, the Canadian Sustainability Standards Board (CSSB) announced that it will initiate a public consultation to progress the adoption of sustainability disclosure standards in Canada. Public consultation will be open through March 2024, on three documents shaping the inaugural sustainability standards: drafts of proposed Canadian standards for disclosing sustainability-related financial information and climate-related disclosures, along with a paper outlining proposed changes to align with the International Sustainability Standards Board (ISSB)’s standards for use in Canada. The CSSB’s proposed Canadian Sustainability Disclosure Standards 1 and 2, set for release in March 2024, will align with ISSB’s standards with Canadian-specific modifications. These modifications, including a Canadian-specific effective date and transition relief proposals, will be open for consultation until June 2024.

Canada implements anti-forced labor supply chain law

As of January 1, 2024, Canada’s Forced and Child Labour in Supply Chains Act mandates in-scope companies to publish board-approved reports outlining efforts to prevent and address forced labour and child labour in their supply chains. The Act applies to entities listed on Canadian stock exchanges or meeting specific criteria regarding assets, revenue, or employees. Covered entities must file annual reports by May 31, 2024, detailing policies, due diligence processes, risk mitigation measures, and remediation efforts related to forced and child labour. Foreign companies with Canadian subsidiaries subject to reporting requirements must also comply. Failure to publish accurate reports may result in fines of up to CAD 250,000 for companies and their officers.

V. APAC

China relaunches the China Certified Emission Reduction program

On January 22, 2024, China re-launched its voluntary carbon market: the China Certified Emission Reduction Scheme (CCER). The CCER had originally first launched in June 2012 but was suspended in March 2017 as a result of low trading volumes and an insufficient standardization in carbon audits. In its initial phase, the CCER will cover four sectors: (1) afforestation, (2) solar thermal power, (3) offshore wind power, and (4) mangrove creation. This reintroduction of the CCER seeks to complement China’s existing mandatory carbon market, the National Emission Trading Scheme which has been in operation since 2021.

Singapore launches the Singapore Sustainable Finance Association

On January 24, 2024, the Monetary Authority of Singapore (MAS) launched the Singapore Sustainable Finance Association (SSFA). It is the first cross-sectoral industry body in Singapore and has been established to support Singapore’s growth as a leading global centre for sustainable finance. SSFA members will include those from financial services, non-financial services, non-financial sector corporates, academia, non-governmental organisations, and other industry bodies. The SSFA is seeking to establish itself as a key platform for setting new standards in areas such as carbon credits trading and transition finance for best sustainable finance practices, driving innovative solutions by bringing together financial institutions and industry sectors to address barriers in scaling financing, and supporting upskilling initiatives through sustainable finance courses.

China announces Carbon Allowance Trading Regulations with effect from May 2024

On January 25, 2024, China announced its Regulations on the Administration of Carbon Allowance Trading which are due to come in force on May 1, 2024, and seek to regulate carbon emissions trading and related activities as well as strengthen the control of greenhouse gas emissions. The Regulations will govern China’s National Emissions Trading Scheme and will be enforced by the Ministry of Environment and Ecology (MEE), appointed responsible for supervising carbon allowance trading and related activities. Amongst other responsibilities, the MEE will set annual carbon emission quotas based on national greenhouse gas emission targets, consideration of economic and social development, industrial structure adjustment, industry development stage, historical emission conditions, market adjustment needs and other factors. The Regulations also prescribe stricter financial penalties of up to RMB 2 million (approximately USD 277,809) and/or a reduction of free allowances for violations, as China seeks to crack-down on entities falsifying carbon emissions data.

Three major Chinese Stock Exchanges announce proposals for mandatory sustainability reporting

On February 8, 2024, the three major stock markets in China (Shanghai Stock Exchange (“SSE”), Shenzhen Stock Exchange (“SZSE”) and Beijing Stock Exchange (“BSE”)) released their first guidelines on mandatory corporate sustainability reporting requirements for public consultation which ended on February 29, 2024. The guidelines seek to standardize sustainability reporting by listed companies in China, improve the quality of disclosures by listed companies, and build a comprehensive governance mechanism for sustainable development by focusing on four core pillars: (1) governance, (2) strategy, (3) impact, risk and opportunity management, and (4) indicators and objectives. The SSE and SZSE proposed guidelines require listed companies with either a large market capitalization or with dual listings to provide disclosure on a wide range of sustainability topics from 2026. The proposed guidelines for the BSE, which largely lists small and medium-sized innovative enterprises, encourages listed companies to make voluntary sustainability or ESG disclosures. No deadline has been set for the BSE guidelines due to their voluntary nature.

Australia finance sector warns Australian government against deviating from International Sustainability Standards Board baseline

Between February and March 2024, key members of the Australian finance sector (the Australian Sustainable Finance Institute, Principles for Responsible Investment, and the Investor Group on Climate Change) have each warned the Australian Government not to deviate from the global baseline of the International Sustainability Standards Board (ISSB) with respect to its policy for climate-related financial disclosures, flagging their serious concerns with interoperability should the proposed changes be enforced. The current draft legislation announced in January 2024 (the Treasury Laws Amendment Bill 2024) fails to adopt the ISSB Standards in full. Instead, the suggested changes include replacing all references to the term “sustainability” in the Australian International Financial Reporting Standards S1 (IFRS S1) with the term “climate”, reducing the scope of the Australian IFRS S1 to climate-related financial disclosures only, and diluting the Australian IFRS S2 for financial institutions by only requiring them to consider the applicability of disclosures related to their financed emissions. The proposals are open to feedback until March 1, 2024.

Malaysia consults on adopting mandatory International Sustainability Standards Board sustainability disclosure standards

On February 15, 2024, Malaysia’s Advisory Committee on Sustainability Reporting (ACSR) began its consultation period for feedback from stakeholders on the adoption of the mandatory sustainability disclosure standards issued by ISSB in a new National Sustainability Reporting Framework for Malaysia (NSRF). The consultation is focused on the scope and timing of the implementation of the ISSB Standards (which consist of IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosure)), the transition reliefs required, and any issues related to assurance for sustainability disclosures. The ACSR propose that established companies that meet the quality, size and operations requirements (known as Main Market issuers) would be required to fully adopt the ISSB climate disclosure standards by FYE December 31, 2027. Companies assessed by sponsors to have growth prospects (known as Access, Certainty, Efficiency (ACE) Market listed issuers), and large non-listed companies with an annual revenue of RM 2 billion (approximately USD 427 million) would adopt similar standards by FYE December 31, 2029. The consultation period will end on March 21, 2024.

China to expand national carbon market “as soon as possible”

On February 27, 2024, China’s Ministry of Ecology and Environment (MEE) announced that China will expand its carbon trading market as soon as possible to include a further seven major carbon emitting industries. At present, the current market only contains the power generation sector. The MEE has already drafted a series of documents for the inclusion of the new industries, allocation of carbon emission allowances, and reports on carbon accounting verification. The new industries are expected to include petrochemicals, papermaking, chemicals, building materials, non-ferrous metals, steel, and aviation. The proposed expansion would result in approximately 75% of China’s total emissions being accounted for in the carbon trading market.

Indian Central Bank introduces mandatory climate disclosure rules for banks from FY 2025-2026

On February 28, 2024, in recognition of the need for a better, consistent and comparable disclosure framework for regulated entities, the Reserve Bank of India released a draft disclosure framework on climate-related financial risks for regulated entities. The disclosures cover four main themes: (1) governance, (2) strategy, (3) risk management, and (4) metrics and targets. Large non-banking financial companies, all scheduled commercial banks, and financial institutions will need to disclose their governance, strategy, and risk management findings from FY 2025-2026 onwards, with their metrics and targets to be disclosed from FY 2027-2028 onwards. Smaller co-operative banks will have one additional year (FY 2026-2027 and FY 2028-2029 respectively) before they must also report the equivalent information. Regulated entities will need to include these disclosures in their financial results or financial statements published on their website. The framework is open for comment until April 30, 2024.

Singapore introduces mandatory climate reporting to begin in FY 2025

On February 28, 2024, the Singapore Accounting and Corporate Regulatory Authority (ACRA) and Singapore Exchange Regulation (SGX RegCo) announced a new requirement for all listed companies in Singapore to make mandatory climate-related disclosures based on local reporting standards aligned with the ISSB. The announcement follows the conclusion of a public consultation by the Singapore Sustainability Reporting Advisory Committee. The disclosure requirements will be introduced in a phased manner, commencing with listed issuers in FY 2025, followed by large non-listed companies (defined as having annual revenues of at least SGD 1 billion (approximately USD 0.75 billion) and total assets of at least SGD 500 million (approximately USD 375 million)) in FY 2027. The measures form part of Singapore’s efforts to help companies strengthen their sustainability capabilities.

Please let us know if there are other topics that you would be interested in seeing covered in future editions of the monthly update.

Warmest regards,

Susy Bullock
Elizabeth Ising
Perlette M. Jura
Ronald Kirk
Michael K. Murphy
Selina S. Sagayam

Chairs, Environmental, Social and Governance Practice Group, Gibson Dunn & Crutcher LLP

[1] Events since February 29, 2024: On March 7, 2024, the European Council resolved to exit the ECT thus marking a key step in the formal withdrawal of the EU from the ECT.

The following Gibson Dunn lawyers prepared this update: Ash Aulak*, Mitasha Chandok, Grace Chong, Natalie Harris, Elizabeth Ising, Cynthia Mabry, Selina S. Sagayam, and Daniel Szabo*.

Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Environmental, Social and Governance practice group:

Environmental, Social and Governance (ESG):
Susy Bullock – London (+44 20 7071 4283, sbullock@gibsondunn.com)
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com)
Perlette M. Jura – Los Angeles (+1 213.229.7121, pjura@gibsondunn.com)
Ronald Kirk – Dallas (+1 214.698.3295, rkirk@gibsondunn.com)
Michael K. Murphy – Washington, D.C. (+1 202.955.8238, mmurphy@gibsondunn.com)
Patricia Tan Openshaw – Hong Kong (+852 2214-3868, popenshaw@gibsondunn.com)
Selina S. Sagayam – London (+44 20 7071 4263, ssagayam@gibsondunn.com)

*Ash Aulak and Daniel Szabo, trainee solicitors in the London office, are not admitted to practice law.

Private equity is a growing presence in the healthcare sector, but that trend has drawn a backlash from federal and state regulators.

Private equity firms have found increasing opportunities in the healthcare sector in recent years. More than 780 private equity deals in the U.S. healthcare sector were announced or closed in 2023, a slight decline from 2022 but still the third-highest on record. See Healthcare Dive, Healthcare PE deals third-highest on record in 2023: Pitchbook, Feb. 12, 2024. The Private Equity Stakeholder Project lists over 450 U.S. hospitals owned by private equity firms, including 22 in California. Private Equity Stakeholder Project, Private Equity Hospital Tracker, updated Jan. 2024. Private equity is a growing presence in nursing homes and hospice agencies. That trend has drawn a backlash from federal and state regulators, however.

In the last three months, Congress, antitrust regulators, and the Department of Justice have all announced efforts to target private equity firms in the healthcare industry. In December 2023, the Chair and Ranking Member of the United States Senate Budget Committee announced “a bipartisan investigation into the effects of private equity ownership on our nation’s hospitals.” U.S. Senate Budget Committee, Press Release, Dec. 7, 2023. The White House announced on December 7 that it was taking action to promote competition in healthcare, including greater scrutiny of acquisitions and “a cross-government public inquiry into corporate greed in health care.” The White House, FACT SHEET: Biden-⁠Harris Administration Announces New Actions to Lower Health Care and Prescription Drug Costs by Promoting Competition, Dec. 7, 2023. Following up on that announcement, the Federal Trade Commission, on March 5, 2024, convened a workshop “aimed at examining the role of private equity investment in health care markets.” And on February 22, 2024, Principal Deputy Attorney General Brian Boynton announced at a conference that the Department of Justice would be using the False Claims Act to target private equity firms that influence healthcare providers to engage in conduct that causes the submission of false claims. Brian M. Boynton, Remarks at the 2024 Federal Bar Association’s Qui Tam Conference, Feb. 22, 2024. Last year was a record year for new False Claims Act matters, and healthcare cases have constituted the majority of FCA recoveries in recent years. See Gibson Dunn’s False Claims Act 2023 Year-End Update, March 4, 2024. There can be little doubt that there will be an increase in cases involving private equity-owned healthcare providers.

State legislators and regulators in California have also been active in turning up the heat on private equity firms in the healthcare industry. On February 16, 2024, California Attorney General Rob Bonta and Assembly Speaker pro Tempore Jim Wood (D-Healdsburg) introduced a bill that would require private equity groups and hedge funds to obtain the written consent of the California Attorney General before acquiring or effecting a change of control with respect to a healthcare facility or healthcare provider group. See Asm. Jim Wood, Press Release, Feb. 20, 2024. The bill, AB 3129, would authorize the Attorney General to deny or impose conditions on such a transaction upon a determination that it poses a risk of anticompetitive effects or reduced access to healthcare.

Under existing law, the California Attorney General may block or impose conditions upon certain sales or transfers of control with respect to nonprofit healthcare facilities. See Cal. Corp. Code § 5914, et seq. This oversight has generated significant controversy, with many asserting that the review process is too stringent and often leads to debilitating conditions on these transactions. See Wall Street Journal, California Nonprofit Hospitals Turn to Bankruptcy for Leverage Against State, July 30, 2023. AB 3129 would expand upon this framework by creating an attorney general review and consent process for certain sales or transfers of control with respect to for-profit healthcare entities.

The proposed law would continue the trend of increasing state oversight of the healthcare sector in California. In 2022, the California Legislature passed a bill establishing the Office of Health Care Affordability (“OHCA”), and required written notice to OHCA of certain sales of, or transfers of control with respect to, health care entities. See SB-184 (2022). OHCA began accepting these submissions in January 2024. While OHCA cannot prevent or impose conditions on such transactions, it may issue a referral to the Attorney General “for further review of any unfair methods of competition, anticompetitive behavior, or anticompetitive effects.” Id. § 127507.2(d)(1).

AB 3129, by contrast, would directly require Attorney General review—not merely upon referral from OHCA. Additionally, the Attorney General would be granted express powers to deny or impose conditions upon certain transactions. As detailed below, those requirements could be based not only on concerns about the impact of the transaction on competition, but on concerns relating to healthcare access more generally.

AB 3129 was introduced with the express backing of the California Attorney General, who, in a statement of support for the bill, accused private equity of “maximizing their profits at the expense of access, quality, and affordability of healthcare for Californians.” Attorney General Rob Bonta, Press Release, Feb. 20, 2024. The legislation proposes several sections that would be codified in the California Health and Safety Code beginning with a new section 1190.

I. Framework

The bill requires private equity groups and hedge funds to provide written notice to the Attorney General at the same time that any other state or federal agency is legally required to be notified, and “otherwise . . . at least 90 days before the change in control or acquisition[.]” AB 3129, § 1190.10(a).

“Hedge fund” is defined broadly as “a pool of funds by investors, including a pool of funds managed or controlled by private limited partnerships, if those investors or the management of that pool or private limited partnership employ investment strategies of any kind to earn a return on that pool of funds.” Id. § 1190(a)(5). “Private equity group” is also broadly defined as “an investor or group of investors who engage in the raising or returning of capital and who invests, develops, or disposes of specified assets.” Id. § 1190(a)(9). These expansive definitions could have broad applicability to investors in the healthcare sector.

While the current draft of AB 3129 provides no deadline for the Attorney General to issue a decision after receiving notice, it implies that the default deadline for such a decision is 90 days. The Attorney General has broad authority to extend this period for an additional 45 days if, for example, it needs extra time “to obtain additional information[,]” or if the proposed transaction “involves a multifacility or multiprovider health system serving multiple communities.” Id. § 1190.10(b). The Attorney General may grant itself a further 14-day extension in order to hold a public meeting for the purpose of “hear[ing] comments from interested parties.” Id. §§ 1190.10(c), 1190.30(b). If a “substantive change or modification” to the transaction is submitted to the Attorney General after that public meeting takes place, the Attorney General may hold a second public meeting. Id. 1190.30(b).

Importantly, the Attorney General may stay its approval process “pending any review by a state or federal agency that has also been notified as required by federal or state law.” Id. § 1190.10(e).

II. Criteria for Approval

AB 3129 would grant the Attorney General significant discretion to grant, deny, or impose conditions on these transactions. To deny or impose conditions on the transaction, the Attorney General need only determine that it either (1) “may have a substantial likelihood of anticompetitive effects” or (2) “may create a significant effect on the access or availability of health care services to the affected community.” Id. § 1190.20(a) (emphasis added). As drafted, the bill arguably only requires the Attorney General to establish the mere possibility of either of these two negative outcomes.

In making this determination, the Attorney General must apply a “public interest standard,” which looks to whether the transaction is “in the interests of the public in protecting competitive and accessible health care markets for prices, quality, choice, accessibility, and availability of all health care services . . . .” Id. § 1190.20(b). Additionally, the bill stipulates that “[a]cquisitions or changes of control shall not be presumed to be efficient for the purpose of assessing compliance with the public interest standard.” Id.

Prior to issuing the determination, the Attorney General may convene a public meeting to hear from interested parties. Id. § 1190.30(b).

The Attorney General may waive these notice and consent requirements where a party to the transaction is at grave risk of immediate business failure and can demonstrate a substantial likelihood that it would have to file for bankruptcy absent a waiver. Id. § 1190.10(f).

For an acquisition or change of control involving smaller providers—a group of two to nine individuals that provides health-related services and has annual revenue of more than $4 million but less than $10 million—the private equity group or hedge fund is required to notify the Attorney General, but the latter’s consent to the transaction is not required. Id. § 1190.10(d).

III. Reconsideration and Appeal

After the Attorney General issues its written decision, any party to the transaction may apply for reconsideration—but only “based upon new or different facts, circumstances, or law.” Id. § 1190.30(c). The Attorney General must issue a decision as to reconsideration within 30 days. Id.

Additionally, where the Attorney General does not consent to the transaction, or gives only conditional consent, “any of the parties” to the transaction may appeal by writ of mandate to a California superior court. Id. § 1190.30(d). Such appeals must be sought within 30 days of the Attorney General’s decision. The superior court must issue a decision within 180 days, unless the parties otherwise consent, or there exist “extraordinary circumstances[.]” Id.

Pursuant to the text of the legislation, however, the court’s standard of review is highly deferential: whether the Attorney General’s decision was a “gross abuse of discretion.” Id.

IV. Additional Restrictions on Private Equity

AB 3129 also contains provisions prohibiting private equity groups and hedge funds from controlling or directing physician or psychiatric practices—such as by “influencing or setting rates[,]” influencing or setting patient admission, referral or other policies, or “influencing or entering into contracts on behalf of” such practices. Id. § 1190.40(a).

The bill would also prohibit physician or psychiatric practices from entering into arrangements in which private equity groups or hedge funds manage “any of” their “affairs” for a fee. Id. § 1190.40(b).

Finally, the bill prohibits certain non-compete and non-disparagement clauses in contracts that private equity groups and hedge funds enter into related to physician or psychiatric practices. Id. § 1190.40(c).

If enacted, the Attorney General will be authorized to enforce AB 3129 through actions for injunctive relieve and other remedies, including attorney’s fees and costs. Id. § 1190.40(d).

The earliest date on which AB 3129 may be heard in committee is March 18, 2024. The bill has been referred to the Health and Judiciary committees.

In California, at least, private equity firms in the healthcare industry must be cognizant not only of the increased scrutiny from federal regulators and enforcement agencies, but also of the expanding oversight role of the California Attorney General in the sector.

The following Gibson Dunn lawyers prepared this update: Benjamin Wagner, Winston Chan, Jonathan Phillips, and Zachary Gross.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s White Collar Defense and Investigations, Private Equity or FDA and Health Care practice groups:

White Collar Defense and Investigations:
Stephanie Brooker (+1 202.887.3502, sbrooker@gibsondunn.com)
Winston Y. Chan (+1 415.393.8362, wchan@gibsondunn.com)
Nicola T. Hanna (+1 213.229.7269, nhanna@gibsondunn.com)
Benjamin Wagner (+1 650.849.5395, bwagner@gibsondunn.com)
F. Joseph Warin (+1 202.887.3609, fwarin@gibsondunn.com)

Private Equity:
Richard J. Birns – New York (+1 212.351.4032, rbirns@gibsondunn.com)
Ari Lanin – Los Angeles (+1 310.552.8581, alanin@gibsondunn.com)
Michael Piazza – Houston (+1 346.718.6670, mpiazza@gibsondunn.com)
John M. Pollack – New York (+1 212.351.3903, jpollack@gibsondunn.com)

FDA and Health Care:
Gustav W. Eyler – Washington, D.C. (+1 202.955.8610, geyler@gibsondunn.com)
John D. W. Partridge – Denver (+1 303.298.5931, jpartridge@gibsondunn.com)
Jonathan M. Phillips – Washington, D.C. (+1 202.887.3546, jphillips@gibsondunn.com)

In vacating the NLRB’s new 2023 joint employer rule, the Texas district court determined that the test set forth in the rule is contrary to the National Labor Relations Act.

On March 8, 2024, U.S. District Judge J. Campbell Barker of the Eastern District of Texas vacated the National Labor Relation Board’s (“NLRB”) 2023 final rule that set forth a new standard for determining joint-employer status under the National Labor Relations Act (“NLRA”). The rule had been scheduled to take effect on March 11, 2024. As we discussed in a previous alert, the 2023 rule, if it were to take effect, would significantly expand the bases on which a joint employment relationship may be found under the NLRA. Instead, a Trump Administration rule adopted in 2020 remains in effect.

Separately, a Labor Department proposal to raise the required pay for exempt executive, administrative, and professional employees has taken a step closer to becoming a final rule.

In vacating the NLRB’s new 2023 joint employer rule, the Texas district court determined that the test set forth in the rule is contrary to the NLRA. In particular, the court held that the rule’s provisions that would make indirect or reserved control over working conditions sufficient to establish joint employer status sweep more broadly than, and are therefore inconsistent with, the common law test for employment codified in the NLRA.

The court also noted that the second step of the 2023 rule’s two-part joint employer test, which requires an assessment of whether an entity controls various working conditions, is coextensive with, and perhaps even more expansive than, the test’s first step, which asks whether an entity is a common law employer. Because a common law employer will always control key working conditions, the court reasoned, the test’s second part would likely do nothing to limit who qualifies as a joint employer. While noting that it need not decide the issue, the court suggested that the rule thus likely fails to articulate a comprehensible standard, and is therefore arbitrary and capricious.

The court also vacated the 2023 rule’s rescission of the agency’s previous joint employer rule issued in 2020, holding that the agency was incorrect that the 2020 rule is inconsistent with the NLRA and that the agency had failed to articulate a reason why the 2020 rule should be rescinded if the 2023 rule does not go into effect. The 2020 rule therefore remains operative.

The 2020 rule’s joint employer test is different from the 2023 rule in a few important ways that make it less likely that the 2020 rule will result in a determination that a joint employment relationship exists. Whereas the 2023 rule treats indirect or reserved control as sufficient to establish a joint employment relationship, the 2020 rule requires a showing that an entity possesses and exercises “such substantial direct and immediate control” over working conditions that would “warrant finding that the entity meaningfully affects matters relating to the employment relationship.”

Thus, under the 2020 rule, it is unlikely that an entity will be deemed a joint employer simply because it contracts with another business for services. By contrast, Judge Barker determined that the 2023 rule “would treat virtually every entity that contracts for labor as a joint employer because virtually every contract for third-party labor has terms that impact, at least indirectly, at least one of the specified ‘essential terms and conditions of employment.’” Chamber of Commerce et. al. v. National Labor Relations Board, et. al., No. 6:23-cv-00553, Dkt. 44 at 25 (Mar. 8, 2024).

Likewise, the 2020 rule’s enumeration of essential terms and conditions of employment––control over which may demonstrate joint employer status––is more limited than the list contained in the 2023 rule. Unlike the 2023 rule, the 2020 rule does not identify control over “work rules and directions governing the manner, means, and methods of performance,” or “working conditions related to the safety and health of employees” as probative of joint employer status. There are thus fewer bases on which joint employer status may be found under the 2020 rule as compared to the 2023 rule.

Finally, the 2020 rule provides that control over workers exercised on a sporadic, isolated, or de minimis basis is not sufficient to establish joint employer status––a provision that the 2023 rule would have eliminated. That also makes the 2020 rule’s test narrower and less likely to result in a joint employment determination.

In response to the ruling, NLRB Chair Lauren McFerran said that the agency “is reviewing the decision and actively considering next steps.” It is likely that the NLRB will appeal the decision. If the agency were to appeal, it may be as long as a year, if not longer, before the Fifth Circuit issues a decision, during which time the 2020 rule will remain in effect.

The rule has also attracted attention in Congress. In January 2024, the House of Representatives passed a resolution pursuant to the Congressional Review Act disapproving of the rule. In February, Senators Bill Cassidy and Joe Manchin wrote Chair McFerran to ask her to delay the effective date of the rule while the Senate considers the disapproval resolution. However, the White House has stated that President Biden would veto the disapproval resolution were it to pass.

* * * *

Separately, on March 1, 2024, the Department of Labor (“DOL”) sent the Office of Information and Regulatory Affairs (“OIRA”) a final rule revising DOL’s regulations implementing minimum wage and overtime exemptions for executive, administrative, and professional employees, among others, under the Fair Labor Standards Act (“FLSA”). The Department issued the proposal to revise its overtime regulations in August 2023, which we discussed in a prior alert. Over 15,000 comments were submitted on the proposal. OIRA review is typically the last step before issuance of a final rule.

It remains unclear if the Department made any modifications to its proposal to address the comments it received. If the final rule follows the approach DOL originally proposed, it will significantly change how the FLSA’s minimum wage and overtime exemptions operate. Among other things, DOL proposed substantial increases to the compensation thresholds for applying the FLSA’s exemptions, including raising the salary threshold to $1,059 per week—a nearly 55 percent increase over the current threshold––and increasing the annual compensation threshold for highly compensated employees to $143,988––an increase of approximately 34 percent. Further, in its proposal DOL left open the possibility that it may use more recent wage data when it finalizes the rule, which means that the thresholds in the final rule could be even higher. By some estimations, these increases could expand the number of workers who would be eligible for overtime wages by at least 3.6 million. DOL also proposed automatic increases to the thresholds every three years.

Although OIRA review can sometimes take a few months, it is likely that OIRA will complete its review—and that the final rule will be published—much sooner. Once the final rule is promulgated, legal challenges are possible. Indeed, DOL’s existing overtime regulations are already the subject of a lawsuit, currently on appeal in the Fifth Circuit, that argues that the Department lacks the authority to use salary thresholds to determine the applicability of the FLSA’s overtime exemptions. The case is Mayfield v. U.S. Dep’t of Labor, No. 23-50724 (5th Cir.). Similar arguments could likely be made in a challenge to DOL’s new overtime rule once it is issued.

Gibson Dunn lawyers are closely monitoring these developments and available to discuss these issues as applied to your particular business.

The following Gibson Dunn lawyers prepared this update: Jason Schwartz, Eugene Scalia, Andrew Kilberg, Svetlana Gans, Michael Holecek, and Blake Lanning.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Labor and Employment or Administrative Law and Regulatory practice groups, or the following authors and practice leaders:

Svetlana S. Gans – Partner, Administrative Law & Regulatory, Washington, D.C.
(+1 202.955.8657, sgans@gibsondunn.com)

Michael Holecek – Partner, Labor & Employment, Los Angeles
(+1 213.229.7018, mholecek@gibsondunn.com)

Andrew G.I. Kilberg – Partner, Labor & Employment, Washington, D.C.
(+1 202.887.3759 ,akilberg@gibsondunn.com)

Eugene Scalia – Co-Chair, Administrative Law & Regulatory, Washington, D.C.
(+1 202.955.8210, escalia@gibsondunn.com)

Jason C. Schwartz – Co-Chair, Labor & Employment, Washington, D.C.
(+1 202.955.8242, jschwartz@gibsondunn.com)

Join our team of seasoned attorneys and industry leaders where we provide a recap of 2023 highlights for capital markets, M&A activity, royalty finance transactions and clinical funding arrangements, along with expectations for the Life Sciences deal market in 2024.

PANELISTS:

Branden Berns is a partner in the San Francisco office of Gibson, Dunn & Crutcher, where he practices in the firm’s Corporate Transactions Practice Group, focusing on representing leading life sciences companies and investors. Branden advises clients in connection with a variety of financing transactions, including initial public offerings, secondary equity offerings and venture and growth equity financings, as well as complex corporate transactions, including mergers and acquisitions, asset sales, spin-offs, joint ventures, PIPEs and leveraged buyouts. Mr. Berns regularly serves as principal outside counsel for publicly-traded companies and advises management and boards of directors on corporate law matters, SEC reporting and corporate governance.

Todd Trattner, Ph.D. is Of Counsel in the San Francisco office of Gibson, Dunn & Crutcher, where he is a member of the firm’s Corporate Department with a practice focused on intellectual property transactions in the life sciences and technology industries. Todd represents public and private companies, investors, and academic institutions in the biotechnology, pharmaceutical, technology, medical device, and diagnostics industries in connection with licensing transactions, royalty financings, technology transactions, and mergers and acquisitions.

Melanie Neary is a senior associate in the San Francisco office of Gibson, Dunn & Crutcher, where she practices in the firm’s Corporate Transactions Practice Group, with a practice focused on advising clients in connection with a variety of financing transactions, including initial public offerings, secondary equity offerings and venture and growth equity financings as well as complex corporate transactions, including mergers and acquisitions. Melanie also regularly advises clients on corporate law matters, Securities and Exchange Commission reporting requirements and ownership filings and corporate governance.

Yasha Dyatlovitsky is a Managing Director in TD Cowen’s Private Capital Solutions Group focused exclusively on healthcare. Mr. Dyatlovitsky has over 20 years of experience in leveraged finance and structured credit products. Since 2020, he has helped companies raise over $7B in financing across debt, royalty, and preferred equity transactions. Mr. Dyatlovitsky joined TD Cowen in 2018 from Stifel, where he served as a Director in its Debt Capital Markets group. Mr. Dyatlovitsky started his career in the securitization group at Lehman Brothers, where he traded and securitized adjustable rate mortgage products.

MCLE CREDIT INFORMATION:

This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.0 credit hour, of which 1.0 credit hour may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit.

Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact CLE@gibsondunn.com to request the MCLE form.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour.

California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit

A summary of recent developments and upcoming legislative changes in German corporate law that will impact the M&A market this year, originally published in M&A Review, M&A Media Services GmbH, 35. Volume 1-2/2024.

Gibson Dunn partner Sonja Ruttmann and of counsels Silke Beiter and Birgit Friedl from our Munich office co-authored M&A in 2024 – Relevant Legal Changes, An Outlook, originally published in M&A Review on February 10, 2024. The article summarizes some of the most recent developments and upcoming legislative changes in German corporate law that will impact the M&A market this year.

Please click HERE to view, download or print this article in English language.

Sonja Ruttmann, Silke Beiter und Dr. Birgit Friedl aus Gibson Dunns Münchner Büro geben in ihrem Artikel M&A im Jahr 2024 – Relevante Gesetzesänderungen, ein Ausblick, der am 10. Februar 2024 in der M&A Review erschien, einen Überblick über die wichtigsten aktuellen Entwicklungen und Gesetzesänderungen im deutschen Gesellschaftsrecht, die für den M&A-Markt in diesem Jahr von Bedeutung sein dürften.

Zum Beitrag in deutscher Sprache (im PDF-Format) gelangen Sie HIER.

The following Gibson Dunn lawyers prepared this article: Sonja Ruttman, Silke Beiter, and Birgit Friedl.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. For further information, please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s Mergers and Acquisitions or Private Equity practice groups, or the authors in Munich:

Sonja Ruttmann (+49 89 189 33 256, sruttmann@gibsondunn.com)
Silke Beiter (+49 89 189 33 271, sbeiter@gibsondunn.com)
Birgit Friedl (+49 89 189 33 251, bfriedl@gibsondunn.com)

Please join our team of Global Financial Regulatory experts as we discuss the latest legal and regulatory developments around the use of artificial intelligence (AI) by financial institutions across the world’s major financial centers. During this webcast, which we will host twice to cover all time zones, our market-leading team will provide their insights into:

Regulatory issues and concerns in relation to the current and potential use cases of AI by financial institutions; and
The attitudes of financial regulators across the US, United Kingdom, Europe, Hong Kong, Singapore and the Middle East to the rapidly evolving use of AI by the institutions they regulate.

In addition, the team will provide their predictions for the future of regulatory policy, supervision and enforcement in relation to the use of AI by financial institutions based on their extensive experience in these areas with the key global regulators.

PANELISTS:

Jeffrey L. Steiner is a partner in the Washington, D.C. office. He is chair of the firm’s Derivatives practice group and co-chair of the firm’s Global Financial Regulatory practice group. Jeffrey is also the co-chair to the firm’s Global Fintech and Digital Assets practice group and a member of the firm’s Financial Institutions, Energy and Public Policy practice groups. He advises a range of clients, including commercial end-users, financial institutions, dealers, hedge funds, private equity funds, clearinghouses, industry groups and trade associations on regulatory, legislative, enforcement and transactional matters related to OTC and listed derivatives, commodities and securities.

William R. Hallatt is a partner in the Hong Kong office. He is co-chair of the firm’s Global Financial Regulatory group and head of the Asia-Pacific Financial Regulatory practice. His full-service financial services regulatory practice provides comprehensive contentious and advisory support as a trusted advisor to the world’s leading financial institutions.

MCLE CREDIT INFORMATION:

This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.0 credit hour, of which 1.0 credit hour may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit.

Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.0 hour in the General category.

Application for approval is pending with the Colorado, Illinois, Texas, Virginia and Washington State Bars.

