Publications Archives

Securities fraud trials are high-stakes proceedings that require careful navigation of complex legal, factual, and procedural challenges. From indictment to verdict, prosecutors and defense counsel deploy distinct strategies to shape the narrative, present evidence, and persuade the jury. This webcast breaks down the key phases of a federal criminal securities fraud trial, including pretrial motions, Rule 17 subpoenas, witness preparation, jury selection, expert testimony, cross-examinations, and jury addresses. Our panel also discusses recent trial trends, prosecutorial tactics, and defense strategies that can influence case outcomes.

MCLE CREDIT INFORMATION:

This program has been approved for credit by the New York State Continuing Legal Education Board for a maximum of 1.5 credit hour in the professional practice category. This course is approved for transitional and non-transitional credit.

Gibson, Dunn & Crutcher LLP certifies this activity is approved for 1.5 hour of MCLE credit by the State Bar of California in the General Category.

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

PANELISTS:

George J. Hazel is a partner in the Washington office and a member of the firm’s Litigation and White Collar Defense and Investigations Practice Groups. A former federal trial judge and criminal prosecutor, George brings a broad range of trial experience, having presided over approximately 50 jury trials in federal court and handled 20 jury trials and 30 bench trials as an attorney in federal and state court.

Barry Berke is renowned nationwide as a leading trial lawyer and white-collar criminal defense attorney. He is Co-Chair of the firm’s Litigation Practice Group and a member of the Trials and White Collar Defense and Investigations Practice Groups. Barry represents individuals and corporations in high-stakes trials, investigations, and complex litigation. He is a fellow of the American College of Trial Lawyers. Barry served as chief impeachment counsel to the U.S. House of Representatives during the Senate impeachment trial of the former President of the United States. As lead counsel, Barry was instrumental in preparing and presenting a case that garnered widespread recognition for its precise choreography and compelling presentation of factual evidence and constitutional arguments.

Jordan Estes is a partner in the New York office. A trial attorney and former federal prosecutor, she has been lead or co-lead counsel in 14 federal jury trials. She represents individuals and corporations in sensitive, complicated and often high-profile criminal and regulatory trials, hearings, investigations and other proceedings conducted by federal and state agencies, as well as in internal investigations. Jordan brings over a decade of experience in white-collar criminal law to her practice, including more than eight years with the U.S. Attorney’s Office for the Southern District of New York. Her extensive experience and proven track record make her a formidable advocate for her clients in the most challenging legal environments.

Dani R. James is a partner in the New York office. A former federal prosecutor, Dani defends clients in a broad range of white collar criminal and regulatory matters, including allegations of insider trading, market manipulation, public corruption, bid-rigging, tax fraud and violations of the Foreign Corrupt Practices Act. She represents executives, directors and officers, and other individuals, as well as companies, in sensitive, complicated and often high-profile criminal and regulatory trials, hearings, investigations and other proceedings conducted by federal and state agencies, including the U.S. Department of Justice, the Securities and Exchange Commission, the U.S. Attorney’s Office, the New York State Attorney General’s Office and the Manhattan District Attorney’s Office, among other agencies.

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.

Europe

03/19/2025

European Data Protection Board | Approval Procedure | Binding Corporate Rules

The European Data Protection Board (“EDPB”) published a document outlining the cooperation procedure for approving Binding Corporate Rules (“BCRs”) for both controllers and processors.

Drawing from practical experience of the previous version of the Guidelines on BCR approval, the procedure presented aims to streamline the approval of BCRs, promoting consistent data protection practices across organizations operating within the EU.

For more information: EDPB Website

03/05/2025

European Commission | Publication | European Health Data Space Regulation

On March 5, 2025, the European Health Data Space Regulation was published in the Official Journal of the European Union.

The regulation aims to establish a common framework for the use and exchange of electronic health data across the EU. It will also enhance individuals’ access to and control over their personal electronic health data, for instance, patients will have the right to restrict the access for health professionals to all or parts of their personal electronic health data exchanged though EHDS infrastructures. The regulation will enter into force on March 26, 2025, and will become applicable two years later.

For further information: European Commission Website and Official Journal of the EU

03/05/2025

European Data Protection Board | Coordinated Enforcement | Right to Erasure

On March 5, 2025, the European Data Protection Board (EDPB) published that they are launching a Europe-wide review of the right to erasure.

This initiative involves 32 data protection authorities across Europe. The aim is to evaluate how well the right to erasure, which allows individuals to request the deletion of their personal data, is being implemented in practice. The assessment will be conducted using a standardized questionnaire to analyze and compare procedures established by various data controllers. The results will be published in a report by the EDPB, highlighting best practices and areas for improvement.

For further information: EDPB Website

03/04/2025

European Commission | EU Adequacy Decision | Article 45 GDPR

On March 4, 2025, the European Commission proposed the first EU adequacy decision under Article 45 GDPR for an international organization.

The European Commission proposed an EU adequacy decision for the European Patent Organisation (EPO). The decision, based on Article 45 GDPR, finds EPO’s data protection rules comparable to the EU’s. The EPO is an international organization comprising the member states of the EU and various other European states to grant patents. The adequacy decision will enable safe data flow between the EU and EPO. Once adopted, companies in the EU can transfer data such as for patent applications to EPO without extra safeguards. The draft will be reviewed by the European Data Protection Board (EDPB) and other EU bodies before final adoption.

For further information: European Commission Website

France

03/27/2025

French Supervisory Authority | Work Program | 2025 Priorities

As part of its mission to guide professionals towards compliance, the French Data Protection Authority (“CNIL”) issued the main guidance materials it will issue in 2025.

The CNIL regularly issues soft law guidance (e.g., recommendations, guidelines, code of practice) to clarify the applicable law and provide best practices. In 2025, the CNIL will issue fact sheets on artificial intelligence (help professionals balance innovation and data subject rights), recommendations on the use of pixels in emails, and continue clarifying the use of dashcams.

For more information: CNIL Website [FR]

03/25/2025

French Supervisory Authority | Public Consultation | Connected Vehicles and Location Data

The French Supervisory Authority (“CNIL”) is submitting for public consultation a draft recommendation on the use of location data of connected vehicles.

The CNIL indicated that location data is considered as highly personal data as it can reveal individuals’ frequently visited places, habits, or areas of interest. The draft focuses on the use of connected vehicles by private individuals and aims at helping main actors to ensure compliance with GDPR principles. The public consultation will end on 20 May 2025. Any public or private actor can participate in the consultation.

For more information: CNIL Website [FR]

03/21/2025

French Supervisory Authority | Investigation | 2025 Priorities

The French Supervisory Authority (“CNIL”) announced its 2025 data protection priorities.

This year, the CNIL announced that it will focus on enforcing rules with respect to mobile app data collection, local government cybersecurity, penitentiary data management, and the enforcement of the right to erasure.

For more information: CNIL Website [FR]

03/05/2025

French Supervisory Authority | Guidelines | Case Law and Doctrine

The French Supervisory Authority (“CNIL”) published its “Tables Informatiques et Libertés” and its recap books (“Cahiers récapitulatifs”) for the year 2024.

The Tables are designed to give access to data professionals and academics to the CNIL’s doctrinal positions as well as case law from national and European courts. This tool allows practitioners to easily find precedents based on thematic classification.

For more information: CNIL Website [FR]

03/06/2025

French National Cybersecurity Authority | Strategic Plan | 2025-2027

The French National Cybersecurity Authority (“ANSSI”) published its strategic plan for 2025-2027.

The plan developed by ANSSI focuses on four key areas: (i) amplifying and coordinating the cyber response to the growing threat, (ii) developing the expertise needed to counter cyber threats, (iii) promoting effective European and international cyber action, and (iv) reinforcing the consideration of societal issues in ANSSI’s actions.

For further information: ANSSI Website [FR]

Germany

03/27/2025

German Federal Court of Justice | Judgement | GDPR and Competition Law

On March 27, 2025, the German Federal Court of Justice (BGH) ruled (I ZR 186/17) that a breach of information obligations by the controller may give rise to claims for injunctive relief under the German Act Against Unfair Competition (UWG). These can be pursued by consumer protection associations by way of an action before the civil courts.

According to the BGH, the Unfair Competition Act (UWG) and the Injunctions Act (UKlaG) provide for a legal basis under Article 80 Abs. 2 DSGVO for consumer protection associations to pursue violations of the GDPR. Consumer associations can take legal action against breaches of information obligations under Art. 12(1) and Art. 13(1)(c) and (e) GDPR, even without specific authorization from affected individuals. Breaches of data protection information obligations may constitute unfair competition if material information is withheld.

For further information: BGH Website [DE]

03/27/2025

German Federal Court of Justice | Judgement | GDPR and Competition Law

On March 27, 2025, the German Federal Court of Justice (BGH) ruled in two cases (I ZR 222/19, I ZR 223/19) that a breach of GDPR regulations regarding special categories of data by the controller may give rise to claims for injunctive relief under the German Act Against Unfair Competition (UWG). These can be pursued by competitors by way of an action before the civil courts.

According to the BGH, the Unfair Competition Act (UWG) provides a legal basis for competitors to pursue violations of the GDPR. In the decisions, the BGH ruled that a violation of Article 9(1) GDPR can be pursued by a competitor by way of a competition law action before the civil courts under Article 8(3)(1) UWG.

For further information: BGH Website (I ZR 222/19 [DE], I ZR 223/19 [DE])

03/20/2025

German Federal Office for Information Security | Certification | Cybersecurity Act

The German Federal Office for Information Security (“BSI”) was designated by the European Commission as the German certification body under the Cybersecurity Act.

The BSI is now the body in charge of the approval of applications from manufacturers seeking to obtain a European cybersecurity certificate for products with a high assurance level under the Implementing Regulation on the adoption of European Common Criteria-based cybersecurity certification scheme (EUCC).

For more information: BSI Website [DE]

03/19/2025

Hamburg Supervisory Authority | Recommendations | Data Retention

The Hamburg Supervisory Authority (“HmbBfDI”) recommends organizations to review and delete outdated data as part of a “digital spring cleaning”.

The HmbBfDI particularly recalls that, with the Fourth Bureaucracy Relief Act (BEG IV) , the federal legislator has reduced some retention periods defined under the German Fiscal and Commercial Codes, requiring businesses to adjust their data retention policies accordingly. In particular, the data retention period for accounting documents under tax law is reduced from ten to eight years which also affects the right to erasure under the GDPR.

For more information: HmbBfDI Website [DE]

03/13/2025

German Data Protection Conference | Statement | Data Act

On March 13, 2025, the German Data Protection Conference (DSK) published a statement on the implementation legislation for the EU Data Act.

The DSK, the conference of the independent data protection supervisory authorities of the German federal states, has published a position paper on the German legislation for the implementation of the EU Data Act, emphasizing the need for harmonized regulations across member states to be implemented effectively and in harmony with the legal requirements from the European legislation. The DSK criticizes the current German draft legislation in various aspects and emphasizes the interplay of EU regulations and their implementation in each member state, even in the case of regulation with direct application.

For further information: DSK Website [DE]

03/12/2025

Hamburg Supervisory Authority | Guest Orders | Online Retail

The Hamburg Supervisory Authority (“HmbBfDI”) announced having ordered a Hamburg-based online retailer to allow guest orders, without requiring users to create a customer account.

The HmbBfDI notes that in a resolution dated March 24, 2022, the German Data Protection Conference (DSK) stated that requiring users to create a customer account to place orders is incompatible with the principle of data minimization. As part of its enforcement actions, the HmbBfDI examined multiple online shops in January 2025 and will continue to monitor their practices. Online shops which are considered a marketplace do not have to allow guest orders.

For more information: HmbBfDI Website [DE]

03/06/2025

Bavarian Supervisory Authority | Guidance | Article 28 GDPR

On March 6, 2025, the Bavarian Supervisory Authority (“BayLDA”) published an updated version of their guidance on the correct classification of data controllers and data processors.

The new guidance focusses on explaining the different legal criteria for proper classification of controllers and processors by providing detailed elaborations on the exact wording of the GDPR to facilitate case by case decisions.

For further information: BayLDA Website [DE]

03/2025

German Supervisory Authorities | Activity Reports

In March 2025, several Supervisory Authorities published their annual Activity Reports.

In addition to the increasingly important interplay between AI regulations and the GDPR, the reports also focus on data protection in employment contexts. By way of example, the Supervisory Authority of Bremen (LfDI Bremen) highlighted that video surveillance of areas frequented by employees is only permissible in non-sensitive areas and always demands an assessment of interests. The Bavarian Supervisory Authority (LDA Bayern) recommends that the publishing of images of employees after their employment ends should be contractually agreed upon in advance to ensure GDPR compliance.

For further information: LfDI Baden-Württemberg Website [DE], LfDI Bremen Website [DE], LfDI Sachsen Website [DE] and LDA Bayern Website [DE]

02/25/2025

Higher Regional Court of Stuttgart | Judgement | Data Processing and Employment

In a recent decision (2 ORbs 16 Ss 336/24), the Higher Regional Court of Stuttgart (OLG Stuttgart) dealt with the so-called employee excess in data protection law. Of practical relevance is the OLG’s classification of when employees, who process personal data for non-work purposes, become data controllers themselves.Thus replacing the employer as addressee of potential GDPR fines.

If the data protection breach is committed deliberately and intentionally for reasons unrelated to work, the employee may be considered as an independent controller not solely acting contrary to employer instructions.

For further information: Official Court Website [DE]

02/21/2025

Higher Administrative Court of Bavaria | Judgement | Access to Controller Agreements

On February 21, 2025, the Higher Administrative Court of Bavaria (VGH Bayern) ruled (7 ZB 24.651) that data subjects cannot demand access to data processing agreements as part of their information rights under Art. 15 GDPR.

Art. 15 GDPR only grants data subjects a right to access their own personal data. The court argues that the supervisory authorities and not the data subjects are responsible for monitoring the application of the GDPR, including the data processing agreements and its requirements between a controller and the processor.

For further information: Official Court Website [DE]

Ireland

03/07/2025

Irish Supervisory Authority | Complaints | Data Access Requests

The Irish Supervisory Authority (“DPC”) has published a blog post on how it handles complaints related to data subjects’ access requests.

The DPC states that it regularly deals with complaints from data subjects concerned that their access requests have not been fulfilled. The authority details how it determines the validity of the restrictions that organizations use to refuse access requests, emphasizing that each restriction must be justified on an evidential basis.

For more information: DPC Website

03/05/2025

Irish Government | AI Act | Designation of Competent Authorities

The Irish Government approved the designation of eight public authorities as competent authorities, responsible for implementing and enforcing the AI Act.

These authorities are the Central Bank of Ireland, the Commission for Communications Regulation, the Commission for Railway Regulation, the Competition and Consumer Protection Commission, the Data Protection Commission, the Health and Safety Authority, the Health Products Regulatory Authority, the Marine Survey Office of the Department of Transport. Additional authorities, as well as a lead regulator, will be designated through a forthcoming decision.

For further information: Irish Government Website

Netherlands

03/06/2025

Dutch Supervisory Authority | Public Consultation | Human Intervention in Algorithmic Decision-making

The Dutch Supervisory Authority (“AP”) launched a public consultation on the tools it has developed to enable meaningful human intervention in algorithmic decision-making.

The AP recalls that organizations using algorithmic decision-making must comply with the obligation to ensure human intervention. Such intervention must be meaningful — not merely symbolic — and designed to guarantee that decisions are made carefully, without discrimination. Organizations must also ensure that human intervention is not undermined by factors such as time pressure or lack of knowledge about the system.