These decisions highlight how courts are continuing to grapple with challenges to DEI initiatives.

Last week, the Second Circuit and a district court in Texas issued decisions in cases involving challenges to DEI. In a case challenging a diversity scholarship program, the Second Circuit held that associations seeking to litigate based on injuries to their members must name at least one injured member to establish standing. And in deciding a challenge to a funding program administered by the federal Minority Business Development Agency, a district court in the Northern District of Texas held that the program violates the equal protection guarantee of the Fifth Amendment by presuming that certain racial groups are disadvantaged as part of determining their eligibility for assistance. Together, the decisions highlight how courts are continuing to grapple with challenges to DEI initiatives.

I. In Do No Harm v. Pfizer, the Second Circuit held that an association must name an injured member to establish standing.

On March 6, 2024, the United States Court of Appeals for the Second Circuit affirmed the district court’s dismissal of Do No Harm’s reverse-discrimination case against Pfizer in Do No Harm v. Pfizer, Inc., — F.4th —, 2024 WL 949506 (2d Cir. Mar. 6, 2024). The Second Circuit held that an organization must name at least one affected member to establish Article III standing under the “clear language” of Supreme Court precedent. The holding has implications for several other ongoing lawsuits in which plaintiff advocacy groups represented by the same law firm have relied on organizational standing to challenge diversity initiatives on behalf of anonymous members.

A. Background

On September 15, 2022, conservative medical advocacy organization Do No Harm filed suit against Pfizer, alleging that Pfizer discriminated against white and Asian students by excluding them from its Breakthrough Fellowship Program. Do No Harm v. Pfizer, Inc., 646 F. Supp. 3d 490 (S.D.N.Y. 2022). The program’s stated aim is to create a new generation of leaders from underrepresented groups by providing college seniors with summer internships, two years of employment post-graduation, mentoring, and a two-year scholarship for a full-time master’s program. To be eligible, applicants must “[m]eet the program’s goals of increasing the pipeline for Black/African American, Latino/Hispanic and Native Americans.” Do No Harm alleged that the criteria violate (1) Section 1981 of the Civil Rights Act of 1866 because the program is a contract that discriminates on the basis of race, (2) Title VI of the Civil Rights Act of 1964 because Pfizer receives federal funds to operate a racially discriminatory program, (3) the Affordable Care Act, and (4) multiple New York state laws banning racially discriminatory internships, training programs, and employment.

Do No Harm brought the suit on behalf of two purported members, anonymous Members A and B. Via anonymous declarations, Do No Harm stated that Member A is white, Member B is Asian-American, and both are Ivy League university juniors otherwise eligible for the scholarship and “able and ready” to apply. Do No Harm requested a temporary restraining order, and preliminary and permanent injunctions against the program’s eligibility criteria.

B. Analysis

In December 2022, a district court in the Southern District of New York denied Do No Harm’s motion for a preliminary injunction and dismissed the case for lack of subject matter jurisdiction. In particular, the court found that Do No Harm did not have Article III standing because it did not identify at least one member by name.

The association appealed to the Second Circuit, which heard oral argument on October 3, 2023.

In its opinion issued on March 6, the Second Circuit explained that the “decisive issues” in the appeal were (1) whether an association that relies on injuries to individual members to establish Article III standing on a preliminary injunction must name at least one injured member; and (2) whether a case should be dismissed or allowed to proceed if the plaintiff fails to establish Article III standing on a motion for preliminary injunction, but alleges facts sufficient to establish standing under the less onerous pleading standard.

On standing, the Second Circuit concluded that the district court was correct in its determination that Do No Harm lacked Article III standing because it did not name any member injured by Pfizer’s alleged discrimination. Relying on its decision in Cacchillo v. Insmed, Inc., 638 F.3d 401 (2d Cir. 2011), the court noted that the plaintiff’s burden to demonstrate standing for a preliminary injunction is “no less than that required on a motion for summary judgment.” As a result, the court was “not decid[ing] whether, at the pleading stage, Do No Harm was required to name names.”

Because Do No Harm was subject to a summary judgment burden of proof, it was required to “set forth by affidavit or other evidence specific facts” demonstrating that the association’s members suffered an injury in fact—here, by showing that members were ready and able to apply to the challenged program but for its allegedly discriminatory criteria. The court explained that while “a name on its own is insufficient to confer standing,” disclosure of members’ names “shows that identified members are genuinely ready and able to apply, and are not merely enabling the organization to lodge a hypothetical legal challenge.” As a result, the Second Circuit held that “an association must identify by name at least one injured member for purposes of establishing Article III standing under a summary judgment standard,” which is the same standard that is applicable on a motion for preliminary injunction.

Regarding the dismissal question, Do No Harm argued that even if it failed to establish standing on its motion for preliminary injunction, the fact that it had properly alleged standing under the pleading standard should preclude dismissal. Recognizing that other circuits have decided the issue differently, the Second Circuit upheld the district court’s dismissal of the case, explaining that “when a court determines it lacks subject matter jurisdiction, it cannot consider the merits of the preliminary injunction motion and should dismiss the action in its entirety.”

Judge Wesley wrote a concurring opinion, agreeing with the majority that Do No Harm lacked standing and that the proper action was to dismiss the case. But Judge Wesley disagreed about why Do No Harm lacked standing. In his view, Do No Harm lacked standing because it did not show an imminent injury from the program’s selection process. Judge Wesley noted that Do No Harm had submitted “virtually identical declarations” from anonymous members that were “vague and conclusory” and did not substantiate “a concrete readiness to apply” to the challenged program. According to Judge Wesley, under a summary judgment standard that was not enough to demonstrate standing.

II. Nuziard v. Minority Business Development Agency applies SFFA to a federal agency

On March 5, 2024, a federal district court held in Nuziard v. Minority Business Development Agency, No. 4:23-cv-00278-P, 2023 WL 3869323 (N.D. Tex.), that the racial presumption used in apportioning federal funds for minority business assistance violates the Fifth Amendment’s equal protection guarantee. The decision extends the Supreme Court’s reasoning in SFFA to federal agencies administering grant programs, holding that “[t]hough SFFA concerned college admissions, nothing in the decision indicates that the Court’s holding should be constrained to that context.”

A. Background

The Minority Business Development Agency (MBDA) is a federal agency within the Department of Commerce dedicated to assisting “socially or economically disadvantaged individuals.” 15 U.S.C. § 9501(9)(A). The MBDA’s formative statute defines the term “socially or economically disadvantaged individual” as “an individual who has been subjected to racial or ethnic prejudice or cultural bias . . . because of the identity of the individual as a member of a group, without regard to any individual quality of the individual that is unrelated to that identity.” 15 U.S.C. § 9501(15)(A). Under the statute, certain groups of people, like Black or African Americans, Hispanics or Latinos, American Indians or Alaska Natives, Asians, and Native Hawaiians or other Pacific Islanders, are presumed to be socially disadvantaged individuals. If individuals from other groups apply for funding through the MBDA, they must produce sufficient evidence to rebut the presumption that they are not disadvantaged in order to be eligible for assistance.

Three business owners sued the MBDA, alleging that they were able and ready to apply for MBDA programming, but the agency improperly required them to show why they were, in fact, socially or economically disadvantaged when it did not require this showing for other ethnic groups. The business owners claimed that this practice is unconstitutional.

B. Analysis

In a 93-page opinion, a district court in the Northern District of Texas held that the MBDA’s presumption that certain ethnicities are “socially or economically disadvantaged” violates the Fifth Amendment’s equal protection component.

Addressing the issue of standing first, the court held that two of the three plaintiffs had standing because they met the race-neutral criteria for the programs and took concrete steps to apply. While these two plaintiffs never actually applied for the program, the court found that they were harmed nevertheless because of the MBDA’s “imposition of additional obstacles [in the application process] because of their race.” The court reasoned that “it’s not that they were denied benefits they would otherwise certainly get, but that they didn’t have a shot because of their skin color.” The court held that the third plaintiff lacked standing because it was not clear that he manifested the requisite intent to apply for the funding.

The court then turned to the Agency’s argument that its presumption of social or economic disadvantage satisfies strict scrutiny because it remedies the effects of discrimination in access to credit and in private contracting markets. Regarding MBDA’s arguments about discrimination in access to credit, the court agreed that the “disenfranchisement” of minority business enterprise is “beyond dispute,” but held that the MDBA’s interest in remedying these inequalities “is not compelling because it concerns private-sector credit disparities, and the record does not show government participation contributed to such disparities.”

Regarding the MBDA’s assertion that it had a compelling interest in eliminating discrimination in private contracting markets, the court found this category to be too broad. However, the court agreed that the MBDA did have a compelling interest in addressing discrimination in government contracting, relying on the agency’s proffered statistical evidence of disparities.

Even so, the court held that the MBDA’s program for addressing its compelling interest in eliminating discrimination in government contracting was not narrowly tailored. Citing SFFA, the court held that the ethnicity classifications used by the MDBA were both over- and under-inclusive. They were underinclusive because they “arbitrarily exclude[d]” many disadvantaged individuals, like those from the Middle East and some parts of Asia, and they were overinclusive because they “include[d] large swaths of individuals without ever asking if individual applicants belonging to those groups have experienced discrimination.” The court also held that the presumption operated as a stereotype and did not have a logical endpoint, echoing the factors considered by the Supreme Court in SFFA.

In evaluating whether the program was narrowly tailored, the court also considered the factors set out by the Supreme Court in Paradise v. United States, 480 U.S. 149 (1987), which require that a narrowly tailored remedy be necessary, flexible, and minimally impactful to third parties. The court held that the MBDA’s presumption was neither necessary nor flexible enough to achieve the MDBA’s compelling interest, but that a “generous factfinder” could determine that available alternatives reduced the impact to third parties. Nevertheless, because the Agency’s presumption did not satisfy the other narrow-tailoring factors, it failed strict scrutiny.

The court concluded by granting summary judgment for two of the three plaintiffs on their equal protection claims, and permanently enjoining the MBDA from presuming that certain ethnicities were “socially or economically disadvantaged.” The court summed up its decision on the reasoning that “[r]ather than picking winners and losers based on skin pigmentation, if a ‘rising tide lifts all boats,’ a holistic, race-neutral approach to assisting marginalized businesses would serve [the Agency’s] interests just as well.”

The government has 60 days to appeal the district court’s decision.

Prior editions of our DEI Task Force Update may be found on our DEI Resource Center. Should you have questions about developments in this space or about your own DEI programs, please do not hesitate to reach out to any member of our DEI Task Force or the authors of this Update

Read More

The following Gibson Dunn lawyers prepared this update: Jason Schwartz, Katherine Smith, Mylan Denerstein, Zakiyyah Salim-Williams, Molly Senger, Blaine Evanson, Matt Gregory, Zoë Klein, Mary Lindsey Krebs*, and Lauren Meyer*.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s DEI Task Force or Labor and Employment practice group, or the following authors and practice leaders:

Jason C. Schwartz – Partner & Co-Chair, Labor & Employment Group
Washington, D.C. (+1 202.955.8242, jschwartz@gibsondunn.com)

Katherine V.A. Smith – Partner & Co-Chair, Labor & Employment Group
Los Angeles (+1 213.229.7107, ksmith@gibsondunn.com)

Mylan L. Denerstein – Partner & Co-Chair, Public Policy Group
New York (+1 212.351.3850, mdenerstein@gibsondunn.com)

Zakiyyah T. Salim-Williams – Partner & Chief Diversity Officer
Washington, D.C. (+1 202.955.8503, zswilliams@gibsondunn.com)

Molly T. Senger – Partner, Labor & Employment Group
Washington, D.C. (+1 202.955.8571, msenger@gibsondunn.com)

Blaine H. Evanson – Partner, Appellate & Constitutional Law Group
Orange County (+1 949.451.3805, bevanson@gibsondunn.com)

Matt Gregory – Partner, Appellate & Constitutional Law Group
Washington, D.C. (+1 202.887.3635, mgregory@gibsondunn.com)

*Mary Lindsey Krebs and Lauren Meyer are associates in the firm’s Washington, D.C. office. Mary Lindsey currently is admitted to practice law only in Tennessee, and Lauren is a recent law graduate and not admitted to practice law.

An Overview of the Highlights and Key Differences to the Proposed Rules

On March 6, 2024, the Securities and Exchange Commission (“SEC” or “Commission”), in a divided 3-2 vote along party lines, adopted final rules establishing climate-related disclosure requirements for U.S. public companies and foreign private issuers in their annual reports on Form 10-K and Form 20-F, as well as for companies looking to go public in their Securities Act registration statements. The Commission issued the Proposing Release in March 2022, which we previously summarized here, and received more than 22,500 comments (including more than 4,500 unique letters) from a wide range of individuals and organizations. The Adopting Release is available here and a fact sheet from the SEC is available here. A summary table discussing in more detail the notable changes between the Adopting Release and the Proposing Release is provided below.

We will provide more resources. Register here for Gibson Dunn’s webcast covering key aspects of the final rules and litigation developments on Tuesday, March 12, 2024. Our review of the final rules and Adopting Release is ongoing. We will publish a revised and more detailed summary of the final rules and related topics.

Overview of the final rules. The final rules will require disclosure in annual reports and registration statements of:

Material impacts on operations. How any climate-related risks have had, or are reasonably likely to have, material impacts on a company’s results of operations, strategy, or financial condition.
Impact on the company. How any such climate-related risks have materially affected or are reasonably likely to materially affect a company’s outlook, strategy, and business model, as well as a new financial statement note reporting expenditures and costs above a de minimis threshold resulting from severe weather events, other “natural conditions,” and certain carbon offsets and renewable energy certificates (“REC”).
Risk management/oversight process. Board and management governance and practices related to climate-related risk identification, assessment, management, and oversight.
GHG emissions and assurance. Scope 1 and Scope 2 greenhouse gas (“GHG”) emissions, if material, for accelerated and large accelerated filers only, with phased-in assurance by an independent GHG emissions attestation provider.
Targets/goals. Information regarding climate-related targets or goals that have materially affected, or are reasonably likely to materially affect, the company’s results of operations, business, or financial condition.
Mitigation efforts. Transition plans to address material transition risks, scenario analyses used for assessing material climate-related risk impacts, and internal carbon pricing if its use is material to managing material climate-related risks.

Significant changes from the rule proposal. The Commission made several notable changes to the proposed requirements, including to:

eliminate Scope 3 GHG emissions reporting requirements;
limit the requirement to report Scope 1 and 2 GHG emissions only if material, and exempt non-accelerated filers, smaller reporting companies and emerging growth companies from emissions reporting;
prolong the phase-in period for third-party assurance requirements for emissions reporting, and require only large accelerated filers to eventually (by 2033) obtain attestation at a “reasonable assurance” level;
remove the requirement to disclose directors’ climate-related expertise;
limit the Regulation S-X (“Reg. S-X”) financial footnote requirement to (1) expenditures, charges, and losses incurred as a result of severe weather events and other natural conditions that are 1% or more of either net income before tax and/or stockholders’ equity, depending on whether such amounts are expensed or capitalized, and (2) carbon offsets and renewable energy credits that are a material component of a company’s plan to achieve its disclosed climate-related targets or goals; and
adopt a new requirement to disclose, outside of the financial statements, the amount of material expenditures incurred as a result of any transition plan.

More broadly, the final rules adopt “materiality” qualifiers for many of the disclosure requirements, and the number of prescriptive disclosure requirements has been reduced. The preamble to the final rules also states that “traditional” notions of “materiality” will apply, as defined in Supreme Court precedents. Notwithstanding these changes, the final rules impose a significant reporting burden on companies and require substantial planning to prepare to comply.

Compliance phase-in period. The final rules will become effective 60 days after publication in the Federal Register (available here). The requirement to comply with the final rules will phase in over time, based on a company’s filer status. Registration statements will be subject to these disclosure obligations based on the fiscal years being reported. The first required disclosures for U.S. public companies with a calendar-end fiscal year will begin with the annual report on Form 10-K filed in:

Disclosure Requirement	Large Accelerated Filers	Accelerated Filers*	Non-Accelerated Filers / Smaller Reporting Companies / Emerging Growth Companies
Reg. S-K & Reg. S-X requirements other than:	2026 for FY 2025	2027 for FY 2026	2028 for FY 2027
Certain quantitative & qualitative disclosures under Items 1502(d)(2), 1502(e)(2), & 1504(c)(2)	2027 for FY 2026	2028 for FY 2027	2029 for FY 2028
Scopes 1 & 2 GHG Emissions**	2027 for FY 2026	2029 for FY 2028	N/A
Limited Assurance of GHG Emissions	2030 for FY 2029	2032 for FY 2031	N/A
Reasonable Assurance of GHG Emissions	2034 for FY 2033	N/A	N/A
Inline XBRL Tagging for Reg. S-K Requirements***	2027 for FY 2026	2027 for FY 2026	2028 for FY 2027

* This applies only to Accelerated Filers that are not also Smaller Reporting Companies or Emerging Growth Companies.
** Scope 1 & 2 GHG emissions for the most recent fiscal year may be reported as late as the second quarter Form 10-Q deadline.
*** Reg. S-X requirements will be tagged with the first disclosure.

Disclosure Category	Proposing Release Standards	Adopting Release Changes
Climate-Related Risk Oversight & Management (Items 1501 & 1503, Reg. S-K)	Describe climate-related risk oversight and management, including the role of the board in overseeing and management in assessing and managing climate-related risks, and related risk management processes.	Adopted substantially as proposed. Notable Changes: Removed several prescriptive disclosure requirements related to directors’ climate-related expertise, board discussion and consideration of climate-related risks, board target setting, and board oversight of climate-related opportunities; added instruction providing examples of relevant management expertise to disclose; and focused on processes for identifying, assessing, and managing material climate-related risks.
Climate-Related Risks and Impacts (Item 1502, Reg. S-K)	Describe material climate-related risks, including: their impacts, timeframe, and nature, and how the company considers or incorporates them; the business strategy’s resilience against changes in climate-related risks, including use of scenario analyses; and the company’s transition plan(s) adopted for its management strategy for such risks, including relevant metrics, targets, and actions taken.	Adopted with significant revisions. Notable Changes: Removed requirement to discuss business strategy resilience against changes in climate-related risks; revised to focus only on transition plans adopted for managing material transition risks (rather than those adopted within the company’s climate-related risk management strategy); scenario analyses used for assessing material climate-related risk impacts to the company (rather than as a tool used for assessing business resilience); and internal carbon pricing material to evaluating and managing climate-related risks (rather than any maintenance of an internal carbon price); and removed requirement to discuss metrics and targets for the identification and management of transition and physical risks.
GHG Emissions Reporting Disclosures (Items 1504 & 1505, Reg. S-K)	All companies must disclose Scope 1 and Scope 2 GHG emissions. All companies (except smaller reporting companies) must disclose Scope 3 GHG emissions if (i) material to the company or (ii) the company has set a GHG emissions target that includes Scope 3. Attestation is required for Scope 1 and Scope 2 for large accelerated and accelerated filers, subject to a phase in from limited assurance to reasonable assurance within two to four fiscal years after the compliance date. No attestation is required for Scope 3.	Adopted, with significant revisions, as Items 1505 & 1506. Notable Changes: Eliminated Scope 3 GHG emissions disclosure requirements; limited Scope 1 and Scope 2 GHG emissions disclosure to large accelerated filers and accelerated filers, and only if material (e.g., to an investor’s voting or investment decision, or, if omitted, as significantly altering the total mix of information); delayed emissions reporting deadline for the most recent fiscal year to the second quarter Form 10-Q filing deadline (or 225 days after fiscal year end for Form 20-F or registration statement filers), instead of requiring inclusion in the annual report on Form 10-K (or Form 20-F); delayed “limited assurance” attestation requirement for Scope 1 and 2 GHG emissions until the third fiscal year after the compliance date; and limited requirement to transition to “reasonable assurance” attestation to large accelerated filers only, and extended phase-in to the seventh fiscal year after the compliance date.
Targets, Goals & Transition Plans Disclosures (Item 1506, Reg. S-K)	Describe GHG emission or other climate-related targets or goals, including pathway to achievement, progress made, and use of carbon offsets or RECs.	Adopted, with some revisions, as Item 1504. Notable Changes: Revised disclosure trigger to focus only on climate-related targets or goals that materially affect (or are reasonably likely to materially affect) the business, financial condition, or results of operations, rather than requiring disclosure whenever the company has set a GHG emissions reduction or other climate-related target or goal; and added disclosure requirements related to material impacts and expenditures from such targets or goals (or actions related thereto).
Climate-Related Financial Statement Disclosure (Rules 14-01 and 14-02 of Reg. S-X)	Disclose (i) climate-related financial metrics related to the impacts of severe weather events and activities to reduce GHG emissions or exposure to transition risks if the absolute value of those impacts or expenditures/costs, as applicable, represents at least 1% of its corresponding financial statement line item and (ii) the impact of climate-related events on estimates and assumptions. Disclosures must be provided for the company’s most recently completed fiscal year and for each historical fiscal year included in the financial statements in the filing.	Adopted with significant revisions. Notable Changes: Replaced the requirement to disclose changes representing 1% of a line item with a new requirement to disclose aggregated cost and charges (and separately, recoveries) due to severe climate events and other natural conditions that exceed one percent of net income before tax or stockholders’ equity, depending on whether such amounts are expensed or capitalized; replaced the requirement to disclose costs/expenditures for general transition activities and mitigating risks from climate-related events and conditions with a requirement to disclose whether any estimates/assumptions used in creating the consolidated financial statements had material impacts from climate-related targets or transition plans disclosed by the company (in addition to severe weather events or natural conditions); and added requirement to disclose expensed or capitalized carbon offsets and RECs if material to a company’s transition plan.

Disclosure Category

Proposing Release Standards

Adopting Release Changes

Climate-Related Risk Oversight & Management

(Items 1501 & 1503, Reg. S-K)

Describe climate-related risk oversight and management, including the role of the board in overseeing and management in assessing and managing climate-related risks, and related risk management processes.

Adopted substantially as proposed.

Notable Changes:

Removed several prescriptive disclosure requirements related to directors’ climate-related expertise, board discussion and consideration of climate-related risks, board target setting, and board oversight of climate-related opportunities;
added instruction providing examples of relevant management expertise to disclose; and
focused on processes for identifying, assessing, and managing material climate-related risks.

Climate-Related Risks and Impacts

(Item 1502, Reg. S-K)

Describe material climate-related risks, including:

their impacts, timeframe, and nature, and how the company considers or incorporates them;
the business strategy’s resilience against changes in climate-related risks, including use of scenario analyses; and
the company’s transition plan(s) adopted for its management strategy for such risks, including relevant metrics, targets, and actions taken.

Adopted with significant revisions.

Notable Changes:

Removed requirement to discuss business strategy resilience against changes in climate-related risks;
revised to focus only on transition plans adopted for managing material transition risks (rather than those adopted within the company’s climate-related risk management strategy); scenario analyses used for assessing material climate-related risk impacts to the company (rather than as a tool used for assessing business resilience); and internal carbon pricing material to evaluating and managing climate-related risks (rather than any maintenance of an internal carbon price); and
removed requirement to discuss metrics and targets for the identification and management of transition and physical risks.

GHG Emissions Reporting Disclosures

(Items 1504 & 1505, Reg. S-K)

All companies must disclose Scope 1 and Scope 2 GHG emissions. All companies (except smaller reporting companies) must disclose Scope 3 GHG emissions if (i) material to the company or (ii) the company has set a GHG emissions target that includes Scope 3.

Attestation is required for Scope 1 and Scope 2 for large accelerated and accelerated filers, subject to a phase in from limited assurance to reasonable assurance within two to four fiscal years after the compliance date. No attestation is required for Scope 3.

Adopted, with significant revisions, as Items 1505 & 1506.

Notable Changes:

Eliminated Scope 3 GHG emissions disclosure requirements;
limited Scope 1 and Scope 2 GHG emissions disclosure to large accelerated filers and accelerated filers, and only if material (e.g., to an investor’s voting or investment decision, or, if omitted, as significantly altering the total mix of information);
delayed emissions reporting deadline for the most recent fiscal year to the second quarter Form 10-Q filing deadline (or 225 days after fiscal year end for Form 20-F or registration statement filers), instead of requiring inclusion in the annual report on Form 10-K (or Form 20-F);
delayed “limited assurance” attestation requirement for Scope 1 and 2 GHG emissions until the third fiscal year after the compliance date; and
limited requirement to transition to “reasonable assurance” attestation to large accelerated filers only, and extended phase-in to the seventh fiscal year after the compliance date.

Targets, Goals & Transition Plans Disclosures

(Item 1506, Reg. S-K)

Describe GHG emission or other climate-related targets or goals, including pathway to achievement, progress made, and use of carbon offsets or RECs.

Adopted, with some revisions, as Item 1504.

Notable Changes:

Revised disclosure trigger to focus only on climate-related targets or goals that materially affect (or are reasonably likely to materially affect) the business, financial condition, or results of operations, rather than requiring disclosure whenever the company has set a GHG emissions reduction or other climate-related target or goal; and
added disclosure requirements related to material impacts and expenditures from such targets or goals (or actions related thereto).

Climate-Related Financial Statement Disclosure

(Rules 14-01 and 14-02 of Reg. S-X)

Disclose (i) climate-related financial metrics related to the impacts of severe weather events and activities to reduce GHG emissions or exposure to transition risks if the absolute value of those impacts or expenditures/costs, as applicable, represents at least 1% of its corresponding financial statement line item and (ii) the impact of climate-related events on estimates and assumptions.

Disclosures must be provided for the company’s most recently completed fiscal year and for each historical fiscal year included in the financial statements in the filing.

Adopted with significant revisions.

Notable Changes:

Replaced the requirement to disclose changes representing 1% of a line item with a new requirement to disclose aggregated cost and charges (and separately, recoveries) due to severe climate events and other natural conditions that exceed one percent of net income before tax or stockholders’ equity, depending on whether such amounts are expensed or capitalized;
replaced the requirement to disclose costs/expenditures for general transition activities and mitigating risks from climate-related events and conditions with a requirement to disclose whether any estimates/assumptions used in creating the consolidated financial statements had material impacts from climate-related targets or transition plans disclosed by the company (in addition to severe weather events or natural conditions); and
added requirement to disclose expensed or capitalized carbon offsets and RECs if material to a company’s transition plan.

The following Gibson Dunn lawyers prepared this update: Aaron Briggs, Elizabeth Ising, Thomas Kim, Brian Lane, Julia Lapitskaya, Cynthia Mabry, Lori Zyskowski, Natalie Abshez, Lauren Assaf-Holmes, Spencer Bankhead, Irina Dykhne, Amanda Estep, Hannah Gonzalez, Chad Kang, Stefan Koller, Marie Kwon, Antony Nguyen, Andrea Shen, Meghan Sherley, Jack Strachan, and Maggie Valachovic.

Gibson, Dunn & Crutcher’s lawyers are available to assist in addressing any questions you may have about these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following lawyers in the firm’s Securities Regulation and Corporate Governance, Environmental, Social and Governance (ESG), Capital Markets, Administrative Law and Regulatory, and Environmental Litigation and Mass Tort practice groups:

Securities Regulation and Corporate Governance:
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com)
James J. Moloney – Orange County (+1 1149.451.4343, jmoloney@gibsondunn.com)
Lori Zyskowski – New York (+1 212.351.2309, lzyskowski@gibsondunn.com)
Brian J. Lane – Washington, D.C. (+1 202.887.3646, blane@gibsondunn.com)
Thomas J. Kim – Washington, D.C. (+1 202.887.3550, tkim@gibsondunn.com)
Ronald O. Mueller – Washington, D.C. (+1 202.955.8671, rmueller@gibsondunn.com)
Michael Scanlon – Washington, D.C.(+1 202.887.3668, mscanlon@gibsondunn.com)
Mike Titera – Orange County (+1 1149.451.4365, mtitera@gibsondunn.com)
Aaron Briggs – San Francisco (+1 415.393.8297, abriggs@gibsondunn.com)
Julia Lapitskaya – New York (+1 212.351.2354, jlapitskaya@gibsondunn.com)

Environmental, Social and Governance (ESG):
Susy Bullock – London (+44 20 7071 4283, sbullock@gibsondunn.com)
Elizabeth Ising – Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com)
Perlette M. Jura – Los Angeles (+1 213.229.7121, pjura@gibsondunn.com)
Ronald Kirk – Dallas (+1 214.698.3295, rkirk@gibsondunn.com)
Cynthia M. Mabry – Houston (+1 346.718.6614, cmabry@gibsondunn.com)
Michael K. Murphy – Washington, D.C. (+1 202.955.8238, mmurphy@gibsondunn.com)
Selina S. Sagayam – London (+44 20 7071 4263, ssagayam@gibsondunn.com)
William E. Thomson – Los Angeles (+1 213.229.7891, wthomson@gibsondunn.com)

Capital Markets:
Andrew L. Fabens – New York (+1 212.351.4034, afabens@gibsondunn.com)
Hillary H. Holmes – Houston (+1 346.718.6602, hholmes@gibsondunn.com)
Stewart L. McDowell – San Francisco (+1 415.393.8322, smcdowell@gibsondunn.com)
Peter W. Wardle – Los Angeles (+1 213.229.7242, pwardle@gibsondunn.com)

Administrative Law and Regulatory:
Eugene Scalia – Washington, D.C. (+1 202.955.8543, escalia@gibsondunn.com)
Jonathan C. Bond – Washington, D.C. (+1 202.887.3704, jbond@gibsondunn.com)

Environmental Litigation and Mass Tort:
Stacie B. Fletcher – Washington, D.C. (+1 202.887.3627, sfletcher@gibsondunn.com)
Michael K. Murphy – Washington, D.C. (+1 202.955.8238, mmurphy@gibsondunn.com)
Abbey Hudson – Los Angeles (+1 213.229.7954, ahudson@gibsondunn.com)

From the Derivatives Practice Group: We continue to see a lot of activity around virtual assets in Hong Kong, with Hong Kong’s Securities and Futures Commission weighing in most recently.

New Developments

CFTC’s Global Markets Advisory Committee Advances Three Recommendations. On March 7, the CFTC’s Global Markets Advisory Committee (GMAC), sponsored by Commissioner Caroline D. Pham, advanced three new recommendations intended to (1) promote U.S. Treasury markets resiliency and efficiency, (2) provide resources on the upcoming transition to T+1 securities settlement, and (3) publish a first-ever digital asset taxonomy to support U.S. regulatory clarity and international alignment. [NEW]
CFTC’s Market Risk Advisory Committee to Meet. The CFTC’s Market Risk Advisory Committee (MRAC) will meet on April 9 at 9:30 am ET. The MRAC will consider current topics and developments in the areas of central counterparty risk and governance, market structure, climate-related risk, and emerging technologies affecting derivatives and related financial markets. [NEW]
CFTC Staff Issues Advisory Regarding FBOT Regulatory Filings. On March 1, the CFTC’s Division of Market Oversight announced that it issued an advisory notifying all foreign boards of trade (FBOTs) registered under Part 48 of the CFTC’s regulations that, beginning April 1, 2024, certain regulatory filings (covered filings) should be submitted through the CFTC’s online filings portal, which has been updated for FBOT use. The portal has been available to registered FBOTs for the submission of public filings since March 1. Covered filings will be accepted via email until March 31. Beginning April 1, FBOTs should submit all Covered Filings exclusively through the portal. [NEW]
CFTC Extends Public Comment Period for Proposed Rule on Real-Time Public Reporting Requirements and Swap Data Recordkeeping and Reporting Requirements. On February 26, the CFTC announced that it is extending the deadline for the public comment period on a proposed rule that makes certain modifications to the CFTC’s swap data reporting rules in Parts 43 and 45 related to the reporting of swaps in the other commodity asset class and the data element appendices to Parts 43 and 45 of the CFTC’s regulations. The deadline is being extended to April 11, 2024. The proposed rule was published in the Federal Register on December 28, 2023, with a 60-day comment period scheduled to close on February 26, 2024. [NEW]
CFTC Staff Issues No-Action Letter Regarding Pre-Trade Mid-Market Mark for Certain Interest Rate Swaps Referencing SOFR. On February 22, the CFTC’s Market Participants Division (MPD) issued a no-action letter applicable to all registered swap entities in relation to the requirement in Regulation 23.431 that swap dealers and major swap participants (swap entities) disclose to certain counterparties the Pre-Trade Mid-Market Mark (PTMMM) of a swap. The no-action letter states that MPD will not recommend the CFTC take an enforcement action against a registered swap entity for its failure to disclose the PTMMM to a counterparty in certain interest rate swaps referencing the Secured Overnight Financing Rate that are identified in the no-action letter, provided that: (1) real-time tradeable bid and offer prices for the swap are available electronically, in the marketplace, to the counterparty; and (2) the counterparty to the swap agrees in advance, in writing, that the registered swap entity need not disclose a PTMMM for the swap. According to the CFTC, the no-action letter provides a similar no-action position as that in CFTC Staff Letter No. 12-58 for certain interest rate swaps referencing the London Interbank Offered Rate. CFTC Commissioner Christy Goldsmith Romero objected to the no-action letter, arguing that it inappropriately shifts the burden of understanding swap dealer’s conflicts and incentives back onto counterparties, upending the Dodd-Frank Act’s intent.
CFTC Approves Three Proposed Rules and Other Commission Business. On February 20, the CFTC approved three proposed rules through its seriatim process: (1) Regulations to Address Margin Adequacy and to Account for the Treatment of Separate Accounts by Futures Commission Merchants; (2) Foreign Boards of Trade; and (3) Requirements for Designated Contract Markets and Swap Execution Facilities Regarding Governance and the Mitigation of Conflicts of Interest Impacting Market Regulation Functions. All three proposals have a comment deadline of April 22, 2024. Additionally, the CFTC issued an order of exemption from registration as a derivatives clearing organization (DCO) to Taiwan Futures Exchange Corporation and approved an amended order of registration for ICE NGX Canada, Inc., adding environmental contracts to the scope of contracts it is eligible to clear as a DCO.
CFTC Extends Comment Period on Proposed Rules for Operational Resilience Frameworks. On February 20, the CFTC extended the comment period on its proposed rules implementing requirements for operational resilience frameworks for futures commission merchants, swap dealers and major swap participants. The new deadline is April 1, 2024.

New Developments Outside the U.S.

SFC Issues Guidance on Disciplinary Process Under Virtual Assets Regime. On February 28, Hong Kong’s Securities and Futures Commission (SFC) published a guide outlining the disciplinary process under the new licensing regime for virtual asset trading platforms (AMLO VATP Regime). Under the new regime, introduced via an amendment to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615), the SFC has the power to discipline its licensees, comprising firms, their responsible officers and those involved in their management, if it finds that such licensee’s conduct suggests that it is, or was at any time, guilty of misconduct or not fit and proper. The disciplinary process under the AMLO VATP Regime is based largely on the disciplinary process applicable to persons licensed by or registered with the SFC (including those involved in their management) under the Securities and Futures Ordinance (Cap. 571). The SFC indicated that when determining whether to take disciplinary action and the level of sanction, the SFC will consider, among other things, the nature and seriousness of the conduct, the amount of profits accrued or loss avoided, and circumstances specific to the firm or individual. [NEW]
HKMA Sets Out Expectations on Tokenized Product Offerings. On February 20, the Hong Kong Monetary Authority (HKMA) published a circular covering the sale and distribution of tokenized products. According to the HKMA, the prevailing supervisory requirements and consumer/investor protection measures for the sale and distribution of a product are also applicable to its tokenized form as it has terms, features and risks similar to those of the underlying product. The HKMA clarified that authorized institutions should conduct adequate due diligence and fully understand the tokenized products before offering them to customers and on a continuous basis at appropriate intervals. Authorized institutions are also expected to act in the best interest of their customers and make adequate disclosure of the relevant material information about a tokenized product, including its key terms, features and risks. Finally, the HKMA indicated that authorized institutions should put in place proper policies, procedures, systems and controls to identify and mitigate the risks arising from tokenized product-related activities.
HKMA Sets Standards for Digital Asset Custodial Services. On February 20, the HKMA issued guidance for authorized institutions interested in offering custody services for digital assets. The HKMA expects authorized institutions to undertake a comprehensive risk assessment followed by the implementation of appropriate policies to manage identified risks. The entire process should be overseen by the board and senior management. The HKMA also requires authorized institutions to conduct independent systems audits, store a substantial portion of client digital assets in cold storage, ensure that private keys are secured within Hong Kong and provide all records to HKMA whenever requested. Authorized institutions should notify the HKMA and confirm that they meet the expected standards in the guidance within 6 months from the date of the guidance (i.e. February 20, 2024).

New Industry-Led Developments

ISDA Publishes Whitepaper Charting the Next Phase of India’s OTC Derivatives Market. On March 4, ISDA published a new whitepaper that explores the growth of India’s financial markets and makes a series of market and policy recommendations to encourage the further development of a safe and efficient over-the-counter (OTC) derivatives market. The whitepaper proposes several initiatives that industry participants and regulators could take that ISDA believes will create deeper and more liquid domestic derivatives markets and enhance risk management practices. The recommendations are centered on five key pillars: (1) Broaden product development, innovation and diversification; (2) Foster adoption of similar market and risk principles across regulatory regimes; (3) Enhance market access and diversification of participants in the OTC derivatives market; (4) Ensure growth in a safe and efficient manner; and (5) Encourage greater alignment with international principles and practices. [NEW]
ISDA Extends Digital Regulatory Reporting InitiativeDRR: The Answer to Reporting Rule Rush. On February 26, ISDA reported that it has worked to extend its Digital Regulatory Reporting (DRR) initiative to cover the rush of reporting rules, which starts with Japan on April 1, followed by the EU on April 29, the UK on September 30 and Australia and Singapore on October 21. ISDA stated that iIn each case, regulators are revising their rules to incorporate globally agreed data standards in an effort to improve the cross-border consistency of what is reported and the format in which it is submitted – a process that started in December 2022 with the rollout of the first phase of the US Commodity Futures Trading Committee’s revised swap data reporting rules.

The following Gibson Dunn attorneys assisted in preparing this update: Jeffrey Steiner, Adam Lapidus, Marc Aaron Takagaki, Hayden McGovern, and Karin Thrasher.

Jeffrey L. Steiner, Washington, D.C. (202.887.3632, jsteiner@gibsondunn.com)

Michael D. Bopp, Washington, D.C. (202.955.8256, mbopp@gibsondunn.com)

Michelle M. Kirschner, London (+44 (0)20 7071.4212, mkirschner@gibsondunn.com)

Darius Mehraban, New York (212.351.2428, dmehraban@gibsondunn.com)

Jason J. Cabral, New York (212.351.6267, jcabral@gibsondunn.com)

Adam Lapidus – New York (212.351.3869, alapidus@gibsondunn.com)

Stephanie L. Brooker, Washington, D.C. (202.887.3502, sbrooker@gibsondunn.com)

Roscoe Jones Jr., Washington, D.C. (202.887.3530, rjones@gibsondunn.com)

William R. Hallatt, Hong Kong (+852 2214 3836, whallatt@gibsondunn.com)

David P. Burns, Washington, D.C. (202.887.3786, dburns@gibsondunn.com)

Marc Aaron Takagaki, New York (212.351.4028, mtakagaki@gibsondunn.com)

Hayden K. McGovern, Dallas (214.698.3142, hmcgovern@gibsondunn.com)

Karin Thrasher, Washington, D.C. (202.887.3712, kthrasher@gibsondunn.com)

This update provides a recap of 2023 highlights for capital markets, M&A activity, royalty finance transactions and clinical funding arrangements, along with expectations for 2024.

The past five years have been particularly tumultuous in the biopharma sector. Strong capital markets and M&A activity into early 2020 were whipsawed during the pandemic, with equity valuations climbing significantly through early 2021 before dropping dramatically through the fourth quarter of 2023. While dedicated healthcare funds have remained in the market during this time, generalist funds pulled back significantly in 2022 and 2023, leaving the sector with insufficient capital on the whole to support the number of public (and aspiring to be public) biopharma companies. This was reflected in the fact that over 200 Nasdaq-listed biopharma companies were trading below their cash balances as of Q32023. As a result, many biopharma companies sought less dilutive sources of capital, including royalty-based financing and third-party funding of clinical trials, while others explored sales, reverse mergers and liquidations. At the same time, a select group of companies with particularly attractive assets (either de-risked or in a therapeutic space with high investor interest) were still able to raise capital on favorable terms.

Starting in the fourth quarter of 2023, we saw the XBI rally with the broader market, which seemed to signal a bottoming out of the market and an ability more broadly to access capital. Also during this time, large pharma has amassed substantial cash balances coming out of the pandemic and from the sale of blockbuster GLP-1 drugs. This led to a strong year in 2023 for larger M&A transactions (over $1 billion), albeit with the sense that it was a buyer’s market taking advantage of the lower equity valuations of the target companies. Looking ahead, we expect a more stable capital environment in 2024, which will support capital formation and continued M&A activity, although uncertainty remains with increased geopolitical tensions, a pending presidential election in the United States and continued economic uncertainty globally.

As we enter this new year, we are cautiously optimistic that the coming year will provide a favorable deal environment for the biopharma sector and represent a return to a more balanced environment. Please read more below.

Read More

We invite you to join our team of seasoned attorneys and industry leaders for a webcast, where we will provide a recap of 2023 highlights for capital markets, M&A activity, royalty finance transactions and clinical funding arrangements, along with expectations for the Life Sciences deal market in 2024.

Register for our Webcast: Please join us on March 12, 2024: “Life Sciences Review and Outlook 2024.”

The following Gibson Dunn lawyers prepared this update: Ryan Murr, Branden Berns, Todd Trattner, Karen Spindler, and Melanie Neary.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s Life Sciences practice group, or the authors in San Francisco:

Ryan Murr (+1 415.393.837, rmurr@gibsondunn.com)
Branden Berns (+1 415.393.4631, bberns@gibsondunn.com)
Todd Trattner (+1 415.393.8206, ttrattner@gibsondunn.com)
Karen Spindler (+1 415.393.8298, kspindler@gibsondunn.com)
Melanie Neary (+1 415.393.8243, mneary@gibsondunn.com)

Co-Chair of our Privacy, Cybersecurity and Data Innovation Practice Group, Ahmed Baladi (Paris), is joined by partners Robert Spano (London and Paris) and Vivek Mohan (Palo Alto), Co-Chairs of Gibson Dunn’s Artificial Intelligence Practice Group, for a discussion about the interplay between AI and the processing of personal data. They provide an overview of the landmark EU AI Act, comment on the AI regulatory landscape in the U.S., and examine the challenges that multinational companies face when considering AI and GDPR requirements.

Previous Episode | Next Episode (Coming Soon)

HOSTS:

Ahmed Baladi is a partner in the Paris office of Gibson, Dunn & Crutcher, where he is co-chair of the firm’s Privacy, Cybersecurity and Data Innovation practice and a member of the Artificial Intelligence practice. Ahmed has developed renowned experience in a wide range of privacy and cybersecurity matters including compliance and governance programs in light of the GDPR. He regularly represents companies and corporate executives on investigations and procedures before Data Protection Authorities. He also advises a variety of clients on data breach and national security matters including handling investigations, enforcement defense and crisis management.

Robert Spano is a partner in the London and Paris offices and the co-chair of the firm’s Artificial Intelligence Practice Group. He practices in the field of EU litigation, international dispute resolution and advises on regulatory matters. He is a member of the Transnational Litigation, International Arbitration, Environmental, Social and Governance (ESG), Privacy, Cybersecurity and Data Innovation, Technology Regulatory and Litigation, and Public Policy Practice Groups.

Vivek Mohan is a partner in Gibson Dunn’s Palo Alto office, where he is co-chair of the Artificial Intelligence practice and a member of the Privacy, Cybersecurity and Data Innovation practice. Vivek advises clients on legal, regulatory, compliance, and policy issues on a global scale with a focus on cutting-edge technology issues. His practice spans regulatory response, counseling, advocacy, and transactional matters allowing him to provide clients with strategic advice whether they are responding to a regulatory inquiry, setting up a privacy program, responding to a data breach, or selling the company. The Silicon Valley Business Journal named Vivek to its 2023 40 Under 40 list, featuring “executives that have shaped the Bay Area —and are paving the way for what comes next.”

In 2023, the U.S. Department of Justice heavily favored plea agreements over non-prosecution agreements and deferred prosecution agreements to resolve corporate criminal cases.

In 2023, the U.S. Department of Justice (“DOJ”) continued its recent trend of resolving fewer cases using corporate non-prosecution agreements (“NPAs”) and deferred prosecution agreements (“DPAs”).[1] DOJ overwhelmingly favored corporate guilty pleas last year, with a total of 48 plea agreements compared to 19 NPAs and DPAs publicized by year-end.

In this client alert, we: (1) report key statistics regarding corporate resolutions, including an analysis of NPAs, DPAs, and Corporate Enforcement Policy (“CEP”) disgorgement from 2000 through the present and of corporate guilty pleas between 2022 and 2023; (2) assess recent developments in DOJ and SEC enforcement policy and priorities; (3) survey recent developments in DPA regimes abroad; and (4) summarize the agreements from July 31, 2023[2] through December 31, 2023.

Chart 1 below reflects the NPAs and DPAs that Gibson Dunn has identified through public-source research from 2000 through the end of 2023. Of the 19 total agreements in 2023, there were 12 DPAs and seven NPAs. The SEC, consistent with its trend since 2016, did not enter into any NPAs or DPAs in 2023.

Chart 2 reflects total monetary recoveries related to publicly available NPAs and DPAs from 2000 through the end of 2023. At approximately $1.5 billion, 2023 recoveries associated with DPAs and NPAs are higher than those in 2022; however, with the exception of 2022, they remain strikingly low compared to recoveries in the years following the 2008 economic recession, with the next-lowest recovery occurring in 2017, at approximately $2.7 billion. At $4.7 billion, recoveries associated with plea agreements in 2023 far outstripped those associated with NPAs and DPAs.

Chart 3 reflects the relative mix of NPAs, DPAs, and declinations-with-disgorgement since DOJ first began issuing the latter agreements under the then-FCPA Pilot Program in 2016. In 2023, DOJ has issued three public declinations-with-disgorgement pursuant to its Corporate Enforcement Policy, the highest number since 2018, when it issued four such resolution letters.

Charts 4 and 5 below focus on 2022 and 2023, and show the numbers of DPAs, NPAs, plea agreements, and declinations‑with‑disgorgement in those years, as well as recoveries associated with each category of agreement.[3] These charts illustrate well a recent statement by Acting Assistant Attorney General Nicole Argentieri in November 29, 2023, that DOJ has “been using all options when it comes to the appropriate form of our resolutions, including CEP declinations, non-prosecution agreements, deferred prosecution agreements, and guilty pleas.”[4]

It is too early to tell whether an increased use of guilty pleas may be contributing to the relative decline in NPAs and DPAs. We do note, however, that 2022 and 2023 included several high-dollar-value, parent company-level guilty pleas, suggesting that DOJ could be increasingly pursuing guilty pleas in more complex cases. Indeed, in 2022 and 2023, all of the resolutions with recoveries over $1 billion were guilty pleas; there has not been a DPA involving recoveries of $1 billion or more since 2021. Enforcement activity is variable, however, with the natural lifecycles of investigations sometimes yielding what appear to the public to be burst of activity followed by periods of relative quiet. Thus, while we can note, for example, that DOJ Antitrust concluded eight public NPAs and DPAs in 2020-21 compared to three in 2022-23, and that the U.S. Attorney’s Office for the Central District of California entered into five public NPAs and DPAs in 2020-21 and none in 2022-23, it is difficult to say whether these statistics signal any kind of shift in focus or standards or if they simply illustrate the natural ebb and flow of enforcement actions.

The form, structure, and elements of corporate resolutions continues to evolve. More than 20 years ago, Gibson Dunn led the dramatic shift to NPAs and DPAs from corporate pleas. The explosion of policy initiatives by DOJ will shape the landscape in the coming years. What is particularly noteworthy is the range of U.S. Attorneys’ offices prosecuting corporate cases from Mississippi to North Dakota to Oregon. Historically, corporate prosecutions were concentrated in the biggest DOJ offices or Main Justice units, but it is now routine that any one of the 93 U.S. Attorneys’ offices feel empowered to prosecute corporations.

Continued Developments in DOJ Corporate Enforcement Policy

Corporate Enforcement Landscape in 2023

In the final months of 2023, DOJ continued to emphasize that corporate enforcement is in an “era of expansion and innovation” when discussing its corporate enforcement policies, priorities, and actions over the past year.[5]

DOJ continued to make clear that the intersection of national security and corporate crime is one area of significant expansion. In September 21, 2023 remarks, Principal Associate Deputy Attorney General (“PADAG”) Marshall Miller reiterated DOJ’s increased corporate enforcement efforts in the national security realm and cautioned that, for companies who operate in parts of the world controlled by autocracies, “the message is simple: national security laws must rise to the top of your compliance risk chart.”[6] In an address on October 4, 2023, Deputy Attorney General (“DAG”) Monaco similarly described the “rapid expansion of national security-related corporate crime” as the “biggest shift in corporate criminal enforcement” that she has seen in her time in government.[7] PADAG Miller further reinforced this viewpoint in an address on November 28, 2023, stating that DOJ was “seeing national security dimensions in more familiar areas of corporate crime” and noting that “intellectual property theft and international corruption, for example, interrupt supply chains, divert disruptive technologies to dark places, and fuel the misdeeds of rogue nation-states.”[8] PADAG Miller used the occasion to highlight that DOJ was “surging resources to address the challenge – adding more than 25 new corporate crime prosecutors to our National Security Division and increasing by 40% the number of prosecutors in the Criminal Division’s Bank Integrity Unit.”[9]

DOJ also emphasized that it has developed new tools and remedies to punish and deter wrongdoing. As DAG Monaco noted in October 4, 2023 remarks, DOJ has recently announced resolutions that “include divestiture of lines of business, specific performance as part of restitution and remediation, and tailored compensation and compliance requirements.”[10] For example, DAG Monaco pointed to the DPAs with pharmaceutical companies Teva and Glenmark as the first time that DOJ required divestiture as part of a corporate criminal resolution, as both companies were required to divest business lines that allegedly were central to the companies’ price-fixing conspiracy.[11] DAG Monaco cited the Suez Rajan resolution as another example in which the Department employed specific performance as a remedy—the company was required to transport nearly one million barrels of contraband Iranian crude oil to the United States, where it now is subject to civil forfeiture proceedings.[12] On November 29, 2023, Acting AAG Argentieri highlighted DOJ’s use of data analytics to identify potential corporate misconduct.[13] Acting AAG Argentieri also made clear that while DOJ has “been using all options when it comes to the appropriate form of our resolutions,” it will “not hesitate to require a guilty plea where the circumstances warrant it, particularly where the nature and circumstances of the offense are especially egregious.”[14]

Both DAG Monaco and Acting AAG Argentieri have also touted early successes of the Department’s pilot program on Compensative Incentives and Clawbacks, which was announced in March 2023 and detailed in a prior Gibson Dunn client alert.[15] DAG Monaco described the pilot program as “already bearing fruit,” pointing to the recent resolutions with Albemarle and Corficolombiana which included incentive requirements pursuant to the pilot program’s requirement that companies include compliance-promoting criteria in their compensation systems.[16] In the Albemarle resolution, the company received credit for proactively withholding future bonuses of employees who engaged in misconduct in the form of an offset against its criminal monetary penalty equal to the amount of the bonuses that were withheld.[17] Corficolombiana agreed to implement compliance criteria in its compensation and bonus system.[18]

In the final months of 2023, DOJ underscored also the Department’s continued “innovation” in the realm of voluntary self-disclosure, including a new uniform safe harbor policy for disclosures made following mergers and acquisitions, which we cover in more detail in the next section of this report.[19] PADAG Miller made clear that DOJ has placed a “new and enhanced premium on voluntary self-disclosure” throughout 2023.[20] Specifically, he highlighted the Department’s aim for consistency and transparency with its uniform roll-out of a single voluntary self-disclosure policy across U.S. Attorneys’ Offices, discussed in further detail in our 2023 Mid-Year Corporate Resolutions Update.[21] In her address on November 29, 2023, Acting AAG Argentieri explained that these policies encouraging companies to voluntarily self-disclose misconduct serve another valuable purpose—namely, allowing DOJ “to build stronger cases against culpable individuals more quickly.”[22] In support, she cited the fact that 14 individuals had been charged in connection with the Fraud Section’s 2023 corporate resolutions and declinations with disgorgement.[23]

Announcement of Consumer Protection Branch Voluntary Disclosure Policy

On March 3, 2023, DOJ publicly released a voluntary self-disclosure policy for the Consumer Protection Branch (“CPB”) of the Civil Division. The policy, dated February 2023, is designed to encourage companies to voluntarily self-disclose to the CPB “potential violations of federal criminal law involving the manufacture, distribution, sale, or marketing of products regulated by, or conduct under the jurisdiction of, the Food and Drug Administration (FDA), the Consumer Product Safety Commission (CPSC), the Federal Trade Commission (FTC), or the National Highway Traffic Safety Administration (NHTSA),” and also to disclose “potential misconduct involving failures to report to, or misrepresentations to, those agencies.”[24] The policy states that as long as there are no aggravating actors, CPB will not seek a corporate guilty plea for disclosed conduct if the company has: (1) voluntarily self-disclosed directly to CPB; (2) fully cooperated as described in JM § 9-28.700; and (3) timely and appropriately remediated the criminal conduct as described in U.S.S.G. § 8B2.1(b)(7), “including providing restitution to identifiable victims and improving its compliance program to mitigate the risk of engaging in future illegal activity.”[25] In addition, the policy provides that “CPB will not require the imposition of an independent compliance monitor for a cooperating company that voluntarily self-discloses the relevant conduct if, at the time of resolution, the company also demonstrates that it has implemented and tested an effective compliance program as described in U.S.S.G. § 8B2.1.”[26] This new policy likely will trigger more corporate self-disclosures and may be the fodder for more NPAs and DPAs.

Announcement of M&A Safe Harbor Policy

On October 4, 2023, in remarks at the Society of Corporate Compliance and Ethics’ Annual Compliance & Ethics Institute, DAG Monaco announced that, for the first time, DOJ has adopted a uniform safe harbor policy for voluntary disclosures that companies make in the context of mergers and acquisitions (“M&A”).[27] This new M&A Safe Harbor Policy is the latest in a series of DOJ updates that are aimed at incentivizing voluntary self-disclosures. DAG Monaco explained that DOJ seeks to incentivize acquiring companies to “timely disclose misconduct uncovered during the M&A process” by clarifying timelines and conduct necessary to achieve a presumption of declination for an acquired entity’s misconduct.[28]

The new Mergers & Acquisitions Safe Harbor Policy applies department-wide to conduct discovered and disclosed by an acquiring company during the M&A process—whether before or after closing. Under the policy, acquiring companies will receive the presumption of a declination if they promptly and voluntarily disclose misconduct discovered in bona-fide, arms-lengths M&A transactions, provided that they cooperate with DOJ, timely and “fully remediate” the misconduct, and make appropriate restitution and disgorgement.[29] DAG Monaco explained that, “[to] ensure predictability,” DOJ was setting “clear timelines” for the disclosure and remediation. Specifically, under the policy, companies have a baseline of six months from the date of closing to disclose misconduct discovered at the acquired entity (regardless of whether the misconduct was discovered pre- or post-acquisition) and a baseline of one year from the date of closing to fully remediate the misconduct.[30] However, these deadlines are subject to a reasonableness analysis dependent on the facts, circumstances, and complexity of a particular transaction. For example, DAG Monaco explained that DOJ could extend these deadlines in certain circumstances and that “companies that detect misconduct threatening national security or involving ongoing or imminent harm can’t wait for a deadline to self-disclose.”[31] Under the policy, aggravating factors at the acquired company also will not impact the acquiring company’s ability to receive a declination.[32] Depending on the circumstances, the acquired entity may also qualify for voluntary self-disclosure benefits, including potentially a declination.[33]

Creation of the International Corporate Anti-Bribery Initiative

In a November 29, 2023 keynote address at the 40th International Conference on the Foreign Corrupt Practices Act (“FCPA”), Acting AAG Argentieri emphasized DOJ’s continued coordination with foreign authorities on investigations that involve misconduct in multiple countries.[34] Acting AAG Argentieri announced the creation of the International Corporate Anti-Bribery initiative (“ICAB”)—a new initiative intended to build on and deepen DOJ’s partnerships with foreign enforcement authorities. ICAB, which will be led by three prosecutors with corruption experience, seeks to strengthen DOJ’s ability to identify, investigate, and prosecute foreign bribery offenses in certain targeted regions.[35]

Continued Developments in SEC Corporate Enforcement Policy

Culture of Proactive Compliance

In addition to the developments in DOJ enforcement policy described above, the SEC also provided insight into its corporate enforcement policies, priorities, and actions over the past year.[36]

In an October 24, 2023 address at the New York City Bar Association’s Compliance institute, SEC Enforcement Director, Gurbir Grewal, provided guidance on how compliance professionals, who “serve as the first lines of defense against misconduct,” can work to create a “culture of proactive compliance.”[37] Director Grewal explained that proactive compliance requires three components: (1) education, (2) engagement, and (3) execution. He first explained that compliance professionals must educate themselves “about the law and [relevant] external developments,” such as new actions, examination priorities, or SEC rules, with a particular focus on “emerging and heightened risk areas.”[38] Director Grewal stated that compliance professionals must “really engage” with their company’s business units and seek to understand “their activities, strategies, risks, financial incentives, counterparties, sources of revenue and profits.”[39] Director Grewal then noted that proactive compliance also requires effective implementation of meaningful policies and procedures, through “leadership, training, constant oversight and the right tone at the top.”[40] He stressed the importance of self-reporting, adding that, if compliance officials were to detect a securities violation, “the best thing to do would be to self-report and cooperate.”[41]

Director Grewal also addressed the issue of Chief Compliance Officer (“CCO”) liability, which he referred to as “the proverbial elephant that shows up in any room where a regulator like me is speaking to those working in compliance.”[42] Director Grewal emphasized that the SEC does “not second-guess good faith judgments of compliance personnel made after reasonable inquiry and analysis.”[43] He explained that the SEC generally brings enforcement actions against CCOs where: (1) they affirmatively participated in misconduct unrelated to their compliance role or responsibilities; (2) they misled regulators; or (3) there was a “wholesale failure” by the CCO in carrying out their compliance responsibilities.[44] As an example of the first category, Director Grewal cited the case of Steven Teixeira, the Chief Compliance Officer of a U.S. unit of a Chinese international payment processing company, LianLian Global.[45] The SEC charged Teixeira with insider trading based on allegations that he “traded based on material nonpublic information that he surreptitiously obtained from his girlfriend’s laptop about upcoming mergers and acquisitions in which her employer was involved” and then traded on that information.[46] For the second category, Director Grewal pointed to the SEC’s case against Meredith Simmons.[47] Ms. Simmons was charged with “aiding and abetting and causing a firm’s books and records violation when she provided backdated and factually inaccurate compliance review memos to the SEC, falsely claiming that she created the memos contemporaneously with the reviews”[48] while acting in her capacity of CCO for a New York-based hedge fund.[49] Director Grewal described the “wholesale failure” cases as “rare,” noting that such cases generally involved “no education, no engagement and no execution.”[50]

International Developments

As noted in previous updates (see, e.g., our 2021 Year-End Update), several countries outside the United States have developed DPA-like regimes in the past several years. In particular, such agreements have now been used by enforcement agencies in Brazil (see our 2019 Year-End Update for details), Canada (see our 2018 Mid-Year Update for details), France (see our 2019 Year-End and 2020 Mid-Year Updates for details), Singapore, and the United Kingdom (see our 2014 Year-End Update for details), with varying degrees of frequency. Notably, Canada saw its second-ever DPA-like agreement (known as a remediation agreement) in 2023, and following a two-year hiatus on DPAs in the UK, 2023 saw its first-ever use by an enforcement entity other than the Serious Fraud Office.

United Kingdom

In a significant development, on December 5, 2023, the UK’s Crown Prosecution Service (“CPS”) entered into its first-ever DPA with a corporate entity. Previously, DPAs had only been used by the UK’s Serious Fraud Office (“SFO”). Entain plc, a London-headquartered global online sports betting and gaming business, entered into the DPA with the CPS to resolve allegations that Entain had failed to prevent bribery by its third-party suppliers and employees in Turkey, in violation of Section 7 of the UK Bribery Act (Failure to Prevent Bribery).[51] The alleged offenses took place from July 2011 to December 2017 in Turkey, leading to an investigation by HM Revenue and Customs.[52] Entain has since exited its business from Turkey and significantly strengthened its global compliance controls. According to the CPS, the full statement of facts will be published after any criminal proceedings against individuals are completed.

As part of the agreement, Entain agreed to pay a total of £615 million ($782.9 million as of the time of this writing).[53] This figure includes a financial penalty and disgorgement of profits of £585 million, payment of CPS’s costs of £10 million, and a charitable payment of £20 million.[54] In the court’s approval of the agreement, Entain was credited for its “extensive cooperation” with the investigation.[55] And in determining that a DPA was an appropriate resolution, the court considered the disproportionate consequences (e.g., Entain potentially losing its licenses in other jurisdictions) that the company might have suffered if the company had been criminally prosecuted instead.[56]

Although it is the first time that the CPS has utilized this resolution mechanism, the Entain DPA is the second-largest corporate criminal settlement in UK history, surpassed in value only by the SFO’s DPA with Airbus in 2020, which we discussed in our 2020 Mid-Year Update. It remains to be seen whether CPS will expand its use of DPAs in corporate criminal proceedings, but companies facing criminal charges in the UK will undoubtedly look to the Entain DPA as a test case going forward.

France

After a quiet first few months of the year, France’s prosecuting agencies entered into multiple DPA-like agreements (known as convention judiciaire d’intérêt public, or “CJIPs”) since May 2023.

On May 15, 2023, Guy Dauphin Environnement (“GDE”), a recycling and waste management company, entered into a CJIP with the French National Prosecutor’s Office (“PNF”) to resolve allegations of public corruption related to the construction of a landfill.[57] The PNF alleged that GDE attempted to influence a local government council’s decision regarding the landfill by inviting the president of the council and his chief of staff to lunches and dinners, and by considering the appointment of the president of the council to GDE’s supervisory board, among other favors.[58] Under the CJIP, GDE agreed to pay a fine of €1.23 million (approximately USD $1.35 million) and spend three years implementing a compliance program supervised by the French Anti-Corruption Agency.[59]

Additionally, on May 15, 2023, Bouygues Bâtiment Sud Est, an engineering, construction, and real estate development firm, and its subsidiary Linkcity Sud Est, a real estate developer, entered into a CJIP with the PNF to resolve allegations that the companies benefited from irregularities in the awarding of several public procurement contracts. Specifically, the companies allegedly provided employees of the Hospital of Annecy Genevoi, a state-owned entity, with restaurant invitations and concert tickets in connection with the award of several construction projects, and several procurement selection criteria were allegedly disregarded throughout the contract process as a result of these favors.[60] As part of the CJIP, Bouygues Bâtiment Sud Est and Linkcity Sud Est agreed to pay a fine of €7.96 million (approximately USD $8.7 million) and submit to the supervision of the French Anti-Corruption Agency for a three-year period for purposes of developing the companies’ compliance program.[61]

On June 27, 2023, Technip UK Limited, a subsidiary of TechnipFMC plc, and Technip Energies France SAS, a subsidiary of Technip Energies NV—all global providers of oil and gas services, entered into a CJIP with the PNF to resolve allegations of bribery and corruption of foreign public officials between 2008 and 2012 related to Technip’s subsea projects in Africa.[62] Under the CJIP, Technip UK and Technip Energies France agreed to pay fines of €154.8 million and €54.1 million, respectively, for a total of €208.9 million (approximately $227.5 million as of this writing).[63]

On October 11, 2023, Acieries Hachette et Driout, a steel mill in Saint-Dizier, France, signed a CJIP with the financial prosecutor of the Tribunal judiciaire de Belfort.[64] According to the financial prosecutor, an investigation revealed that Acieries Hachette et Driout produced checks to another company as a bribe to ensure that this company would sell Hachette’s steel products to Cryostar, an industrial equipment supplier in the medical and industrial gas, natural gas, hydrogen, and clean energy fields. Acieries Hachette et Driout was instructed to pay €1.2 million in fines to settle the allegations.

On November 28, 2023, the Seves Group SARL and Sediver SAS signed a CJIP with the Financial Public Prosecutor at the Paris judicial court.[65] According to the allegations, the two companies fraudulently obtained public contracts in the Democratic Republic of Congo as part of several projects to modernize electrical infrastructure. These companies obtained these contracts by paying Fichtner, a company appointed by the World Bank to manage the infrastructure rehabilitation program. The scheme was then reproduced in Algeria, Nigeria, and Libya. The World Bank had been investigating this program since January 2015. Sediver self-reported the scheme to the Financial Public Prosecutor in Nanterre in April 2017. The CJIP imposes a fine of more than €13 million and requires the implementation of a compliance program under the supervision of the French Anti-Corruption Agency for a term of three years.

On November 29 2023, the Marseille prosecutor’s office validated three CJIPs entered into with companies of the Omnium development group.[66] An investigation had been opened into SEMIVIM (a “bailleur social,” which is a local company that develops then rents housing at moderate rates, and often is treated like a governmental service) in the city of Martigues, under suspicion of bribery in the allocation of construction projects during a public bidding process. The Société d’isolation et de peinture Omnium, Sud est étanchéité, and Entreprise Ventre, three companies of the Omnium group, were accused of bribing an employee of SEMIVIM to secure these projects. One of the Omnium executives admitted that the company was awarded a construction project called “Paradis Saint Roch” as a result of his participation in this scheme. The companies were indicted in May 2022 on counts of corruption of a person charged with a public service mission, influence-peddling on a person charged with a public service mission, concealment of favoritism, and concealment of illegal taking of interests. The companies of the Omnium group must pay a public interest fine of €1,700,000. A three-year compliance program must also be established under the control of the French Anti-Corruption Agency. And the CJIP requires payments of €125,000 to SEMIVIM and €125,000 to the municipality of Martigues in compensation for their damages. The investigation into other actors in the bribery scheme is ongoing.

Finally, on December 4, 2023, the French National Financial Prosecutor’s Office validated a CJIP with ADP Ingénierie, a company of Groupe ADP.[67] ADP operates three Paris airports and 26 international airports, and ADP Ingénierie provides engineering for airport development projects. The agreement terminates the investigations relating to bribery in contracts concluded by ADP Ingénierie in Libya in 2007 and 2008, and in the Emirate of Fujairah in 2011. To settle the allegations, the company agreed to pay a fine of €14.6 million under the terms of the CJIP. The also CJIP provides that ADP International and its subsidiaries are subject to a compliance program of two years managed by an independent Integrity Compliance Officer (not by the French Anti-Corruption Agency), and ADP SA agreed to implement improvements to its group-wide compliance program.