For further information: AP Website [NL]

United Kingdom

03/28/2025

Information Commissioner’s Office | Guidance | Data Anonymisation

The Information Commissioner’s Office (“ICO”) has published new guidance on data anonymisation.

This guidance explains the distinction between anonymisation and pseudonymisation, discusses what should be considered when anonymizing personal data, provides good practice advice and case studies, and discusses technical and organisational measures to mitigate the risks to people. It applies to all mediums, including tabular data, free text, video, images, and audio.

For more information: ICO Website

03/27/2025

Information Commissioner’s Office | Fine | Hacker Attack

The Information Commissioner’s Office (“ICO”) imposed a fine of £3.07 million (approx. €3.67 million) on a computer software company for security failures that compromised the personal data of 79,404 individuals.

In 2022, the company suffered a ransomware attack that was initiated through a customer account. The attack affected personal data processed on behalf of multiple organizations, including the National Health Service and healthcare providers. The ICO found that the software provider failed to implement appropriate technical and organizational measures in accordance with Article 32 of the GDPR (e.g., lack of multi-factor authentication, insufficient vulnerability scanning, and inadequate patch management).

For more information: ICO Website

03/24/2025

Information Commissioner’s Office | Notice of Intent | Data Breach

The Information Commissioner’s Office (“ICO”) issued a notice of intent to fine a DNA testing company £4.59 million (EUR 5.5 million).

The ICO had launched a joint investigation with the Office of the Privacy Commissioner of Canada (“OPC”) after the company reported a data breach in October 2023. The breach concerned genetic information which the ICO considers is “among the most sensitive personal data that a person can entrust to a company”.

For more information: ICO Website

03/01/2025

Information Commissioner’s Office | Code of Practice | Children’s Data Protection

The Information Commissioner’s Office (“ICO”) has updated its Children’s Code of Practice to enhance the protection of children’s data in the digital world.

The revised code includes stronger guidelines for businesses regarding age-appropriate design and data minimization principles, aiming to ensure children’s privacy online. The code highlights the importance of high privacy by default settings, limitation of the processing of geolocation data, and switching off by default targeted advertisement for children.

For further information: ICO Code of practice and Press release

The following Gibson Dunn lawyers prepared this update: Ahmed Baladi, Vera Lukic, Kai Gesing, Joel Harrison; Thomas Baculard, Billur Cinar, Hermine Hubert, Christoph Jacob, and Yannick Oberacker.

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, the authors, or any leader or member of the firm’s Privacy, Cybersecurity & Data Innovation practice group:

Privacy, Cybersecurity, and Data Innovation:

United States:
Abbey A. Barrera – San Francisco (+1 415.393.8262, abarrera@gibsondunn.com)
Ashlie Beringer – Palo Alto (+1 650.849.5327, aberinger@gibsondunn.com)
Ryan T. Bergsieker – Denver (+1 303.298.5774, rbergsieker@gibsondunn.com)
Keith Enright – Palo Alto (+1 650.849.5386, kenright@gibsondunn.com)
Gustav W. Eyler – Washington, D.C. (+1 202.955.8610, geyler@gibsondunn.com)
Cassandra L. Gaedt-Sheckter – Palo Alto (+1 650.849.5203, cgaedt-sheckter@gibsondunn.com)
Svetlana S. Gans – Washington, D.C. (+1 202.955.8657, sgans@gibsondunn.com)
Lauren R. Goldman – New York (+1 212.351.2375, lgoldman@gibsondunn.com)
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, shandler@gibsondunn.com)
Natalie J. Hausknecht – Denver (+1 303.298.5783, nhausknecht@gibsondunn.com)
Jane C. Horvath – Washington, D.C. (+1 202.955.8505, jhorvath@gibsondunn.com)
Martie Kutscher Clark – Palo Alto (+1 650.849.5348, mkutscherclark@gibsondunn.com)
Kristin A. Linsley – San Francisco (+1 415.393.8395, klinsley@gibsondunn.com)
Timothy W. Loose – Los Angeles (+1 213.229.7746, tloose@gibsondunn.com)
Vivek Mohan – Palo Alto (+1 650.849.5345, vmohan@gibsondunn.com)
Rosemarie T. Ring – San Francisco (+1 415.393.8247, rring@gibsondunn.com)
Ashley Rogers – Dallas (+1 214.698.3316, arogers@gibsondunn.com)
Sophie C. Rohnke – Dallas (+1 214.698.3344, srohnke@gibsondunn.com)
Eric D. Vandevelde – Los Angeles (+1 213.229.7186, evandevelde@gibsondunn.com)
Benjamin B. Wagner – Palo Alto (+1 650.849.5395, bwagner@gibsondunn.com)
Frances A. Waldmann – Los Angeles (+1 213.229.7914,fwaldmann@gibsondunn.com)
Debra Wong Yang – Los Angeles (+1 213.229.7472, dwongyang@gibsondunn.com)

Europe:
Ahmed Baladi – Paris (+33 1 56 43 13 00, abaladi@gibsondunn.com)
Patrick Doris – London (+44 20 7071 4276, pdoris@gibsondunn.com)
Kai Gesing – Munich (+49 89 189 33-180, kgesing@gibsondunn.com)
Joel Harrison – London (+44 20 7071 4289, jharrison@gibsondunn.com)
Lore Leitner – London (+44 20 7071 4987, lleitner@gibsondunn.com)
Vera Lukic – Paris (+33 1 56 43 13 00, vlukic@gibsondunn.com)
Lars Petersen – Frankfurt/Riyadh (+49 69 247 411 525, lpetersen@gibsondunn.com)
Christian Riis-Madsen – Brussels (+32 2 554 72 05, criis@gibsondunn.com)
Robert Spano – London/Paris (+44 20 7071 4000, rspano@gibsondunn.com)

Asia:
Connell O’Neill – Hong Kong (+852 2214 3812, coneill@gibsondunn.com)
Jai S. Pathak – Singapore (+65 6507 3683, jpathak@gibsondunn.com)

In this webcast, Gibson Dunn attorneys provide an overview of the FCPA developments and emerging trends from 2024 and will discuss current and anticipated areas of focus for 2025, particularly given the change in Administration. Complementing our written 2024 Year-End FCPA Update, this webcast discusses in greater detail the year’s FCPA enforcement updates of note, including enforcement, compliance, and monitorship developments through the lens of particular resolutions and trials. We also discuss the SEC’s and DOJ’s increasing focus on compliance programs and what that means for companies in terms of law enforcement expectations and industry best practices.

MCLE CREDIT INFORMATION:

Gibson, Dunn & Crutcher LLP certifies this activity is approved for 1.5 hour of MCLE credit by the State Bar of California in the General Category.

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

PANELISTS:

John W.F. Chesley is a litigation partner in Gibson Dunn’s Washington, D.C. Office. He focuses his practice on white collar criminal enforcement and government-related litigation. He represents corporations, board committees, and executives in internal investigations and before government agencies in matters involving the Foreign Corrupt Practices Act, procurement fraud, environmental crimes, securities violations, sanctions enforcement, antitrust violations, and whistleblower claims. He also has significant trial experience before federal and state courts and administrative tribunals nationwide, with a particular focus on government contract disputes.

Melissa Farrar is a partner in the Washington, D.C. office of Gibson, Dunn & Crutcher. Her practice focuses on white collar defense, internal investigations, and corporate compliance. Melissa represents and advises multinational corporations in internal and government investigations on a wide range of topics, including the U.S. Foreign Corrupt Practices Act, the False Claims Act, anti-money laundering, and accounting and securities fraud, including defending U.S. and global companies in civil and criminal investigations pursued by the U.S. Department of Justice and the U.S. Securities and Exchange Commission. She also has experience representing U.S. government contractors in related suspension and debarment proceedings.

Patrick F. Stokes is a litigation partner in Gibson, Dunn & Crutcher’s Washington, D.C. office. He is the co-chair of the Anti-Corruption and FCPA Practice Group and a member of the firm’s White Collar Defense and Investigations, National Security, Securities Enforcement, Trials, and Litigation Practice Groups. Patrick’s practice focuses on internal corporate investigations, government investigations, enforcement actions regarding corruption, securities fraud, and financial institutions fraud, and compliance reviews. He has tried more than 30 federal jury trials as first chair, including high-profile white-collar cases, and handled 16 appeals before the U.S. Court of Appeals for the Fourth Circuit.

Bryan Parr is of counsel in the Washington, D.C. office of Gibson, Dunn & Crutcher and a member of the White Collar Defense and Investigations, Anti-Corruption & FCPA, and Litigation Practice Groups. His practice focuses on white-collar defense and regulatory compliance matters around the world. Bryan has extensive expertise in government and corporate investigations, including those involving the the Foreign Corrupt Practices Act and anticorruption. He has defended a range of companies and individuals in U.S. Department of Justice, SEC, and CFTC enforcement actions, as well as in litigation in federal courts and in commercial arbitrations. In his FCPA practice, Bryan regularly guides companies on creating and implementing effective compliance programs, successfully navigating compliance monitorships, and conducting appropriate M&A-related FCPA diligence and integration.

In this update, we discuss certain considerations as compensation decisionmakers navigate this period of macroeconomic uncertainty.

During any period of business uncertainty, board and compensation committee members, executive management teams and human resources leaders will feel pressure to act quickly. A singular proven strategy underscored successful compensation decisions through both the 2008 financial crisis and the COVID-19 pandemic—zoom out far enough to see the full picture and act in a manner that is systematic and consistent with your organization’s broader philosophy (including your compensation philosophy) and mission.

As compensation-decision makers navigate this period of macroeconomic uncertainty, there are many considerations to keep in mind. Below, in no particular order, are a few that we see arise time and time again.

1. The Road to a 409A Issue is Paved with Good Intentions

An executive or other service provider may elect to forego current compensation to conserve free cash flow, for internal or external optics, or other reasons relevant to the company. Salary and perquisites tend to be the first looked to for adjustment, with bonuses and long-term compensation trailing. Regardless of the bucket of compensation reduced or eliminated, a service provider who agrees to a reduction may ask for a “make-whole” or similar commitment from the company.

This can raise the specter of Internal Revenue Code Section 409A in two key ways: (1) creating new deferred compensation, and (2) impermissibly deferring compensation from one year to the next. The former impacts how the compensation can be structured, can limit flexibility to amend or terminate the arrangement in the future, and can result in payroll tax being incurred in an earlier year than the compensation is delivered. Impermissibly deferring compensation from one year to the next can come with accelerated income inclusion, a hefty 20% additional tax to the service provider, and potential reporting and withholding consequences to the employer.

In any case where a service provider forgoes compensation otherwise promised, and especially if there is an element of a “make-whole” or similar commitment, this should be structured carefully and in coordination with counsel.

2. Sneaky Stock Price Surprises

In any volatile economic environment, shareholders, board members, executives, and employees may all be intently watching a company’s stock price. For purposes of compensation, it is important to not lose sight of how stock price can impact existing compensation programs as adjustments may need to be made to avoid unintended windfalls or unintended reductions in the value of employee awards.

Companies often approve equity grants based on a grant date value concept—in its simplest form, a dollar amount divided by a share price on a specific date. Where grant date value has been set over a period of lower volatility, a company may fall into a rhythm where grant date value benchmarking follows a steady trend based on the peer group or industry. In a highly volatile environment, however, using a grant date value that was determined based on benchmarking conducted months before the period of volatility began can result in delivering significantly more shares than originally anticipated to satisfy the intended grant date value. This can result in an unintended windfall to the employee (especially if the stock price subsequently rebounds) and in share management issues under the company’s equity incentive plan, which could force the company to ask shareholders to approve an increase in its equity incentive pool sooner than it may have expected and in the midst of share price volatility.

3. A Smooth In-Flight Experience

Lastly, the enticement to take swift action to modify in-flight short- and long-term incentive awards may be tempting whether it is driven by retention risk, the consistent repetition in public disclosure indicating that performance goals were not achieved (for public companies), or other reasons.

Immediate changes, however, can be a third rail with investors. Companies would be well-advised to take a measured approach that includes careful monitoring of external economic factors, especially ones that are specific to their industry.

On the other hand, a company in the process of establishing new compensation programs or setting new goals during periods of economic bumpiness can look towards adjusting altitude to smooth out the journey, rather than making in-flight changes. For example, splitting a full-year annual incentive plan into two six-month programs—where the second performance period builds off (and in so doing accounts for) events occurring during the first—can help keep employees engaged and motivated to achieve realistic performance goals. For long-term awards, we would expect relative performance metrics to continue as a mainstay in award design and some award design alternatives, like target performance ranges, shorter performance periods, and simpler performance targets with longer holding periods in the post-vesting period, to come to the forefront. In both cases, retaining discretion to allow for appropriate adjustments to performance metrics to account for unanticipated events is important.

At the end of the day, whether companies are facing economic uncertainty or economic stability, compensation decisions should be made thoughtfully and with the broader company in mind. This does not mean that companies, boards, compensation committees, or executive teams should sit back and wait. A learn-and-see model that involves consistent review of relevant data sets, coordinating with external advisers, and leaving aside one-size-fits-all programs in favor of understanding practices specific to the industry will serve best.

The following Gibson Dunn lawyers assisted in preparing this update: Krista Hanvey, Sean Feller, Michael Collins, Kate Napalkova, and Gina Hancock.

Please also view this and additional information on Gibson Dunn’s Securities Regulation and Corporate Governance Monitor Blog.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these issues. To learn more about these developments, please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s Executive Compensation and Employee Benefits practice group, or the authors:

Sean C. Feller – Los Angeles (+1 310.551.8746, sfeller@gibsondunn.com)
Krista Hanvey – Dallas (+1 214.698.3425, khanvey@gibsondunn.com)
Michael J. Collins – Washington, D.C. (+1 202-887-3551, mcollins@gibsondunn.com)
Kate Napalkova – New York (+1 212.351.4048, enapalkova@gibsondunn.com)
Gina Hancock – Dallas (+1 214.698.3357, ghancock@gibsondunn.com)

World’s Broadest AI Law Pushes Legal Teams on Managing Risk
Bloomberg Law
By Isabel Gottlieb
April 8, 2025

The world’s most comprehensive AI regulation went into effect earlier this year in the European Union, affecting corporations in the US and around the world that are using or selling artificial intelligence systems in the EU.

The AI Act aims to protect consumers from the technology’s harms by focusing on risk to individuals. Higher-risk uses face more reporting obligations, and require companies to build more safety measures, than lower-risk applications.

For example, using AI to determine whether someone should get a job or a home loan falls into the “high-risk” category, while using AI to generate ideas or images may be considered lower-risk.

The law applies in stages: In February, the EU began banning AI deemed unacceptably risky, like emotion recognition in the workplace. A requirement that companies train their staffs for AI literacy also took effect. Next up in August are rules for general-purpose AI systems. The obligations surrounding high-risk uses will come in 2026.

Multinationals with mature data governance structures in place—across industries including financial services, not just big tech—are treating the law as a global standard that helps them manage AI risk, said Matthew Worsfold, a partner at Ashurst Risk Advisory.

At the other end of the spectrum, Worsfold said, some companies will plan closer to August 2026, when most of the obligations come into effect. Another group is, “very much getting stuck into a lot of the nuance and the practicalities,” as they try to figure out how the law applies to their specific uses, he said.

Companies should review what they’re doing with AI, who their business partners are and where the data in their AI comes from, then turn to the act itself, said Jean-Marc Leclerc, head of EU policy at IBM.

“First step, ignore the AI Act. Look at what you’re doing yourself,” Leclerc said.