Canada

On May 17, 2023, the Public Prosecution Service of Canada (PPSC) announced that Ultra Electronics Forensic Technology Inc. (UEFTI), a 3D imaging and automated ballistic identification company, had entered into a remediation agreement with the PPSC earlier in the year, to resolve allegations of public corruption related to the bribing of government officials in the Philippines. UEFTI allegedly attempted to bribe the two officials to win a contract with the Philippine National Police for a ballistic identification system.[68]

As part of the four-year remediation agreement, UEFTI agreed to pay a penalty of C$6,593,178 (approximately USD $4.9 million); a surcharge of C$659,318 (approximately USD $492,000); and forfeiture of C$3,296,589 (approximately USD $2.5 million). UEFTI must also cooperate in any future investigations related to the conduct and submit to the supervision of an external auditor for a four-year term, paid for by UEFTI.[69]

2023 Agreements Since Mid-Year Update

The remainder of this alert summarizes corporate resolutions from July 31, 2023 to December 31, 2023. The appendix at the end of the alert provides key facts and figures regarding these resolutions, along with links to the resolution documents themselves (where available).

Albemarle Corporation (NPA)

On September 28, 2023, Albemarle Corporation (“Albermarle”), a specialty chemicals manufacturing company, entered into a three-year NPA with the U.S. Department of Justice’s Criminal Division, FCPA Section, and the U.S. Attorney’s office for the Western District of North Carolina.[70] The agreement resolved allegations of a bribery conspiracy involving public officials in Vietnam, Indonesia, and India from 2009 through 2017.[71] The government alleged that the company conspired to pay bribes to government officials through its third-party sales agents and subsidiary employees, in exchange for obtaining and retaining chemical catalyst business with state-owned refineries worth approximately $98.5 million.[72] According to the agreement, Albermarle self-reported the conduct 16 months after learning of the misconduct but the government did not view the disclosure as “reasonably prompt” under the Criminal Division Corporate Enforcement and Voluntary Self-Disclosure Policy and the U.S. Sentencing Guidelines.[73]

In connection with the agreement, Albemarle agreed to pay a total of $218.4 million, including $98.2 million in penalties.[74] Albemarle also agreed to pay another $98.5 million in forfeiture of the proceeds of the alleged violation, of which DOJ credited $81.9 million on account of the company’s agreement to pay $103.6 million in disgorgement and prejudgment interest to resolve a parallel investigation by the SEC.[75] The agreement imposes additional corporate obligations on the Company, including a requirement to self-report evidence or allegations of conduct that may constitute a violation of the FCPA anti-bribery or accounting provisions, and to modify its compliance program to ensure it maintains an effective system of internal accounting controls and a rigorous anti-corruption compliance program, but does not impose an independent monitor.

Amani Investments, LLC (Guilty Plea)

On January 19, 2023 Amani Investments, LLC, (“Amani”), a registered Money Service Business and operator of kiosks that exchanged U.S. currency for Bitcoin, entered into a plea agreement with the U.S. Attorney’s Office for the Eastern District of California to resolve allegations that Amani violated the federal Bank Secrecy Act, which requires money services businesses to report each transaction involving more than $10,000 in currency via a Currency Transaction Report (“CTR”).[76] According to the agreement, on multiple occasions Amani exchanged over $10,000 in U.S. currency for Bitcoin without filing a CTR, resulting in more than $1,000,000 in unreported transactions.[77]

Pursuant to the agreement, Amani agreed to forfeit a 2019 Mercedes-Benz, several gold coins, approximately 0.041836 Bitcoin, a Bitcoin Casascius coin (a physical coin that contains a Bitcoin redemption code), and $1,000,000 in U.S. currency.[78] The parties also agreed that the government would recommend to the court a two- to three-level reduction in the computation of the applicable offense level for sentencing purposes if Amani clearly demonstrates acceptance of responsibility for its conduct including by meeting with and assisting the probation officer in the preparation of the pre-sentence report, being truthful and candid with the probation officer, and not otherwise engaging in conduct that constitutes obstruction of justice.[79] Amani expressly reserved the right to argue that it is unable to pay a fine, and that no fine be imposed.[80]

In sentencing Amani, the court accepted the agreed-upon forfeiture order proposed by the parties.[81] The court also sentenced Amani to 36 months of probation.[82] Neither the plea agreement nor judgment contained any heightened compliance or reporting requirements.

Aylo Holdings S.à.r.l. (DPA)

On December 21, 2023, Aylo Holdings S.à.r.l. (formerly known as “MindGeek S.à.r.l.”) and its subsidiaries (collectively referred to as “MindGeek”) entered into a DPA with the United States Attorney’s Office for the Eastern District of New York to resolve allegations that MindGeek, which operated and maintained websites through which third parties could post and distribute pornographic videos, engaged in “unlawful monetary transactions” from 2017 to 2020.[83] Such transactions included receiving payments for hosting videos from certain content providers despite having indications that those providers engaged in sex trafficking and misled numerous actresses to participate in pornographic films by luring the actresses with advertisements for “modeling” jobs and only later revealing the true nature of the work.[84] According to DOJ’s allegations, those content providers proceeded to misrepresent to their victims that the films would not be posted online and, in some cases, would pressure women into participating with threats of legal action, “outing,” or canceling their flights home if they failed to perform.[85]

The DPA requires MindGeek, which did not self-disclose its conduct to DOJ, to pay a total monetary penalty of $1,844,953—including a $974,692 criminal fine and $870,261 in forfeiture—and to pay compensation to the individuals who were defrauded, or otherwise a victim of sex trafficking by the content providers at issue, and had their images posted on websites owned, operated, or controlled by MindGeek.[86] MindGeek also agreed to undergo a three-year monitorship by an independent compliance monitor with expertise in screening and monitoring illegal content for online platforms.[87]

Banque Pictet et Cie SA (DPA)

On December 4, 2023, the U.S. Department of Justice announced that Banque Pictet et Cie SA (“Banque Pictet”), a bank based in Switzerland, entered into a three-year DPA with the U.S. Attorney’s Office for the Southern District of New York, resolving allegations that the bank conspired with U.S. taxpayers to hide $5.6 billion in assets from the IRS in undeclared bank accounts.[88] This alleged conspiracy involved the bank helping U.S. taxpayers hide assets, sometimes through intermediaries, and then to repatriate assets to the United States to avoid discovery by U.S. authorities.[89] The alleged undeclared assets of U.S. taxpayers totaled approximately $5.6 billion across 1,637 bank accounts, and taxpayers allegedly evaded approximately $50.6 million in U.S. taxes through the conspiracy.[90] The bank also allegedly circumvented a Qualified Intermediary Agreement that the bank had signed with the IRS in April 2002 to ensure that U.S. securities held by the bank were subject to appropriate tax withholding.

Banque Pictet agreed to pay a total of approximately $122.9 million to the U.S. Treasury, which included approximately $31.8 million in restitution, $52.2 million in forfeiture, and a $39 million penalty.[91] Additionally, the bank agreed to provide annual reports attesting to its continuing compliance with the terms of the DPA and providing specific updates regarding its performance of the DPA’s terms. Among other terms, the DPA requires: continued cooperation with DOJ and the Internal Revenue Service, including compliance with requirements of the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (the “Swiss Bank Program”),[92] a self-disclosure program announced by the Tax Division of DOJ in 2013, and under which a total of 84 banks self-disclosed misconduct in exchange for NPAs. The DPA also includes a requirement to close relevant accounts, a prohibition on opening additional violative accounts, and self-reporting of violations of other U.S. criminal laws during the DPA’s term.[93]

Binance (Guilty Plea)

Binance is the world’s largest crypto currency exchange by trading volume and it is an overseas, non U.S. company. On November 21, 2023, Binance reached a settlement to resolve a multi-year investigation with DOJ, the Commodity Futures Trading Commission (“CFTC”), the U.S. Department of Treasury’s Office of Foreign Asset Control (“OFAC”), and the Financial Crimes Enforcement Network (“FinCEN”).[94] Gibson Dunn represented Binance in this resolution.

Although Binance is a non-U.S. company, the enforcers alleged that it historically had U.S. users on its platform. As a result, the enforcers alleged that Binance needed to register as a foreign-located money services business and maintain an adequate anti-money laundering (“AML”) program under U.S. law because it did business “wholly or in substantial part” within the United States.[95]

Prior to the Binance resolution, resolutions with cryptocurrency exchanges generally involved U.S. exchanges, which are prohibited from providing financial services to persons in jurisdictions subject to sanctions regulated by OFAC.[96] As a non-U.S. person, Binance could do business in sanctioned jurisdictions.[97] However, because Binance’s platform historically had both U.S. users and users from sanctioned jurisdictions, enforcers alleged that Binance used a “matching engine [. . .] that matched customer bids and offers to execute cryptocurrency trades.”[98] The failure to have sufficient controls on the matching engine meant that it would “necessarily cause” transactions between U.S. users and users subject to U.S. sanctions.[99] Enforcers took the position that these transactions violated U.S. civil and criminal sanctions law because the International Emergency Economic Powers Act (“IEEPA”) prohibits, among other things, “causing” a violation of sanctions by another party.[100] In other words, by pairing trades between a historical U.S. user and person from a sanctioned jurisdiction, Binance was causing the U.S. person to violate their sanctions obligations. This resolution illustrates the breadth of U.S. jurisdiction to police sanctions offenses, even against non-U.S. companies.

Criminally, Binance pled guilty to (1) conspiracy to conduct an unlicensed money transmitting business, in violation of 18 U.S.C. § 1960 and 31 U.S.C. § 5330 for failure to register,[101] (2) failure to maintain an effective anti-money laundering program, in violation of 31 U.S.C. §§ 5318(h), 5322,[102] and (3) violating the International Emergency Economic Powers Act, 50 U.S.C. § 1701 et seq.[103] Binance also entered into parallel civil settlements with FinCEN (failure to register, AML program) and OFAC (sanctions).[104] Further, Binance also entered into a settlement with the CFTC for violating various sections of the Commodities Exchange Act.[105]

As part of the resolution, which binds the entire DOJ Criminal and National Securities Divisions, Binance agreed to pay $4.3 billion to the U.S. government over an approximately 18-month period.[106] Binance also agreed to continue with certain compliance enhancements and agreed to a three-year DOJ monitorship.[107]

Centera Bioscience (Guilty Plea)

On October 30, 2023, Centera Bioscience (d/b/a Nootropics Depot), an Arizona-based marketer and distributor of pharmaceutical drugs, entered into a plea agreement with the U.S. Attorney’s Office for the District of New Hampshire, to resolve allegations that Centera Bioscience distributed misbranded drugs into interstate commerce that had not been approved by the Food and Drug Administration (FDA).[108] According to the plea agreement, Centera Bioscience “sold multiple drugs, including tianeptine, phenibut, adrafinil, and racetam drugs” on Nootropicsdepot.com and other online platforms between April 2018 and December 2021 in violation of 21 U.S.C. § 331(a), which prohibits introducing adulterated or misbranded drugs into interstate commerce.[109] These misbranded drugs were distributed throughout the United States, including in New Hampshire where the charges were brought, even though the FDA has not approved any of these drugs for use in the United States. The Company’s CEO, Paul Eftang, also pleaded guilty to the same offense.

As part of the plea agreement, Centera Bioscience agreed to forfeit $2.4 million and forfeit all drugs that had been seized in connection with this matter by the FDA and Customs and Border Protection.[110] The company also agreed to a term of three years of probation. Sentencing has been scheduled for February 5, 2024.

Corporación Financiera Colombiana SA (DPA)

On August 10, 2023, Corporación Financiera Colombiana SA (“Corficolombiana”) entered into a three-year DPA with the U.S. Department of Justice’s Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the District of Maryland to resolve allegations that the Company had conspired to offer and pay more than $23 million in bribes to high-ranking Colombian government officials to win a contract to construct and operate a highway toll road known as the Ocaña-Gamarra Extension, in violation of the FCPA.[111]

Pursuant to the DPA, Corficolombiana agreed to pay a criminal penalty of $40.6 million.[112] However, the DPA also includes a provision allowing the Company to credit up to half of that criminal penalty against the amount assessed against the company and its subsidiary, Estudios y Proyectos del Sol S.A.S. (“Episol”), by Colombia’s Superintendencia de Industria y Comercio (“SIC”), for violations of Colombian laws related to the same conduct, so long as the company and Episol drop their appeals of the SIC resolution.[113] In addition, Corficolombiana will pay over $40 million in disgorgement and prejudgment interest as part of a resolution of the SEC’s parallel investigation.[114] The company has implemented, and agreed to continue to implement, compliance policies and procedures to prevent and detect violations of the FCPA and other applicable anti-corruption laws, including implementing compliance criteria in its compensation and bonus system.[115] During the DPA’s term, Corficolombiana is also required to provide periodic reports regarding its compliance program and to self-report any evidence or allegations of further violations of FCPA anti-bribery or accounting provisions.[116]

Freepoint Commodities LLC (Guilty Plea)

On December 14, 2023, Freepoint Commodities LLC (“Freepoint”) entered into a three-year DPA with the DOJ’s Criminal Division Fraud Section and the U.S. Attorney’s Office for the District of Connecticut, to resolve allegations that Freepoint was involved in a corrupt scheme to pay bribes to Brazilian government officials in violation of anti-bribery provisions of the FCPA.[117] DOJ separately charged three individuals in relation to the alleged bribery scheme, including a Freepoint senior oil trader and agent.[118]

According to the DPA, from approximately 2012 and continuing through 2018, Freepoint employees and agents agreed to pay approximately $3.9 million to Eduardo lnnecco, a Brazilian oil and gas broker working as an agent for various energy trading companies including Freepoint.[119] Payments were allegedly made for the purpose of bribing Brazilian foreign officials to secure improper commercial advantages to obtain business from Petrobras, a Brazilian state-owned and state-controlled oil company.[120] Freepoint allegedly earned over $30 million in connection with the conduct at issue.[121]

Freepoint received cooperation credit despite its “limited” and “reactive” cooperation in early phases of the investigation.[122] Freepoint did not receive voluntary disclosure credit but received credit based on efforts to cooperate with the investigation, conducting internal analyses of the alleged conduct, and committing to enhance its compliance programs.[123] In light of the cooperation efforts, Freepoint’s criminal penalty was set at $68 million which reflected a discount of 15% off the bottom of the U.S. Sentencing Guidelines fine range, and forfeiture of over $30 million.[124] Freepoint has also agreed to disgorge more than $7.6 million to the Commodity Futures Trading Commission (“CFTC”) in a related matter which will be credited up to 25% of the forfeiture amount against disgorgement.[125]

Freepoint agreed to continue cooperating with DOJ in any ongoing or future criminal investigation relating to the conduct at issue, and to report evidence of any other conduct that would violate U.S. antibribery provisions.[126] It also agreed to continue implementing an effective corporate compliance program and report progress annually to the Fraud Section and the U.S. Attorney’s Office for the District of Connecticut for the term of the agreement, with a possible extension of an additional year if the Fraud Section and Office determine that Freepoint knowingly violates any provision of the agreement or fails to fulfill all obligations.[127]

GDP Tuning LLC and Custom Auto of Rexburg LLC (Guilty Plea)

On August 23, 2023, GDP Tuning LLC and Custom Auto of Rexburg LLC (d/b/a Gorilla Performance), and the companies’ owner, Barry Pierce (collectively, “Gorilla Performance Parties”), entered into a plea agreement with the U.S. Attorney’s Office for the District of Idaho and the Department of Justice’s Environment and Natural Resources Division to resolve allegations that Gorilla Performance Parties had conspired to violate the Clean Air Act (“CAA”).[128] The defendants admitted to purchasing and selling tuning devices and software that tampered with vehicles’ onboard diagnostic systems for emissions. These devices allowed vehicle owners to remove vehicle emissions control equipment without the vehicles’ on-board diagnostic systems detecting the removal and activating “limp mode,” which substantially reduces vehicles’ speeds. Such monitoring devices in vehicles are required under the CAA.[129]

Gorilla Performance Parties agreed to pay $1 million in criminal fines in total and to not manufacture, sell, or install devices that defeat vehicles’ emissions controls.[130] The defendants also agreed not to commit future violations of the CAA or other federal, state, or local laws or environmental regulations.[131] The maximum financial penalty is $500,000 or twice the gross gain, on the approximately $14 million in revenue the defendants received from the scheme.[132] The plea agreements also include five years of probation.[133] As of the date of this publication, the defendants had not been sentenced.

Glenmark Pharmaceuticals Inc., USA (DPA) and Teva Pharmaceuticals USA, Inc. (DPA)

On July 31, 2023, Glenmark Pharmaceuticals Inc., USA (“Glenmark”) entered into a three-year DPA with DOJ Antitrust Division resolving allegations of conspiracy to fix prices of pravastatin, a cholesterol drug, and other generic drugs sold in the United States in violation of the Sherman Act, 15 U.S.C. § 1.[134] Glenmark was charged with conspiring with Teva Pharmaceuticals, whose DPA was announced the same day and is discussed below, among other companies.

Glenmark agreed to a $30 million criminal penalty. The agreement notes that DOJ and Glenmark agreed to a penalty below the relevant Guidelines fine range due to Glenmark’s inability to pay a higher monetary penalty without substantially jeopardizing its continued viability.[135] In addition to the penalty, the agreement requires that Glenmark divest its pravastatin drug line—the Glenmark and Teva DPAs are the first to use the remedy of divestiture.[136] The company has implemented, and agreed to continue to implement, compliance policies and procedures to prevent and detect antitrust violations.[137] During the DPA’s term, Glenmark is required to provide periodic reports regarding its compliance program.[138]

Approximately one month later, on August 21, 2023, Teva Pharmaceuticals USA, Inc. (“Teva”) entered into a three-year DPA with DOJ Antitrust Division also resolving allegations of conspiracy to fix prices of pravastatin and other generic drugs sold in the United States in violation of the Sherman Act, 15 U.S.C. § 1.[139]

Teva agreed to a $225 million criminal penalty and to donate $50 million worth of certain medications to humanitarian organizations.[140] According to DOJ’s press release, this is the largest penalty to date for a domestic antitrust cartel.[141] In addition to the penalty, like the Glenmark DPA, the agreement requires Teva to divest its pravastatin drug line.[142] Unlike the Glenmark DPA, the agreement requires Teva to retain a monitor to facilitate, oversee, and report on the divestiture.[143] Teva’s DPA is particularly notable for its express discussions of both (1) the fact that a guilty plea would result in mandatory exclusion from federal programs and the collateral impact that a guilty plea would have on customers and employees; and (2) the fact that the DPA represents the parent company’s second such agreement, Teva having entered into a DPA in 2016 to resolve FCPA charges.[144] The DPA states that although DOJ “generally disfavors multiple deferred prosecution agreements, the resolution here is appropriate given that the matters at issue in the 2016 resolution did not involve recent or similar types of misconduct; the same personnel, officers, or executives; or the same entities; and in light of the extraordinary remedial measures required.”[145] This reflects the more nuanced approach to “recidivism” articulated in the 2023 revisions to DOJ’s Corporate Enforcement Policy, discussed in our 2023 Mid-Year Update.

H&D Sonography LLC (DPA)

On August 15, 2023, H&D Sonography LLC (“H&D”), a New Jersey-based diagnostic testing company, entered into a three-year DPA with the U.S. Attorney’s Office for the District of New Jersey to resolve allegations that H&D conspired to violate the federal Anti-Kickback Statute by overpaying physicians for office space in return for increased diagnostic test referrals.[146] According to the DPA, from January 2015 to December 2018, H&D subleased space in physicians’ offices for the purpose of conducting diagnostic tests.[147] H&D allegedly paid the physicians for more hours than it used, at times paying more than the offices’ monthly rents.[148] According to the government, in return for these payments the physicians referred patients to H&D, which then billed Medicare for the tests.[149]

The DPA does not impose any criminal penalties or restitution on H&D, nor does it impose a monitor. Concurrently with the DPA, H&D and its owners agreed to a $95,000 civil settlement to resolve allegations that H&D’s Medicare billing violated the False Claims Act.[150] The settlement states that $75,000 of the settlement amount is restitution.[151]

HealthSun Health Plans, Inc. (Declination with Disgorgement)

On October 25, 2023, DOJ’s Fraud Section issued a CEP declination to HealthSun Health Plans, Inc. (“HealthSun”).[152] The HealthSun declination is one of three CEP declinations issued by DOJ in 2023.[153] According to the declination letter, the government’s investigation found evidence that from approximately 2015 to 2020, HealthSun’s former Director of Medicare Risk Adjustment Analytics submitted, and caused HealthSun to submit to the U.S. Department of Health and Human Services’ Centers for Medicare & Medicaid Services (“CMS”), false and fraudulent information to increase reimbursements to HealthSun for certain Medicare Advantage enrollees.[154] DOJ alleged that CMS made approximately $53 million in overpayments to HealthSun because of HealthSun’s conduct. DOJ stated that it had declined to prosecute the case based on an assessment of the factors in the Corporate Enforcement and Voluntary Disclosure Policy, including HealthSun’s timely and voluntary self-disclosure of the misconduct, full and proactive cooperation, and timely and appropriate remediation.[155] According to the declination letter, HealthSun’s cooperation included producing information about all individuals involved in the misconduct and information obtained from imaging several business and personal cell phones; and its remediation included reporting and correcting the false information submitted to CMS and implementing and testing a risk-based Medicare Advantage compliance program.

In connection with the declination, HealthSun agreed to disgorge the approximately $53 million that DOJ alleged CMS overpaid.[156] In connection with the alleged scheme, the company’s former Director of Medicare Risk Adjustment Analytics has been charged with conspiracy to commit health care fraud, as well as wire fraud and major fraud against the United States.[157]

Lifecore Biomedical, Inc. (Declination with Disgorgement)

On November 16, 2023, DOJ’s Fraud Section and the United States Attorney’s Office for the Northern District of California informed Lifecore Biomedical, Inc. (“Lifecore”) that they were declining to prosecute the company for alleged bribes paid to Mexican government officials in violation of the FCPA.[158] According to the declination letter, Lifecore’s former subsidiary Yucatan Foods L.P. (“Yucatan”) owned and operated Procesadora Tanok S. de R.L. de C.V. (“Tanok”).[159] Yucatan and Tanok allegedly paid bribes to Mexican government officials before and after Lifecore acquired Tanok and Yukatan on December 1, 2018.[160] Specifically, the government alleged that individuals from the companies used a third party to pay approximately $14,000 in bribes to a Mexican government official to secure a wastewater discharge permit.[161] Tanok employees and agents also allegedly paid a third party approximately $310,000 to prepare fraudulent manifests while knowing that a portion of the funds were being used to bribe Mexican officials to sign the manifests.[162]

During Lifecore’s pre-acquisition diligence, a Yucatan officer involved in the misconduct took steps to conceal the misconduct from Lifecore and its auditor.[163] Once Lifecore discovered the misconduct during its post-acquisition integration, it conducted an internal investigation and voluntarily disclosed the conduct to DOJ.[164] Lifecore subsequently divested itself of the legacy Yucatan and Tanok business.[165]

The government stated in its declination letter that the financial benefit attributable to the alleged conduct was $1,286,060, and that Lifecore had incurred $879,555 in expenses by constructing a wastewater treatment plant and paying Mexican regulators the duties it owed.[166] Lifecore has agreed to disgorge the remaining $406,505.[167] Lifecore also agreed to continue to cooperate with the government’s ongoing investigation and to require any successor-in-interest to agree to the obligations in the letter, including continued cooperation with the government.[168]

New Orleans Steamboat Company (Guilty Plea)

On August 16, 2023, the New Orleans Steamboat Company (“NOSC”) entered into a plea agreement with the U.S. Attorney’s Office for the Eastern District of Louisiana, resolving allegations that it violated the Clean Water Act by discharging excess ballast material into the Inner Harbor Navigation Canal in New Orleans.[169] The allegations arose out of a 2019 incident in which a former NOSC employee notified the Louisiana State Police Hazmat Hotline that he had captured a video of NOSC employees and supervisors dumping a black, unknown waste material from the M/V City of New Orleans into the Inner Harbor Navigation Canal.[170] In exchange for NOSC’s guilty plea, the U.S. Attorney’s Office agreed it would not bring any other charges against NOSC or any related companion entity that operates out of the same office as NOSC arising from or related to the alleged conduct.[171]

Following the hearing, NOSC was sentenced to a $50,000 fine—the maximum penalty for the violation, one year probation, and a $400 special assessment fee.[172]

Nomura Securities International, Inc. (NPA)

On August 22, 2023, Nomura Securities International, Inc. (“NSI”), a U.S.-based broker-dealer subsidiary of Japanese financial services firm Nomura Holdings, entered into an NPA with the U.S. Attorney’s Office for the District of Connecticut.[173] The NPA resolved allegations that, from approximately 2009 to 2013, NSI, through its employees, engaged in a scheme to defraud its customers by making fraudulent misrepresentations in the purchase and sale of residential mortgage-backed securities.[174] NSI traders allegedly took “secret and unearned compensation from NSI customers” by misrepresenting certain pricing information in trades—for example, by lying to the buyer about the seller’s asking price.[175] NSI also allegedly took steps to conceal the fraudulent conduct from its customers and from employees who did not participate in the scheme.[176]

Pursuant to the NPA, NSI agreed to pay a penalty of $35 million and $807,718 in restitution to impacted customers.[177] The restitution amount credits NSI for remediation payments of $20,125,615 previously made to impacted customers in connection with NSI’s related settlement agreement with the SEC in 2019.[178] The agreement does not contain a requirement for NSI to retain an independent compliance monitor, both because NSI represented that it had taken steps to improve its compliance program to “prevent and detect violations of the securities fraud statutes and other applicable anti-fraud laws,” and because “certain structural changes in the secondary market for [residential mortgage-backed securities]” made it less likely that the relevant conduct would occur again.[179] However, the agreement does impose an ongoing obligation on NSI to self-report “any evidence or allegation of a criminal violation of U.S. federal law.”[180]

NuDay (Guilty Plea)

On September 8, 2023, NuDay entered into a plea agreement with the U.S. Attorney’s Office for the District of New Hampshire, to resolve three counts of failure to file export information, in violation of 13 U.S.C. § 305.[181] According to the plea agreement, NuDay, a New Hampshire-based nonprofit, made over 100 shipments of humanitarian goods to Syria between May 2018 and December 2021 while Syria was subject to sanctions.[182] NuDay allegedly claimed in shipping documents that these shipments were of nominal value to keep them below the $2,500 threshold, above which NuDay would have been required to file an Electronic Export Information through the Automated Export System maintained by the Census Bureau and U.S. Customs and Border Protection.[183] In reality, the value of some of NuDay’s shipments exceeded the threshold, with one of NuDay’s shipments valued at more than $8.3 million.[184] According to the agreement, NuDay used two companies to transport the goods: AJ Worldwide Services transported shipments from the United States to Turkey, and Safir Forwarding shipped them from Turkey to Syria.[185] As the exporting company, NuDay bore responsibility for providing AJ Worldwide Services with truthful information about the value of the goods and their ultimate destination for reporting to the United States Department of Commerce.[186] The plea agreement states that NuDay falsely informed AJ Worldwide Services that the final destination for the shipments was Turkey, rather than identifying the destination as Syria, which would have required an export license.[187]

In the plea agreement, NuDay and the government agreed on a recommended fine of $25,000 and five years of probation.[188] They also stipulated that the founder of NuDay, Nadia Alawa, and her family will have no further involvement with the organization.[189] On December 28, 2023, NuDay was sentenced to five years of probation, the maximum penalty for an organizational defendant.[190] NuDay was also ordered to pay a $25,000 fine.[191]

Pro-Mark Services, Inc. (NPA)

On October 30, 2023, the U.S. Department of Justice announced that Pro-Mark Services, Inc. (“Pro-Mark”) entered into a three-year NPA with the Department of Justice, Antitrust Division, and the U.S. Attorney’s Office for the District of North Dakota, resolving allegations concerning the award of federal construction contracts amounting to $70 million.[192] The agreement required the company to pay a criminal penalty of $949,000.[193]

Secor, Inc. & Matthew Castle (Guilty Plea)

On November 9, 2023, Secor, Inc. (“Secor”), a federal halfway house that contracted with the Federal Bureau of Prisons (“BOP”) to house inmates, entered into a plea agreement with the U.S. Attorney’s Office for the Western District of Virginia, to resolve allegations that Secor made materially false statements to the U.S. Bureau of Prisons (“BOP”) and committed wire fraud.[194] Secor’s former president and director, Matthew Castle pleaded guilty to the same charges.[195] According to the plea agreement, in 2018, Secor entered into a contract with the BOP that allowed some of the offenders under the care of Secor to be assigned to “home confinement,” meaning certain offenders would live at an approved residence not owned by Secor.[196] BOP agreed to pay Secor a per diem rate for offenders who resided at Secor’s facilities and a different per diem rate for those on home-confinement.[197] Under the terms of the contract, Secor was required to outfit home-confinement offenders with GPS monitoring equipment, and Secor personnel were required to personally visit each offender’s residence on at least a monthly basis to ensure the offender was living at their assigned residence and in accordance with applicable rules. In reality, according to its plea agreement, Secor did not issue the GPS monitoring equipment to many of the home-confinement offenders for whom it was required and failed to conduct requisite home visits.[198] Meanwhile, on multiple occasions, Castle completed BOP documentation certifying that he had conducted the required visits and noted no issues, according to his plea agreement.[199] Castle and Secor filed monthly invoices with the BOP for reimbursement, which BOP paid on the basis of Secor’s and Castle’s representations and contractual obligations.[200]

In connection with their plea agreements, Secor and Castle agreed to jointly and collectively pay $208,105 in restitution.[201] Secor agreed to serve one- to five-years’ probation, to be determined at sentencing, to pay $25,000 in criminal fines, and to forfeit $40,000.[202] Castle agreed to pay $5,000 in criminal fines and serve a term of imprisonment of 12-21 months, to be determined at sentencing.[203] Sentencing is currently scheduled to take place in March 2024.[204]

Sinister Manufacturing Company, Inc. (Guilty Plea)

On August 1, 2023, diesel parts manufacturer Sinister Manufacturing Company, Inc. (“Sinister Diesel”) entered into a plea agreement with the U.S. Attorney’s Office for the Eastern District of California and the Environmental Crimes Section of the Environmental and Natural Resources Division to resolve allegations that Sinister Diesel had conspired to violate the Clean Air Act and defraud the United States and violated the Clean Air Act by tampering with the monitoring device of an emissions control system of a diesel truck.[205] According to the plea agreement, Sinister Diesel manufactured and sold so-called “delete kits” that enabled diesel truck owners to disable and override emissions controls required by the U.S. Environmental Protection Agency (“EPA”).[206] The agreement also describes conduct to evade regulatory action, including conducting phone-only sales, removing violative products from the company’s website, and partnering with at least one other company to bundle products that together would allow “deleted” trucks to run without emissions controls.[207]

The district court sentenced Sinister Diesel on November 14, 2023 and entered judgment on November 17, 2023, imposing a $500,000 criminal fine ($250,000 for each count).[208] Separately, Sinister Diesel agreed to pay an additional $500,000 under a civil consent decree for a total fine of $1 million.[209] The district court sentenced Sinister Diesel to a three-year probational term, subject to Sinister Diesel’s compliance with the consent decree and no further violations of federal and state environmental laws.[210] Additionally, pursuant to the civil consent decree, Sinister Diesel agreed to—among other things—refrain from selling devices designed override a car’s emissions controls;[211] cease providing technical support and warranty coverage for such products;[212] implement a compliance program;[213] and make annual disclosures to the EPA and DOJ for four years regarding progress of its compliance measures.[214] The consent decree also includes a detailed table of fines for future violations of its prohibitions, including a fine of at least $500,000 for transferring intellectual property in violation of its terms.[215]

Suez Rajan Limited (Guilty Plea) and Empire Navigation Inc. (DPA)

On March 16, 2023, Suez Rajan Limited (“Suez Rajan”), a Marshall Islands shipping company, entered into a plea agreement with the U.S. Attorney’s Office for the District of Columbia to resolve allegations that Suez Rajan conspired to violate the IEEPA, which empowers the U.S. president to impose economic sanctions on foreign countries, including Iran.[216] According to the agreement, Suez Rajan violated U.S. sanctions on Iran by facilitating the illicit sale and transport of Iranian oil. Specifically, Suez Rajan used a chartered vessel to transport Iranian-origin crude oil to China and sought to obfuscate the origin of the crude oil by engaging in ship-to-ship transfers and masking the locations and identities of the vessels involved.[217] Suez Rajan pleaded guilty to one count of conspiracy to violate IEEPA.[218]

In the plea agreement, Suez Rajan and the government agreed to a sentence of three years of corporate probation and a fine of almost $2.5 million.[219] In addition, pursuant to a separate three-year DPA, Empire Navigation Inc., the operating company of the chartered vessel carrying the contraband cargo, agreed to cooperate and transport the Iranian oil to the United States as well as pay a separate $2.5 million fine. The cargo is now subject to a civil forfeiture action in the U.S. District Court for the District of Columbia.[220] As noted above, DOJ has recently touted this resolution as a rare case in which specific performance was required by the resolution.[221]

The Suez Rajan case is the first-ever criminal resolution involving a company that violated sanctions by facilitating the illicit sale and transport of Iranian oil.[222]

Tysers Insurance Brokers Ltd. and H.W. Wood Ltd. (DPAs)

On November 20, 2023, two UK reinsurance brokers—Tysers Insurance Brokers Ltd. and H.W. Wood Ltd. (collectively, “brokers”)—each entered into a three-year DPA with the U.S. Department of Justice in the Southern District of Florida.[223] The agreements settle charges of conspiracy to violate the anti-bribery provisions of the FCPA between 2013 and 2017.[224] The government alleges the brokers engaged in a scheme to bribe government officials in Ecuador through intermediaries, in an amount totaling approximately $2.8 million, to obtain and retain business with state-owned insurance companies.[225]

In connection with its DPA, Tysers agreed to pay a $36 million criminal penalty and $10.5 million in forfeiture.[226] H.W. Wood agreed that the appropriate fine under the U.S. Sentencing Guidelines would be $22.5 million in criminal penalties and $2.3 million in forfeiture.[227] However, due to H.W. Wood’s inability to pay that amount, the company agreed with DOJ to a reduced criminal penalty of $508,000 and no forfeiture amount.[228] In analyzing the company’s inability to pay, DOJ looked to the company’s financial condition and alternative sources of capital, among other factors included in DOJ’s Inability to Pay Guidance,[229] and concluded that paying a criminal penalty greater than $508,000 would “substantially threaten the continued viability” of H.W. Wood.[230] The agreements impose corporate obligations on the brokers, including a requirement to self-report any evidence or allegation of conduct that may constitute a violation of the FCPA anti-bribery provisions, and to modify its compliance program to ensure it maintains an effective system of internal accounting controls and a rigorous anti-corruption compliance program, but do not impose an independent monitor.[231] Both companies received cooperation and remediation credit of 25% off the bottom of the applicable U.S. Sentencing Guidelines fine range.[232]

View, Inc. (Guilty Plea)

On March 14, 2023, View, Inc., a California window manufacturing company with operations in Mississippi, entered into a plea agreement with the U.S. Attorney’s Office for the Northern District of Mississippi to resolve allegations that it negligently discharged wastewater into a Publicly Owned Treatment Works (POTW) without a permit, in violation of the Clean Water Act.[233] View, Inc.’s alleged unpermitted wastewater discharges allegedly accounted for approximately 40% of the relevant POTW’s permitted capacity.[234] The plea agreement does not contain an agreed‑upon penalty recommendation to the court nor does it contain recommendations for any other consequence.[235] The agreement states that the government will not charge View, Inc., former officers, directors, or employees with other offenses relating to the same charge.

On August 18, 2023, View, Inc. was sentenced to pay a $3 million fine and a community service payment to DeSoto County Regional Utility Authority of $450,000, in addition to a three‑year period of probation.[236] The judgment also notes that View, Inc. will enter into a separate, but related, civil Agreed Order with the Mississippi Commission on Environmental Quality, and under that agreement is expected to pay a civil penalty of $1.5 million.[237]

VIP Healthcare Solutions, Inc. (Guilty Plea)

On October 17, 2023, VIP Healthcare Solutions, Inc. (“VIP Healthcare”) entered into a plea agreement with the U.S. Attorney’s Office for the District of Puerto Rico and pleaded guilty along with the company’s secretary and president. The agreement resolved allegations that VIP Healthcare, which managed a diagnostic and treatment center in the Municipality of Cataño, falsely certified the truth and accuracy of information in its 2020 Paycheck Protection Program (PPP) loan application.[238] According to the agreement, among other things, the application falsely claimed that the company’s secretary owned 85% of the company and failed to list the company president as an owner.[239] According to the plea agreement, the parties agreed to a recommended sentence of two years of probation and a fine, but it does not recommend a specific fine amount.[240] On January 17, 2024, the court sentenced VIP Healthcare to two years’ probation but did not impose a fine.[241]

Western River Assets, LLC and River Marine Enterprises, LLC (Guilty Plea)

On October 17, 2023, Western River Assets, LLC and River Marine Enterprises, LLC entered into plea agreements with the U.S. Attorney’s Office for the Southern District of West Virginia, to resolve allegations that the two entities violated the Refuse Act of 1899, 33 U.S.C. §§ 407 and 411, which penalize discharge of refuse into navigable waters.[242] According to the plea agreements, Western River Assets owned a towboat, the M/V Gate City, and moored it along the West Virginia Shore of the Big Sandy River between 2010 and January 2018.[243] River Marine Enterprises operated the towboat during that time period.[244] On December 5, 2017, the Coast Guard issued an Administrative Order after an inspection, requiring the sole owner of the two companies, David K. Smith, to remove all oil and hazardous substances from the M/V Gate City by January 31, 2018.[245] On around January 10, 2018, before the contractors engaged by River Marine Enterprises were able to remove the oil and other substances, the M/V Gate City sank, discharging oil and other substances into the Big Sandy River.[246] The government alleged that as a direct result of the sinking and the spill, the City of Kenova closed its municipal drinking water intake for three days, and multiple regulatory agencies expended money and other resources to respond to the spill.[247]

According to the agreements, Western River Assets and River Marine Enterprises could each face a maximum fine of $200,000, probation for up to five years, and an order of restitution.[248] The agreements do not contain a recommended sentence.[249] The sentencing has yet to occur, but a sentencing hearing is scheduled on February 26, 2024.[250] Smith was charged with the same violation and also pleaded guilty on October 17, 2023.[251] He could face imprisonment for no less than one month and no more than a year, a fine up to $100,000, and supervised release for one year.[252]

Zona Roofing LLC (Guilty Plea)

On November 20, 2023, Zona Roofing LLC (“Zona”) entered into a plea agreement, through its owner and principal Yilbert Segura (“Segura”), with the U.S. Attorney’s Office for the District of New Jersey.[253] Zona was charged with two counts of Willful Violation of Occupational Safety and Health Administration (“OSHA”) standards by failing to provide fall protection and fall protection training to employees engaged in the replacement of a residential roof, resulting in the death of an employee.[254]

As part of the plea agreement, Zona, through Segura, was sentenced to five years’ probation, and ordered to pay $75,000 in restitution.[255] Additionally, Zona was ordered to comply with special conditions outlined in the Agreement, which require Zona to provide fall training and procedures to all employees and follow enhanced safety provisions for future construction projects.[256]

Z&L Properties (Guilty Plea)

On August 17, 2023, Z&L Properties Inc., (“Z&L Properties”), a California-based subsidiary of a Chinese property development company, entered into a plea agreement with the U.S. Attorney’s Office for the Northern District of California to resolve allegations that Z&L Properties conspired to commit and did commit honest services wire fraud.[257]

Although the plea agreement itself is sealed, a four-page Criminal Information alleges that between November 2018 and January 2020, Z&L Properties executives approved or paid bribes to a former member of the San Francisco Department of Public Works and another individual, including in the form of food, drink, transportation, and lodging during a trip to China in 2018 and thereby conspired to defraud the public of its right to honest services.[258] According to the Information, the purpose of these payments was to influence the official to act favorably with respect to Z&L Properties’ requests for city approvals needed to complete one of the company’s construction projects.[259]

On October 16, 2023, the court sentenced Z&L Properties to pay a $1 million fine, and to implement an anti-corruption compliance program as set out in the plea agreement.[260]

Appendix

The chart below summarizes the agreements concluded by DOJ from July 2023 through December 2023. The complete text of each publicly available agreement in hyperlinked in the chart.

The figures for “Monetary Recoveries” may include amounts not strictly limited to an NPA, DPA, or guilty plea, such as fines, penalties, forfeitures, and restitution requirements imposed by other regulators and enforcement agencies, as well as amounts from related settlement agreements, all of which may be part of a global resolution in connection with the NPA or DPA, paid by the named entity and/or subsidiaries. The term “Monitoring & Reporting” includes traditional compliance monitors, self-reporting arrangements, and other monitorship arrangements found in resolution agreements.

U.S. Deferred Prosecution Agreements, Non-Prosecution Agreements, and Plea Agreements August-December 2023
Company	Agency	Alleged Violation	Type	Monetary Recoveries	Monitoring & Reporting	Term of Agreement (Months)
Albemarle Corporation	W.D. N.C.	FCPA	NPA	$218,509,663	No monitor	36
Amani Investments, LLC	E.D. Cal; U.S. Postal Inspection Service; FBI; IRS; DEA	Bank Secrecy Act; Conspiracy to avoid filing currency transaction reports.	Guilty Plea	$1,000,000 (and other assets)	N/A	N/A
Aylo Holdings, S.a.r.l.	E.D.N.Y.	Unlawful Monetary Transactions (18 U.S.C. 1957)	DPA	$1,844,953	36 month compliance monitor	36
Banque Pictet et Cie SA	S.D.N.Y.	Tax Evasion	DPA	$122,900,000	No monitor	36
Binance Holdings Limited	DOJ.; W.D. Wash; CFTC; FinCEN; OFAC	AML	Guilty Plea	$4,316,126,163	3-year independent compliance consultant	N/A
Centera Bioscience	D. N.H.	Distribution of misbranded drugs	Guilty Plea	$2,400,000	3-years’ probation	N/A
Corporación Financiera Colombiana SA	DOJ Fraud.; D. Md.	FCPA	DPA	$80,600,000	No monitor	36
Empire Navigation Inc.	D.D.C.; DOJ NSD	Trade Sanctions/IEEPA/Export Controls	DPA	$2,500,000	No	36
Freepoint Commodities LLC	D. Conn; DOJ Fraud	FCPA	DPA	$98,551,150	No monitor	36
GDP Tuning LLC; Custom Auto of Rexburg LLC	D. Idaho; DOJ Environmental Crimes Section, EPA Criminal Enforcement	Clean Air Act	Guilty Plea	$1,000,000	5 years’ probation	N/A
Glenmark Pharmaceuticals Inc., USA	DOJ, Antitrust Division	Sherman Antitrust Act	DPA	$30,000,000	Self-reporting	36
H&D Sonography	D.N.J.	Anti-Kickback Statute	DPA	$95,000	No monitor	36
H.W. Wood Ltd	S.D. Fl	FCPA	DPA	$508,000	No monitor	36
HealthSun Health Plans, Inc.	DOJ Fraud	False Claims; Wire Fraud	Declination with Disgorgement	$53,170,115	No monitor	N/A
Lifecore Biomedical, Inc.	DOJ Fraud; N.D. Cal.	FCPA	Declination with Disgorgement	$406,505	No monitor	N/A
New Orleans Steamboat Co.	E.D. La.; EPA; DOT	Clean Water Act	Guilty Plea	$50,400	N/A	N/A
Nomura Securities International, Inc.	D. Conn.; DOL	Securities Fraud	NPA	$55,933,332	No monitor	12
NuDay	D. N.H.	Export Controls	Guilty Plea	$25,000	No monitor	N/A
Oregon Tool, Inc.	D. Or.	AML	NPA	$1,724,803	No monitor	N/A
Pro-Mark Services, Inc.	DOJ, Antitrust Division; D. N.D.	Conspiracy to defraud the United States	NPA	$949,000	No monitor	36
River Marine Enterprises	S.D. WV; EPA	Discharge of refuse into navigable waters	Guilty plea	Pending	N/A	N/A
Secor, Inc.	W.D.Va.; Russell County Sheriff’s Office, Bureau of Prisons	Wire fraud; Making materially false statements	Guilty Plea	$278,105	1 – 5 years’ probation	NA
Sinister Manufacturing Company, Inc.	E.D. Cal; EPA; FBI; DOJ ENRD Division	Clean Air Act	Guilty Plea	$1,000,000	N/A	N/A, 36 month probation
Suez Rajan Limited	D.D.C.; DOJ NSD	Trade Sanctions/IEEPA/Export Controls	Guilty plea	$2,500,000	N/A	36
Teva Pharmaceutical Industries USA, Inc.	DOJ, Antitrust Division	Sherman Antitrust Act	DPA	$225,000,000	Yes, to oversee divestiture of pravastatin drug line	36
Tysers Insurance Brokers	S.D. Fl	FCPA	DPA	$46,589,275	No monitor	36
View, Inc.	N.D. Miss; EPA	Clean Water Act	Guilty plea	$4,950,000	N/A	N/A
VIP Healthcare Solutions, Inc.	D.P.R.	Making a false statement in connection with a Paycheck Protection Program (PPP) loan application	Guilty Plea	$0	2-years’ probation	NA
Western River Assets	S.D. WV; EPA	Refuse Act of 1899 – Discharge of refuse into navigable waters	Guilty plea	Pending	N/A	N/A
Zona Roofing LLC	D.N.J.; OSHA	Occupational Safety and Health Administration standards	Guilty Plea	$75,000	N/A	5-years’ probation
Z&L Properties	N.D. Cal.	Honest services wire fraud	Guilty Plea	$1,000,000	No	N/A

__________

[1] This update addresses developments and statistics through December 31, 2023. NPAs and DPAs are two kinds of voluntary, pre-trial agreements between a corporation and the government, most commonly used by DOJ. They are standard methods to resolve investigations into corporate criminal misconduct and are designed to avoid the severe consequences, both direct and collateral, that conviction would have on a company, its shareholders, and its employees. Though NPAs and DPAs differ procedurally—a DPA, unlike an NPA, is formally filed with a court along with charging documents—both usually require an admission of wrongdoing, payment of fines and penalties, cooperation with the government during the pendency of the agreement, and remedial efforts, such as enhancing a compliance program or cooperating with a monitor who reports to the government. Although NPAs and DPAs are used by multiple agencies, since Gibson Dunn began tracking corporate NPAs and DPAs in 2000, we have identified over 700 agreements initiated by DOJ, and 10 initiated by the U.S. Securities and Exchange Commission (“SEC”).

[2] For an analysis of corporate resolutions from the first half of 2023, please see Gibson Dunn’s Mid-Year Corporate Resolutions Update at https://www.gibsondunn.com/corporate-resolutions-update-2023/.

[3] Gibson Dunn began tracking corporate guilty pleas in 2022.

[4] U.S. Dep’t of Justice, Acting Assistant Attorney General Nicole M. Argentieri Delivers Keynote Address at the 40th International Conference on the Foreign Corrupt Practices Act (Nov. 29, 2023), https://www.justice.gov/opa/speech/acting-assistant-attorney-general-nicole-m-argentieri-delivers-keynote-address-40th.

[5] U.S. Dep’t of Justice, Deputy Attorney General Lisa O. Monaco Announced New Safe Harbor Policy for Voluntary Self-Disclosures Made in Connection with Mergers and Acquisitions (Oct. 4, 2023), https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-announces-new-safe-harbor-policy-voluntary-self (hereinafter “Monaco Remarks”).

[6] U.S. Dep’t of Justice, Principal Associate Deputy Attorney General Marshall Miller Delivers Remarks at the Global Investigations Review Annual Meeting (Sept. 21, 2023), https://www.justice.gov/opa/speech/principal-associate-deputy-attorney-general-marshall-miller-delivers-remarks-global (hereinafter “Miller Remarks”).

[7] Monaco Remarks.

[8] U.S. Dep’t of Justice, Principal Associate Deputy Attorney General Marshall Miller Delivers Remarks at the New York City Bar Association’s International White Collar Crime Symposium (Nov. 28, 2023), https://www.justice.gov/opa/speech/principal-associate-deputy-attorney-general-marshall-miller-delivers-remarks-new-york.

[9] Id.

[10] Monaco Remarks.

[11] Id.

[12] Id.

[13] U.S. Dep’t of Justice, Acting Assistant Attorney General Nicole M. Argentieri Delivers Keynote Address at the 40th International Conference on the Foreign Corrupt Practices Act (Nov. 29, 2023), https://www.justice.gov/opa/speech/acting-assistant-attorney-general-nicole-m-argentieri-delivers-keynote-address-40th.

[14] Id.

[15] Id.; see also U.S. Dep’t of Justice, Deputy Attorney General Lisa Monaco Delivers Remarks at American Bar Association National Institute on White Collar Crime (Mar. 2, 2023), https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-monaco-delivers-remarks-american-bar-association-national; U.S. Dep’t of Justice, Acting Assistant Attorney General Nicole M. Argentieri Delivers Remarks at the American Bar Association 10th Annual London White Collar Crime Institute (Oct. 10, 2023), https://www.justice.gov/opa/speech/acting-assistant-attorney-general-nicole-m-argentieri-delivers-remarks-american-bar.

[16] Monaco Remarks.

[17] Id.; see also U.S. Dep’t of Justice, Acting Assistant Attorney General Nicole M. Argentieri Delivers Remarks at the American Bar Association 10th Annual London White Collar Crime Institute (Oct. 10, 2023), https://www.justice.gov/opa/speech/acting-assistant-attorney-general-nicole-m-argentieri-delivers-remarks-american-bar.

[18] Deferred Prosecution Agreement, United States v. Corporacion Financiera Colombiana SA, No. 8:23-CR-00262 (D. Md. Aug. 10, 2023).

[19] E.g., Monaco Remarks.

[20] Miller Remarks.

[21] Miller Remarks.

[22] U.S. Dep’t of Justice, Acting Assistant Attorney General Nicole M. Argentieri Delivers Keynote Address at the 40th International Conference on the Foreign Corrupt Practices Act (Nov. 29, 2023), https://www.justice.gov/opa/speech/acting-assistant-attorney-general-nicole-m-argentieri-delivers-keynote-address-40th.

[23] Id.

[24] U.S. Dep’t of Justice, Voluntary Self-Disclosure Policy for Business Organizations (Feb. 2023), https://www.justice.gov/file/1571106/download.

[25] Id.

[26] Id.

[27] Monaco Remarks.

[28] Id.

[29] Id.

[30] Id.

[31] Id.

[32] Id.

[33] Id.

[34] U.S. Dep’t of Justice, Acting Assistant Attorney General Nicole M. Argentieri Delivers Keynote Address at the 40th International Conference on the Foreign Corrupt Practices Act (Nov. 29, 2023), https://www.justice.gov/opa/speech/acting-assistant-attorney-general-nicole-m-argentieri-delivers-keynote-address-40th.

[35] Id.

[36] SEC, Remarks at New York City Bar Association Compliance Institute (Oct. 24, 2023), https://www.sec.gov/news/speech/grewal-remarks-nyc-bar-association-compliance-institute-102423 (hereinafter “Grewal Remarks”).

[37] Id.

[38] Id.

[39] Id.

[40] Id.

[41] Id.

[42] Id.

[43] Id.; see also In the Matter of the Application of Thaddeus J. North, Admin. Proc. File No. 3-17909 (Oct. 29, 2018) (Commission Opinion) (collecting Commission decisions) (“These decisions reflect the principle that, in general, good faith judgments of CCOs made after reasonable inquiry and analysis should not be second guessed.”), www.sec.gov/files/litigation/opinions/2018/34-84500.pdf, aff’d sub nom. North v. S.E.C., 829 Fed. App’x 729, 730 (D.C. Cir. Oct. 23, 2020).

[44] Grewal Remarks.

[45] Id.; Securities and Exchange Commission, “SEC Charges Stockbroker and Friend with Insider Trading” (June 29, 2023), www.sec.gov/news/press-release/2023-124.

[46] Grewal Remarks.

[47] Id.

[48] Id.

[49] In the Matter of Meredith A. Simmons, Admin. Proc. File No. 3-20114 (Sept. 30, 2020), www.sec.gov/files/litigation/admin/2020/34-90061.pdf.

[50] Grewal Remarks.

[51] Deferred Prosecution Agreement, Rex v Entain plc, December 5, 2023, https://www.entaingroup.com/‌media/hyakjf4z/entain-deffered-prosecution-agreement-05122023.pdf.

[52] Id.

[53] Id.

[54] Id.

[55] Approved Summary Judgement, Rex and Entain plc, December 5, 2023, https://www.entaingroup.com‌/media/lr3h0zfl/entain-approved-summary-of-judgement-regarding-dpa-05122023.pdf.

[56] Id.

[57] Guy Dauphin Environnement CJIP (May 15, 2023), https://www.justice.gouv.fr/sites/default/files‌/2023-06/CJIP_GDE_20230517.pdf.

[58] Id.

[59] Id.

[60] Bouygues Bâtiment Sud Est and Linkcity Sud Est CJIP (May 15, 2023), https://www.justice.gouv.fr/sites/default/files/2023-06/CJIP_BBSE_LYSE_20230523.pdf.

[61] Id.

[62] Press Release, Technip Energies to Resolve Outstanding Matters with the French Parquet National Financier (Nov. 30, 2023), https://www.ten.com/en/media/press-releases/technip-energies-resolve-outstanding-matters-french-parquet-national-financier.

[63] TechnipFMC, TechnipFMC Reaches Resolution of French Parquet National Financier (PNF) Investigation (Nov. 30, 2023), https://www.technipfmc.com/en/investors/financial-news-releases/press-release/technipfmc-reaches-resolution-of-french-parquet-national-financier-pnf-investigation.

[64] Acieries Hachette et Driout CJIP (October 11, 2023), https://rebeca-documentation.finances.gouv.fr/exl-php/resultat/rebeca_portail_recherche_avancee_internet?WHERE_IS_DOC_REF_LIT=DOC00448542&.

[65] Seves Group SARL and Sediver SAS CJIP (November 28, 2023), https://www.agence-francaise-anticorruption.gouv.fr/files/files/CJIP/231128_CJIP%20SEVES%20SEDIVER.pdf.

[66] D’Isolation et de Peinture Omnium and Omnium Develloppement CJIP (November 29, 2023), https://www.agence-francaise-anticorruption.gouv.fr/files/files/CJIP/CJIP%20OMNIUM/CJIP%20SAS%20D’ISOLATION%20ET%20DE%20PEINTURE%20OMNIUM.pdf.

[67] ADP Ingenierie CJIP (December 4, 2023), https://rebeca-documentation.finances.gouv.fr/exl-php/resultat/rebeca_portail_recherche_avancee_internet?CTX=NOFACETTE&WHERE_IS_DOC_REF_LIT=DOC00447085.

[68] Press Release, Public Prosecution Service of Canada (May 17, 2023), https://www.ppsc-sppc.gc.ca/eng/nws-nvs/2023/17_05_23.html.

[69] Id.

[70] See Non-Prosecution Agreement, United States v. Albermarle Corp. (Sept. 28, 2023), https://www.justice.gov/media/1316796/dl?inline.

[71] Id. at A-5.

[72] Id.

[73] Id. at 1-2.

[74] Id. at 4.

[75] Id. at 3.

[76] Plea Agreement, United States v. Amani Investments, LLC, No. 2:23-cr-00014-JAM (E.D. Cal. Feb. 7, 2023).

[77] Id. at 14-16.

[78] Id.

[79] Id. at 8.

[80] Id. at 8.

[81] Final Order of Forfeiture, United States v. Amani Investments, LLC, No. 2:23-cr-00014-JAM (E.D. Cal. Oct. 23, 2023).

[82] Judgment, United States v. Amani Investments, LLC, No. 2:23-cr-00014-JAM (E.D. Cal. Sep. 15, 2023).

[83] Deferred Prosecution Agreement, Aylo Holdings S.à.r.l. and the U.S. Attorney’s Office for the Eastern District of New York (Dec. 21, 2023), https://www.justice.gov/d9/2023-12/2023.12.21_dpa‌_final_court‌_exhibit_version_0.pdf (“Aylo DPA”).

[84] Aylo DPA Attachment B, Criminal Information at 4-10; Aylo DPA Attachment C, Statement of Facts at C-6-12; Press Release, GirlsDoPorn Owners and Employees Charged in Sex Trafficking Conspiracy (Oct. 10, 2019), https://www.justice.gov/usao-sdca/pr/girlsdoporn-owners-and-employees-charged-sex-trafficking-conspiracy (“Content Provider Press Release”); Criminal Complaint, United States v. Michael James Pratt, et al., 3:19-CR-04488 (S.D. Cal. Oct. 10. 2019) at 1-4 (“Content Provider Criminal Complaint”).

[85] Content Provider Press Release; Content Provider Criminal Complaint; Press Release, Adult Film Performer Pleads Guilty in GirlsDoPorn Sex Trafficking Conspiracy (Dec. 17, 2020), https://www.justice.gov/usao-sdca/pr/adult-film-performer-pleads-guilty-girlsdoporn-sex-trafficking-conspiracy.

[86] Aylo DPA at 8-9.

[87] Id. at 12-13.

[88] Press Release, U.S. Dep’t of Justice, Swiss Private Bank, Banque Pictet, Admits to Conspiring with U.S. Taxpayers to Hide Assets and Income in Offshore Accounts (Dec. 4, 2023), https://www.justice.gov/usao-sdny/pr/swiss-private-bank-banque-pictet-admits-conspiring-us-taxpayers-hide-assets-and-income.

[89] Criminal Information, United States v. Banque Pictet & Cie SA, No. 1:23-CR-631 (S.D.N.Y. Dec. 4, 2023), at 5-6.

[90] Deferred Prosecution Agreement with, United States v. Banque Pictet & Cie SA, No. 1:23-CR-631 (S.D.N.Y. Nov. 16, 2023), Statement of Facts at 2-3.

[91] Deferred Prosecution Agreement, United States v. Banque Pictet & Cie SA (November, No. 1:23-CR-631), at 5-6 (S.D.N.Y. Nov. 16, 2023), at 2-3.

[92] Id. at 5.

[93] Id. at 5-10.

[94] See Binance Blog, Binance Announcement: Reaching Resolution with U.S. Regulators (Nov. 21, 2023), https://www.binance.com/en/blog/leadership/binance-announcement-reaching-resolution-with-us-regulators-2904832835382364558.

[95] 31 C.F.R. § 1010.100(ff).

[96] See, e.g., Press Release, U.S. Dep’t of the Treasury, Treasury Announces Two Enforcement Actions for Over $24M and $29M Against Virtual Currency Exchange Bittrex, Inc. (Oct. 11, 2022), https://home.treasury.gov/news/press-releases/jy1006 (announcing an enforcement action against Bittrex, Inc., a virtual currency exchange that was based in Washington state).

[97] See International Emergency Economic Powers Act (IEEPA), 50 U.S.C. § 1701(a)(1)(A) (empowering the President to prohibit transactions by “any person, or with respect to any property, subject to the jurisdiction of the United States.”); see also Office of Foreign Assets Control, Frequently Asked Questions: 11. Who Must Comply with OFAC Regulations?, https://ofac.treasury.gov/faqs/11 (“U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all persons and entities within the United States, all U.S. incorporated entities and their foreign branches. In the cases of certain programs, foreign subsidiaries owned or controlled by U.S. companies also must comply. Certain programs also require foreign persons in possession of U.S.-origin goods to comply.”).

[98] Attachment A, “Statement of Facts,” to the Plea Agreement in United States v. Binance Holdings Ltd., No. 23-178RAJ (Nov. 21, 2023), https://www.justice.gov/opa/media/1326901/dl?inline (hereinafter “Binance SOF”) at 7, ¶ 22.

[99] Id.

[100] 50 U.S.C. § 1705(a) (“It shall be unlawful for a person to violate, attempt to violate, conspire to violate or cause a violation of any license, order, regulation, or prohibition issued [pursuant to IEEPA].”).

[101] Plea Agreement in United States v. Binance Holdings Ltd., No. 23-178RAJ (Nov. 21, 2023), https://www.justice.gov/opa/media/1326901/dl?inline (hereinafter “Binance Plea Agreement”), at 2 ¶ 2.

[102] Id.

[103] Id.

[104] See Nikhilesh De, Binance to Make ‘Complete Exit’ From U.S., Pay Billions to FinCEN, OFAC on Top of DOJ Settlement, CoinDesk (Nov. 21, 2023), https://www.coindesk.com/policy/2023/11/21/binance-to-make-complete-exit-from-us-pay-billions-to-fincen-ofac-on-top-of-doj-settlement/.

[105] Id.

[106] Binance Plea Agreement at 17 ¶ 24.

[107] Id at 23 ¶ 32.

[108] Plea Agreement, Centera Bioscience (d/b/a Nootropics Depot), No. 23-cr-69-TSM-01/02 (D.N.H. Aug. 15, 2023), at 1.

[109] Id. at 2.

[110] Id. at 6.

[111] Deferred Prosecution Agreement, United States v. Corporacion Financiera Colombiana SA, No. 8:23-CR-00262 (D. Md. Aug. 10, 2023).

[112] Id.

[113] Id.

[114] Id.

[115] Id.

[116] Id.

[117] Deferred Prosecution Agreement, United States v. Freepoint Commodities LLC, No. 3:23-cr-00224 (D. Conn. Dec. 14, 2023), at 1 (hereinafter “Freepoint DPA”), https://www.justice.gov/opa/media/‌1329266‌‌/dl?inline.

[118] See DOJ Press Release, “Commodities Trading Company Agrees to Pay Over $98M to Resolve Foreign Bribery Case,” (Dec. 14, 2023), https://www.justice.gov/opa/pr/commodities-trading-company-agrees-pay-over-98m-resolve-foreign-bribery-case.

[119] Freepoint DPA, Statement of Facts at 2, 5.

[120] Id. at 3, 5-12.

[121] Freepoint DPA at 11.

[122] Id. at 4.

[123] Id. at 4-5.

[124] Id. at 6.

[125] Id.; see also DOJ Press Release.

[126] Freepoint DPA at 6-8.

[127] Id. at 3, 13-15.

[128] Press Release, U.S. Dep’t of Justice, Idaho Diesel Parts Companies and Owner Agree to Pay $1 Million After Pleading Guilty to Selling and Installing Illegal Defeat Devices (Aug. 23, 2023), https://www.justice.gov/usao-id/pr/idaho-diesel-parts-companies-and-owner-agree-pay-1-million-after-pleading-guilty-selling.

[129] Plea Agreement, United States v. GDP Tuning LLC, No. 4:23-CR-00168, at 23 (D. Idaho June 23, 2023).

[130] Press Release, U.S. Dep’t of Justice, Idaho Diesel Parts Companies and Owner Agree to Pay $1 Million After Pleading Guilty to Selling and Installing Illegal Defeat Devices (Aug. 23, 2023), https://www.justice.gov/usao-id/pr/idaho-diesel-parts-companies-and-owner-agree-pay-1-million-after-pleading-guilty-selling.

[131] Plea Agreement, United States v. GDP Tuning LLC, No. 4:23-CR-00168 (D. Idaho June 23, 2023), at 6.

[132] Id. at 4.

[133] Id.

[134] Deferred Prosecution Agreement, United States v. Glenmark Pharm. Inc., USA, No. 2:20-cr-00200-RBS (E.D. Pa. Aug. 21, 2023).

[135] Id. at 7.

[136] Id. at 9; Press Release, U.S. Dep’t of Justice, Major Generic Drug Companies to Pay Over Quarter of a Billion Dollars to Resolve Price-Fixing Charges and Divest Key Drug at the Center of Their Conspiracy (Aug. 21, 2023), https://www.justice.gov/opa/pr/major-generic-drug-companies-pay-over-quarter-billion-dollars-resolve-price-fixing-charges.

[137] Id. at 22.

[138] Id. at 25.

[139] Deferred Prosecution Agreement, United States v. Teva Pharm. USA, Inc., No. 2:20-cr-00200-RBS (E.D. Pa. Aug. 21, 2023) (hereinafter “Teva DPA”).

[140] Id. at 7, 10.

[141] Press Release, U.S. Dep’t of Justice, Major Generic Drug Companies to Pay Over Quarter of a Billion Dollars to Resolve Price-Fixing Charges and Divest Key Drug at the Center of Their Conspiracy (Aug. 21, 2023), https://www.justice.gov/opa/pr/major-generic-drug-companies-pay-over-quarter-billion-dollars-resolve-price-fixing-charges.

[142] Teva DPA at 9.

[143] Id.

[144] Id. at 4.

[145] Id.

[146] Deferred Prosecution Agreement, United States v. H&D Sonography LLC, Mag. No. 23-11136 (D.N.J. Aug. 17, 2023), ¶ 1.

[147] Id. at Attach. A, ¶ 6.

[148] Id. at Attach. A, ¶¶ 6-7.

[149] Id. at Attach. A, ¶ 11.

[150] Settlement Agreement, United States v. H&D Sonography LLC, Mag. No. 23-11136 (D.N.J. Aug. 18, 2023), ¶¶ 1, C-E.

[151] Id. at ¶ 1.

[152] Declination Letter, HealthSun Health Plans, Inc. (Oct. 25, 2023).

[153] See generally CEP Declinations, https://www.justice.gov/criminal/criminal-fraud/corporate-enforcement-policy/declinations.

[154] Id. at 1.

[155] Id. at 1-2.

[156] Id. at 2.

[157] Press Release, U.S. Dep’t of Justice, Former Executive at Medicare Advantage Organization Charged for Multimillion-Dollar Medicare Fraud Scheme (Oct. 26, 2023), https://www.justice.gov/opa/pr/‌former-executive-medicare-advantage-organization-charged-multimillion-dollar-medicare-fraud.

[158] Letter from Glenn S. Leon, Chief, U.S. Dep’t of Justice, Fraud Section & Ismail J. Ramsey, U.S. Attorney for the Northern District of California, to Manuel A. Abascal, Counsel for Lifecore Biomedical, Inc. (Nov. 16, 2023), https://www.justice.gov/criminal/media/1325521/dl?inline.

[159] Id.

[160] Id.

[161] Id.

[162] Id.

[163] Id.

[164] Id.

[165] Id.

[166] Id.

[167] Id.

[168] Id.

[169] Title 33, U.S.C. § 1319 (c)(2)(A); Plea Agreement, United States v. New Orleans Steamboat Company, No. 2:23-cr-00108-JCZ-DPC, at 1 (E.D. La. Aug. 16, 2023).

[170] Factual Basis for Plea Agreement, United States v. New Orleans Steamboat Company, No. 2:23-cr-00108-JCZ-DPC, at 1 (E.D. La. Aug. 16, 2023).

[171] Plea Agreement, at 1.

[172] Judgment, United States v. New Orleans Steamboat Company, No. 2:23-cr-00108-JCZ-DPC (E.D. La. Aug. 24, 2023).

[173] Non-Prosecution Agreement, Nomura Securities International, Inc. (Aug. 22, 2023), at 1 (hereinafter “NSI NPA”); see also Press Release, U.S. Dep’t of Labor, Nomura Securities International Agrees to Pay $35 Million Penalty Stemming from Its Participation in Securities Fraud Scheme (Aug. 22, 2023), https://www.oig.dol.gov/public/Press%20Releases/Nomura%20Securities%20International%20Agrees%20to%20Pay%20$35%20Million%20Penalty%20Stemming%20from%20Its%20Participatio.pdf.

[174] NSI NPA at 7.

[175] Id. at 11.

[176] Id.

[177] Id. at 12.

[178] Id.

[179] Id. at 3.

[180] Id. at 2.