“It’s all based on a certain level of risk,” he added. “You will not be able to assess that level of risk if you don’t know your AI yourself.”

Who’s in scope?

The act sets different obligations around high-risk AI uses for what the EU deems “providers”—including not just model developers but also companies that “substantially modify” AI products—and “deployers,” those using AI systems.

A provider might be the big tech company that built the AI, or the company that used underlying AI built by someone else to create an AI-based tool. The company that buys the tool may be the deployer, but can become the provider through actions like re-branding with its own name.

A company’s preparation for compliance will depend on where in the value chain it sits, said Ashley Casovan, managing director of the AI Governance Center at the International Association for Privacy Professionals.

Some companies are setting up their AI governance programs, “because they recognize that they’re operating or going to be introducing systems that could introduce risk to them,” and are looking to mitigate risk through their own governance programs or through their contracts with service or product providers, she said.

What’s required?

Starting Aug. 2, general-purpose AI providers must report details about their models’ training data, and confirm they’re putting appropriate safety guardrails in place.

Many of the law’s provisions come into effect a year later—including obligations surrounding high-risk uses.

High-risk use cases already covered under existing EU product liability legislation are addressed by rules coming into effect in 2027.

How will it be enforced?

The EU AI Act carries steep fines for noncompliance—as high as 7% of a company’s global annual revenue for violating the prohibitions, and 3% for violating certain rules around high-risk AI.

Questions around the law’s enforcement are creating uncertainty for companies, said Keith Enright, a partner at Gibson Dunn and former chief privacy officer at Google. The law lets each EU country decide who will enforce the law. Some have given the job to existing privacy authorities, others are creating enforcement bodies.

“It’s an untested law,” Enright said. “It proposes new regulators that companies don’t yet have a sense of their enforcement priorities, they don’t yet have relationships.”

EU officials also have recently talked about softening tech regulation to allow more innovation. And geopolitical tensions are rising, fueled by the Trump administration threatening retaliation on countries that fine US tech players.

Of the tension between innovation and regulation, Enright said, “There is so much political friction between those two forces right now, it’s difficult to predict exactly how it’s going to play out.”

How are companies preparing?

In-house legal departments generally know which of their use cases will trigger provisions of the law, said Marcus Evans, a Norton Rose Fulbright partner. Guidance is continually developing, so involving outside counsel at every step could get expensive, he added. Evans said his clients are often working through most compliance questions on their own, reaching out to outside counsel for the most complicated issues.

Mike Jackson, associate general counsel in Microsoft’s Office of Responsible AI, said he calls in outside counsel in three scenarios: When he’s looking at a nuanced legal question that will take more time to analyze than his team has; when there are concerns regarding attorney-client privilege under EU law; and for benchmarking—to find out how other companies are interpreting some of the law’s requirements.

What’s next?

As the effective date of the general-purpose AI rules approach, companies are navigating uncertainty around that provision. Those rules will capture not just the tech giants creating large language models, but companies that are retraining or fine-tuning those models on their own data to a degree. But it’s unclear exactly what amount of training crosses the line.

The EU has said it will issue more guidance.

Microsoft encourages customers to engage with EU regulators on how they could be affected, said Amanda Craig Deckard, who leads the public policy team at the company’s Office of Responsible AI.

Reproduced with permission. April 8, 2025, Bloomberg Industry Group 800-372-1033 https://www.bloombergindustry.com

Europe’s Landmark Privacy Law Gives Companies a Playbook for AI
Bloomberg Law
By Cassandre Coyer
April 7, 2025

As EU AI Act provisions come into force, many corporate legal teams have chosen to lean into compliance regimes already tested by another EU law: the General Data Protection Regulation.

The two measures share a common core—including risk assessments, a focus on fundamental rights, and data governance—that has allowed many companies to prepare for the world’s first comprehensive AI regulation without having to overhaul their existing processes or deploy significant additional resources.

“The competencies and capabilities that companies developed to demonstrate compliance with the GDPR gave them many of the tools that they needed to demonstrate compliance with new and incremental legal obligations,” said Keith Enright, co-chair of Gibson Dunn’s AI practice group and Google‘s former chief privacy officer.

“This will be true of the AI Act over time as well,” he added.

But while GDPR lessons can avoid duplicative work, they won’t get companies to the finish line. The AI law’s scope is much broader and requires companies to be more agile as technology evolves.

A sprawling supply-chain of developers, providers, and users, and questions about where responsibilities will fall, also presents new and complex challenges.

“Managing the third-party topic with GDPR was probably a challenge in itself,” said Francesco Marzoni, global chief data and analytics officer at Ikea Retail (Ingka Group). “Now it’s even bigger because, again, it’s not just a one-off effort—AI models evolve.”

By-Design Approach

The EU’s 2018 privacy regulation stressed a key principle that has since informed data protection laws and approaches in the US: privacy by design. That principle requires teams to implement data protections at the creation of a new product or technology, instead of after the fact.

The EU AI Act also requires principles of data minimization and protection to be implemented “by design and by default” when personal data is processed by an AI system. Even when a system doesn’t ingest or give out personal details, the act pushes for responsible AI practices from the onset of a product’s lifecycle.

“The AI Act says, yes, it’s product safety, but it’s also fundamental rights,” said Jean-Marc Leclerc, director of EU affairs at IBM.

“And it doesn’t matter if it’s personal data, non-personal data. The requirements of data governance apply to any data.”

The European Commission intended for the two laws to complement each other, he added.

Companies have tapped teams responsible for GDPR compliance to apply those earlier lessons to AI regulation.

“It makes sense, because there’s a lot of common ground,” said Jean-Rémi de Maistre, co-founder and CEO of AI-powered legal search platform Jus Mundi, noting that these teams include AI, privacy, and cybersecurity capabilities. This approach allowed his organization to get ready early on without feeling like it was costing them much more.

Jus Mundi, alongside Ikea and IBM, were among other early signatories to the EU AI Pact, a pledge by nearly 200 businesses to start applying the principles ahead of the AI law taking effect.

The cross-functionality approach to GDPR compliance will be key under the AI law to avoid duplicative efforts.

“I personally don’t believe in divide and conquer,” said Alesya Nasimova, global head of privacy and data protection officer at Brex. Nasimova said her insights don’t represent the views of her employers.

“Let’s say you have a data privacy impact assessment for GDPR, and then you need a conformity test for the EU AI Act. You figure out where those overlaps are and create something that’s conjoined, instead of having two different assessments,” she added.

The Right Benchmark?

Still, some companies that do fall under the AI law’s scope—such as startups with cutting-edge use cases or those that don’t handle personal data—haven’t yet had to comply with GDPR requirements. Determining their approach to AI governance may prove more challenging.

“You’d have to start from scratch for GDPR to even meet the requirements of the EU AI Act,” Nasimova said. “So it becomes kind of a double-whammy for a lot of organizations.”

Though GDPR serves as a helpful stepping stone, it might not be the perfect benchmark for some of the new challenges posed by the AI law, governance professionals warn. The technology-agnostic aspect of GDPR, for instance, is distinct from the AI law’s granular breakdown of AI systems and use cases.

“Use cases really matter in AI, and I’m not sure that appreciation existed with previous technologies and previous regulatory regimes,” said Jace Johnson, vice president of global public policy and ethical innovation at Adobe Inc.

Assessing an AI model’s robustness as the technology evolves will require spreading responsibilities across an organization instead of relying on one centralized team.

“You need an internal regime that can sit down and review quickly without impeding innovation,” Johnson said. “What are the risks at play here? Are they different? Are they similar?”

A lack of clarity about who among different AI stakeholders will be liable for harmful systems also requires legal teams to adapt their processes and tackle procurement contracts more creatively.

The lines distinguishing responsibilities for providers (who make AI systems or models) and deployers (who use already-built AI systems) can be blurry. Companies that buy AI systems but end up substantially modifying them, for example, could find themselves wearing different hats.

That’s when the comparison with GDPR isn’t always pertinent, IBM’s Leclerc said, since “there are so many more actors in the AI chain.”

As with GDPR, each of the EU’s 27 member states will be responsible for enforcement. The European Commission also created a new AI office to supervise the member states’ application of the law.

“There’s a before and after GDPR, not just in Europe, but globally. It had such an impact,” Leclerc said. “Companies that want to sell an AI, deploy an AI system in the EU, GDPR is a bit of a warning—it sets a precedent.”

Reproduced with permission. April 7, 2025, Bloomberg Industry Group 800-372-1033 https://www.bloombergindustry.com

Reciprocal Tariffs and Mitigation Strategies for Global Supply Chains

On April 2, 2025, President Trump issued Executive Order 14257 (the “Order”) imposing “reciprocal tariffs” on virtually all U.S. trading partners, invoking the broad presidential authority to regulate foreign commerce under the International Emergency Economic Powers Act of 1977 (IEEPA), and raising U.S. tariff rates to levels not seen in over a century. President Trump’s announced tariffs represent an unprecedented shift in U.S. trade policy and have already generated challenges to his unilateral exercise of tariff authority under IEEPA in the courts and on Capitol Hill. Amid the shock to global markets and policymakers—as well as longer-term anxieties about global trade and inflation—uncertainty remains about just how long the tariffs may remain in place. Although certain tariffs took effect on April 5, 2025, with others to follow on April 9, 2025, these measures could be altered at any time through presidential action (the Order allows the president to increase or decrease duties as the president determines is required by the economic and national security interests of the United States), judicial orders, or a bipartisan congressional response. In this client alert, we discuss (based on current circumstances) the scope, substance, and implications of these unprecedented tariffs, including under what authority President Trump has imposed them, how key U.S. trading partners have responded, how they are being challenged, and what companies affected by the tariffs should know moving forward.

President Trump’s April 2 Order

As required under IEEPA, the president issued an Order on April 2 declaring a national emergency arising from conditions in the global trading system that have resulted in large and persistent annual U.S. deficits in the cross-border trade of goods, which the Order notes have “grown by over 40 percent in the past 5 years alone, reaching $1.2 trillion in 2024.” Citing a host of causes for such trade deficits in the domestic policies of foreign trading partners—including tariffs imposed on goods originating from the United States, licensing restrictions and technical barriers, inadequate intellectual property protections, government subsidies, discriminatory requirements perceived to disadvantage U.S. companies, low labor and environmental standards, currency manipulation, and corruption, among other factors—President Trump announced a “universal” 10 percent additional ad valorem duty on all imports from all trading partners (except Canada and Mexico, which are subject to separate tariff measures already in place) that in effect sets a baseline, plus what is described as a “reciprocal” ad valorem duty for certain trading partners listed in Annex I to the Order, which establishes higher duty rates of between 11 and 50 percent for 83 specified countries.[1]

The additional duties applicable to goods imported from some of the United States’ most significant trading partners are set forth in the table below. In general, the rates below are in addition to other duties imposed under U.S. law, except where the Order sets forth particular exemptions.

Country	Selected Countries’ Reciprocal Duty Rates
Cambodia	49%
Vietnam	46%
Sri Lanka	44%
Bangladesh	37%
Thailand	36%
China	34%
Taiwan	32%
Indonesia	32%
Switzerland	31%
South Africa	30%
Pakistan	29%
India	26%
South Korea	25%
Japan	24%
Malaysia	24%
European Union	20%
Israel	17%
Philippines	17%
United Kingdom	10%
Brazil	10%
Singapore	10%
Chile	10%
Australia	10%
Turkey	10%
Colombia	10%

These tariffs represent President Trump’s latest, dramatic break with longstanding U.S. trade policies. The recently announced universal and reciprocal tariffs together raise the United States’ average effective tariff rate on imported goods to above 20 percent, the highest rate since the Taft administration in 1909. The last period of sustained tariff rate increases was during the early 1930s, when President Herbert Hoover signed the Smoot-Hawley Tariff Act to raise tariffs on over 20,000 types of imported goods, which, together with retaliatory measures imposed by other nations, deepened and prolonged the Great Depression.

Scope and Effective Dates of Universal Tariff and Reciprocal Tariffs

The Order provides that all articles imported into the customs territory of the United States shall be subject to an additional ad valorem rate of duty of 10 percent. This universal baseline tariff took effect on 12:01 a.m. eastern daylight time on April 5, 2025, and applies to all countries exporting to the United States, except Canada and Mexico.

In addition to the universal baseline tariff, the Order imposes individualized increased duty rates on trading partners enumerated in Annex I to the Order. The individualized tariff rates will take effect on 12:01 a.m. eastern daylight time on April 9, 2025, and will replace the baseline tariff where they apply.

The Order notes that the country-specific increased ad valorem rates of duty apply to articles even if they are imported pursuant to the terms of an existing U.S. trade agreement (other than the United States-Mexico-Canada Agreement (USMCA), as discussed below). In addition, the rate of duty established by the Order is in addition to any other duties, fees, taxes, exactions, or charges applicable to the imported articles, unless the items are eligible for an exemption set forth in the Order.

Exemptions

The Order sets forth a series of exemptions that appear calculated to de-conflict the duties with some, but not all, of the prior tariff actions announced by the second Trump administration. The exemptions include:

Items that are exempt from regulation under IEEPA, such as informational materials and donations of articles, such as food, clothing, and medicine, intended to be used to relieve human suffering;
Articles and derivatives of steel and aluminum that are subject to previously imposed 25 percent duties under Section 232 of the Trade Expansion Act of 1962 (“Section 232”), a statute that authorizes the president to impose duties on articles that the U.S. Department of Commerce has determined are imported into the United States in quantities or under circumstances that threaten to impair national security;
Automobiles and automotive parts subject to additional 25 percent duties under a separate Section 232 action announced by President Trump on March 26, 2025;
Other items enumerated in Annex II to the Order, including copper, pharmaceuticals, semiconductors, lumber articles, certain critical minerals, and energy and energy products (the Trump administration has separately announced its intent to investigate most of these items under Section 232);
Articles from countries that do not have Permanent Normal Trade Relations (PNTR) with the United States, which presently includes Cuba, North Korea, Russia and Belarus (imports from these countries are subject to punitive tariffs, and may also be separately subject to restrictions under sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control); and
All articles that may become subject to duties pursuant to future actions under Section 232.

Treatment of Articles from Canada and Mexico

The Order is calibrated to not immediately affect goods imported from Canada or Mexico, which are the subject of previously announced tariffs imposed under IEEPA. Specifically, on February 1, 2025, President Trump announced the imposition of an additional 25 percent ad valorem rate of duty on all articles that are products of Canada or Mexico, except for a separate 10 percent additional ad valorem rate of duty for energy resources from Canada or potash from either Canada or Mexico. Those earlier tariffs were imposed pursuant to IEEPA and were characterized by President Trump as a response to inflows of illegal drugs and migrants at the U.S. northern and southern borders. After negotiations with Ottawa and Mexico City, the Trump administration delayed the effective date of these duties to March 4, 2025, and following negotiations with the automotive industry, the tariffs were also amended to exempt articles eligible for duty-free entry under the terms of the USMCA.

The Order does not disturb this arrangement. However, it notes that, in the event that the president’s prior executive orders imposing the duties on imports from Canada and Mexico are terminated or suspended (for example, by a congressional resolution to terminate the national emergencies at the northern and southern borders, or a determination by President Trump that those emergencies are no longer present), then the Order would operate to impose an ad valorem rate of duty of 12 percent on goods that do not qualify for preferential treatment under the USMCA.

Treatment of Articles from China

On February 1, 2025, President Trump issued an executive order imposing an additional 10 percent ad valorem rate of duty to all articles that are products of the People Republic of China (PRC) or of Hong Kong, citing a national emergency with respect to illegal drugs entering the United States and the PRC’s alleged failure to arrest, seize or otherwise intercept chemical precursor suppliers and money launderers connected to the illegal drug trade. President Trump subsequently increased such duties on China to 20 percent, effective March 4, 2025, citing the PRC’s continued failure to adequately respond to the emergency. These prior IEEPA-based tariffs were also (and, as of today, remain) cumulative to tariffs that already apply to goods from China, including duties imposed under the Harmonized Tariff Schedule of the United States (HTSUS), antidumping and countervailing duty orders (ADD/CVD) entered by the U.S. Department of Commerce related to particular categories of goods, duties imposed under Section 301 of the Trade Act of 1974 (“Section 301”), and certain national security related duties imposed on particular products under Section 232.

The Order does not provide exceptions for China-origin articles subject to the previous 20 percent IEEPA-based tariffs, nor does it exempt items subject to the Section 301 tariffs targeting China (which imposed duty rates between 7.5 percent and 25 percent on most goods from China, including electronics, semiconductors, textiles, and more). As a result, China-origin goods will be, upon the entry into force of the reciprocal rate on April 9, 2025, subject to a 54 percent tariff virtually across the board under IEEPA, with additional HTSUS, Section 301, and ADD/CVD duties potentially applicable. The reciprocal duty applies to goods from mainland China, as well as to goods from Hong Kong and Macau.

As of April 8, 2025, President Trump had announced that he would raise the reciprocal rate applicable to goods of China and Hong Kong even further, by an additional 50 percent, in response to retaliatory measures announced by Beijing.

Table: Illustration of selected China-related tariffs imposed by the United States (table does not include ADD/CVD rates or other remedial duties that may apply to particular categories of goods)

Tariff Program	Rate
Average effective tariff rate on imports from China, pre-IEEPA tariffs (HTSUS, plus Section 301)	approx. 11%[2]
IEEPA tariffs related to the opioid emergency	20%
IEEPA tariffs related to the trade deficit emergency	34%
(IEEPA tariffs responding to PRC retaliatory measures)	(50%)
Cumulative, approximate average duty rate on articles from PRC, Hong Kong, and Macau (actual rates for particular items are likely to be higher or lower than 65%, which is an approximate average)	approx. 65% (or 115%)

Other Limitations: Goods With At Least 20 Percent U.S.-Origin Content

The reciprocal duty applies only to the non-U.S. content of a subject article, provided that at least 20 percent of the value of the subject article originates from the United States. Under the Order, “U.S. content” refers to the value of an article attributable to the components produced entirely, or substantially transformed in, the United States. U.S. Customs and Border Protection (CBP) is authorized to require documentation to verify the value of the U.S. content.

Articles Entered Into Foreign Trade Zones

The Order provides that subject foreign items that are admitted into a Foreign Trade Zone (FTZ) on or after April 9, 2025, must be admitted with “privileged foreign status” (PF status), as defined at 19 C.F.R. § 146.41. PF status locks in the duty rate of an item on the basis of its condition and origin as it enters the FTZ, and this duty rate cannot be changed by subsequent processing, assembling, manufacturing, or substantial transformation in the FTZ. Therefore, if an item enters an FTZ under PF status, undergoes substantial transformation, and is removed from the FTZ (other than for export), CBP will charge the original duty rate as determined upon admission to the zone.

Availability of De Minimis Exception

The de minimis statutory exemption has allowed many shipments valued at $800 or less to enter the United States duty-free. The Order states that duty-free de minimis treatment (governed by the terms at 19 U.S.C. 1321(a)(2)(A)-(B)) remains available for now. However, the Order indicates that this exemption will be removed, once the secretary of commerce notifies the president that “adequate systems are in place” to process and collect duties from such shipments. Further, as discussed below, another executive order, also issued on April 2, 2025, eliminates de minimis treatment for shipments from China and Hong Kong, effective May 2, 2025. That order is the first announcement of a mechanism to collect duties on this high-volume type of shipment and may indicate a path toward removing the exemption for goods from countries other than China.

Modification Authority – Up or Down

The Order specifies that the president may modify the tariffs, if the action is “not effective in resolving the emergency conditions described above” by reducing the United States’ overall trade in goods deficit or reducing non-reciprocal arrangements of U.S. trading partners. Further, the president has warned that he will consider increasing the duty rates, or their scope, in response to retaliation by a foreign country against goods imported from the United States. For example, as noted above, after China responded to President Trump’s Order by announcing matching 34 percent tariffs on U.S. goods, the president threatened to impose an additional 50 percent tariff on Chinese goods.

Conversely, should a foreign country take “significant steps to remedy non-reciprocal trade arrangements and align sufficiently with the United States on economic and national security matters,” the president will consider decreasing the duties or limiting their scope. Finally, should U.S. manufacturing capacity continue to worsen, the president may increase the duties imposed under the Order.

Executive Order Closing De Minimis Exemption for Low-Value Imports from China and Hong Kong

Also on April 2, President Trump signed Executive Order 14256, which eliminates duty-free de minimis treatment under section 321(a)(2)(C) of the Tariff Act of 1930 for low-value goods imported from the PRC or Hong Kong, effective May 2, 2025. Under the terms of this executive order, international postal items valued at or under $800 will face a duty rate of either 30 percent of their value or $25 per item, increasing to $50 per item on June 1, 2025. Low-value shipments of articles from the PRC or Hong Kong that enter the United States other than through the international postal network are subject to formal entry requirements and are subject to all applicable duties. The Order directs the secretary of commerce to submit a report within 90 days recommending whether to also close the de minimis exemption for imports from Macau, to avoid circumvention of these measures.

According to an accompanying “fact sheet” released by the White House, this executive order aims to “counter[] the ongoing health emergency posed by the illicit flow of synthetic opioids into the U.S.” by “targeting deceptive shipping practices by Chinese-based shippers, many of whom hide illicit substances, including synthetic opioids, in low-value packages to exploit the de minimis exemption.”

Although the de minimis exemption currently remains available for shipments of goods valued at or under $800 that are imported from other jurisdictions, the two April 2, 2025, executive orders make clear that the Trump administration is contemplating closing the de minimis exemption for some—and possibly all—of the other imports to which it still applies. Whether international carriers are able to effectively navigate these new requirements will be a bellwether for the fate of the de minimis exception for goods originating from other countries.

Historical Context

The April 2, 2025, tariff actions—styled by President Trump as “Liberation Day”—represent a seismic shift in the United States’ approach to international trade. Since the liberalization of global trade beginning in the 1940s, tariffs or similar restrictions on imports have generally been used—or threatened—selectively to protect specific industries. One exception was a 10 percent across-the-board ad valorem tariff imposed by President Richard Nixon in 1971 as part of an effort to negotiate monetary policy with the Group of Ten. In an indication of the decisive, long-term trend away from the use tariffs following the Second World War, the effective average tariff rate in the United States had decreased to less than five percent by the 2010s.

President Trump’s so-called reciprocal tariff announcement relies on a historical justification for the imposition of higher tariffs. Until the introduction of the U.S. federal income tax via a constitutional amendment in 1913, tariffs were among the largest sources of federal revenue. The Smoot-Hawley tariffs, however, had a different purpose: to shield U.S. industry from foreign competition during the nascent Great Depression. Since the 1940s, tariffs have had a negligible impact on federal revenue and have instead been developed on a multilateral or bilateral basis for broader economic purposes, including protecting or redeveloping sectors of the U.S. economy, including the automotive manufacturing, steel and aluminum production, and agricultural industries. Presidnet Trump’s tariffs draw on this tradition to justify the dramatic increases in the effective tariff rates for virtually all of the United States’ trading partners, stating that the increased tariffs are designed to reverse “the decline in American manufacturing” and ensure “[t]he future of American competitiveness.” However, it is evident that at least part of the attraction is the claimed ability for tariffs to lead to significant revenue for the federal government.

President Trump’s tariff actions to date also signify the culmination of a broad shift in tariff policy-making power from Congress to the president. Tariff policy in the United States has historically been the domain of Congress, which is expressly empowered to impose tariffs under Article I, Section 8 of the U.S. Constitution. Since the 1930s, the Congress has periodically delegated tariff-related authorities to the president, albeit under carefully delineated circumstances.

Key statutes expanding the president’s power to control tariff policy include the Reciprocal Tariffs Act in 1934 (which granted President Franklin Roosevelt the power to negotiate tariff reduction agreements with foreign nations), the Trade Expansion Act of 1962 (which allows the president to call for an investigation of imports that threaten national security and impose tariffs in response to affirmative findings, among other actions), and the Trade Act of 1974 (which empowers the U.S. Trade Representative to impose tariffs against “unjustifiable,” “unreasonable,” and “discriminatory” trade actions by other nations, among other actions). In addition and importantly, in the past the Congress has authorized the president to negotiate multilateral trade agreements under special “fast track” legislation permitting passage of implementing legislation pursuant to an “up or down vote” in the Congress without the possibility of amendments. President Trump’s unilateral tariff action therefore constitutes both a departure from more than 70 years of liberalized global trade policy and—in the absence of a legal challenge or significant congressional action—a dramatic expansion of the executive’s authority to impose tariffs.

Initial Reactions

The reciprocal tariff actions announced by President Trump in April 2025 have sent shockwaves through the global trading system. EU officials have called the reciprocal tariff actions “brutal and unfounded,” “an immense difficulty for Europe,” and “a major blow to the world economy.” While leaders maintain that they can—and should—negotiate with the United States to lower trade barriers, they have also declared their readiness to impose countermeasures in response to the reciprocal tariffs and earlier tariffs on steel and aluminum imports, for which the European Union is finalizing a package of tariffs on up to 26 billion euros of U.S. industrial and agricultural goods. Indeed, in response to this new round of tariffs, EU members state and officials are considering more unconventional responses to the Trump administration’s trade actions, including the addition of digital services—a major U.S. export to the European Union—to the list of U.S. industries subject to duties, taxes, or penalties. This would likely further the Trump administration’s concerns that Brussels is targeting U.S.-based “big tech” companies with over-reaching regulation.

In response to what was described as the Trump administration’s “unwarranted and unjustified tariffs that will fundamentally change the international trading system,” Canadian prime minister Mark Carney announced the imposition of 25 percent tariffs on U.S. vehicles that are not compliant with the USMCA, as well as on non-Canadian and non-Mexican components of USMCA-compliant vehicles imported from the United States. Canada has to date otherwise refrained from immediate countermeasures in light of President Trump’s decision not to impose full reciprocal tariffs on Canada.

Other immediate reactions to President Trump’s orders ranged from the imposition of retaliatory measures to expressions of confidence in trade relations with the United States and hopefulness for negotiations. It remains to be seen whether a more cautious and conciliatory approach will lead to tariff relief for certain countries.

China’s Retaliatory Measures

China, the fourth-largest importer of U.S. goods and third-largest source of U.S. imports, took a more active approach to countering the president’s announced tariffs. On April 4, 2025, China’s Finance Ministry announced that it will match President Trump’s new 34 percent tariffs on Chinese goods with its own 34 percent retaliatory tariff on imports from the United States.

In addition to the 34 percent tariff, China also announced a range of other retaliatory measures on April 4, including the following:

China’s Ministry of Commerce added 11 U.S. companies to its list of so-called “unreliable entities,” which bars them from engaging in all import and export activities in China and making new investments in China.
Beijing added 16 U.S. entities to its export control list, which prohibits exports of dual-use items to the listed firms. Nearly all of the firms so targeted operate in the defense and aerospace industries.
The Ministry of Commerce announced the launch of an anti-dumping probe into imports of certain medical computed tomography tubes from the United States and India.
Beijing launched an anti-monopoly investigation into the PRC subsidiary of a major U.S. chemical company.
Beijing announced export controls on seven types of rare earth minerals to the United States, which are vital to end uses ranging from electric cars to defense. Notably, the United States imports its rare earth materials predominantly from China, which produces approximately 90 percent of the world’s supply.

In response to China’s retaliatory measures, President Trump on April 7 threatened the imposition of a further 50 percent tariff on Chinese goods, which would increase the potential baseline tariff rate on many Chinese goods to 104 percent. In the absence of indications of de-escalation between China and the United States, the possibility of additional tit-for-tat escalatory measures appears to be increasing.

Compliance and Mitigation

In today’s deeply interwoven global trading system, the imposition of nearly across-the-board universal and reciprocal U.S. tariffs poses complex challenges for a wide array of industries and companies both within and outside of the United States. We discuss several compliance considerations and possible mitigation strategies to address these challenges below.

Transactions Between Related Parties

The Trump administration’s sweeping changes to cross-border trade place greater scrutiny on, and raise new risks related to, multinationals’ compliance with overlapping yet dueling customs-valuation and transfer-pricing regimes used to determine the transaction price for the cross-border sale of goods between related parties into the United States. The amount of a tariff depends on the value of the goods subject to the tariff and the origin of the good. Related parties have the ability to adjust both values and origin of the sale, subject to customs and transfer-pricing rules and restrictions—both of which will be affected by the Trump administration’s sweeping changes and retaliatory responses by foreign countries.

To the extent the costs of tariffs, which are imposed on the importers involved, are borne by a multinational enterprise (MNE) and not passed through to customers, tariffs may affect the taxable income allocated across multiple jurisdictions around the world under U.S. and OECD transfer-pricing principles—which could cause further economic and administrative challenges in these jurisdictions, including in the United States with the Internal Revenue Service. To the extent transfer-pricing principles are used for customs’ valuation purposes, this could also lead to audits by customs authorities around the world.
Differential tariffs by trading partner may incentivize MNEs to seek short-term and long-term changes to their cross-border transactions (including related-party transactions) and supply chains to mitigate and reduce the cost of these tariffs. Such adjustments are not without risk and require careful consideration and bespoke analysis and planning given the competing customs-valuation and transfer-pricing regimes within both the United States and other jurisdictions in what is likely to be an increased enforcement environment.

Foreign Trade Zones and Subzones

A foreign trade zone (FTZ), or FTZ subzone, is a facility authorized by the Foreign Trade Zone Board of the U.S. Department of Commerce, and subject to monitoring by CBP, that is considered outside of the “customs territory” of the United States. (A regular FTZ is a public facility, whereas an FTZ subzone is typically an area within a single company’s facility.) Under typical circumstances, foreign and domestic merchandise may be admitted into an FTZ, or FTZ subzone, for storage or processing (or other permissible activities), and duties on the foreign merchandise are not payable until the articles enter U.S. commerce (i.e. when removed from the zone for U.S. consumption). Importers ordinarily have a choice of paying duties either at the rate applicable to the foreign articles at the time they are admitted to the zone or, if used in manufacturing or processing, at the rate applicable to the product produced in the zone when it is removed for consumption. Under normal circumstances, FTZs and FTZ subzones offer numerous benefits and can mitigate duty liability by deferring when duty is owed, reducing the applicable tariff rate, or offering relief from duties for goods exported from the zone (i.e. goods that never enter U.S. commerce, so long as they are not destined for Canada or Mexico).

Under the Order, as well as other recent trade remedy actions by the Trump administration, these benefits are limited. Imported merchandise that is subject to the trade remedy tariffs under IEEPA, Section 301, or Section 232 must be admitted into an FTZ under “privileged foreign” status. Under PF status, the merchandise is recorded at its condition and duty rate at the time of admission to the zone, which is determined based on its foreign origin and classification. This means that once merchandise is admitted in PF status, any subsequent processing or manufacturing activities performed within the zone will not permit a lower duty rate to be applied. With PF status, the duty rate is effectively “locked in” to that of the merchandise when it entered the zone. Nonetheless, an FTZ or FTZ subzone could still allow some flexibility under the new measures by deferring when the duties are due and also allowing duty free re-exports.