[181] Plea Agreement, United States v. NuDay, 23-cr-00072-JL-TSM-1 (D.N.H. Aug. 18 2023); see also Press Release, U.S. Dep’t of Justice, NuDay Charity Pleads Guilty in Connection with the Illegal Export of Goods to Syria (Sept. 8, 2023), https://www.justice.gov/usao-nh/pr/nuday-charity-pleads-guilty-connection-illegal-export-goods-syria.

[182] Plea Agreement, United States v. NuDay, 23-cr-00072-JL-TSM-1 (D.N.H. Aug. 18 2023) at 2.

[183] Id. at 3

[184] Id.

[185] Id. at 2.

[186] Id.

[187] Id.

[188] Id. at 4.

[189] Id.

[190] Press Release, U.S. Dep’t of Justice, NuDay Charity Sentenced for Illegal Exports to Syria (Dec. 28, 2023), https://www.justice.gov/usao-nh/pr/nuday-charity-sentenced-illegal-exports-syria.

[191] Id.

[192] Case, U.S. Dep’t of Justice, Antitrust Division, United States v. Pro-Mark Services, Inc. (Nov. 8, 2023), https://www.justice.gov/atr/case/us-v-pro-mark-services-inc.

[193] Id.

[194] Plea Agreement of Secor, Inc., Dkt. Entry 3, United States v. Matthew Castle & Secor, Inc., 1:23-CR-00014-RSB (Oct. 10, 2023).

[195] Plea Agreement of Matthew Castle, Dkt. Entry 2, United States v. Matthew Castle & Secor, Inc., 1:23-CR-00014-RSB (Oct. 10, 2023).

[196] Agreed Statement of Facts Sufficient to Establish a Factual Basis for a Guilty Plea, at 2, Dkt. Entry 4, United States v. Matthew Castle & Secor, Inc., 1:23-CR-00014-RSB (Oct. 10, 2023).

[197] Id. at 2-3.

[198] Id. at 3-4.

[199] Id. at 4.

[200] Id.

[201] Plea Agreement of Matthew Castle, supra, at 5; Plea Agreement of Secor, Inc., supra, at 3.

[202] Plea Agreement of Secor, Inc., supra, at 3.

[203] Plea Agreement of Matthew Castle, supra, at 3.

[204] See Dkt. Entry 19, United States v. Matthew Castle & Secor, Inc., 1:23-CR-00014-RSB.

[205] Plea Agreement at 2, United States v. Sinister Mfg. Co., 2:23-CR-168-JAM (E.D. Cal. Aug. 1, 2023), ECF No. 10 (hereinafter “Sinister Diesel Plea Agreement”); Judgment, United States v. Sinister Mfg. Co., 2:23-CR-168-JAM (E.D. Cal. Nov. 17, 2023), ECF No. 22 (entering judgment for one count under 18 U.S.C. § 371, “Conspiracy to Violate the Clean Air Act and to Defraud the United States,” and one count under 42 U.S.C. § 7413(c)(2)(C), “Tampering with a Monitoring Device or Method Required Under the Clean Air Act”) (hereinafter “Sinister Diesel Judgment”).

[206] Sinister Diesel Plea Agreement, Ex. A at A-2 to A-9.

[207] Id.

[208] Sinister Diesel Judgment at 5; Sentencing Minutes Entry, 2:23-CR-168-JAM (Nov. 14, 2023), ECF No. 21; Sinister Diesel Plea Agreement at 3.

[209] Sinister Diesel Plea Agreement at Ex. B, ¶ 11 (United States v. Sinister Mfg. Co., 2:23-CV-01580-JDP (E.D. Cal. Aug. 1, 2023)).

[210] Sentencing Minutes Entry, 2:23-CR-168-JAM, ECF No. 21; Sinister Diesel Plea Agreement at 4-5.

[211] Sinister Diesel Plea Agreement at Ex. B, ¶¶ 16-19.

[212] Id.

[213] See id. at Ex. B, ¶¶ 15-30.

[214] Id. at Ex. B, ¶¶ 31, 82.

[215] Id. at Ex. B, ¶ 37.

[216] Plea Agreement, United States v. Suez Rajan Limited, No. CR 23-088-02, Dkt. 6 (D.D.C. March 16, 2023).

[217] Statement of Offense, United States v. Suez Rajan Limited, No. CR 23-088-02, Dkt. 7 (D.D.C. April 19, 2023); see also Stefania Palma and Chris Cook, “Owner of ship seized carrying Iranian oil pleads guilty in US court,” Financial Times (Sept. 7, 2023), https://www.ft.com/content/0441b637-15e7-4cec-8fd0-84c86ea1d529.

[218] Plea Agreement, United States v. Suez Rajan Limited, No. CR 23-088-02, Dkt. 6 (D.D.C. March 16, 2023).

[219] Id.

[220] Id.

[221] Monaco Remarks.

[222] Press Release, U.S. Dep’t of Justice, The Government Also Seized Almost One Million Barrels of Iranian Crude Oil (Sept. 8, 2023), at 1, https://www.justice.gov/usao-dc/pr/justice-department-announces-first-criminal-resolution-involving-illicit-sale-and.

[223] See Deferred Prosecution Agreement, United States v. Tysers Ins. Brokers Ltd. (Nov. 20, 2023) (https://www.justice.gov/media/1325796/dl?inline) (“Tysers DPA”); Deferred Prosecution Agreement, United States v. H.W. Wood Ltd. (Nov. 20, 2023) (https://www.justice.gov/media/1325801/dl?inline) (“H.W. Wood DPA”).

[224] Tysers DPA at A-5; H.W. Wood DPA at A-4.

[225] Tysers DPA at A-6; H.W. Wood DPA at A-5

[226] Tysers DPA at 43.

[227] H.W. Wood DPA at 9, 11.

[228] Id. at 11

[229] Oct. 8, 2019 Memorandum from Assistant Attorney General Brian Benczkowski to All Criminal Division Personnel re: Evaluating a Business Organization’s Inability to Pay a Criminal Fine or Criminal Monetary Penalty.

[230] H.W. Wood DPA at 5.

[231] Tysers DPA at 6-8, 48; H.W. Wood DPA at 6-8, 45.

[232] Id.

[233] Plea Agreement, United States v. View, Inc., No. 3:22-CR-151 (N.D. Miss. March 14, 2023) (hereinafter “View, Inc. Plea Agreement”).

[234] See DOJ Press Release, “California Company Sentenced for Illegally Discharging Wastewater From Olive Branch Manufacturing Plant,” (Aug. 15, 2023), https://www.justice.gov/usao-ndms/pr/california-company-sentenced-illegally-discharging-wastewater-olive-branch.

[235] Id.

[236] Judgment, United States v. View, Inc., No. 3:22CR00151-001 (N.D. Miss. Aug. 18, 2023), 2-4.

[237] Id. at 3.

[238] Plea Agreement at 1, 10-12, United States v. VIP Healthcare Sols., Inc., No. 3:23-cr-00058 (D.P.R. Oct. 17, 2023), ECF No. 77 (hereinafter “VIP Healthcare Plea Agreement”).

[239] Id. at 10-11.

[240] Id. at 3.

[241] Judgment, United States v. VIP Healthcare Sols., Inc., No. 3:23-cr-00058 (D.P.R. Jan. 17, 2024), ECF No. 107.

[242] Plea Agreement, United States v. Western River Assets, LLC, No. 23-cr-00005 (S.D.W. Va. Oct. 18, 2023) (hereinafter “Western River Assets Plea Agreement”); Plea Agreement, United States v. River Marine Enterprises, LLC, No. 23-cr-00005 (S.D.W. Va. Oct. 18, 2023) (hereinafter “River Marine Enterprises Plea Agreement”).

[243] Western River Assets Plea Agreement, at 11-12; River Marine Enterprises Plea Agreement, at 11-12.

[244] Id.

[245] Id.

[246] Id.

[247] Id.

[248] Western River Assets Plea Agreement, at 2; River Marine Enterprises Plea Agreement, at 2.

[249] Id.

[250] Order, United States v. Smith et al, 23-cr-00005 (S.D.W. Va. Oct. 18, 2023), at 3.

[251] Plea Agreement, United States v. Smith, No. 23-cr-00005 (S.D.W. Va. Oct. 18, 2023), at 1.

[252] Id. at 2.

[253] Plea Agreement, United States v. Zona Roofing LLC, No. 2:23-mj-16119-JRA, at 1 (D.N.J. Nov. 20, 2023).

[254] Id.

[255] Id.

[256] Id. at 2-5.

[257] Press Release, Company Admitted Its Chairman Bribed Former San Francisco Department of Public Works Head Mohammed Nuru with Meals, Hotel During China Trip (Oct. 16, 2023), https://www.justice.gov/usao-ndca/pr/property-developer-zl-properties-fined-1-million-after-pleading-guilty-honest-services (hereinafter “Z&L Properties Press Release”).

[258] Criminal Information, United States v. Z&L Properties, Inc., No, 3:23-cr-00221 (N.D. CA. (July 18, 2023)) (hereinafter “Z&L Properties Criminal Information”).

[259] Id.

[260] See Z&L Properties Press Release.

The following Gibson Dunn lawyers prepared this client alert: F. Joseph Warin, M. Kendall Day, Courtney Brown, Melissa Farrar, Justin Accomando, Michael Dziuban, Allison Lewis, Kelly Skowera, Jake McGee, Alex Murphy, Cate Harding, Alex Buettner, Mike Ulmer, Douglas Colby, Wynne Leahy, Todd Truesdale, Shannon McAvoy, Yixian Sun*, Sarah Pongrace, Rachel Iida, Austin Morris, Lorena Balić, Alex Ogren, David Reck, Christopher Scott, Hayley Lawrence, Betsy Goodwin*, and Nathalie Gunasekera.

Gibson Dunn’s White Collar Defense and Investigations Practice Group successfully defends corporations and senior corporate executives in a wide range of federal and state investigations and prosecutions, and conducts sensitive internal investigations for leading companies and their boards of directors in almost every business sector. The Group has members across the globe and in every domestic office of the Firm and draws on more than 125 attorneys with deep government experience, including more than 50 former federal and state prosecutors and officials, many of whom served at high levels within the Department of Justice and the Securities and Exchange Commission, as well as former non-U.S. enforcers. Joe Warin, a former federal prosecutor, is co-chair of the Group and served as the U.S. counsel for the compliance monitor for Siemens and as the FCPA compliance monitor for Alliance One International. He previously served as the monitor for Statoil pursuant to a DOJ and SEC enforcement action. He co-authored the seminal law review article on NPAs and DPAs in 2007. M. Kendall Day is a partner in the Group and a former white collar federal prosecutor who spent 15 years at the Department of Justice, rising to the highest career position in the DOJ’s Criminal Division as an Acting Deputy Assistant Attorney General.

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*Betsy Goodwin and Yixian Sun, associates in the firm’s New York office, are not admitted to practice law.

This edition of Gibson Dunn’s Federal Circuit Update for February 2024 summarizes the current status of several petitions pending before the Supreme Court, and recent Federal Circuit decisions concerning printed publications, written description, claim construction, and inequitable conduct.

Federal Circuit News

Noteworthy Petitions for a Writ of Certiorari:

There were no new potentially impactful petitions filed before the Supreme Court in February 2024. We provide an update below of the petitions pending before the Supreme Court that were summarized in our January 2024 update:

In Vanda Pharmaceuticals Inc. v. Teva Pharmaceuticals USA, Inc. (US No. 23-768), after the respondents waived their right to file a response, the Court requested a response, which is due March 18, 2024. Three amicus curiae briefs have been filed.

In Ficep Corp. v. Peddinghaus Corp. (US No. 23-796), the respondent filed its opposition brief on February 23, 2024.

The Court denied the petitions in Liquidia Technologies, Inc. v. United Therapeutics Corp. (US No. 23-804) and VirnetX Inc. v. Mangrove Partners Master Fund, Ltd. (US No. 23-315).

Federal Circuit Practice Update

Promptu Systems Corp. v. Comcast Corp. et al., No. 22-1093 (Fed. Cir. Feb. 16, 2024): The Federal Circuit (Moore, C.J., Prost and Taranto, JJ. (per curiam)) issued sua sponte an order in four related cases (Nos. 19-2368 (consolidated with 19-2369), 20-1253, 22-1093, 22-1939) clarifying that Rule 28 of the Federal Rules of Appellate Procedure prohibits counsel from exceeding the word count through incorporation by reference. The appellee incorporated by reference multiple pages of argument from the brief in one case into another and was asked by the Court why appellee should not be sanctioned. Although the Court chose not to award sanctions in this case, it made clear that “violating these provisions in the future will likely result in sanctions.”

New Oral Argument Scheduling Conflicts Guidance. On February 26, 2024, the clerk’s office provided guidance clarifying what would be considered allowable and unallowable scheduling conflicts for upcoming oral argument sessions. This guidance is published here.

Upcoming Oral Argument Calendar

The list of upcoming arguments at the Federal Circuit is available on the court’s website.

Key Case Summaries (February 2024)

Weber, Inc. v. Provisur Technologies, Inc., No. 22-1751, 22-1813 (Fed. Cir. Feb. 8, 2024): Weber filed petitions for inter partes review (“IPR”) against Provisur’s patents directed to high-speed mechanical slicers used in food processing plants to slice and package foods, like meats and cheeses. The invalidity grounds asserted in the IPR petitions included combinations based on Weber’s operating manuals. The Patent Trial and Appeal Board (“Board”) concluded that Weber’s operating manuals were not prior art printed publications.

The panel (Reyna, J., joined by Hughes and Stark, JJ.) reversed-in-part, vacated-in-part, and remanded. The Court concluded that Weber’s operating manuals were printed publications because they were intended to be “accessible to interested members of the relevant public by reasonable diligence” and were not subject to confidentiality restrictions by Weber’s copyright notice and terms and conditions.

RAI Strategic Holdings, Inc. v. Philip Morris Products, S.A., No. 22-1862 (Fed. Cir. Feb. 9, 2024): Philip Morris filed a petition for post-grant review challenging RAI’s patent directed to electrically powered smoking articles. The Board found that the claims lacked written description support because the claimed “length of about 75% to 85% of a length of the disposable aerosol forming substance” for the heating member was narrower than the ranges disclosed in the specification. Specifically, the specification disclosed ranges of 75% to 125%, 85% to 110%, and 90% to 110%. No range disclosed in the specification contained the upper limit of 85%.

The Federal Circuit (Stoll, J., joined by Chen and Cunningham, JJ.) affirmed-in part, vacated-in-part, and remanded. The Court vacated the Board’s determination that the broader ranges disclosed in the specification did not provide written description support for the narrower claimed range. “Given the predictability of electro-mechanical inventions such as the one at issue here, and the lack of complexity of the particular claim limitation at issue—i.e., reciting the length of a heating member—a lower level of detail is required to satisfy the written description requirement than for unpredictable arts.” Specifically, there was no evidence that changing the length of the heating member changed the invention’s operability, effectiveness, or other parameters.

Promptu Systems Corp. v. Comcast Corp. et al., No. 22-1939 (Fed. Cir. Feb. 16, 2024): Promptu sued Comcast for infringing Promptu’s patents directed to speech recognition technology. Promptu stipulated to non-infringement under the district court’s constructions, and challenged the constructions on appeal.

The Federal Circuit (Taranto, J., joined by Moore, C.J., and Prost, J.) vacated and remanded. The Court held that the district court erred or erred-in-part in its construction of four claims terms because the constructions were not consistent with disclosures in the specification. The Court additionally explained that “only those terms need be construed that are in controversy, and only to the extent necessary to resolve the controversy.” Thus, although the Court determined that the district court’s construction of certain terms were too narrow, it was unclear what aspects of those terms needed clarification “for resolution of the liability issues.” The Court therefore remanded to the district court to make that determination in the first instance.

Freshub, Inc. v. Amazon.com, Inc., No. 22-1391 (Fed. Cir. Feb. 26, 2024): Freshub sued Amazon for infringing Freshub’s patent related to voice-processing technology. Amazon denied infringement and asserted the defense that the patents are unenforceable due to inequitable conduct committed by Freshub’s parent company, Ikan Holdings LLC. Specifically, Amazon argued when Ikan revived the abandoned patent application from which the asserted patents claim priority, Ikan had intentionally misrepresented to the U.S. Patent and Trademark Office (“PTO”) that the application had been unintentionally abandoned when the abandonment was actually intentional. A jury found Amazon did not infringe the patents. Subsequently, the district court held a bench trial on the inequitable conduct claim, but found that Amazon had failed to prove the inequitable conduct by clear and convincing evidence.

The Federal Circuit (Taranto, J., joined by Reyna and Chen, JJ.) affirmed. The claim limitation at issue was whether Amazon’s shopping list met the “identify an item” limitation. Amazon presented evidence that the shopping-list feature added words to a shopping list whether or not it corresponded to a purchasable item, and therefore, did not meet the limitation. Although there was no claim construction narrowing the meaning of “item” to only purchasable items, this was one reasonable interpretation of the claim language, and therefore, the Court determined that substantial evidence supported the jury’s finding of noninfringement.

The Court also affirmed the district court’s rejection of Amazon’s inequitable conduct defense. “To prevail on the defense of inequitable conduct, the accused infringer must prove that the applicant misrepresented or omitted material information with the specific intent to deceive the PTO.” Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1287 (Fed. Cir. 2011) (en banc). While the Court found that Amazon had presented evidenced that Ikan’s counsel knew that the application had been abandoned, the Court determined that Amazon had not presented by clear and convincing evidence that Ikan intentionally abandoned the application. The Court determined that Amazon therefore could not show that counsel’s statement that the abandonment was unintentional was made with the specific intent to deceive the PTO.

The following Gibson Dunn lawyers assisted in preparing this update: Blaine Evanson, Jaysen Chung, Audrey Yang, Vivian Lu, Julia Tabat, and Michelle Zhu.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit. Please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups, or the following authors:

Blaine H. Evanson – Orange County (+1 949.451.3805, bevanson@gibsondunn.com)
Audrey Yang – Dallas (+1 214.698.3215, ayang@gibsondunn.com)

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2023 proved that there is never a dull moment when it comes to the False Claims Act (FCA). It was an especially significant year in terms of enforcement developments.

The Department of Justice (DOJ) recovered approximately $2.7 billion through FCA settlements and judgments, making FY 2023 the 15th straight year in which recoveries exceeded $2 billion. The government and whistleblowers initiated more than 1,200 new FCA matters—a new record and a 26% increase over the previous one. Moreover, DOJ initiated 500 of these matters, the most by far in any given year since DOJ began releasing data tracking this metric. Even relator-initiated matters were significantly higher than in past years; at 712, FY 2023’s total is the third-highest since 2000. Simply put, DOJ and the relators’ bar were more active in FY 2023 than ever before. Their efforts, as in past years, were focused primarily in the healthcare space—although this past year saw a marked increase in recoveries from defense contractors, as well.

Last year was notable in other ways, too. Four years after announcing its FCA cooperation credit policy, DOJ began explicitly acknowledging certain companies’ cooperation in settlement agreements. Yet it did so with varying degrees of specificity regarding what the companies did to earn such credit, resulting in—at best—limited guidance for companies to follow in evaluating options for self-disclosure, cooperation, and remediation. Elsewhere, DOJ deepened its commitment to pursuing FCA allegations in the cybersecurity realm, and multiple states expanded their false claims laws. And while few caselaw developments could rival the two Supreme Court FCA decisions handed down in the first half of 2023, the latter half of the year still saw significant Circuit‑level decisions related to materiality, damages calculations, and the FCA’s anti‑retaliation provision, among other topics.

We cover all of this, and more, below. We begin by summarizing recent enforcement activity, then provide an overview of notable legislative and policy developments at the federal and state levels, and finally analyze significant court decisions since the publication of our 2023 Mid-Year Update.

As always, Gibson Dunn’s recent publications regarding the FCA may be found on our website, including in-depth discussions of the FCA’s framework and operation, industry-specific presentations, and practical guidance to help companies avoid or limit liability under the FCA. And, of course, we would be happy to discuss these developments—and their implications for your business—with you.

I. FCA ENFORCEMENT ACTIVITY

A. NEW FCA ACTIVITY

By a wide margin, 2023 was a record year for new FCA enforcement actions. More FCA cases were opened in 2023 than any year for which data is available. The government and qui tam relators filed 1,212 new cases, a stunning 249 more cases from the record set in 2022 (representing a 26% increase). And, as highlighted by DOJ, “[t]he government and whistleblowers were party to 543 settlements and judgments, the highest number of settlements and judgments in a single year.”[1]

This increase reflects DOJ’s laser-like focus on FCA enforcement. Last year, the government initiated 500 cases based on referrals or investigations, as opposed to qui tam matters. This far surpasses the prior record, set in 1987, of 340 government‑initiated cases, and outstrips the 305 matters opened the year before. Simply put, DOJ is aggressively seeking possible claims on its own initiative.

Historically, the vast majority of FCA recoveries have come from cases where DOJ initiated the case or intervened. Presumably, this portends significant FCA recoveries in years to come.

Number of FCA New Matters, Including Qui Tam Actions

Source: DOJ “Fraud Statistics – Overview” (Feb. 22, 2024)

B. TOTAL RECOVERY AMOUNTS

In FY 2023, the total dollars recovered through FCA cases (just shy of $2.7 billion) represented a significant increase over the previous year ($2.2 billion), though it remained far short of 2021’s most recent highwater mark ($5.7 billion).

Importantly, 2023 saw a return to normalcy in terms of the percentage of recoveries in which the United States either intervened or initiated the case. DOJ’s decision on whether to intervene historically has been a critical inflection point in cases—and one that strongly predicts whether a case will be successful. In short, DOJ is good at picking “winners.” FY 2022 presented a stark anomaly where more than half the FCA recoveries recorded (54%) stemmed from cases brought by a relator without the support of DOJ. This past year, FY 2023, 16% of recoveries came from qui tam actions in which the government declined to intervene, generally consistent with the overall trend and similar to numbers most recently seen in 2015 and 2017. Even that percentage, though, demonstrates the increase in the relators’ bar taking these cases into discovery and obtaining recoveries in recent years. Since 2014, relators have recovered a total of approximately four times more in FCA cases than in all other years since 2000 combined.

Assuming this indicator remains roughly consistent, we may soon see recoveries surpassing the record set in 2014, given DOJ’s aggressive initiation of cases in FY 2023.

Settlements or Judgments in Cases Where the Government Declined Intervention as a Percentage of Total FCA Recoveries

Source: DOJ “Fraud Statistics – Overview” (Feb. 22, 2024)

C. FCA RECOVERIES BY INDUSTRY

The breakdown of FCA recoveries by industry shifted marginally in 2023. Consistent with existing trends, healthcare cases accounted for the lion’s share of recoveries—68%, equating to more than $1.8 billion. That, however, represents the lowest portion of FCA recoveries since 2017 (then 63%). This shift is largely due to increased recoveries related to Department of Defense (DOD) procurement, which made up 21% of recoveries in 2023, equating to over $550 million. The remaining 12% of recoveries (nearly $320 million) were from cases involving other industries.

Regarding the healthcare-related claims, DOJ touted its cases alleging Medicare Advantage fraud, unnecessary services and substandard care fraud, claims related to the opioid epidemic, and unlawful kickbacks. Beyond those cases, DOJ emphasized its enforcement efforts targeting government defense contractors, as well as COVID-19 and cybersecurity fraud.[2]

FCA Recoveries by Industry

Source: DOJ “Fraud Statistics – Health and Human Services”; “Fraud Statistics – Department of Defense”; “Fraud Statistics – Other (Non-HHS and Non-DoD)” (Feb. 22, 2024)

II. NOTEWORTHY DOJ ENFORCEMENT ACTIVITY DURING THE SECOND HALF OF 2023

A. HEALTHCARE AND LIFE SCIENCE INDUSTRIES

On July 13, a dermatology practice which operates 13 clinics in southeast Tennessee and north Georgia, and one of its dermatologists, agreed to pay $6.6 million to resolve allegations that they violated the FCA by overbilling federal healthcare programs for various dermatological surgeries and procedures. The government alleged that the practice and the physician falsely claimed that both the surgery and pathology portion of procedures were conducted by the dermatologist, when in fact certain portions were conducted by other individuals, and that the defendants regularly billed Medicare in a way that improperly bypassed Medicare’s “multiple procedure reduction rule.” As part of the settlement, the practice entered into a corporate integrity agreement (CIA) with the Department of Health and Human Services Office of the Inspector General (HHS-OIG), which focuses on the practice’s continuing obligation to properly bill and submit reimbursement claims to government payors. The settlement resolved a suit brought by a qui tam relator; the relator will receive $1.3 million of the settlement amount.[3]
On July 14, an electronic health record (EHR) technology vendor agreed to pay $31 million to settle allegations that it violated the FCA and the federal Anti-Kickback Statute (AKS). The vendor allegedly misrepresented its software’s capabilities and falsely obtained certification from HHS under a program that grants incentive payments to incentivize healthcare providers that adopt EHR The vendor also allegedly provided unlawful remuneration to customers for referrals, including sales credits and tickets to sporting and entertainment events. This settlement is the latest in a series of resolutions with EHR vendors, including a $45 million settlement from late 2022 that we covered in our Year-End 2022 FCA Update. The settlement resolved a qui tam suit brought by two relators from a facility that used the company’s EHR software; the relators will receive nearly $5.6 under the settlement agreement.[4]
On July 31, a Maine-based Medicare Advantage organization agreed to pay approximately $22.5 million to resolve allegations that it submitted inaccurate diagnosis codes for its enrollees, thereby increasing its reimbursements from Medicare. The government alleged that the provider reviewed the charts of its Medicare Advantage beneficiaries to identify additional diagnosis codes and then submitted those codes to Medicare although they were not supported by the patients’ medical records. The settlement resolved a qui tam suit brought by a former employee, who will receive approximately $3.8 million in the settlement.[5]
On August 1, two pharmacy companies and their respective owners agreed to pay over $3.5 million to resolve allegations that they violated the FCA by billing Medicare for medications that were not actually dispensed. The companies also agreed to a five-year exclusion from participation in federal healthcare programs, surrendered their Drug Enforcement Agency (DEA) Certificates of Registration, and ceased operations.[6]
On August 1, a clinical laboratory and its owner agreed to pay $5.7 million to settle an outstanding FCA judgment against them. An initial judgment of approximately $30.6 million was entered against the laboratory and owner in 2018 after a court found that the lab knowingly submitted false claims to Medicare for travel reimbursements. In particular, the court concluded that the lab billed Medicare for lab technician travel when specimens were not accompanied by technicians and billed travel for each specimen when groups of specimens were transported together. Due to the defendants’ inability to pay the original judgment in full, the laboratory and owner agreed to pay the new $5.7 million settlement over a period of five years. The settlement resolved a qui tam suit brought by the lab’s competitor, who will receive $1.3 million of the settlement. The settlement imposes future payment obligations in the event that certain contingencies transpire in relation to the laboratory owner’s income.[7]
On August 10, a Florida-based durable medical equipment supply company agreed to pay $29 million to settle allegations that it fraudulently claimed reimbursement from Medicare and Medicare Advantage Plans for rental payments for oxygen equipment in excess of the 36-month cap on reimbursement. The settlement agreement stated that approximately $12.6 of the settlement amount constituted restitution. In conjunction with the DOJ settlement, the company also entered into a five-year CIA with HHS-OIG, which requires the company to undertake various compliance measures and to retain an independent compliance expert to review the company’s compliance program. The DOJ settlement resolved a qui tam suit brought by former employees, who will receive approximately $5.7 of the settlement amount.[8]
On August 24, a Michigan pain management doctor and two pain center entities he owned and operated collectively agreed to pay $6.5 million to resolve a variety of FCA allegations. The government alleged that the doctor and entities billed Medicare and Medicaid for excessive and medically unnecessary urine drug tests irrelevant to patient treatment, additional laboratory charges not separately billable from the urine drug tests, routine moderate sedation services not actually required for interventional pain management procedures, and medically unnecessary or otherwise non-reimbursable back braces. The settlement resolves claims in two qui tam lawsuits, and the relators will collectively receive approximately $1.3 million of the settlement amount.[9]
On August 30, a California company that operates multiple healthcare providers agreed to pay $5 million to resolve claims that it violated the FCA and the California FCA by causing the submission of false claims to California’s Medicaid program. The government alleged that the company billed for unallowable and/or inflated costs for services it provided to “Adult Expansion” population members (as defined under the Affordable Care Act). This settlement is the latest in a series of resolutions related to the Medicaid Adult Expansion program in California, through which the United States has recovered a total of $95.5 million. The allegations underlying the August 30 settlement stemmed from a qui tam suit by a former medical director, who will receive approximately $950,000 as his share of the recovery.[10]
On September 13, a Texas company that managed and operated dermatology practices, surgical centers, and pathology laboratories across the United States agreed to pay approximately $8.9 million, including approximately $5.9 million in restitution, to resolve self-reported claims of potential violations of the FCA, the AKS, and the Stark Law. The government alleged that former senior managers of the company offered to increase the purchase price of 11 dermatology practices in exchange for agreements to refer laboratory services to affiliated entities after the acquisition. The government credited the company for self-reporting the alleged conduct at a time when the government was unaware of it. The settlement agreement itself, however, is not publicly available, and the press release announcing the settlement does not specify how much the cooperation credit reduced the amount the government otherwise would have sought to recover.[11]
On September 15, a cardiac diagnostics company and its founder-owner agreed to pay approximately $4.5 million to resolve allegations that they paid physicians millions of dollars in the form of rent payments and referral fees to induce them to refer patients to the diagnostics company in violation of the AKS and the FCA. As part of the settlement, the government, the company and its founder-owner entered into a consent judgment for $64.4 million, which the government can seek to enforce if the required settlement payments are not made. The settlement agreement resolves a qui tam suit but does not specify the relator’s share of the recovery.[12]
On September 30, a Connecticut-based healthcare and insurance company agreed to pay approximately $172 million to resolve allegations that it submitted, and failed to withdraw, inaccurate and untruthful diagnosis codes for its Medicare Advantage Plan enrollees. The government alleged that, as part of the company’s “chart review” program to identify all medical conditions that the charts supported and to assign the beneficiaries diagnosis codes for those conditions, the company added diagnosis codes that the patients’ healthcare providers had not included to inflate the payments the company received from the Centers for Medicare and Medicaid Services (CMS). In addition, the government alleged that the company failed to withdraw false diagnosis codes and repay CMS, including where the company itself added the codes and where providers included them initially and the company’s review did not support the use of the codes. Along with the settlement, the company entered into a five-year CIA with HHS-OIG, which requires (among other things) an independent review organization to audit the company with a focus on risk adjustment data.[13]
On October 2, a Delaware-based specialty pharmacy and its CEO agreed to pay a total of $20 million to resolve FCA allegations premised on alleged AKS violations. Specifically, the government alleged that the company improperly waived Medicare and TRICARE patients’ copayments to induce patients to purchase the company’s services and specialty drugs, and that the company gave kickbacks to physicians to induce referrals in the form of gifts, dinners, and free administrative and clinical support services. The settlement stemmed from a qui tam suit brought by two former employees of the company, who together will receive approximately $4 million of the recovery.[14]
On October 2, a California-based provider of genomic-based diagnostic tests agreed to pay $32.5 million to resolve allegations that it violated the FCA by improperly billing Medicare for the company’s principal laboratory test. In particular, the government alleged that the company violated the Medicare “14-Day Rule,” which governs reimbursement for laboratory tests for patients discharged after hospital stays. The settlement resolved two qui tam actions brought by two relators, who collectively will receive a share of approximately $5.7 million of the settlement.[15]
On October 10, an Illinois-based cardiac imaging company and its founder agreed to pay approximately $85.5 million in an FCA resolution premised on alleged violations of the AKS and the Stark Law. The government alleged that the company paid above fair market value fees to cardiologists to supervise certain scans for patients the cardiologists referred to the company as improper referral; the fees allegedly included amounts for time that the cardiologists spent off-site or attending to other patients as well as for services beyond supervision that were not actually provided. The government also alleged that the company knowingly relied on a consultant’s fair market value analysis that was based on inaccurate information about the relevant services and that the consultant that provided the analysis later disclaimed. The company also entered into a five-year CIA with HHS-OIG, which imposes (among other obligations) an annual risk assessment and the retention of an independent review organization. The FCA settlement resolves a qui tam action brought by one of the company’s former billing managers, whose share of the government’s recovery had not been determined at the time the settlement was announced.[16]
On October 17, multiple Michigan inpatient and hospitalist entities agreed to pay approximately $4.4 million to resolve allegations they violated the FCA by billing for services for beneficiaries located in Michigan and Indiana that were not rendered to the Michigan-based beneficiaries, permitting doctors to regularly bill impossible days of services, and by upcoding medical services (using more expensive billing codes than the codes corresponding to the services provided). The settlement resolves claims in two qui tam suits, with relators receiving approximately $767,000 of the settlement.[17]
On October 30, a drug manufacturer and its founder agreed to pay at least $3.8 million and up to $50 million to resolve allegations that the company knowingly underpaid quarterly rebates to Medicaid programs for one of the company’s drugs. The government alleged that the drug manufacturer paused manufacturing of an acquired drug and later relaunched it as a reformulation (despite not changing any active ingredients) with a price increase of more than 400%. However, the manufacturer allegedly refused to pay the larger Medicaid rebate invoices tied to the price increase. The settlement amount is tied to certain financial contingencies.[18]
On November 8, an eastern Kentucky hospital system and one of its physicians agreed to collectively pay approximately $3 million to resolve allegations that they violated the FCA by submitting claims for non-covered services to Medicare and Kentucky Medicaid. The government alleged that the hospital and physician billed, or caused to be billed, federal healthcare programs for reimbursement of services without the requisite documentation to support medical necessity of those services. The matter arose from the hospital system’s voluntary self-disclosure of the claims. The government stated explicitly that its recovery was limited to 1.5 times the amount of monetary loss caused by the alleged false claims, which is consistent with DOJ’s cooperation credit policy for FCA cases.[19]
On November 9, DOJ announced that a healthcare management company, its executive, and six skilled nursing facilities agreed to a consent judgment in the amount of approximately $45.6 million to resolve claims that they violated the FCA and the AKS. The government alleged that under the direction and control of the management company and its executive, the skilled nursing facilities entered into medical directorship agreements that purported to compensate physicians for administrative services but actually provided kickbacks for physicians that referred patients to the skilled nursing facilities. The consent judgment calls for scheduled payments for each defendant based on their ability to pay, and the settlement contains a series of covenants by the government not to enforce the consent judgment as to certain assets, combined with provisions for increasing the payments owed by the defendants in the event of certain financial contingencies. In connection with the settlement agreement, the management company, one of the executives, and one of the skilled nursing facilities entered into a five-year CIA with HHS-OIG.[20]
On December 6, a Pennsylvania-based company and its Illinois-based subsidiary agreed to pay more than $14.7 million to resolve allegations that they violated the FCA by knowingly submitting claims to federal healthcare programs for more expensive types of remote cardiac monitoring than what physicians had intended to order or that were medically necessary. According to the government, the companies ignored requests by physicians for types of monitoring that carried lower reimbursement rates than what the companies ended up billing. The settlement agreement resolved two qui tam actions brought by, respectively, an individual employee of one of the company’s customers and by an LLC. The individual will receive $2.3 million of the settlement share, and the LLC will receive approximately $270,000.[21]
On December 19, a healthcare network agreed to pay $345 million to resolve allegations that it violated the FCA by knowingly submitting claims to Medicare for services that were referred to the network in violation of the Stark Law. In particular, the government alleged that senior management employed physicians and paid them above fair market value and in a way that took account of the volume of the physicians’ referrals to the network. The network allegedly continued this conduct despite warnings from a compensation valuation firm that the physician salaries exceeded fair market value. In connection with the settlement, the network entered into a five-year corporate integrity agreement with HHS-OIG. The settlement resolved a qui tam lawsuit brought by the network’s former Chief Financial and Chief Operating Officer, whose share of the recovery, according to the government “ha[d] not yet been determined” as of the time of the press release. The settlement agreement resolves only the allegations in the government’s partial complaint-in-intervention; as of this writing, the relator continues to pursue FCA claims premised on AKS allegations.[22]
On December 20, a hospital operator agreed to pay $2 million, and to make additional payments in the event of certain contingencies, to resolve claims that the center violated the FCA. The government alleged that the center falsely claimed cost outlier payments—supplemental reimbursements by Medicare and TRICARE that aim to incentivize treatment for patients whose cost of care in an inpatient setting is particularly high. As part of the alleged conduct, the company improperly inflated its charges for inpatient care while underreporting charges on the cost reports it submitted to the government, and concealed an obligation to return outlier payments to which it was not entitled. The government also alleged that the company double‑billed the government for COVID-19 tests. The settlement resolved a qui tam suit brought by a former employee, who received approximately $300,000 of the settlement.[23]
On December 21, a pharmaceutical company agreed to pay $6 million to resolve allegations that it violated the FCA by paying kickbacks in exchange for prescriptions. Specifically, the government alleged that the company knowingly paid for free genetic testing, as well as the associated fees; according to the government, the company knew the tests had to be positive for a certain genome in order for insurers to pay for the company’s medication. The settlement resolved a lawsuit brought by a qui tam relator, who will receive approximately $1.1 million of the federal settlement amount.[24]
On December 21, a Missouri urgent care provider agreed to pay $9.1 million to settle allegations that it violated the FCA by submitting claims for physician services that actually were performed by non-physician practitioners. The settlement resolved allegations that the provider both upcoded billing for patient visits and submitted upcoded visit claims for COVID-19 vaccinations and patient care. The DOJ press release notes that the company “fully cooperated in the investigation,” but it is not clear whether DOJ awarded any cooperation credit on that basis. The press release did note that the company had voluntarily self‑disclosed separate conduct—the payment of bonuses to physicians in part based on the volume or value of referrals—to HHS-OIG in March 2021.[25]
On December 22, a Pennsylvania manufacturer of durable medical equipment agreed to pay $2.5 million to resolve allegations that it violated the FCA by giving kickbacks to sleep laboratories. The government alleged that the manufacturer gave the laboratories free diagnostic sleep-respiratory disorder masks to induce prescriptions or referrals for masks the company manufactured for treatment of sleep disorders.[26]