Contractual Review

Companies seeking to navigate the fast-shifting U.S. tariff environment should consider reviewing their customer-facing and supplier-facing contracts to clarify which party bears responsibility for paying the tariffs and to identify any points of conflict or ambiguity in the event that customers seek to challenge or renegotiate terms. Particularly important provisions include those (1) determining which party will pay applicable duties, taxes, or value-added tax (VAT); (2) assigning responsibility for cross-border transportation and completion of customs formalities, including by use of Incoterms; (3) permitting termination or a declaration of force majeure in the event that government actions result in price increases; and (4) permitting, prohibiting, or rationing price increases, or describing what is included in the price of goods.

Potential Liability Under the False Claims Act

As fast-evolving and unpredictable tariffs increase complexity for companies, compliance with the U.S. False Claims Act (FCA) will be essential. The FCA is a key tool in the federal arsenal, which prohibits the avoidance of monetary obligations to the U.S. government by the presentation of false information. Through qui tam (or whistleblower) provisions, the FCA provides significant economic incentives for private parties, such as employees and customers, to bring lawsuits for alleged violations of the FCA. If an importer is found to be in violation of the FCA, penalties consist of substantial “treble damages,” equaling the amount of the U.S. government’s damages multiplied by three, as well as inflation-adjusted penalties, currently ranging from $14,308 to $28,619 per successful claim.

Reflecting recent statements by a senior Department of Justice official, the U.S. government has used the FCA aggressively to pursue fraudulent statements related to customs valuation and applicable duties. For example, on March 25, 2025, the government settled FCA claims against a U.S.-based importer of multilayered wood flooring. After its competitor and the United States sued the importer for evasion of antidumping, countervailing, and Section 301 duties, the United States and the importer settled the case for $8.1 million (an amount adjusted according to the respondents’ ability to pay). The U.S. Attorney responsible for prosecuting the case called the settlement “a message” to companies that the United States takes seriously its commitment to pursuing alleged FCA violations.

Initial Legal Challenges

Given the immediate and outsized impact of the Trump administration’s tariffs—as well as their unprecedented scope and questionable legal foundation—some businesses and policymakers have already taken steps to challenge the president’s tariff authority. The first judicial challenge to the IEEPA-based tariffs imposed by the Trump administration was filed on April 3, 2025, in the U.S. District Court for the Northern District of Florida. The case, Emily Ley Paper Inc. (d/b/a “Simplified”) v. Trump, was brought by a Florida-based small business that sells premium planners and organizational tools and relies on imports from China. The lawsuit argues that President Trump’s use of IEEPA to impose the tariffs is unlawful and unconstitutional, and presents four main legal claims: (1) the tariffs are in excess of the president’s authority because IEEPA does not clearly authorize them and the Supreme Court’s “major questions” doctrine bars finding such broad authority in the statute; (2) the tariffs lack a clear connection to the opioid-related national emergency cited as justification; (3) IEEPA, if interpreted to allow tariffs, violates the nondelegation doctrine by granting the president unchecked authority; and (4) the tariff-related modifications to the Harmonized Tariff Schedule of the United States violate the Administrative Procedure Act (APA). The lawsuit contends that these tariffs inflict severe harm on the plaintiff by increasing costs, reducing competitiveness, and forcing potential layoffs, making them unsustainable. The complaint seeks an injunction to block enforcement of the tariffs and to vacate all resulting modifications to the HTSUS.

Under the major questions doctrine, the Congress must clearly state its intent to give the president authority to take regulatory actions with outsized economic or political effects. Emily Ley Paper argues that the economic effects of President Trump’s tariffs are clearly extraordinary, constituting “the largest tax increase in a generation” on the order of “hundreds of billions of dollars per year.” Since Congress fails to even mention the word “tariff” in IEEPA, the company argues, the statute fails to clearly authorize the president to impose increased tariffs.

Whether Emily Ley Paper will succeed in challenging President Trump’s orders remains to be seen. Historically, judicial challenges to IEEPA-based restrictions (which have been rare and typically seen in the sanctions context, which has been the most frequent policy use of IEEPA-based restrictions) have faced an uphill battle.[3]

Companies seeking to challenge the president’s tariff authority may also consider making constitutional arguments that President Trump’s tariffs violate the constitutional separation of powers. As noted above, the constitution vests the power to “lay and collect Taxes, Duties, Imposts and Excises” and to “regulate Commerce with foreign Nations” with Congress.[4] While delegations of legislative power to the executive branch have raised separation of power concerns in certain circumstances, the Supreme Court has authorized delegations of congressional authority “[s]o long as Congress ‘shall lay down by legislative act an intelligible principle to which the person or body authorized to [exercise the delegated authority] is directed to conform.’”[5] In practice, almost any limitation or direction has been found to satisfy the “intelligible principle” test. Moreover, the Supreme Court has found that delegations of constitutional authority relating to foreign affairs are permitted to be broader than those concerning domestic affairs.[6]

We note members of Congress have also taken certain steps to limit the president’s exercise of tariff powers under IEEPA. Bills to restrain the president’s tariff authorities have been introduced in both houses and on a bipartisan basis. However, it remains unclear if such proposals have enough support to be passed and even more uncertain whether they have enough support to overcome an all but certain presidential veto if they made their way to the president’s desk.

Conclusion

In only a few short days, President Trump’s tariffs actions have profoundly altered the landscape of international trade and created manifold risks for companies across the U.S. and global economies. Instability and uncertainty around the application and duration of the tariffs is likely to continue as a variety of legal and legislative challenges to the president’s unprecedented use of IEEPA take shape. Further, President Trump’s use of effectively unilateral power to adjust or renegotiate tariff rates—combined with the desire of some U.S. trading partners to negotiate quick and lasting tariff relief—suggests that companies should prepare for possible sudden and dramatic shifts in applicable tariff rates. Affected companies should also closely monitor the responses of major U.S. trading partners such as China, which has shown a readiness to impose strong retaliatory measures in response to President Trump’s orders. An escalation in trade barriers between China and the United States threatens to further complicate trade and business activities between the world’s first- and second-largest economies.

While the tariffs’ scope is unprecedented, companies can consider initial steps to mitigate the impact of the tariffs on their core business activities and to protect themselves from novel compliance risks. Careful attention to applicable tariff rates, possible exemptions, and potentially applicable mitigation measures will be key not just for multinational enterprises, but a wide range of U.S.- and foreign-based manufacturers, retailers, and service businesses. Gibson Dunn lawyers stand ready to assist clients in navigating this period of change and uncertainty and will continue to monitor the Trump administration’s actions closely to assess the evolution of U.S. and global tariff policy.

[1] While the tariffs have been characterized as reciprocal, they appear to have been based on balance of payments calculations rather than foreign tariff rates.

[2] Hannah Miao, Breaking Down Trump’s Tariffs on China and the World, in Charts, Wall St. J. (Dec. 3, 2024), https://www.wsj.com/economy/trade/trum-tariff-rates-china-world-trad-charts-3d6aee09.

[3] For a case involving a challenge to import duties under the predecessor statute to IEEPA, see, e.g., Yoshida Int’l, Inc. v. United States, 526 F.2d 560 (C.C.P.A. 1975) (holding that President Nixon properly exercised his authority under the Trading with the Enemy Act (TWEA) to impose temporary 10 percent duties on all imports because Congress delegated a broad power to regulate foreign trade to the executive branch during “national emergencies,” President Nixon’s tariffs fell under a congressionally approved ceiling, and there was an “eminently reasonable relationship” between the claimed emergency and the tariff action).

[4] U.S. Const. art. I, § 8.

[5] Mistretta v. United States, 488 U.S. 361, 372 (1989) (quoting J.W. Hampton, Jr., & Co. v. United States, 276 U.S. 394, 406 (1928)) (emphasis added).

[6] See Zemel v. Rusk, 381 U.S. 1, 17 (1965) (“Congress—in giving the Executive authority over matters of foreign affairs-must of necessity paint with a brush broader than that it customarily wields in domestic areas.”); United States v. Curtiss–Wright Export Corp., 299 U.S. 304, 320 (1936) (explaining that delegations involving foreign affairs “must often accord to the president a degree of discretion and freedom from statutory restriction which would not be admissible were domestic affairs alone involved.”).

The following Gibson Dunn lawyers prepared this update: Adam M. Smith, Christopher Timura, Donald Harrison, Terrell Ussing, Samantha Sewall, Scott Toussaint, Karsten Ball, Hui Fang, Erika Holmberg, Kamia Williams, and Roxana Akbari.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these issues. For additional information about how we may assist you, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or the following leaders and members of the firm’s International Trade Advisory & Enforcement, or Tax Controversy and Litigation practice groups:

Tax Controversy and Litigation:

Sanford W. Stark – Chair, Washington, D.C. (+1 202.887.3650, sstark@gibsondunn.com)
Saul Mezei – Washington, D.C. (+1 202.955.8693, smezei@gibsondunn.com)
C. Terrell Ussing – Washington, D.C. (+1 202.887.3612, tussing@gibsondunn.com)

International Trade Advisory & Enforcement:

United States:
Ronald Kirk – Co-Chair, Dallas (+1 214.698.3295, rkirk@gibsondunn.com)
Adam M. Smith – Co-Chair, Washington, D.C. (+1 202.887.3547, asmith@gibsondunn.com)
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, shandler@gibsondunn.com)
Donald Harrison – Washington, D.C. (+1 202.955.8560, dharrison@gibsondunn.com)
Christopher T. Timura – Washington, D.C. (+1 202.887.3690, ctimura@gibsondunn.com)
Matthew S. Axelrod – Washington, D.C. (+1 202.955.8517, maxelrod@gibsondunn.com)
David P. Burns – Washington, D.C. (+1 202.887.3786, dburns@gibsondunn.com)
Nicola T. Hanna – Los Angeles (+1 213.229.7269, nhanna@gibsondunn.com)
Courtney M. Brown – Washington, D.C. (+1 202.955.8685, cmbrown@gibsondunn.com)
Amanda H. Neely – Washington, D.C. (+1 202.777.9566, aneely@gibsondunn.com)
Samantha Sewall – Washington, D.C. (+1 202.887.3509, ssewall@gibsondunn.com)
Michelle A. Weinbaum – Washington, D.C. (+1 202.955.8274, mweinbaum@gibsondunn.com)
Hugh N. Danilack – Washington, D.C. (+1 202.777.9536, hdanilack@gibsondunn.com)
Mason Gauch – Houston (+1 346.718.6723, mgauch@gibsondunn.com)
Chris R. Mullen – Washington, D.C. (+1 202.955.8250, cmullen@gibsondunn.com)
Sarah L. Pongrace – New York (+1 212.351.3972, spongrace@gibsondunn.com)
Anna Searcey – Washington, D.C. (+1 202.887.3655, asearcey@gibsondunn.com)
Audi K. Syarief – Washington, D.C. (+1 202.955.8266, asyarief@gibsondunn.com)
Scott R. Toussaint – Washington, D.C. (+1 202.887.3588, stoussaint@gibsondunn.com)
Lindsay Bernsen Wardlaw – Washington, D.C. (+1 202.777.9475, lwardlaw@gibsondunn.com)
Shuo (Josh) Zhang – Washington, D.C. (+1 202.955.8270, szhang@gibsondunn.com)

Asia:
Kelly Austin – Denver/Hong Kong (+1 303.298.5980, kaustin@gibsondunn.com)
David A. Wolber – Hong Kong (+852 2214 3764, dwolber@gibsondunn.com)
Fang Xue – Beijing (+86 10 6502 8687, fxue@gibsondunn.com)
Qi Yue – Beijing (+86 10 6502 8534, qyue@gibsondunn.com)
Dharak Bhavsar – Hong Kong (+852 2214 3755, dbhavsar@gibsondunn.com)
Arnold Pun – Hong Kong (+852 2214 3838, apun@gibsondunn.com)

Europe:
Attila Borsos – Brussels (+32 2 554 72 10, aborsos@gibsondunn.com)
Patrick Doris – London (+44 207 071 4276, pdoris@gibsondunn.com)
Michelle M. Kirschner – London (+44 20 7071 4212, mkirschner@gibsondunn.com)
Penny Madden KC – London (+44 20 7071 4226, pmadden@gibsondunn.com)
Irene Polieri – London (+44 20 7071 4199, ipolieri@gibsondunn.com)
Benno Schwarz – Munich (+49 89 189 33 110, bschwarz@gibsondunn.com)
Nikita Malevanny – Munich (+49 89 189 33 224, nmalevanny@gibsondunn.com)
Melina Kronester – Munich (+49 89 189 33 225, mkronester@gibsondunn.com)
Vanessa Ludwig – Frankfurt (+49 69 247 411 531, vludwig@gibsondunn.com)

Gibson Dunn’s Workplace DEI Task Force aims to help our clients navigate the evolving legal and policy landscape following recent Executive Branch actions and 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 April 4, in a 5-4 per curiam opinion just over two pages in length, the Supreme Court granted the U.S. Department of Education’s emergency application to vacate a temporary restraining order preventing it from terminating two teacher-training grant programs. On February 7, the Department had terminated roughly $250 million in grants it found to have “[p]rovide[ed] funding for programs that promote or take part in DEI initiatives or other initiatives that unlawfully discriminate on the basis of race, color, religion, sex, national origin, or another protected characteristic; that violate either the letter or purpose of Federal civil rights law; that conflict with the Department’s policy of prioritizing merit, fairness, and excellence in education; that are not free from fraud, abuse, or duplication; or that otherwise fail to serve the best interests of the United States.” In a March 10 opinion, the U.S. District Court for the District of Massachusetts had granted a temporary restraining order (“TRO”) pausing the grants’ termination, concluding that the Department had failed to follow the proper legal processes as prescribed by the Administrative Procedure Act in cancelling the grant programs. While acknowledging that the appellate courts generally lack jurisdiction over appeals from TROs, the Supreme Court found that the order in this case “carrie[d] many of the hallmarks of a preliminary injunction”—an appealable order—and that the Department was likely to succeed in showing the district court lacked jurisdiction to grant the TRO under the Administrative Procedure Act. The Court’s opinion makes no mention of DEI. Chief Justice Roberts dissented in a one sentence dissent, stating that he would deny the application. Justice Kagan also wrote a dissent, stating that “nothing about this case demanded [the Court’s] immediate intervention.” Justice Jackson, joined by Justice Sotomayor, wrote a longer dissenting opinion in which she asserted that the Court lacked jurisdiction, the Department’s application did not demonstrate the need for emergency relief, and that the Department likely acted unlawfully in terminating the grants as it did. She cautioned against the overuse of the emergency docket, writing “if the emergency docket has now become a vehicle for certain defendants to obtain this Court’s real-time opinion about lower court rulings on various auxiliary matters, we should announce that new policy and be prepared to shift how we think about, and address, these kinds of applications.”

On April 3, twelve state attorneys general, led by Texas Attorney General Ken Paxton, sent a letter to twenty law firms, urging them to comply with the March 17 letters from the Equal Employment Opportunity Commission (EEOC) Acting Chair requesting information relating to the firms’ DEI “related employment practices.” Paxton states that the EEOC’s letters “flagged potential violations of employment discrimination laws, both at the federal and state levels,” specifically through “hiring practices that include diversity fellowships, setting hiring goals with targets for greater representation of minority groups, and DEI programs that entail unlawful disparate treatment in terms, conditions and privileges of employment.” He claims that based on publicly available information “flagged in the EEOC’s letter,” the firms “may have acted in violation of Title VII” and their conduct may “warrant action from state authorities” for “violations of state law.” Paxton urges the firms to “comply with EEOC’s letter” and send the “same responsive information” to the state attorneys general by April 15.

On March 27, Judge Matthew Kennelly of the U.S. District Court for the Northern District of Illinois granted a temporary restraining order blocking, in part, enforcement of Executive Orders (EOs) 14151 and 14173. The court’s decision prohibits the Department of Labor from enforcing the “Certification Provision” of EO 14173—which requires federal contractors and grantees to certify that they do not operate any unlawful DEI programs—nationwide against any federal contractor or grantee. The Order also prohibits the Department of Labor from enforcing the “Termination Provision” of EO 14151—which requires termination of all “equity-related” federal grants—against the plaintiff. The remainder of the EOs’ provisions remain in effect, and the temporary restraining order does not affect other agencies’ ability to enforce the Certification or Termination Provisions.

The case is Chicago Women in Trades v. President Donald J. Trump, et al., No. 1:25-cv-02005 (N.D. Ill. 2025). In its opinion, the court concluded that the Certification Provision likely violates the First Amendment because it uses threats to funding to suppress protected speech. Judge Kennelly explained that because the EO does not define DEI—let alone unlawful DEI—federal contractors and grantees are left “in a difficult and perhaps impossible situation” in which they must “either take steps now to revise their programmatic activity so that none of it ‘promote[s] DEI’ (whatever that is deemed to mean), decline to make a certification and thus lose their grants, or risk making a certification that will be deemed false and thus subject the grantee to liability under the False Claims Act.” Likewise, the court held that the Termination Provision likely violates the First Amendment on similar grounds. While Judge Kennelly enjoined enforcement of the Termination Provision against the plaintiff alone, he ruled that a broader restraining order of the Certification Provision was warranted because the provision was likely to lead to self-censorship and chilling of speech by organizations and companies nationwide.

The government may appeal the ruling, though any appeal of a temporary restraining order would face jurisdictional obstacles in the Seventh Circuit. The Fourth Circuit recently stayed a similar preliminary injunction that was entered by a district court in Maryland.

On March 24, Catherine Eschbach, newly appointed Director of the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP), issued an office-wide memo detailing her plans to implement President Trump’s executive orders “to the fullest extent” and to ensure that the administration’s “policy priorities guide every action” the agency takes. The memo states that 91 days after Trump’s signing of EO 14173 (“Ending Illegal Discrimination and Restoring Merit-Based Opportunity”), the OFCCP will “verify all federal contractors have wound down their use of affirmative action plans.” The memo instructs OFCCP staff to review previous affirmative action plans to determine whether they evidence “discriminatory DEI practices,” and notes that the agency will identify targets for civil compliance investigations “to deter DEI programs or principles.” More information on Executive Order 14173 can be found in our January 22, 2025 client alert.

On March 21, FCC Chair Brendan Carr said in an interviewwith Bloomberg that the FCC will only approve a transaction if “doing so serves the public interest,” and that if businesses are “still promoting invidious forms of DEI discrimination,” he did not “see a path forward where the FCC could reach the conclusion that approving the transaction is going to be in the public interest.”

On March 27, Carr sent a letter to Robert Iger, CEO of the Walt Disney Company, announcing an investigation into Disney and its ABC television network “to ensure” that neither is “violating FCC equal employment opportunity regulations by promoting invidious forms of DEI discrimination.” In the letter, Carr acknowledged recent changes by Disney and ABC to their DEI initiatives, but stated that it was “not clear that the underlying policies have changed in a fundamental manner.” Carr highlighted Disney’s “Reimagine Tomorrow” initiative, which he described as a “mechanism for advancing [Disney’s] DEI mission,” as well as the company’s “Inclusion Standards,” which Carr alleged require that at least 50% of writers, directors, crew, and vendors be “selected based on group identity.” The letter also states that it “appears that executive bonuses may also have been tied to DEI ‘performance,’” and that “ABC has utilized race-based hiring databases and restricted fellowships to select demographic groups.” Carr states that the FCC “Enforcement Bureau will be engaging with [Disney and ABC] to obtain an accounting of Disney and ABC’s DEI programs, policies, and practices.”

Media Coverage and Commentary:

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

New York Times, “U.S. Presses French Companies to Comply With Trump’s Anti-Diversity Policies” (March 29): Liz Alderman of the New York Times writes that an unknown number of French companies received letters from the American Embassy in France, stating that the Trump Administration’s initiatives to eliminate diversity, equity and inclusion policies would apply to any firm doing business with the U.S. government. The letter provided a form requiring the companies to certify “that they do not operate any programs promoting D.E.I.” For those companies declining to sign the form, the letter instructed “we would appreciate it if you could provide detailed reasons [for declining to sign], which we will forward to our legal services.” Alderman writes that “[a] spokesperson for the French Association of Private Enterprises said the group was waiting for the government to make a ‘coordinated response’ to the Trump administration’s letter.”
New York Times, “U.S. Seeks to Calm Tempest in Europe Over Trump’s Anti-Diversity Policies” (April 2): Liz Alderman of the New York Times provides an update on the letters sent from the State Department to numerous French companies (as well as companies in several other European nations), writing that “the State Department tried to walk back the letters, saying the compliance requirement applies to companies only if they are ‘controlled by a U.S. employer’ and employ U.S. citizens.” Alderman reports that the letters said they “applied to all suppliers and contractors of the U.S. government, regardless of their nationality and the country in which they operate.” Alderman further reports the State Department further defended the certification requests, noting that they impose “no ‘verification’ . . . beyond asking contractors and grantees to self-certify their compliance. . . .In other words, we are just asking them to complete one additional piece of paperwork.” Representatives of several European countries whose companies received the State Department’s letter, including France, Belgium, and Denmark, all made statements in opposition to the State Department’s request, reminding companies that they must continue to follow the laws of those countries while operating in them.
Wall Street Journal, “‘Anti-Woke’ in the U.S., DEI at Home: the New Playbook for European Companies” (March 20): Ben Dummett and Joe Wallace of the Wall Street Journal report that European companies are adapting to the Trump Administration’s approach to DEI by shifting practices in their U.S. operations. He writes that companies aim to abide by European regulations while avoiding “lawsuits or consumer boycotts in the faster-growing U.S. market.” Dummett and Wallace quote Jeanne Martin of U.K.-based ShareAction, a responsible-investment nonprofit, as saying that “European companies choosing to pause or roll back DEI initiatives could face significant regulatory risk and reputational backlash in Europe.” Given the divide between European and American approaches on DEI, companies’ DEI strategies differ by location, Dummett reports. Some European companies, they report, have pared back diversity commitments and programs globally, while others have done so only for their American operations. Dummett and Wallace also report that American companies with a European presence are “seeking to strike a balance” across continents.
Reuters, “Disney investors reject a proposal to withdraw from HRC’s diversity index” (March 20): Reuters’ Dawn Chmielewski reports that Disney shareholders rejected a proposal to end the company’s participation in the Human Rights Campaign’s corporate equity index, which evaluates workplaces on LGBTQ+ equality. Only 1% of shareholders voted in favor of the proposal. According to Chmielewski, the proposal’s proponents argued that Disney’s participation in the index hurt its stock price and urged the company to “move back to neutral” on political issues. Disney, which received a perfect score in the 2025 index ranking, recommended voting against the shareholder proposal. Chmielewski reports that several other major corporations have recently withdrawn from the annual ranking.
NBC News, “Poll: American Voters are deeply divided on DEI Programs and political correctness” (March 18): NBC News reporter Bridget Bowman writes that a recent NBC News poll found Americans are divided on whether they support DEI programs in the workplace. According to the poll, 48% of registered voters said DEI programs should continue. Bowman reports that the poll indicated sharp divides across party lines: 85% of Republicans support eliminating DEI programs, while 85% of Democrats would maintain DEI programs in the workplace. Among independent voters, 59% support the programs. Bowman also reports on age and gender differences. Of women ages 18 to 49, 67% support the programs, while only 40% of men in the same age bracket agree. The poll also indicated a divide “along racial lines,” with 80% of Black voters supporting DEI programs and “a majority of white voters saying DEI programs should end.”
Bloomberg Law, “‘Diversity’ Becomes ‘Belonging’ as Companies Shift DEI Lingo” (March 13): Bloomberg Law’s Clara Hudson reports that, in corporate 10-K reports filed between January 1 and March 12 of this year, use of the acronym “DEI” fell 55% compared to the same date range in 2024, with 180 uses compared to 396. Similarly, she reports that the phrase “diversity, equity and inclusion” appeared 422 times this year compared to 991 times the year before, a 57% decrease. Hudson reports that companies instead used phrases like “inclusion,” “merit-based hiring,” and “belonging” in their 10-K reports. She writes that “DEI language wasn’t a ubiquitous feature in 10-K annual reports until companies ramped up efforts following the Black Lives Matter movement in 2020,” and notes that the current language shift began prior to the second Trump Administration. She cautions, however, that this shift in language in 10-K forms does not “necessarily mean a company is backing away from its diversity efforts.”

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:

Becker et al. v. Citigroup, No. 24-cv-60834 (S.D. Fl. 2024): On May 17, 2024, two plaintiffs filed a putative class action against Citigroup (Citi), in relation to its ATM Community Network program, which waives ATM fees for customers of certain banks, including minority-owned banks. Plaintiffs, users of banks that did not qualify for a fee-waiver, alleged that Citi intentionally discriminated against them and that the Community Network program had an express goal of racial discrimination. Citi moved to dismiss for lack of standing and failure to state a claim. Citi argued that the plaintiffs did not allege that their banks did not participate in the fee-waiver program because of race.
- Latest update: On March 28, 2025, the court granted the defendant’s motion to dismiss. The court agreed with Citi that plaintiffs lacked standing because they failed to plead that their banks “made attempts to participate in Citibank’s policy but were unable to or blocked from doing so.” The court also found that the plaintiffs lacked injury in fact, reasoning that “the Court does not consider Plaintiffs harmed by the requirement they pay out-of-network fees to utilize Citibank’s ATMs as customers of two of Citibank’s close competitors.” Because the court found that the plaintiffs lacked standing, it did not address the merits of their claims.
Bolduc v. Amazon.com Inc., No. 4:22-cv-615 (E.D. Tex. 2022): On July 20, 2022, American First Legal (AFL) filed a putative federal class action lawsuit on behalf of a white plaintiff who sought to become an Amazon delivery service provider (DSP) but claimed she was ineligible for a grant offered to offset the program’s start up costs due to her race. On April 25, 2024, the court dismissed the case without prejudice. The court found that Bolduc lacked standing to sue because she never applied to Amazon’s DSP program and thus has suffered no actual or imminent injury. The court concluded that “Bolduc falls outside the class of individuals potentially suffering a direct and personal injury: DSP owners who have been denied any contractual benefit due to their race.” Because the issue of standing was sufficient to dismiss the case, the court did not consider whether Bolduc stated a claim under Section 1981. On April 26, 2024, Bolduc filed a notice of appeal.
- Latest update: On March 24, 2025, the plaintiff filed a single-page unopposed motion to withdraw her appeal. On March 26, 2025, the court dismissed the appeal.
Do No Harm v. Society of Military Orthopaedic Surgeons, No. 1:24-cv-03457 (D.D.C. 2024): On December 11, 2024, Do No Harm filed a complaint against the Society of Military Orthopaedic Surgeons, the U.S. Navy, and the Department of Defense challenging a jointly run scholarship program that allegedly provides funding to female students and students of racial backgrounds that are “underrepresented in orthopaedics.” According to Do No Harm, the program excludes white, male applicants and therefore violates Section 1981 and the equal protection component of the Fifth Amendment.
- Latest update: On March 18, 2025, the parties filed a joint motion to stay the case and to permit the parties to file a joint status report by April 18, 2025. The parties reported that “they are discussing ways to resolve [the] case without further burdening the [c]ourt.” The parties stated that during the requested stay they “will meet and confer in good faith to explore possible amicable resolution of [the] case.” On March 26, 2025, in a minute order reflected on the case docket, the court granted in part and denied in part the parties’ joint motion to stay the case. The court granted the motion to stay “to the extent that it seeks to vacate all pending deadlines in [the] case” and denied the motion “in all other respects.” The court ordered that the parties shall appear before the court for a status conference on April 18, 2025.
Valencia AG, LLC v. New York State Off. of Cannabis Mgmt. et al., No. 5:24-cv-116 (N.D.N.Y. 2024): On January 24, 2024, Valencia AG, a cannabis company owned by white men, sued the New York State Office of Cannabis Management for discrimination, alleging that New York’s Cannabis Law and regulations favored minority-owned and women-owned businesses. The regulations include goals to promote “social & economic equity” (SEE) applicants, which the plaintiff claims violate the Fourteenth Amendment’s Equal Protection Clause and Section 1983. The plaintiff sought a permanent injunction against the regulations and a declaration that the use of race and sex in the New York Cannabis Law violates the Fourteenth Amendment. On April 24, 2024, the defendants moved to dismiss for lack of standing and failure to state a claim. Among other things, the defendants argue that there is no risk of injury because “the Board and Office have interpreted the Cannabis Law and implementing regulations to be satisfied by front-end measures to aid [minority] SEE applicants such as community outreach, low-burden applications, and assistance if an application is found to be defective.” The defendants also noted that they have submitted affidavits indicating that “applications are being reviewed solely for completeness and correctness, and thus that the race and gender of an applicant will play no role in whether an application is approved.”
- Latest update: On March 25, 2025, the court granted the defendants’ motion to dismiss based on lack of subject matter jurisdiction. The court reviewed the affidavits presented by the defendants and concluded the plaintiff lacked standing because the evidence contradicts the plaintiff’s factual allegations that the process of ranking and reviewing applications involves unequal treatment based on race. The court also noted that aspirational goals—here, to have a certain percentage of licenses given to SEE applicants—do not plausibly suggest an injury-in-fact. Additionally the court found that “even if standing were found to exist related to Plaintiff’s claims . . .[,] they have been rendered moot,” by the Cannabis Control Board’s resolution that it would ensure the plaintiff’s application be reviewed and granted a license if it meets the stated requirements.