B. GOVERNMENT CONTRACTING AND PROCUREMENT

On July 21, a consulting firm agreed to pay approximately $377 million to resolve allegations that from 2011 to 2021 it violated the FCA by improperly billing unrelated or disproportionate costs to its government contracts. In particular, the government alleged that the firm billed the government for costs that were unallowable or that should have been allocated to commercial contracts instead of to government contracts. The settlement is the largest, by dollar value, since our 2023 Mid-Year Update, and is a rare example of an FCA settlement based on alleged violations of the federal cost accounting standards (CAS). The settlement resolved a qui tam suit brought by a former employee, who will receive almost $70 million of the settlement.[27]
On July 21, two government contractors agreed to pay a total of $7 million to resolve allegations that they violated the FCA by falsely representing what methodology they used to measure customer satisfaction on certain government websites. The government alleged that the contractors were awarded a five-year contract with the Federal Consulting Group (a part of the U.S. Department of Interior) with the understanding that the company would measure customer satisfaction using the American Customer Satisfaction Index’s (ASCI) methodology, but that the company instead used a different methodology. The settlement resolves claims in a qui tam lawsuit brought by two relators, who will receive a total of $1.5 million of the settlement amount.[28]
On August 4, an electronic connector manufacturing company agreed to pay approximately $18 million to settle allegations that it violated the FCA by submitting false claims for electrical connectors to the U.S. government and military. The company allegedly submitted claims for reimbursement of the connectors that did not meet the testing and manufacturing specifications required for the claims to be eligible for reimbursement.[29]
On September 5, a New Jersey-based company paid approximately $4.1 million to resolve claims that it violated the FCA by failing to satisfy certain required cybersecurity controls in connection with information technology services provided to federal agencies. Specifically, the government alleged that the company failed to implement three required cybersecurity controls for Trusted Internet Connections with respect to General Services Administration (GSA) contracts from 2017 to 2021 within an internet protocol service it provided to federal agencies. The claims stemmed from a written self-disclosure of potential issues by the company, submitted to the GSA’s Office of Inspector General. The settlement agreement states that the company received credit for disclosure, cooperation, and remediation; although it does not specify the amount of the credit, it does detail certain cooperation and remediation steps the company took, such as identifying responsible individuals, disclosing facts it had gathered and attributing them to specific sources, assisting in damages calculations, and imposing employment consequences for responsible individuals.[30]
On September 15, a Pennsylvania-based research and engineering services provider, agreed to pay $4.4 million to settle allegations that it violated the FCA by knowingly double billing for labor and material costs in relation to contracts with the U.S. Navy. The settlement agreement specifies that $2.1 million of the settlement amount constitutes restitution, and notes that there was a parallel administrative case that arose out of government audits of the relevant contracts and that the parties had agreed in principle to settle. It does not appear that there was a qui tam case underlying the settlement.[31]
On September 28, a major military aircraft manufacturer agreed to pay $8.1 million to resolve allegations that it violated the FCA by failing to adhere to critical manufacturing requirements in the production of composite parts for certain aircraft sold to the United States military. The government alleged that the manufacturer failed to conduct routine checks and surveillance of machines used to cure certain composite parts, and that the manufacturer did not maintain required documentation concerning periodic testing of those machines. The settlement resolved a qui tam action by three whistleblowers who worked at the company’s manufacturing facility producing the composite parts; together they will receive approximately $1.5 million of the settlement.[32]
On November 20, a Virginia-based tactical gear and equipment company agreed to pay nearly $2.1 to settle allegations that it submitted false claims in connection with the sale of “American-made” products that were actually manufactured in foreign countries in violation of the Trade Agreements Act and the Berry Amendment’s requirement that certain items purchased by DOD be 100% domestic in origin. The settlement resolved a qui tam suit brought by an employee, who will receive an unspecified portion of the settlement amount.[33]

C. OTHER

On August 15, a Florida real estate broker and his companies agreed to pay $4 million to resolve FCA allegations that they knowingly provided false information in support of multiple Paycheck Protection Program (PPP) and Economic Injury Disaster Loan Program (EIDL) loans. The government alleged that the broker submitted false and fraudulent applications and documents, including false tax documents and employee wage reports, to obtain four EIDL loans and 14 PPP loans. The government also claimed that he submitted false and fraudulent forgiveness applications wherein he falsely certified that the entire loan amounts were used to pay eligible business costs.[34]
On September 28, a Florida-based automotive company agreed to pay $9 million to resolve allegations that it violated the FCA by knowingly providing false information in support of a PPP loan application it submitted. The government contended that the company certified it was a small business and had fewer than 500 employees, making it eligible for PPP funds designated for “small business concerns” under the CARES Act. According to the government, the company in fact had over 3,000 employees, it knew when it made the certifications that it was ineligible for the loan program, and the government later forgave the loan. The settlement resolved claims brought in a qui tam lawsuit, and the relator will receive approximately $1.6 million of the recovery amount.[35]
On October 31, an energy company agreed to pay $16 million to resolve allegations that it under-reported and under-paid natural gas royalties owed to the United States under administrative regulations for natural gas exploration. The government contended that the company knowingly deducted the costs of placing natural gas in marketable condition (which companies must do at no cost to the government) from the royalties it owed the government, knowingly deducted the costs of transporting carbon dioxide from the royalties, and knowingly failed to pay royalties on carbon dioxide. The settlement also resolved ongoing Department of Interior administrative proceedings regarding the same alleged conduct.[36]
On November 1, a restaurant chain with locations in New York and Arizona and its owner agreed to pay $2 million to resolve allegations that they violated the FCA by falsely certifying that the restaurant chain was eligible to receive a Restaurant Revitalization Fund (RRF) grant in the amount of $928,554. Specifically, the government alleged that by falsely certifying that the restaurant chain did not have more than 20 locations, when in fact it had 21, the restaurant chain and its owner falsely claimed eligibility for the RRF grant. The settlement resolved a complaint filed by a qui tam relator whose share of the settlement will be $200,000.[37]
On December 5, a Dallas-based importer of industrial products and two Chinese companies agreed to pay approximately $2.5 million to resolve allegations that they violated the FCA by submitting false invoices for customs valuations, which in turn resulted in lower values for the imported goods and lost customs revenue. The settlement resolved a qui tam suit brought by two relators, who received a $500,000 share as part of the settlement agreement.[38]
On December 7, a New Jersey-based public relations firm agreed to pay nearly $2.3 million to settle allegations that the company violated the FCA by wrongfully taking a loan from the PPP. The United States contended that the company knowingly applied for and received a $2 million PPP loan, despite the fact that it was ineligible to receive the funds because it was a required registrant under the Foreign Agent Registration Act. The company allegedly later sought and received forgiveness for the total loan value. The settlement agreement states that the government considers approximately $2.1 million of the $2.3 million settlement amount to be restitution. The qui tam relator who brought the original lawsuit will receive $229,000, or 10%, of the recovery amount.[39]
On December 11, a Texas‑based roofing company agreed to pay $9 million to resolve allegations that it violated the FCA by falsely certifying that eight of its affiliate companies were eligible to receive PPP loans in the amount of $6.7 million, which were all later forgiven in full. The government alleged that by improperly claiming to have fewer than 500 employees, each applicant falsely represented that it was qualified as a small business eligible to receive a loan, when the applicants’ affiliations with each other meant that they collectively had more than 500 employees. The settlement resolved a lawsuit brought by a qui tam relator who will receive $1 million of the settlement amount.[40] The law firm that represented the relator characterized it in a blog post as a “data miner” that “analyzes PPP loan data for prospective cases.”[41]

III. LEGISLATIVE AND POLICY DEVELOPMENTS

A. FEDERAL POLICY AND LEGISLATIVE DEVELOPMENTS

1. DOJ’s Cooperation Credit Policy, Several Years On

In the aggregate, FCA resolutions afford a fairly clear window into DOJ’s programmatic enforcement priorities. While any given settlement agreement’s level of detail regarding the covered conduct is often vigorously negotiated, agreements—and the press releases that announce them—typically contain enough high-level information about the nature of the government’s allegations for other companies in various industries to identify the government’s focus areas.

The government’s approach to awarding cooperation credit in FCA cases is markedly less transparent. In May 2019, DOJ issued a policy—now codified at Section 4-4.112 of the Justice Manual—regarding the circumstances under which such credit could be awarded.[42] At the core of the policy are voluntary disclosure, cooperation in the government’s investigation, and remediation.[43] In announcing the policy, DOJ stated that “[m]ost frequently, cooperation credit will take the form of a reduction in the damages multiplier and civil penalties,” and that DOJ “may publicly acknowledge the company’s cooperation.”[44] However, beyond that general statement, and a statement in the policy that cooperation credit cannot result in a defendant paying less than single damages, the policy said precious little about how much cooperation credit DOJ would award in various circumstances. (Gibson Dunn’s 2019 analysis of the policy provided further details on the policy and the significant discretion it granted to the government.)

The triad of disclosure, cooperation and remediation described in the FCA policy is a familiar one. In the criminal sphere, DOJ has made these same three concepts the centerpiece of its enforcement regime—not only from the standpoint of whether and how much cooperation credit to award, but also in terms of what type of resolution vehicle to use.[45] In the criminal enforcement context, however, DOJ tends to be more explicit about how much cooperation credit it awards and the factors that lead it to do so.

For example, several of DOJ’s new voluntary disclosure policies clarify that for a company that has made a qualifying self‑disclosure, DOJ will seek penalties of no more than 50% of the applicable criminal penalties, if the government determines criminal penalties are necessary.[46] These policies also make clear that companies that meet the policies’ criteria for disclosure, cooperation and remediation will not face guilty pleas absent aggravating factors.[47] Such policies also go beyond general pronouncements, and deal with more specific types of fact patterns that companies often face—the most notable example being DOJ’s recent “safe harbor” policy for companies that make voluntary self-disclosures regarding misconduct discovered in the course of mergers and acquisitions.[48] In the text of specific resolution agreements, moreover, DOJ frequently “shows its work” by explaining how much cooperation credit it is awarding and why. For example, in a recent deferred prosecution agreement with a commodities company related to alleged U.S. Foreign Corrupt Practices Act violations, the government explicitly awarded credit for cooperation efforts but not for voluntary disclosure, and stated that the company was receiving a 15% discount off the bottom end of the applicable U.S. Sentencing Guidelines penalty range.[49]

By contrast, nearly five years on from the codification of DOJ’s FCA cooperation credit policy, it is difficult to discern how DOJ is assessing the forms of cooperation and remediation the policy deems relevant, and to what effect in terms of settlement amounts. Before 2023, DOJ seldom invoked the policy as having affected the terms of a settlement when announcing resolutions. Although certain resolutions from 2023 reflect a possible shift toward more frequent discussion of the policy and provide valuable details about its application in practice, the statements DOJ is making continue to provide more questions than answers. Several examples from 2023 bear this out:

In one of the year’s notable cybersecurity-related FCA resolutions, DOJ “acknowledged that [the company] took a number of significant steps entitling it to credit for cooperating with the government.”[50] These included a written self-disclosure to the GSA after the company learned of the relevant issues; “an independent investigation and compliance review of the issues and . . . multiple detailed supplemental written disclosures” to GSA; identification of responsible individuals to DOJ; disclosure of facts the company uncovered in its investigation, including by attributing the facts to specific sources; assistance to DOJ in the analysis of potential damages; and “prompt and substantial remedial measures” such as compliance enhancements, “substantial capital investments” in compliance initiatives, and employment consequences for responsible individuals.[51] The agreement, however, spends less than three lines stating that the company received cooperation credit; it does not specify which if any of the company’s efforts carried more weight than others in the government’s determination to award cooperation credit. The agreement did identify the portion of the amount that the government considered to be restitution; assuming this reflects DOJ’s views of single damages, then the total settlement amount was approximately 1.5 times the alleged single damages.[52]
In another resolution involving a hospital system, DOJ did not publish the settlement agreement itself, but explicitly stated in the press release announcing the settlement that “[b]ecause the company self-reported the conduct to the government, it was able to resolve its False Claims Act liability for only 1.5 times the amount of monetary loss caused by its false claims.”[53]

The second example above suggests that voluntary self‑disclosure may be the engine of the cooperation credit analysis. Yet without more explicit statements from DOJ as to how it views companies’ disclosure, cooperation and remediation efforts, it is difficult to know which factors are ultimately responsible for any given award of cooperation credit.

On another level, while both examples above suggest that settlement at 1.5 times single damages is within reach for companies that satisfy DOJ’s policy, another resolution from 2023 awarded credit under the policy but reflected a reduction to only 1.75 times single damages. Further, like other resolutions, this one did not state which aspects of the companies’ efforts led DOJ to think that further reductions were inappropriate.[54] At the same time, DOJ has been known to settle at 1.5 times single damages—or even less—without any mention of self-disclosure, thus raising questions around the incentives for self-disclosure in the first instance. For example, in October, a New Jersey public relations firm reached a settlement of FCA allegations related to PPP funds, and the settlement amount was approximately 1.1 times the government’s stated restitution figure.[55]

In short, while DOJ’s more frequent invocation of its cooperation credit policy is a welcome development, for the time being it has done little to answer the questions the policy itself left open regarding the value of disclosure, cooperation, and remediation. Time will tell whether future resolutions will continue the recent trend of explicitly noting companies’ cooperation, and whether they will reflect a more detailed—and uniform—approach by DOJ to explaining how much cooperation credit it is awarding and why.

2. Civil Cyber-Fraud Initiative

Since announcing its Civil Cyber-Fraud Initiative in October 2021, DOJ has increasingly used the FCA to address cybersecurity concerns, and 2023 was no exception. The Civil Cyber‑Fraud Initiative uses the FCA to encourage disclosure and to hold accountable entities and individuals that put U.S. information or information systems at risk by knowingly providing deficient cybersecurity products or services, misrepresenting their cybersecurity practices or protocols, or violating obligations to monitor and report cybersecurity incidents and breaches.[56] Several recent cases highlight a growing trend of using the FCA to target government contractors that are required to meet certain cybersecurity requirements, even when no beach has occurred:

In the cybersecurity-related FCA resolution mentioned above, the information services technology company paid $4.1 million to settle FCA allegations after self-disclosing potential issues with certain cybersecurity controls.[57] The company, which provides secure public internet connection capabilities to federal agencies, was contractually required to comply with the Office of Management and Budget’s Trusted Internet Connections initiative at all times. After identifying concerns with certain security controls that allegedly affected the company’s compliance with critical capabilities, the company self-disclosed the concern and implemented measures to remediate the issue.

In a recently unsealed qui tam complaint stemming from the Civil Cyber-Fraud Initiative, a relator alleged that a university submitted false cybersecurity certifications to DOD. Despite making certifications of compliance with National Institute of Standards and Technology (NIST) requirements, the relator claims that the university failed to store controlling unclassified information in NIST-compliant applications, and replaced legitimate risk assessments with templates designed to simply “check the box.”[58]

These cases demonstrate that DOJ’s use of the FCA to pursue cybersecurity enforcement extends beyond commercial defense or cybersecurity-related contracts to any government agreement that includes representations about cybersecurity compliance. Healthcare companies should take note and pay particular attention to government contract provisions governing the storage, protection, and transmittal of protected health information and personal identifiable information, which may contain specific cybersecurity requirements or representations.

Cybersecurity enforcement will be an area to watch as it relates to self-disclosure in particular. In October 2023, DOD, the GSA, and NASA proposed a rule that would amend the Federal Acquisition Regulation (FAR) to require government contractors to disclose cybersecurity incidents within eight hours of discovering them, and to provide other periodic updates on efforts to remediate cybersecurity incidents.[59] Even though such disclosures to the government would not necessarily include information within the full scope of what it would consider relevant to possible FCA claims, the disclosures by definition will position the government to start investigating potential misconduct far closer in time to its occurrence than in other situations—even ones, such as the healthcare overpayment context, in which reporting to the government is required. The proposed FAR rule’s early reporting requirement could create additional incentives for federal contractors to quickly investigate and disclose potential FCA violations to DOJ, lest DOJ learn of the underlying cyber breaches too quickly for self-disclosure credit to be available. At the same time, it is possible DOJ will deem self-disclosure of potential FCA violations to carry less weight given that disclosure of the fact of a cyber incident would already be required by law. If the eight-hour disclosure provision remains in the FAR rule when it becomes final, it will be instructive to track the extent to which DOJ calibrates its application of the cooperation credit policy in the cyber context to focus on cooperation and remediation, as opposed to disclosure.

3. Other Federal Policy Developments

HHS-OIG Compliance Program Guidance

On November 6, 2023, HHS‑OIG released its new General Compliance Program Guidance (GCPG).[60] This document is designed to serve as a non-binding guide for healthcare entities, and includes guidance about compliance with the FCA and other applicable laws. The GCPG describes how the FCA in the healthcare context encompasses billing services or items to Medicare or Medicaid “where the service is not actually rendered to the patient, is already provided under another claim, is upcoded, or is not supported by the patient’s medical record.”[61] To ensure compliance with the FCA, the guidance recommends that entities take “proactive measures . . . including regular reviews to keep billing and coding practices up-to-date as well as regular internal billing and coding audits.”[62]

The guidance also outlines seven focus areas for corporate compliance programs, including policies and training, governance and reporting, risk assessments and audits, employment consequences, and responding to discoveries of misconduct.[63] In its discussion of risk assessments and auditing, the guidance makes clear that entities should put in place mechanisms for auditing the effectiveness of compliance controls, beyond simply auditing with an eye to identifying potential violations of law.[64] And the guidance emphasizes that an entity’s response to discovering misconduct should include self-disclosure to the appropriate government authority where “credible evidence of misconduct from any source is discovered and, after a reasonable inquiry, the compliance officer or counsel has reason to believe that the misconduct may violate criminal, civil, or administrative law.”[65] Notably, the guidance states that such disclosure should be made “not more than 60 days after the determination that credible evidence of a violation exists.”[66] It remains to be seen the extent to which this expectation ends up at odds with DOJ’s view of when an “obligation” to return healthcare overpayments arises under the Affordable Care Act (ACA) and the FCA, given that the ACA requires entities to return overpayments within 60 days of identifying them.[67]

HHS‑OIG has also signaled its intent to release industry segment-specific compliance program guidance in 2024 and to update the documents periodically.[68]

COVID-19 Enforcement

DOJ’s FCA enforcement efforts related to the COVID-19 pandemic are part of a broader landscape of civil and criminal enforcement initiatives to which DOJ has devoted significant resources over the last several years. In August 2023, DOJ provided an update on the efforts of its COVID-19 Fraud Enforcement Task Force.[69] According to DOJ, it had seized over $1.4 billion in COVID-19 relief funds as of that date, and had recently conducted a single coordinated enforcement effort involving 371 defendants and $836 million in relief funds, primarily from the Paycheck Protection Program, the Internal Revenue Service (IRS) Employee Retention Credit program, and Economic Injury Disaster Loans.[70]

B. STATE LEGISLATIVE DEVELOPMENTS

2023 saw states continue to expand the reach of their FCA statutes, some more aggressively than others. Most notably, as we discussed in our 2023 Mid-Year Update, New York became the first state to amend its FCA to cover persons who improperly fail to file a tax return in the state, obviating the need for the State or relators to show the person submitted an actual false “claim, record, or statement.” Connecticut also expanded the scope of its FCA statute to include claims relating to most state programs and benefits (although explicitly carving out tax-related claims), rather than only state-administered health and human services programs, as it had previously.[71]

More recently, New Jersey also amended its FCA statute. It did so specifically to qualify for the federal financial incentive that allows states to receive a ten-percentage-point increase in their shares of any amounts recovered under the FCA if the state’s laws meet certain specified criteria.[72] For a state to qualify for this incentive, HHS-OIG must determine that the state’s FCA is “at least as effective” as the federal FCA at facilitating qui tam actions.[73] With its bill, New Jersey implemented changes to bring the state’s law in line with HHS-OIG’s guidance. In addition to clarifying certain language and terminology to better align the statute with the federal FCA, the amendment expanded protections for relators by removing the bar preventing “an employee or agent of the State or a political subdivision from bringing an action based on information discovered in a civil, criminal, or administrative investigation or audit that was within the scope of the employee’s or agent’s duties or job description” and by expanding anti-retaliation protection to contractors and agents, beyond just employees.[74] With New Jersey’s amendment, there are now 23 state FCAs on HHS-OIG’s “approved” list and six on its “not approved” list.[75]

In Washington state, meanwhile, the legislature repealed a sunset provision that applied to whistleblower provisions, thus allowing qui tam actions to continue to be brought indefinitely.[76] The sunset provision was initially put in place to address the concern that the availability of qui tam actions would cause relators to indiscriminately file claims under the Washington FCA, but legislators found that this did not occur and the legislature’s Joint Legislative Audit and Review Committee unanimously recommended the bill repealing the sunset provision.[77]

IV. CASE LAW DEVELOPMENTS

A. The Third Circuit Weighs in on FCA Materiality Post-Escobar

The Supreme Court’s decision in Universal Health Servs., Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016), set forth a number of factors relevant to the potential materiality of a misrepresentation under the FCA. Among those factors are (1) whether the government has “designate[d] compliance with” the relevant “statutory, regulatory, or contractual requirement as a condition of payment”; (2) whether the alleged violation is “minor or insubstantial”; and (3) whether the government continued to pay claims “despite its actual knowledge that certain requirements were violated” or, instead, “consistently refuse[d] to pay claims in the mine run of cases based on noncompliance.” Id. at 194–95.

In late August, the Third Circuit addressed the interplay of these factors. In United States v. Care Alternatives, 81 F.4th 361 (3d Cir. 2023), the court reversed the district court’s grant of summary judgment to a defendant based on materiality. Relators in the case were former employees of Care Alternatives, a for-profit hospice provider. They alleged that Care Alternatives submitted Medicare claims even though patient records did not document hospice eligibility as required under 42 C.F.R. § 418.22(b)(2). Under that provision, for a patient to be eligible for hospice care paid by Medicare, a physician must certify that the patient is “terminally ill,” meaning that the physician has signed the certification with the knowledge that the patient’s medical record “‘support[s] the medical prognosis’ of terminal illness.” Id. at 366 (citation omitted). Relators alleged that Care Alternatives submitted claims that were accompanied by physician certifications of terminal illness, but that the patients’ records lacked sufficient clinical documentation “supporting that diagnosis.” Id. at 367.

The district court granted Care Alternatives’ first summary judgment motion based on a failure to show falsity; the Third Circuit reversed. (We covered the Circuit Court opinion in our 2020 Mid-Year Update.) Care Alternatives then filed a second motion for summary judgment. The district court again granted summary judgment to Care Alternatives, this time holding that relators had not established that the alleged misrepresentations to Medicare were material, given that the government continued to reimburse claims from Care Alternatives even after being made aware of the deficiencies in the underlying patient records.

The Third Circuit reversed and remanded, holding that the district court improperly assigned dispositive weight to a single factor under Escobar—that the government continued to reimburse despite knowing of the alleged clinical documentation deficiencies. The court concluded that a dispute of fact remained as to whether Care Alternatives’ alleged regulatory violations were “minor” or “went to the very essence of the bargain,” given that the parties contested the pervasiveness of the documentation errors, Care Alternatives’ awareness of its compliance problems, and whether the patients at issue were eligible for the Medicare hospice benefit. Id. at 370–72 (internal quotation marks omitted). And the court determined that, contrary to the district court’s opinion, a dispute of fact also remained as to whether the government ever had “actual knowledge” of the violation during the period in which it continued to reimburse Care Alternatives. Id. at 374–75. Noting that “relators are not required to conduct discovery on government officials to demonstrate materiality,” the court held that Care Alternatives had not met its burden of demonstrating an absence of dispute as to the timing of the government’s knowledge. Id. at 375.

B. The Fifth Circuit Overturns a Jury Verdict for the Government on Statute-of-Limitations Grounds

In United States v. Corporate Management, Inc., 78 F.4th 727 (5th Cir. 2023), a Medicare overbilling case, the Fifth Circuit heard an appeal following a nine-week jury trial that resulted in an approximately $10.8 million verdict for the government (roughly $32 million after trebling). Defendants appealed on a number of grounds, including that certain claims the government added when it intervened were untimely under the FCA’s statute of limitations. The relator filed the initial complaint in May 2007, alleging that Defendants had submitted false claims to Medicare, including by overbilling for supply costs. Id. at 734–35. The government did not intervene until September 2015. Id. at 735. In its complaint‑in‑intervention, the government added two claims, including a claim that Defendants “took advantage of Medicare’s 101% reimbursement rate” for critical access hospitals by setting up a sham “management fee” agreement between one such hospital and a management company owned by the hospital’s owner, which was used to improperly inflate salaries paid to the owner and his wife. Id. On appeal, Defendants argued that all claims accruing before September 2009, six years prior to the government’s complaint, were barred by the statute of limitations, and that the judgment should therefore be reduced to approximately $4.6 million. Id. at 741. The government argued that its claims related back to the relator’s original allegations that Defendants submitted fraudulent Medicare cost reports, or in the alternative, that the claims were viable in light of the FCA’s tolling period (which tolls the limitations period for up to three years “after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances”). Id.; 31 U.S.C. § 3731(b)(2).

The Fifth Circuit disagreed with the government on both arguments. It explained that to relate back, a new claim must be “tied to a common core of operative facts.” 78 F.4th 742 (internal quotation marks omitted). Whereas both the relator and the government alleged fraudulent cost reporting, the relator’s complaint contained no allegations regarding inflated salaries paid to the hospital owner and his wife. Id. at 743. Thus, rather than merely “add detail or clarify the claims on which it [was] intervening,” the government made new claims and sought to “‘fault [Appellants] for conduct different from that’ alleged by” the relator. Id. (internal quotation marks omitted). The Fifth Circuit further held that the government could not invoke the FCA’s three-year tolling provision, because there was evidence—in the form of a sealed government motion seeking an extension of the seal period—that an expert recommended in August 2011 that the government intervene in the case, and thus that by that time the government “likely did know” facts material to the case. Id. at 745 (emphasis in original). In reaching this conclusion, the court declined to decide whether DOJ or the relevant Medicare administrative contractor was the “official of the United States charged with responsibility to act in the circumstances” under the FCA’s tolling provision. Id.; 31 U.S.C. § 3731(b)(2).

C. The Ninth Circuit Imposes Limits on Calculation of Statutory Penalties and Upholds “Actual Damages” Framework

The FCA imposes a penalty for each violation of the statute, as well as “3 times the amount of damages which the Government sustains because of the act of” the defendant. 31 U.S.C. § 3729(a). In cases involving allegations that claims for payment were “tainted” by a defendant’s violation of an underlying contractual or regulatory requirement, FCA plaintiffs frequently seek penalties for every claim, and argue that the relevant goods or services were worthless to the government and that the proper measure of damages thus should be based on the full value of each claim.

In Hendrix ex rel. United States v. J-M Manufacturing Co., Inc., 76 F.4th 1164 (9th Cir. 2023), the Ninth Circuit reinforced important limitations on both of these theories. Relator and government entity plaintiffs in the case claimed that J-M violated the FCA by falsely representing that its PVC pipes were compliant with certain industry standards which measured compliance based on the material of the pipes and its performance under a series of tests, as well as the manufacturing process for the pipes. Under relevant standards, if the tested pipes are compliant, the manufacturer can claim compliance with those standards for pipes produced thereafter without additional testing, so long as the pipes are produced through “materially unchanged processes.” Id. at 1168.

During the first phase of a bifurcated trial, plaintiffs sought to prove that J-M continued to advertise its PVC pipes as compliant with industry standards after materially changing its manufacturing process from the pipes’ last compliance testing. At the end of Phase One, the jury found that J-M knowingly made materially false claims for payment because it represented in marketing materials that its pipes were uniformly compliant with industry standards. The jury made no findings regarding the physical longevity of any particular piece of pipe. During the damages phase of the trial, the district court granted judgment as a matter of law in favor of J-M on actual damages after the jury was unable to reach a verdict. The court awarded plaintiffs one statutory penalty per project at issue, and not—as the plaintiffs had sought—one penalty for each piece of pipe that had been stamped with the relevant industry standard. The court declined to impose damages, stating that the government had not established that the pipes were value-less.

The Ninth Circuit affirmed, ruling that the plaintiffs were not entitled to recover the entire PVC purchase price without a showing that the pipes had not operated as intended, and lacked all value in light of the jury’s Phase One findings. To the contrary, plaintiffs had successfully installed the pipes and used them for many years following installation without issue, and apparently without any plans to replace the pipes. To award damages in these circumstances, the Ninth Circuit held, would “impose a strict liability standard” without requiring proof of actual damages, and would “conflate[] ‘the materiality element of the FCA claim’ with ‘actual damages.’” Id. at 1174. In considering other cases in which the full contract price was awarded as damages, the court distinguished those cases as involving goods that “were either plainly unusable, not used, or returned.” Id.

The Ninth Circuit also rejected plaintiffs’ claims that statutory penalties should be awarded for each piece of PVC pipe purchased, rather than for each individual project. The court reasoned that the government entity plaintiffs “did not establish how much non-compliant pipe they received nor were they able to identify any specific piece of non-complaint pipe.” Id. at 1172.

The J-M case is an important reminder that there are limits on local, state, and federal governments’ ability to accumulate FCA damages merely because a regulatory violation preceded the provision of goods or services. Time will tell how closely other courts hew to the Ninth Circuit’s admonition that the materiality of a particular regulatory requirement does not automatically mean that goods or services provided after such a violation was committed were worthless.