2. Employment discrimination and related claims:

Arsenault v. HP Inc., No. 3:24-cv-00943 (D. Conn. 2024): On May 29, a white former employee of HP Inc. filed suit, alleging that his termination violated Title VII and 42 U.S.C. § 1981. The complaint alleges that during a review meeting in August 2022, the plaintiff voiced agreement with the opinion of another team member that the company was spending too much time on DEI practices, and as a result, his managers accused him of racism. The complaint also alleges that the plaintiff was verbally abused by a co-worker, but the company took no action after he complained. The plaintiff was terminated in March 2023.
- Latest update: On March 13, 2025, in a single-page stipulation, the parties entered a stipulation of dismissal with prejudice and without attorney fees or costs to any party.
Dill v. Int’l Bus. Machs. Corp., No. 1:24-cv-00852 (W.D. Mich. 2024): On August 20, 2024, a former IBM employee sued the company for wrongful termination under Title VII and 42 U.S.C. § 1981, claiming that IBM terminated his employment due to his race (white) and gender (male). In his complaint, the plaintiff alleged that IBM has a policy incentivizing its management to terminate white men so that the company’s workforce has a higher percentage of minorities and women, and that he was terminated according to this policy. To support is claim, the plaintiff cited to the company’s 2022 and 2023 Annual Reports, as well as its 2024 Notice of Annual Meeting and Proxy Statement, the latter of which acknowledges that the company applies a “diversity modifier . . .based on [its] progress in creating and developing a diverse executive population” when determining executive compensation. The plaintiff also cited a statement from IBM’s CEO at a corporate town hall, in which the CEO allegedly threatened to reduce executive bonuses if the company did not move forward on its diversity goals and detailed the percentage of representation he wished to see for various protected groups. The plaintiff alleged his supervisor was motivated by these policies and statements in deciding to terminate his employment. On October 24, 2024, IBM moved to dismiss the complaint for failure to state a claim.
- Latest update: On March 26, 2025, the court denied IBM’s motion to dismiss. Relying on the corporate statements and policies detailed in the complaint, the court concluded that—accepting the plaintiff’s allegations as true for purposes of the motion—the complaint pled sufficient facts to suggest the plaintiff’s race and/or gender motivated the company to terminate his employment.
Gerber v. Ohio Northern University, et al., No. 2023-cv-1107 (Ohio. Ct. Common Pleas Hardin Cnty. 2023): On June 30, 2023, a law professor sued his former employer, Ohio Northern University, for terminating his employment after an internal investigation determined that he bullied and harassed other faculty members. On January 23, 2024, the plaintiff, now represented by America First Legal, filed an amended complaint. The plaintiff claims that his firing was in retaliation for his vocal and public opposition to the university’s stated DEI principles and race-conscious hiring, which he believed were illegal. The plaintiff alleged that the investigation and his termination breached his employment contract, violated Ohio civil rights statutes, and constituted various torts, including defamation, false light, conversion, infliction of emotional distress, and wrongful termination in violation of public policy.
- Latest update: On March 21, 2025, the parties entered a notice of agreed settlement. As part of the settlement, the parties agreed to reinstate the plaintiff to his professorship, whereby he will immediately tender a notice of retirement. The Ohio Northern University acknowledged that the plaintiff “provided outstanding teaching, scholarship, and service.” In exchange for these concessions, amongst others, the plaintiff agreed to release all claims against all defendants and will not pursue litigation in the future.
Missouri v. Int’l Bus. Machs. Corp., No. 24SL-CC02837 (Cir. Ct. of St. Louis Cty. 2024): On June 20, 2024, the State of Missouri filed a complaint against IBM in Missouri state court, alleging that the company violated the Missouri Human Rights Act by using race and gender quotas in its hiring and by basing employee compensation on participation in allegedly discriminatory DEI practices. The complaint cited a leaked video in which IBM’s Chief Executive Officer and Board Chairman, Arvind Krishna, allegedly stated that all executives must increase representation of ethnic minorities in their teams by 1% each year to receive a “plus” on their bonus. The Missouri Attorney General sought to permanently enjoin IBM and its officers from utilizing quotas in hiring and compensation decisions. On September 13, 2024, IBM moved to dismiss the suit, arguing that the “plus” bonus is not a “rigid racial quota,” but a lawful means of encouraging “permissible diversity goals.” IBM also argued that Missouri failed to assert sufficient facts to show that the “plus” bonus influenced any employment decisions in the state. On February 10, 2025, the court granted IBM’s motion to dismiss in a one-sentence order without any explanation. The court gave Missouri 30 days to amend its complaint.
- Latest update: On March 14, 2025, Missouri filed a notice of appeal to the Missouri Court of Appeals regarding “whether the trial court erred in granting IBM’s motion to dismiss.”

3. Challenges to statutes, agency rules, and regulatory decisions:

California et al. v. U.S. Department of Education et al., No. 1:25-cv-10548 (D. Mass. 2025): On March 6, 2025, the states of California, Massachusetts, New Jersey, Colorado, Illinois, Maryland, New York, and Wisconsin (collectively, “the plaintiff states”) sued the U.S. Department of Education. The plaintiff states argue that the termination of the grants violates the Administrative Procedure Act (APA) and seek declaratory and injunctive relief to vacate and set aside the termination of all previously awarded grants under the TQP and SEED programs. On March 6, the plaintiff states filed a motion for a temporary restraining order. The plaintiff states argued that the “abrupt and immediate” termination of the programs threatens “imminent and irreparable” harm. The motion highlighted the programs’ purpose to address a critical shortage of highly qualified and licensed K-12 teachers. The district court granted the plaintiff states’ TRO request on March 10, 2025. The TRO requires the Department of Education to immediately restore the grants to the pre-existing status quo and enjoins it from implementing, maintaining, or reinstating the terminations. On March 11, the Department of Education appealed the TRO to the U.S. Court of Appeals for the First Circuit, and on March 12, filed an emergency motion to stay the district court case pending appeal and for immediate administrative stay in the First Circuit. The district court denied the motion to stay on March 13.
- Latest update: On March 21, 2025, the First Circuit denied the Department of Education’s motion to stay pending the appeal, finding that the Department’s termination of educational grants was insufficiently explained, likely arbitrary and capricious, and that the harm to grant recipients outweighed the potential harm to the Department. April 4, the Supreme Court granted the Department of Education’s emergency application to vacate the TRO. The Court’s opinion makes no mention of DEI but rather held that the Department was likely to succeed in showing the district court lacked jurisdiction to grant the TRO under the Administrative Procedure Act. Chief Justice Roberts, Justice Kagan, Justice Jackson, and Justice Sotomayor dissented.
De Piero v. Pennsylvania State University, No. 2:23-cv-02281 (E.D. Pa. 2023): A white male professor sued his employer, Penn State University, claiming that university-mandated DEI trainings, discussions with coworkers and supervisors about race and privilege in the classroom, and comments from coworkers about his “white privilege” created a hostile work environment that led him to quit his job. He claimed that after he reported this alleged harassment and published an opinion piece objecting to the impact of DEI concepts in the classroom, the university retaliated against him by investigating him for bullying and aggressive behavior towards his colleagues. The plaintiff alleged harassment, retaliation, and constructive discharge in violation of Title VI, Title VII, Section 1981, Section 1983, the First Amendment, and Pennsylvania civil rights laws. On March 6, 2025, the court granted summary judgment to the defendant on the plaintiff’s hostile work environment claims. The court found that the behaviors complained of by the plaintiff, including “campus wide emails” pertaining to racial injustice, “being invited to review scholarly materials,” and “conversations about harassment levied by and against [the plaintiff],” could not reasonably be found to rise to the level of severe harassment. As to the “pervasive” conduct prong, the court explained that of the twelve incidents in the complaint, no “racist comment” was directed at the plaintiff and “only a few” involved actions that were directed at the plaintiff at all.
- Latest update: On March 20, 2025, the plaintiff filed a supplemental brief in support of his retaliation claims under Title VII and Pennsylvania state law, arguing that these claims should proceed to trial. He presents what he asserts are undisputed facts to support his claims, including being reported for “micro aggressions” after objecting to racial harassment, colleagues lodging false claims against him, and facing disciplinary actions and salary clawbacks as retaliation. He requests that the court either grant summary judgment in his favor on this basis, or, if the court finds that these facts are disputed, allow his retaliation claims to proceed to trial. On March 27, 2025, the defendants filed a supplemental reply brief in support of summary judgment, arguing that the plaintiff’s putative Title VII and PHRA retaliation claims failed as a matter of law because the plaintiff cannot prove the defendants took adverse employment action against him, or there is no causal link between his alleged protected activity and adverse actions taken by the defendants.
Do No Harm v. Gianforte, No. 6:24-cv-00024 (D. Mont. 2024): On March 12, 2024, Do No Harm filed a complaint on behalf of “Member A,” a white female dermatologist in Montana, alleging that a Montana law requiring the governor to “take positive action to attain gender balance and proportional representation of minorities resident in Montana to the greatest extent possible” when making appointments to the twelve-member Medical Board violates the Fourteenth Amendment. Do No Harm alleged that since ten seats are currently held by six women and four men, Montana law requires that the remaining two seats be filled by men, which would preclude Member A from holding the seat. Following Governor Gianforte’s motion to dismiss, on February 5, 2025, the court dismissed the complaint without prejudice. On March 7, 2025, the plaintiff filed a second amended complaint.
- Latest update: On March 14, 2025, the plaintiff filed an unopposed motion to stay the case, as Montana is currently considering legislation that would significantly amend the challenged statute to remove the language at issue. According to the plaintiff, if passed, the bill would moot this case. On the same day, the court issued a one-page order granting the plaintiff’s motion to stay the case, pending the state legislature’s action on H.B. 215. The order also required the parties to file a status report within 14 days after the legislative session concludes.

Legislative Updates

On February 13, Congressman Gus Bilirakis (R-FL) introduced H.R. 1282, the “Eliminate DEI in Colleges Act,” which would “prohibit Federal funding for institutions of higher education that carry out diversity, equity, and inclusion initiatives[.]” The bill defines “diversity, equity, and inclusion” as “the concept according to which individuals are (1) classified on basis of race, color, sex, national origin, gender identity, or sexual orientation; and (2) afforded differential or preferential treatment on the basis of such classification.” It provides that “no institute of higher education shall be eligible” for any federal funding unless the institution certifies to the Secretary of Education that it “(1) does not and will not carry out any program, project, initiative, or other activity the primary purpose of which is to advocate, promote, or otherwise support diversity, equity, and inclusion; and (2) does not and will not maintain any office or other entity within the institution to advocate, promote, or otherwise support diversity, equity, and inclusion.” The bill further directs the Secretary to “publish regulations to implement and enforce” the law. It provides that an institution may appeal the Secretary’s determination to terminate funding, and that an administrative law judge’s decision “shall be considered to be a final agency action.”

On February 28, Florida State Senator Nick DiCeglie (R) introduced Senate Bill 1710, which imposes requirements and limitations on diversity, equity, and inclusion in state agencies and “medical institutions of higher education.” The bill defines “DEI” as including efforts “to manipulate or influence the composition of employees with reference to race, sex, color, or ethnicity” or to promote or adopt “differential treatment” or policies or procedures “implemented with reference to race, color, or ethnicity,” as well as programs and activities related to “race, color, ethnicity, gender identity, or sexual orientation.” The definition excludes “equal opportunity or equal employment opportunity materials designed to inform a person about the prohibition on discrimination based on protected status under state or federal law.” The bill would require any state agency “applying for a federal health care-related grant relating to diversity, equity, and inclusion” to “[p]ublish on its website all materials, requirements, and instructions related to the federal grant application which are in the state agency’s possession” and to submit a copy of the grant proposal to the Health Policy Committee in the Florida Senate and the Health and Human Services Committee in the Florida House of Representatives. The bill would prohibit state agencies from expending any appropriated funds or funds received from “any other source” to “establish, sustain, support, or staff a DEI office or to contract, employ, engage, or hire a person to serve as a DEI officer.” The bill would further prohibit all potential recipients of state contracts or funds from “using” DEI “material.” In addition, the bill would require any medical institution of higher education—defined as “a Florida College System institution or state university, as those terms are defined in s. 1000.21, that offer bachelor’s, master’s, or doctoral degrees, or a trade school that receives state funds and offers health care-related degrees, certification programs, or training”—to mandate “a standardized admissions test” and to “provide letter grade-based assessments for each course required to graduate.”

The following Gibson Dunn attorneys assisted in preparing this client update: Jason Schwartz, Mylan Denerstein, Zakiyyah Salim-Williams, Cynthia Chen McTernan, Zoë Klein, Cate McCaffrey, José Madrid, Jenna Voronov, Emma Eisendrath, Kristen Durkan, Simon Moskovitz, Teddy Okechukwu, Beshoy Shokralla, Heather Skrabak, Maryam Asenuga, Angelle Henderson, Kameron Mitchell, Lauren Meyer, Chelsea Clayton, Maya Jeyendran, Albert Le, Allonna Nordhavn, Felicia Reyes, Godard Solomon, Laura Wang, and Ashley Wilson.

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)

Attorney General Bonta seeks to remove any doubt that “[v]iolations of the FCPA remain actionable under California’s Unfair Competition Law (UCL)”—and that California may step up corruption-related enforcement if federal authorities’ priorities shift to other areas.

In a press release and legal alert issued on April 2, 2025, California Attorney General Rob Bonta reminded businesses operating in California that making payments to foreign officials to obtain or retain business remains illegal. While many questions arising from President Trump’s recent executive order pausing enforcement of the Foreign Corrupt Practices Act (FCPA) remain unanswered, Attorney General Bonta sought to remove any doubt that “[v]iolations of the FCPA remain actionable under California’s Unfair Competition Law (UCL)”—and that California may step up corruption-related enforcement if federal authorities’ priorities shift to other areas.

As discussed in our prior alert, in February 2025, President Trump announced a 180-day suspension of the initiation of FCPA investigations while the Department of Justice (DOJ) reviews current and past cases and revises its FCPA enforcement guidelines. The suspension followed memoranda issued by Attorney General Pamela Bondi that, among other things, directed the DOJ’s FCPA Unit to prioritize investigations concerning cartels and transnational criminal organizations over other cases. These developments collectively signaled a shift from the long-held, bipartisan view that international anti-corruption efforts generally benefit U.S. businesses and raised questions about FCPA enforcement going forward.

California Attorney General Bonta’s alert adopts the longstanding view by reiterating that “[i]llegal activity is still illegal” and that “[b]ribery erodes consumer confidence in the market and rewards corruption instead of competition.” Specifically, the alert cautioned that FCPA violations might invite legal action not only under California’s UCL, but also under other applicable state or federal tax and securities laws.

Broadly speaking, the UCL prohibits “unlawful, unfair or fraudulent” behavior across nearly all business practices.[1] For purposes of “unlawful” conduct, the UCL “borrows” violations of other laws, including federal laws such as the FCPA, and treats them as “independently actionable as unfair competitive practices.”[2] But under the UCL, even foreign bribery that does not meet all the elements of an FCPA violation may be actionable if it constitutes an unfair or fraudulent business act and has the requisite connection to California.

Both the Attorney General and private parties are authorized to pursue claims. The Attorney General may bring a suit under California’s UCL “in the name of the people of the State of California upon their own complaint or upon the complaint of a board, officer, person, corporation, or association.”[3] Although civil penalties, restitution, disgorgement and injunctive relief are permissible forms of relief following a UCL violation, compensatory damages generally are not.[4] Given these limited remedies under the UCL, it is uncertain whether private plaintiffs—who also have standing to sue if they have “suffered injury in fact” and “lost money or property as a result of” the business practice they challenge as unlawful or unfair[5]—will be interested in bringing FCPA cases under the UCL.

There is some, limited precedent for pursuing cases under the UCL that are based on a violation of the FCPA. In Korea Supply Co. v. Lockheed Martin Corp., the California Supreme Court accepted the Court of Appeal’s determination, without deciding conclusively, that a claim under the UCL may be predicated on an FCPA violation.[6] In that case, the plaintiff company alleged an agent of an aerospace defense company bribed and offered sexual favors to Korean officials to obtain a contract from the Republic of Korea in violation of the FCPA.[7] Although the California Supreme Court reversed the judgment and rejected the UCL claim on the grounds of the monetary relief sought,[8] it affirmed plaintiff’s separate cause of action based on the tort of interference with prospective economic advantage[9]—which suggests avenues outside the UCL may be available to private plaintiffs under California law for FCPA-type misconduct, depending on the circumstances of their claim.