D. The Tenth Circuit Clarifies a Prior Ruling on the FCA’s Retaliation Provision

In United States ex rel. Barrick v. Parker-Migliorini International, the Tenth Circuit clarified the extent to which an employer must be on notice that a relator is engaging in conduct protected by the FCA in order for the employer to be liable for retaliatory termination. 79 F.4th 1262 (10th Cir. 2023). Brandon Barrick was a senior financial analyst for PMI, who alleged FCA claims regarding two methods of beef distribution. First, according to Barrick, PMI exported beef to Costa Rica, which accepted beef subject to a lower (and therefore, cheaper) USDA testing standard, which would then be repackaged and sold to Japan, which required a higher (and more expensive) testing standard. Second, PMI was allegedly submitting beef to the USDA for testing, indicating that it was being sent to Moldova—when it was, in fact, being sent to Hong Kong, and, in turn, illegally smuggled into China. Id. at 1268–69.

Barrick alleged he had several conversations with PMI’s CFO regarding his concerns, and that the CFO confirmed that PMI was implementing these schemes and that they were illegal. Id. at 1268–69. Over the course of six months, Barrick allegedly cooperated with USDA, DOJ, and the FBI, including by recording several conversations with the CFO. See id. at 1271. Barrick alleged that one month after the FBI raided PMI’s offices, Barrick was terminated as part of a company-wide reduction in force of nine personnel. Id. at 1269. PMI claimed it did not learn of Barrick’s cooperation with the government until nearly two years later. Id.

The FCA prohibits retaliation for “lawful acts done by the employee . . . in furtherance of an action under this section or other efforts to stop 1 or more violations of this subchapter.” 31 U.S.C. § 3730(h)(1) (emphasis added). In 2022, the Tenth Circuit held that to show they were the victim of unlawful retaliation, a relator must show that (1) they were engaging in protected activity; (2) their employer had notice that they were engaged in protected activity; and (3) the employer terminated them because of their engagement in protected activity. Barrick, 79 F.4th at 1270 (citing U.S. ex rel. Sorenson, 48 F.4th 1146, 1158–59 (10th Cir. 2022)). In the Barrick case, PMI argued that to satisfy the notice prong of this standard, “Barrick was required to ‘convey a connection to the FCA.’” 79 F.4th at 1270. Relying on the FCA’s broad protection of “‘other efforts’ to stop [FCA] violations,” the court clarified that relators need not “say magic words, such as ‘FCA violation’ or ‘fraudulent report to the government to avoid payment,’ to put [employers] on notice.” Id. Rather, the person “must have conveyed to [the employer] that he was attempting to stop [the employer] from (1) engaging in fraudulent activity to avoid paying the government an obligation or (2) claiming unlawful payments from the government.” Id. at 1271. The employer “does not need to know the activity violates the FCA specifically.” Id. The court then upheld the jury’s findings that there was sufficient circumstantial evidence upon which the jury could have found PMI was aware that Barrick was engaging in protected conduct.

The Barrick case is significant because it means that, at least in the Tenth Circuit, the requisite nexus between an employee complaint and the FCA may be satisfied by evidence that the employee gave notice she was attempting to stop efforts to claim unlawful payments from, or efforts to unlawfully avoid making payments to, the government. That creates a tension with the text of the FCA’s anti-retaliation provision, which is specific to employee acts in furtherance of qui tam suits or of other efforts to stop a violation of the FCA in particular. Barrick seemingly left open the question of whether the employee herself must believe the conduct she is reporting violates the FCA specifically, or whether it is sufficient that the employee believe the conduct violates any of the myriad statutory, regulatory, and contractual requirements that are often used as the basis for FCA claims.

E. The Eleventh Circuit Reinforces a Strict Approach to Pleading Presentment Under Rule 9(b)

In some federal jurisdictions, including the Eleventh Circuit, to prevail on an FCA claim, “a relator must allege an actual false claim for payment that was presented to the government.” Carrel v. AIDS Healthcare Found., Inc., 898 F.3d 1267, 1277 (11th Cir. 2018) (internal quotation marks and emphasis omitted). In United States ex rel. 84Partners, LLC v. Nuflo, Inc., 79 F.4th 1353 (11th Cir. 2023), the Eleventh Circuit affirmed the district court’s dismissal of an FCA claim based on failure to allege presentment with the requisite particularity.

Relator—an entity called 84Partners, LLC, which included two former employees of a shipbuilding contractor and a pipe fitting manufacturer—brought a false-presentment FCA claim against their former employers, as well as a subcontractor and a pipe fitting distributor, based on the alleged installation of defective pipe fittings on nuclear submarines subsequently delivered to the Navy. Relator alleged that the manufacturer made defective parts and that the other defendants recklessly disregarded their obligations to inspect the parts before delivery or installation, resulting in at least 42 defective pipe fittings being installed on Navy vessels. The Navy made payments for all “allowable costs,” which included costs for parts installed on nuclear submarines, but relator failed to identify “any claim for payment submitted to the Navy that included any of the 42 [defective] parts.” Id. at 1357 (alteration added).

The district court dismissed the relator’s second amended complaint with prejudice, noting that, despite eight years of litigation and limited discovery, relator was still unable to state a claim for false presentment; the court also noted that relator had not requested leave to further amend its operative complaint. Id. at 1358. The Eleventh Circuit affirmed, concluding that although the “complaint allege[d] with particularity egregious underlying conduct,” it failed to “allege with particularity the actual submission of false claims—claims covering the 42 defective parts, or any other defective parts, that made it into submarines.” Id. at 1361. Notably, the government had filed an amicus brief in the Eleventh Circuit, in which it urged the court to eschew a requirement to plead actual false claims—arguing, among other things, that the requirement is a poor fit for cases in which the government is the “only buyer . . . and requests for payment are submitted to one potential government payer under readily-identifiable contracts.” Brief for United States as Amicus Curiae, United States ex rel. 84Partners, LLC v. Nuflo, Inc., No. 21-13673, at 23 (11th Cir. Jan. 20, 2022). The government attempted to contrast such fact patterns with healthcare cases, in which the claims submission process is more complex and involves entities beyond the government itself. See id. While the government made other arguments against the application of a strict Rule 9(b) standard, this explicit contrast between types of FCA cases—and the insinuation that a stricter Rule 9(b) standard may actually have a role to play in healthcare cases in particular—is an interesting window into how the government thinks about different FCA fact patterns.

F. The District of Massachusetts Sets the Stage for a Deepened Circuit Split over Causation in AKS-Predicated FCA Cases

Our 2023 Mid-Year False Claims Act Update discussed the deepening circuit split over the proper causation standard for AKS-predicated FCA claims. In brief, the Sixth Circuit and Eight Circuit have held that the AKS imposes a “but for” causation standard, see e.g., United States ex rel. Martin v. Hathaway, 63 F.4th 1043, 1052–53 (6th Cir. 2023); United States ex rel. Cairns v. D.S. Medical L.L.C., 42 F.4th 828 (8th Cir. 2022), whereas the Third Circuit has rejected a “but‑for” causation standard and instead determined that the FCA and AKS “require[] something less than proof that the underlying medical care would not have been provided but for a kickback.” United States ex rel. Greenfield v. Medco Health Solutions, Inc., 880 F.3d 89, 96 (3d Cir. 2018). Now, the First Circuit is also set to rule on this question after the district court granted interlocutory appeal in two cases with opposite holdings: United States v. Regeneron Pharms., Inc., No. CV 20-11217-FDS (D. Mass.) and United States v. Teva Pharms. USA, Inc., Civil Action No. 20-11548-NMG (D. Mass.).

In Teva, the government alleged that Teva caused the submission of false claims to Medicare through kickbacks it paid in the form of co-pay subsidies in connection with the sale of its multiple sclerosis drug, Copaxone. Both Teva and the United States filed motions for summary judgment on the issue of causation, among other issues. Teva argued that the government must prove “but-for” causation, citing Martin, 63 F.4th 1043 and Cairns, 42 F.4th 828. The government argued that the FCA only requires a “sufficient causal connection” between a kickback and a claim, citing Guilfoile v. Shields, 913 F.3d 178, 190 (1st Cir. 2019) and Greenfield, 880 F.3d 89. On July 14, 2023, the district court in Teva held that “[t]he government need not prove ‘but for’ causation,” and concluded that “[t]he government has established evidence of ‘a sufficient causal connection’ between Teva’s payments to CDF and ATF and the resulting Medicare Copaxone claims.” Teva, 2023 WL 4565105, at *3–4 (D. Mass. July 14, 2023). Thus, the Teva court joined the Third Circuit in rejecting the “but-for” causation standard. On August 14, 2023, the Teva court granted interlocutory appeal on the causation question, finding that the standard for causation is “a controlling question of law as to which there is substantial ground for difference of opinion and an immediate appeal may materially advance the ultimate termination of this litigation.” Teva, Order, Docket No. 235. (D. Mass. Aug. 14, 2023) (internal citations omitted).

In Regeneron, the government alleged that Regeneron improperly sent millions of dollars to an independent charitable foundation to subsidize patient co-pays for Eylea, a drug that treats neovascular (wet) age-related macular degeneration. Similar to the Teva case, both the government and the company filed motions for summary judgment on the causation standard. On September 27, 2023—months after the Teva court issued its ruling—the Regeneron court held that the appropriate standard for causation was “but for” causation and that “the factual evidence is sufficient to withstand summary judgment on the issue of causation.” Regeneron, 2023 WL 6296393, at *13 (D. Mass. Sept. 27, 2023). On October 25, 2023, the Regeneron court certified its decision for interlocutory appeal to the First Circuit on the same question as the Teva case, stating that “if both this matter and the Teva matter were to proceed to trial—and both trials are expected to be lengthy and complex—at least one of those trials would employ an incorrect causation standard, and thus waste considerable time and resources.” Regeneron, 2023 WL 7016900, at *1 (D. Mass. Oct. 25, 2023). The Regeneron court further reiterated that “the issue is one of national importance, as reflected in the split among the circuits as to the correct standard.” Id.

Both cases have been accepted by the First Circuit, but it has not yet ruled. That ruling seems likely to deepen the existing circuit split on the issue of causation. But it remains to be seen whether the addition of another Circuit-level decision will prompt the Supreme Court to weigh in where it has not done so to date. (In October the Court denied a certiorari petition in the Martin case.) This issue carries significant implications for FCA defendants, as exemplified by the $487 million jury verdict in May 2023 against a medical supply company in a case involving allegations of false claims caused by illegal kickbacks. (We covered this case in our 2023 Mid-Year Update.)

V. CONCLUSION

We will monitor these developments, along with other FCA legislative activity, settlements, and jurisprudence throughout the year and report back in our 2024 False Claims Act Mid-Year Update.

__________

[1] Press Release, U.S. Dep’t of Justice, False Claims Act Settlements and Judgments Exceed $2.68 Billion in Fiscal Year 2023 (Feb. 22, 2024), https://www.justice.gov/opa/pr/false-claims-act-settlements-and-judgments-exceed-268-billion-fiscal-year-2023 [hereinafter DOJ FY 2023 Recoveries Press Release].

[2] DOJ FY 2023 Recoveries Press Release.

[3] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Tenn., Dermatologist Agrees to Pay $6.6 Million to Settle Allegations of Fraudulent Billing Practices (July 13, 2023), https://www.justice.gov/usao-edtn/pr/dermatologist-agrees-pay-66-million-settle-allegations-fraudulent-billing-practices.

[4] See Press Release, U.S. Atty’s Office for the Dist. of Vt., Electronic Health Records Vendor NextGen Healthcare, Inc. to Pay $31 Million to Settle False Claims Act Allegations (July 14, 2023), https://www.justice.gov/usao-vt/pr/electronic-health-records-vendor-nextgen-healthcare-inc-pay-31-million-settle-false; United States ex rel. Markowitz et al. v. NextGen Healthcare, Inc., Case No. 2:18-cv-195 (D. Vt.), Settlement Agreement, https://www.justice.gov/opa/file/1305766/dl?inline.

[5] See Press Release, Dep’t of Justice, Martin’s Point Health Care Inc. to Pay $22,485,000 to Resolve False Claims Act Allegations (July 31, 2023), https://www.justice.gov/opa/pr/martins-point-health-care-inc-pay-22485000-resolve-false-claims-act-allegations.

[6] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Pa., Northeast Philadelphia Pharmacies and Their Owners Agree to Pay Over $3.5 Million to Resolve False Claims Act Liability (Aug. 1, 2023), https://www.justice.gov/usao-edpa/pr/northeast-philadelphia-pharmacies-and-their-owners-agree-pay-over-35-million-resolve.

[7] See Press Release, Dep’t of Justice, Clinical Laboratory and Its Owner Agree to Pay an Additional $5.7 Million to Resolve Outstanding Judgement for Billing Medicare for Inflated Mileage-Based Lab Technician Travel Allowance Fees (Aug. 1, 2023), https://www.justice.gov/opa/pr/clinical-laboratory-and-its-owner-agree-pay-additional-57-million-resolve-outstanding.

[8] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Wash., Lincare Holdings Agrees to Pay $29 Million to Resolve Claims of Overbilling Medicare for Oxygen Equipment in Largest-Ever Health Care Fraud Settlement in Eastern Washington (Aug. 28, 2023), https://www.justice.gov/usao-edwa/pr/lincare-holdings-agrees-pay-29-million-resolve-claims-overbilling-medicare-oxygen; see also Settlement Agreement, Case No. 2:21-cv-151-TOR (E.D. Wash.), https://www.justice.gov/usao-edwa/file/1311981/dl?inline.

[9] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Mich., Michigan Doctor to Pay $6.5 million to Resolve False Claims Act Allegations (Aug. 24, 2023), https://www.justice.gov/usao-edmi/pr/michigan-doctor-pay-65-million-resolve-false-claims-act-allegations.

[10] See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Health Care Provider Agrees to Pay $5 Million for Alleged False Claims to California’s Medicaid Program (Aug. 30, 2023),

https://www.justice.gov/opa/pr/health-care-provider-agrees-pay-5-million-alleged-false-claims-californias-medicaid-program https://www.justice.gov/opa/pr/health-care-provider-agrees-pay-5-million-alleged-false-claims-californias-medicaid-program.

[11] See Press Release, U.S. Atty’s Office for the Northern Dist. of Tex., Dermatology Management Company to Pay $8.9 Million to Resolve Self-Reported False Claims Act Liability (Sept. 13, 2023), https://www.justice.gov/usao-ndtx/pr/dermatology-management-company-pay-89-million-resolve-self-reported-false-claims-act.

[12] See Press Release, U.S. Atty’s Office for the Southern Dist. of N.Y., U.S. Settles False Claims Act Lawsuit Against Cardiologist and His Medical Practice for Paying Millions in Kickbacks for Referrals (Sept. 18, 2023), https://www.justice.gov/usao-sdny/pr/us-settles-false-claims-act-lawsuit-against-cardiologist-and-his-medical-practice.

[13] See Press Release, U.S. Dep’t of Justice, Cigna Group to Pay $172 Million to Resolve False Claims Act Allegations (Sept. 30, 2023), https://www.justice.gov/opa/pr/cigna-group-pay-172-million-resolve-false-claims-act-allegations.

[14] See Press Release, U.S. Dep’t of Justice, United States Settles Kickback Allegations with BioTek reMEDys Inc., Chaitanya Gadde and Dr. David Tabby (Oct. 2, 2023), https://www.justice.gov/opa/pr/united-states-settles-kickback-allegations-biotek-remedys-inc-chaitanya-gadde-and-dr-david.

[15] See Press Release, U.S. Atty’s Office for the Eastern Dist. of N.Y., Genomic Health Inc. to Pay $32.5 Million to Resolve Allegations Relating to the Submission of False Claims for Genomic Diagnostic Tests (Oct. 2, 2023), https://www.justice.gov/usao-edny/pr/genomic-health-inc-pay-325-million-resolve-allegations-relating-submission-false.

[16] See Press Release, U.S. Dep’t of Justice, Mobile Cardiac PET Scan Provider and Founder to Pay $85 Million to Resolve Allegedly Unlawful Payments to Referring Doctors (Oct. 10, 2023), https://www.justice.gov/opa/pr/mobile-cardiac-pet-scan-provider-and-founder-pay-85-million-resolve-allegedly-unlawful.

[17] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Mich., Hospitalist Companies Agree to Pay Nearly $4.4 Million to Settle False Claims Act Allegations (Oct. 17, 2023), https://www.justice.gov/usao-edmi/pr/hospitalist-companies-agree-pay-nearly-44-million-settle-false-claims-act-allegations#:~:text=(defendants)%20have%20agreed%20to%20pay,one%20day%2C%20and%20billing%20for.

[18] See Press Release, U.S. Dep’t of Justice, Drugmaker Nostrum and Its CEO Agree to Pay Up to $50 Million to Settle False Claims Act Claims for Underpaying Rebates Owed Under Medicaid Drug Rebate Program (Oct. 30, 2023), https://www.justice.gov/opa/pr/drugmaker-nostrum-and-its-ceo-agree-pay-50-million-settle-false-claims-act-claims.

[19] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Ky., Eastern Kentucky Hospital System and Cardiologist Agree to Collectively Pay More Than $3 Million to Resolve Civil Liability for Improper Healthcare Billings (Nov. 28, 2023), https://www.justice.gov/usao-edky/pr/eastern-kentucky-hospital-system-and-cardiologist-agree-collectively-pay-more-3.

[20] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, California Skilled Nursing Facilities, Owner and Management Company Agree to $45.6 Million Consent Judgement to Settle Allegations of Kickbacks to Referring Physicians (Nov. 15, 2023), https://www.justice.gov/opa/pr/california-skilled-nursing-facilities-owner-and-management-company-agree-456-million-consent.

[21] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, BioTelemetry and LifeWatch to Pay More than $14.7 Million to Resolve False Claims Act Allegations Relating to Remote Cardiac Monitoring Services (Dec. 18, 2023), https://www.justice.gov/opa/pr/biotelemetry-and-lifewatch-pay-more-147-million-resolve-false-claims-act-allegations.

[22] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Indiana Health Network Agrees to Pay $345 Million to Settle Alleged False Claims Act Violations (Dec. 19, 2023), https://www.justice.gov/opa/pr/indiana-health-network-agrees-pay-345-million-settle-alleged-false-claims-act-violations.

[23] See Press Release, U.S. Atty’s Office for the Southern Dist. of Tex., United Memorial Medical Center to Pay $2M Plus Additional Payments for Allegedly Causing False Claims Related to Excessive Cost Outlier Payments and Double Billing for Covid-19 tests (Dec. 20, 2023), https://www.justice.gov/usao-sdtx/pr/united-memorial-medical-center-pay-2m-plus-additional-payments-allegedly-causing-false.

[24] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Pharmaceutical Company Ultragenyx Agrees to Pay $6 Million for Allegedly Paying Kickbacks to Induce Claims for Its Drug Crysvita (Dec. 21, 2023), https://www.justice.gov/opa/pr/pharmaceutical-company-ultragenyx-agrees-pay-6-million-allegedly-paying-kickbacks-induce.

[25] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Mo., United States Reaches $9.1 Million Civil Settlement with Total Access Urgent Care over False Claims Allegations (Dec. 21, 2023), https://www.justice.gov/usao-edmo/pr/united-states-reaches-91-million-civil-settlement-total-access-urgent-care-over-false.

[26] See Press Release, U.S. Atty’s Office for the Southern Dist. of Cal., Phillips Respironics Pays $2.4 Million for Allegedly Giving Kickbacks (Dec. 22, 2023), https://www.justice.gov/usao-sdca/pr/phillips-respironics-pays-24-million-allegedly-giving-kickbacks.

[27] See Press Release, U.S. Atty’s Office for the Dist. of D.C., Booz Allen Agrees to Pay $377.45 Million to Settle False Claims Act Allegations (July 21, 2023), https://www.justice.gov/usao-dc/pr/booz-allen-agrees-pay-37745-million-settle-false-claims-act-allegations.

[28] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Mich., Federal Contractor Agrees to Pay $7 Million to Settle False Claims Act Allegations (July 21, 2023), https://www.justice.gov/usao-edmi/pr/federal-contractor-agrees-pay-7-million-settle-false-claims-act-allegations.

[29] See Press Release, U.S. Atty’s Office for the Northern Dist. of N.Y., Amphenol Corporation Pays $18 Million To Resolve Allegations That It Submitted False Claims for Electrical Connectors (Aug. 4, 2023), https://www.justice.gov/usao-ndny/pr/amphenol-corporation-pays-18-million-resolve-allegations-it-submitted-false-claims#_ftn1.

[30] See Press Release, U.S. Dep’t of Justice, Office of Pub. Affairs, Cooperating Federal Contractor Resolves Liability for Alleged False Claims Caused by Failure to Fully Implement Cybersecurity Controls (Sept. 5, 2023),

https://www.justice.gov/opa/pr/cooperating-federal-contractor-resolves-liability-alleged-false-claims-caused-failure-fully; Settlement Agreement, https://www.justice.gov/opa/file/1313011/dl?inline.

[31] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Pa., Navmar Applied Sciences Corporation Agrees to Pay $4.4 Million to Resolve Claims of Double-Billing and Cost-Shifting Under U.S. Navy Contracts (Sept. 15, 2023), https://www.justice.gov/usao-edpa/pr/navmar-applied-sciences-corporation-agrees-pay-44-million-resolve-claims-double.

[32] See, Press Release, U.S. Atty’s Office for the Eastern Dist. of Pa., Boeing to Pay $8.1 Million to Resolve Alleged False Claims Act Violations Arising from Manufacture of V-22 Osprey Aircraft (Sept. 28, 2023), https://www.justice.gov/usao-edpa/pr/boeing-pay-81-million-resolve-alleged-false-claims-act-violations-arising-manufacture.

[33] See Press Release, U.S. Atty’s Office for the Southern Dist. of Ohio, Virginia Tactical Gear & Equipment Company Agrees to Pay More than $2 Million to Settle Allegations Related to Buy American Act (Nov. 20, 2023), https://www.justice.gov/usao-sdoh/pr/virginia-tactical-gear-equipment-company-agrees-pay-more-2-million-settle-allegations.

[34] See Press Release, U.S. Atty’s Office for the Northern Dist. of Fl., Florida Real Estate Broker Agrees to Pay over $4 Million to Resolve False Claims Act Allegations Relating to Fraudulent Cares Act Loans (Aug. 16, 2023), https://www.justice.gov/usao-ndfl/pr/florida-real-estate-broker-agrees-pay-over-4-million-resolve-false-claims-act.

[35] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Victory Automotive Group Inc. Agrees to Pay $9 Million to Settle False Claims Act Allegations Relating to Paycheck Protection Program Loan (Oct. 11, 2023), https://www.justice.gov/opa/pr/victory-automotive-group-inc-agrees-pay-9-million-settle-false-claims-act-allegations.

[36] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, http://tinyurl.com/FCA-settlement.

[37] See Press Release, U.S. Atty’s Office for the Northern Dist. of N.Y., United States Attorney Freedman Announces First-Ever Settlement of False Claims Act Whistleblower Case Involving Grants for Restaurants and Similar Businesses Struggling During the COVID-19 Pandemic (Nov. 1, 2023), https://www.justice.gov/usao-ndny/pr/united-states-attorney-freedman-announces-first-ever-settlement-false-claims-act.

[38] See Press Release, U.S. Atty’s Office for the Northern Dist. of Tex., Dallas Importer and Two Chinese Companies to Pay $2.5 Million to Resolve Allegations of Underpaying Customs Duties (Dec. 5, 2023), https://www.justice.gov/usao-ndtx/pr/dallas-importer-and-two-chinese-companies-pay-25-million-resolve-allegations.

[39] See Press Release, U.S. Atty’s Office for the Dist. of N.J., Bergen County Public Relations Company Settles Allegations It Received Improper Paycheck Protection Program Loan (Dec. 7, 2023), https://www.justice.gov/usao-nj/pr/bergen-county-public-relations-company-settles-allegations-it-received-improper-paycheck.

[40] See Press Release, U.S. Atty’s Office for the Northern Dist. of Tex., National Roofing Company Settles PPP Fraud Allegations for $9 Million (Dec. 11, 2023), https://www.justice.gov/usao-ndtx/pr/national-roofing-company-settles-ppp-fraud-allegations-9-million.

[41] Jason Marcus, Bracker & Marcus Ties for the Largest PPP Settlement on Record (last visited Feb. 10, 2023), https://www.fcacounsel.com/blog/bracker-marcus-ties-for-the-largest-ppp-settlement-on-record/.

[42] Justice Manual 4-4.112, Guidelines for Taking Disclosure, Cooperation, and Remediation into Account in False Claims Act Matters (May 2019), https://www.justice.gov/jm/jm-4-4000-commercial-litigation#4-4.112.

[43] Id.

[44]Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Department of Justice Issues Guidance on False Claims Act Matters and Updates Justice Manual (May 7, 2019), https://www.justice.gov/opa/pr/department-justice-issues-guidance-false-claims-act-matters-and-updates-justice-manual.

[45] See, e.g., Speech, U.S. Dep’t of Justice, Deputy Attorney General Lisa Monaco Delivers Remarks at American Bar Association National Institute on White Collar Crime (Mar. 2, 2023), https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-monaco-delivers-remarks-american-bar-association-national.

[46]U.S. Dep’t of Justice, U.S. Attorneys’ Offices Voluntary Self-Disclosure Policy (Feb. 22, 2023); see, e.g., https://www.justice.gov/d9/pages/attachments/2023/02/23/usao_voluntary_self-disclosure_policy.pdf; https://www.justice.gov/criminal-fraud/file/1562831/dl; https://www.justice.gov/d9/2023-04/NSD%20VSD%20Policy%20-3.1.23.pdf.

[47]Id. See https://www.justice.gov/corporate-crime/voluntary-self-disclosure-and-monitor-selection-policies.

[48]Speech, Office of Pub. Affairs, U.S. Dep’t of Justice, Deputy Attorney General Lisa O. Monaco Announces New Safe Harbor Policy for Voluntary Self-Disclosures Made in Connection with Mergers and Acquisitions (Oct. 4, 2023), https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-announces-new-safe-harbor-policy-voluntary-self.

[49]Deferred Prosecution Agreement, United States v. Freepoint Commodities, LLC, No. 3-23-cr-224-KAD (Dec. 12, 2023) https://www.justice.gov/opa/media/1329266/dl?inline, at ¶ 4.

[50] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Cooperating Federal Contractor Resolves Liability for Alleged False Claims Caused by Failure to Fully Implement Cybersecurity Controls (Sept. 5, 2023), https://www.justice.gov/opa/pr/cooperating-federal-contractor-resolves-liability-alleged-false-claims-caused-failure-fully.

[51] Id.

[52] Settlement Agreement, U.S. Dep’t of Justice and Verizon Business Network Services LLC (Sept. 5, 2023), https://www.justice.gov/opa/file/1313011/dl?inline.

[53] Press Release, U.S. Atty’s Office for Eastern Dist. of Ky., Eastern Kentucky Hospital System and Cardiologist Agree to Collectively Pay More Than $3 Million to Resolve Civil Liability for Improper Healthcare Billings (Nov. 28, 2023), https://www.justice.gov/usao-edky/pr/eastern-kentucky-hospital-system-and-cardiologist-agree-collectively-pay-more-3.

[54] Settlement Agreement, U.S. Dep’t of Justice and VitalAxis, Inc. (June 15, 2023), https://www.justice.gov/d9/press-releases/attachments/2023/06/16/settlement_agreement_-_vitalaxis_-_signed_redacted.pdf.

[55] Settlement Agreement, U.S. Dep’t of Justice and MWW Group LLC (Oct. 27, 2023), https://www.justice.gov/usao-nj/media/1327611/dl?inline.

[56] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Deputy Attorney General Lisa O. Monaco Announces New Civil Cyber-Fraud Initiative (Oct. 6, 2021), https://www.justice.gov/opa/pr/deputy-attorney-general-lisa-o-monaco-announces-new-civil-cyber-fraud-initiative?utm_medium=email&utm_source=govdelivery.

[57] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Cooperating Federal Contractor Resolves Liability for Alleged False Claims Caused by Failure to Fully Implement Cybersecurity Controls (Sept. 5, 2023), https://www.justice.gov/opa/pr/cooperating-federal-contractor-resolves-liability-alleged-false-claims-caused-failure-fully.

[58] See United States ex rel. Matthew Decker v. Pennsylvania State University, 22-cv-03895-PD (E.D. Pa. Oct. 5, 2022).

[59]See U.S. Dep’t of Defense, Gen. Servs. Admin., and Nat’l Aeronautics and Space Admin., Federal Acquisition Regulation: Cyber Threat and Incident Reporting and Information Sharing (FAR Case 2021-017) (Oct. 3, 2023), https://www.federalregister.gov/documents/2023/10/03/2023-21328/federal-acquisition-regulation-cyber-threat-and-incident-reporting-and-information-sharing.

[60] See Office of Inspector General, U.S. Dep’t of Health & Hum. Servs., General Compliance Program Guidance (Nov. 2023), https://oig.hhs.gov/compliance/general-compliance-program-guidance/.

[61] Id. at 18.

[62] Id. at 19.

[63] See id. at 32.

[64] Id. at 58.

[65] Id. at 61.

[66] Id.

[67] See 42 U.S.C. § 1320a-7k.

[68] See General Compliance Program Guidance at 7.

[69] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Announces Results of Nationwide COVID-19 Fraud Enforcement Action (Aug. 23, 2023), https://www.justice.gov/opa/pr/justice-department-announces-results-nationwide-covid-19-fraud-enforcement-action.

[70] See id.

[71] S.B. 426, 2022 Gen. Assemb. (Conn. 2022); Pub. Act 23-129—HB 6826, Office of Legislative Research Public Act Summary (https://www.cga.ct.gov/2023/SUM/PDF/2023SUM00129-R02HB-06826-SUM.PDF).

[72] See Senate Budget and Appropriations Committee Statement to Senate Bill No. 4018, State of New Jersey, June 27, 2023 (https://pub.njleg.state.nj.us/Bills/2022/S4500/4018_S1.HTM); State False Claims Act Reviews, U.S. Dep’t of Health and Human Servs, Office of Inspector General, last visited Jan. 19, 2024 (https://oig.hhs.gov/fraud/state-false-claims-act-reviews/).

[73] State False Claims Act Reviews, U.S. Dep’t of Health and Human Servs, Office of Inspector General, https://oig.hhs.gov/fraud/state-false-claims-act-reviews/ (last visited Jan. 19, 2024).

[74] Id.

[75] Senate Budget and Appropriations Committee Statement to Senate Bill No. 4018, State of New Jersey, June 27, 2023 (https://pub.njleg.state.nj.us/Bills/2022/S4500/4018_S1.HTM).

[76] 2023 Legislative Agenda on Public Health, Washington State, Office of the Attorney General, https://www.atg.wa.gov/2023-legislative-agenda (last visited Jan. 19, 2023).

[77] 2023 AG Request Legislation, Protecting Whistleblower Provision of the Medicaid False Claims Act, Attorney General of Washington, 2023 (https://agportal-s3bucket.s3.amazonaws.com/uploadedfiles/Another/Office_Initiatives/Medicaid%20FCA%20Whistleblower.pdf).

The following Gibson Dunn lawyers prepared this update: Jonathan Phillips, Winston Chan, John Partridge, James Zelenay, Michael Dziuban, Alyse Ullery, John Turquet Bravard, Francesca Broggini, Samantha Hay, Katie King, James Lavery, Hayley Lawrence, Wynne Leahy, Anne Lonowski, José Madrid, Katie Rubanka, Dominic Solari, Daniel Strellman, Adrienne Tarver, Chumma Tum, Nicole Waddick, Erin Wall, and Sara Zamani.

Gibson Dunn lawyers regularly counsel clients on the False Claims Act issues and are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s False Claims Act/Qui Tam Defense practice group:

Washington, D.C.
Jonathan M. Phillips – Co-Chair (+1 202.887.3546, jphillips@gibsondunn.com)
F. Joseph Warin (+1 202.887.3609, fwarin@gibsondunn.com)
Gustav W. Eyler (+1 202.955.8610, geyler@gibsondunn.com)
Lindsay M. Paulin (+1 202.887.3701, lpaulin@gibsondunn.com)

Geoffrey M. Sigler (+1 202.887.3752, gsigler@gibsondunn.com)
Joseph D. West (+1 202.955.8658, jwest@gibsondunn.com)

San Francisco
Winston Y. Chan – Co-Chair (+1 415.393.8362, wchan@gibsondunn.com)
Charles J. Stevens (+1 415.393.8391, cstevens@gibsondunn.com)

New York
Reed Brodsky (+1 212.351.5334, rbrodsky@gibsondunn.com)
Mylan Denerstein (+1 212.351.3850, mdenerstein@gibsondunn.com)
Alexander H. Southwell (+1 212.351.3981, asouthwell@gibsondunn.com)

Denver
Ryan T. Bergsieker (+1 303.298.5774, rbergsieker@gibsondunn.com)
Robert C. Blume (+1 303.298.5758, rblume@gibsondunn.com)
Monica K. Loseman (+1 303.298.5784, mloseman@gibsondunn.com)
John D.W. Partridge (+1 303.298.5931, jpartridge@gibsondunn.com)

Dallas
Andrew LeGrand (+1 214.698.3405, alegrand@gibsondunn.com)

Los Angeles
Nicola T. Hanna (+1 213.229.7269, nhanna@gibsondunn.com)
Jeremy S. Smith (+1 213.229.7973, jssmith@gibsondunn.com)
Deborah L. Stein (+1 213.229.7164, dstein@gibsondunn.com)
James L. Zelenay Jr. (+1 213.229.7449, jzelenay@gibsondunn.com)

Palo Alto
Benjamin Wagner (+1 650.849.5395, bwagner@gibsondunn.com)

*Nicole Waddick is an associate practicing in the firm’s San Francisco office who currently is not admitted to practice law.