One practical limitation to California-based anti-corruption enforcement may lie in the requirement of injury in California, as the UCL does not apply extraterritorially.[10] California courts have held that valid UCL claims must involve injury in California, either to in-state plaintiffs or by in-state conduct. For instance, in Yu v. Signet Bank/Virginia, a California-based plaintiff sued a Virginia bank under the UCL for unfair business practices that allegedly occurred in Virginia; here, the court concluded that “a defendant who is subject to jurisdiction in California and who engages in out-of-state conduct that injures a California resident may be held liable for such conduct in a California court.”[11] More recently, in Aghaji v. Bank of America, the California Court of Appeal (Second Appellate District, Division Four) once again maintained that out-of-state plaintiffs must “allege facts to show that the alleged violations occurred within California, because California’s unfair competition law does not apply extraterritorially.”[12] Although it is well-established that the UCL extends to out-of-state conduct affecting in-state residents, California courts have been less clear about the degree to which these effects must be “direct” ones. The courts appear to have largely sidestepped this question, instead emphasizing the need to show “injury in California” rather than the directness of the effect.[13]

While California is the first state to express an interest in state-level enforcement of FCPA-type misconduct under state laws, it may not be the last. To take one hypothetical example, there is a risk that a similar enforcement theory may be pursued under several provisions of New York’s consumer protection statute that protects consumers from deceptive and fraudulent practices. General Business Law (GBL) § 349(a), for example, prohibits “[d]eceptive acts or practices in the conduct of any business, trade or commerce in the furnishing of any service in the state.” This statute was intended to provide “authority to cope with the numerous, ever-changing types of false and deceptive business practices” that impact New York consumers,[14] and it “seeks to secure an honest market place where trust, and not deception, prevails.”[15] Much like its Californian counterpart, GBL § 349 “is intentionally broad, applying to virtually all economic activity,”[16] but to qualify as a prohibited act under GBL § 349, the deception of a consumer must occur in New York.[17] As another example, at least one private plaintiff has pursued claims arising from kickbacks paid to Iraqi and Indonesia officials under Virginia’s antitrust laws where the alleged conduct demonstrated “a consistent course of business transactions . . . in Virginia.”[18]

The enforcement theory advanced by Attorney General Bonta may raise legal questions and practical challenges, but proving a predicate offense—such as a violation of the FCPA—is likely not one of them. The UCL reaches broadly to prohibit “any lawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising.”[19] The California Supreme Court has made clear that “a practice may violate the UCL even if it is not prohibited by another statute.”[20] Analogous competition laws of New York and Washington, D.C., for example, also reach trade practices that do not violate any statutes.[21]

While California and potentially other states consider pursuing a competition-oriented approach, certain European regulators and enforcement authorities have recently sought to reiterate their continued focus on enforcement and collaboration specific to anti-corruption. On March 20, 2025, France’s Parquet National Financier, Switzerland’s Office of the Attorney General, and the UK’s Serious Fraud Office announced the formation of an International Anti-Corruption Prosecutorial Taskforce that will focus on increasing operational exchanges and sharing best practices among the three agencies, with the potential to invite other like-minded international bodies to join.

Taken together, these developments underscore the continued importance for companies to maintain effective compliance programs that address risks relating to corruption, mitigate the corresponding liability that may arise under the FCPA, unfair competition laws, or other statutes, and require appropriate internal accounting controls. In the face of uncertainty, companies would be well served by reviewing their compliance programs and calibrating their compliance-related risk assessments to mitigate against changing risk calculi and enforcement realities.

We will continue monitoring and reporting on these developments as they evolve.

[1] Cel–Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. 20 Cal. 4th 163, 180, 83 Cal. Rptr. 2d 548, 973 P.2d 527 (1999) (citing Cal. Bus. & Prof. Code § 17200).

[2] Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1143–44, 63 P.3d 937, 943 (2003).

[3] Cal. Bus. & Prof. Code § 17204.

[4] Bank of the West v. Superior Court 2 Cal. 4th 1254, 1266, 10 Cal. Rptr. 2d 538, 833 P.2d 545 (1992).

[5] Cal. Bus. & Prof. Code § 17204.

[6] Korea Supply, 29 Cal. 4th at 1144, n.5.

[7] Id. at 1159.

[8] Id. at 1140, 1166.

[9] Specifically, the Court found KSC sufficiently alleged that defendants’ unlawful acts to obtain the contract with the Korean government interfered with KSC’s business expectancy and satisfied the independent wrongfulness requirement for tortious interference, which allowed for monetary damages. Id. at 1159.

[10] See Sullivan v. Oracle Corp., 51 Cal. 4th 1191, 1207, 254 P.3d 237, 248 (2011).

[11] Yu v. Signet Bank/Virginia, 69 Cal. App. 4th 1377, 1391, 82 Cal. Rptr. 2d 304, 313 (1999) (emphasis added).

[12] Aghaji v. Bank of Am., N.A., 247 Cal. App. 4th 1110, 1119, 202 Cal. Rptr. 3d 619, 627 (2016).

[13] Speyer v. Avis Rent a Car Sys., Inc., 415 F. Supp. 2d 1090, 1099 (S.D. Cal. 2005), aff’d, 242 F. App’x 474 (9th Cir. 2007).

[14] Karlin v. IVF Am., Inc., 93 N.Y.2d 282, 291, 712 N.E.2d 662, 665 (1999).

[15] Goshen v. Mut. Life Ins. Co. of New York, 98 N.Y.2d 314, 324, 774 N.E.2d 1190, 1195 (2002).

[16] Id. (quotation marks omitted); see City of New York v. Smokes-Spirits.Com, Inc., 12 N.Y.3d 616, 911 N.E.2d 834 (2009).

[17] Goshen, 98 N.Y.2d 314, 325 (2002).

[18] NewMarket Corp. v. Innospec, Inc., No. 3:10CV503-HEH, 2011 WL 1988073 (E.D. Va. May 20, 2011) (denying defendants’ motion to dismiss).

[19] Cal. Bus. & Prof. Code § 17200

[20] Zhang v. Superior Ct., 57 Cal. 4th 364, 370, 304 P.3d 163, 167 (2013).

[21] See N.Y. Gen. Bus. Law § 349(g); Columbia Dist. Cablevision Ltd. P’ship v. Bassin, 828 A.2d 714 (D.C. 2003).

The following Gibson Dunn lawyers prepared this update: Winston Chan, Patrick Stokes, Oleh Vretsona, Bryan Parr, Zachariah Lloyd, Kio Bell, and Alice Wang.

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.

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, the authors, or any leader or member of Gibson Dunn’s White Collar Defense and Investigations or Anti-Corruption and FCPA practice groups:

Washington, D.C.
F. Joseph Warin (+1 202.887.3609, fwarin@gibsondunn.com)
Stephanie Brooker (+1 202.887.3502, sbrooker@gibsondunn.com)
Matthew S. Axelrod – Washington, D.C. (+1 202.955.8517, maxelrod@gibsondunn.com)
Courtney M. Brown (+1 202.955.8685, cmbrown@gibsondunn.com)
David P. Burns (+1 202.887.3786, dburns@gibsondunn.com)
John W.F. Chesley (+1 202.887.3788, jchesley@gibsondunn.com)
Daniel P. Chung (+1 202.887.3729, dchung@gibsondunn.com)
M. Kendall Day (+1 202.955.8220, kday@gibsondunn.com)
Stuart F. Delery (+1 202.955.8515, sdelery@gibsondunn.com)
Michael S. Diamant (+1 202.887.3604, mdiamant@gibsondunn.com)
Gustav W. Eyler (+1 202.955.8610, geyler@gibsondunn.com)
Melissa Farrar (+1 202.887.3579, mfarrar@gibsondunn.com)
Amy Feagles (+1 202.887.3699, afeagles@gibsondunn.com)
Scott D. Hammond (+1 202.887.3684, shammond@gibsondunn.com)
George J. Hazel (+1 202.887.3674, ghazel@gibsondunn.com)
Jake M. Shields (+1 202.955.8201, jmshields@gibsondunn.com)
Adam M. Smith (+1 202.887.3547, asmith@gibsondunn.com)
Patrick F. Stokes (+1 202.955.8504, pstokes@gibsondunn.com)
Oleh Vretsona (+1 202.887.3779, ovretsona@gibsondunn.com)
David C. Ware (+1 202.887.3652, dware@gibsondunn.com)
Ella Alves Capone (+1 202.887.3511, ecapone@gibsondunn.com)
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Gibson Dunn is closely monitoring developments and is prepared to help companies consider and address the implications of potential changes to FDA’s funding structure and authorities, including through regulatory counseling, agency and legislative engagement, and litigation.

Following recent mass layoffs at the Food and Drug Administration and growing criticism from senior administration officials of FDA’s user fee funding programs, the life sciences industry can expect significant changes to both FDA’s ability to meet medical product user fee deadlines and the future of the user fee programs more broadly.

Although the reductions in force at FDA have not included medical officers responsible for product reviews, other key members of review teams have been terminated. These staffing changes are expected to have an immediate and sustained impact on FDA’s ability to meet current user fee performance goals. At the same time, concerns about FDA’s reliance on industry user fees from Robert F. Kennedy, Jr., Secretary of the Department of Health and Human Services, and other senior HHS officials, as well as an increasingly unpredictable legislative process in Congress, call into question whether the various medical product user fee programs, which start to expire as early as this year, will be renewed.

A shift away from user fee funding to appropriated funds would have a significant impact on the timing of agency medical product reviews and other life sciences industry interactions with the agency.

The Current User Fee Framework

A large portion of FDA’s regulatory activities are funded by industry-paid user fees. Medical product user fee acts, which must be renewed by Congress every five years, are in place for prescription drugs,[1] biosimilars,[2] approved generic drugs,[3] over-the-counter (OTC) drugs marketed under OTC monographs,[4] medical devices,[5] innovator animal drugs,[6] and animal drugs.[7]
User fees fund a range of FDA regulatory activities, depending on the particular user fee program, such as review of product submissions, research monitoring, and certain inspections. The use of those funds is specified in, and restricted by, the statutory text of the user fee provisions.[8]
Each user fee program assesses different types of fees on industry (e.g., for applications for marketing authorization, for establishments and facilities), and the fee structure may change as part of the renewal process.
Renewal of each user fee program involves a multi-step, months-long process. First, FDA and industry negotiate the proposed user fee structure and performance goals, with opportunity for public comment. Following those negotiations, FDA is required to transmit final recommendations for reauthorization to the committees of jurisdiction in Congress (the House Energy and Commerce Committee and the Senate Health, Labor, Education, and Pensions (HELP) Committee). Those recommendations include both proposed statutory changes and commitment letters that outline review timelines, program enhancements, and other goals. In considering the recommendations, the Committees hold a series of hearings and vote on their passage. The Committees typically also consider other pieces of FDA-related legislation to ride along with the user fee reauthorization package. The packages are then voted on by the full House and Senate.

All user fee acts are up for renewal between 2025 and 2028, with the vast majority requiring reauthorization in 2027—meaning that user fee act negotiation activities are either already in progress or are scheduled to commence soon.[9]

What Is Changing?

FDA likely will not be able to meet current user fee goals. FDA layoffs and certain retirement incentives have not targeted review staff in FDA’s medical product centers or staff that conduct inspections; however, reports indicate that some medical reviewers are looking to leave the agency due to recent agency tumult.[10] In addition, product reviews rely heavily on a broad spectrum of review team staff, many of whom have been dismissed, including project managers and labeling reviewers. Layoffs of other agency staff likely will have a ripple effect on product review times. For example, although staff that conduct inspections have not been the subject of reductions in force, the office that arranges travel for those inspections was eliminated. These staffing gaps are expected to result in delays in inspections, including those conducted in connection with user-fee funded product applications.[11] If FDA does decide to increase staffing to meet its needs, it may be difficult to find high-quality candidates, given uncertainty with respect to job security and agency morale. Finally, Secretary Kennedy has suggested that some HHS staff subject to layoffs will be reinstated. It is not clear whether that effort will include staff integral to the user fee review process, or whether those staff will choose to return and, if so, for how long.[12]
The future of FDA’s user fee programs is increasingly in doubt. Secretary Kennedy and FDA Commissioner Makary have expressed concerns about what they see as the improper influence of regulated industry over FDA. Secretary Kennedy in particular has suggested that user fees paid by industry may lead the agency to make decisions regarding marketing authorization and enforcement at the expense of the public health.[13] These statements raise uncertainty about the future of user fee programs at FDA.

In February, President Trump issued Executive Order 14212, which established the Make America Healthy Again (MAHA) Commission.[14] Part of the remit of the MAHA Commission, which is led by Secretary Kennedy and includes FDA Commissioner Makary, is to provide a report within 100 days of the order to, among other things, “restore the integrity of science, including by eliminating undue industry influence.”[15] Observers have noted that this report could provide for a change in how FDA is funded to eliminate industry funding.[16]

Other advisors to the White House and Secretary Kennedy have also opposed industry-funded user fees, including Calley Means, who has stated that “FDA “should stop being funded by pharma[ceutical companies]” and called for other measures to limit ties between FDA and industry, including limits on departing employees joining pharmaceutical companies.[17] Republican members of Congress aligned with the MAHA movement could follow suit as user fee programs approach expiration and discussions on reauthorizations ramp up.

Even if senior HHS and FDA leadership do allow for the renewal of user fee programs, without sufficient allocation of resources and support, the reauthorization processes could flounder. Managing the negotiations process and engaging with members of Congress and their staff involve significant agency resources and effort. Staff that had been working on forthcoming user fee negotiations reportedly were part of last week’s layoffs.[18]

Lawmakers in the Democratic caucus could also present obstacles to user fee program renewals. Senator Bernie Sanders — the highest-ranking member in the Democratic caucus on the Senate HELP Committee — has voted against user fee bills in the past,[19] and previously criticized user fees as enabling “industry, in a sense, [to] regulat[e] itself.” Without Ranking Member Sanders’ support, it will be difficult to move user fee reauthorizations through the HELP Committee.

Once relatively routine, the Congressional process for negotiating and passing future FDA funding legislation could become more unpredictable following precedent-breaking process during the last major reauthorization cycle. Moving legislation through Congress is always a challenge, even for so-called “must pass” legislation with respect to expiring programs such as user fees, but, until recently, user fee legislation had passed without significant issue. In 2022, however, during the last reauthorization cycle for prescription drug, medical device, biosimilar, and generic drug user fees, disagreements arose in the Senate over which riders carrying specific policy changes should be attached to the user fee package. As a result, action on user fee legislation was delayed and then tacked onto a continuing resolution approved by the House in late September, narrowly avoiding a lapse in the user fee programs, before reauthorization was secured in December.[20]

The OTC Monograph Drug User Fee Program (OMUFA), which is first up for reauthorization by September 30, 2025, may be a harbinger for potential FDA funding changes.[21] The Subcommittee on Health of the House’s Energy and Commerce Committee started hearings on OMUFA last week. Questions from Subcommittee members reflected general alignment on reauthorizing the OMUFA program, despite some concerns about how FDA has been implementing the program. The Senate HELP Committee has not yet scheduled a hearing on OMUFA reauthorization.

More trouble on the horizon for current user fee funding? Finally, we note the possibility that ongoing efforts to cut staffing and funding for FDA could force the agency to both refund user fees it has already collected and prevent it from collecting further fees. A lesser-known feature of user fee acts is a “trigger mechanism” put in place to ensure that user fees supplement, not replace, appropriation funds. For example, the Prescription Drug User Fee Act (PDUFA) requires that user fees, such as per-product program fees, be refunded if spending of appropriated funding for FDA salaries and expenses for prescription drug staff falls below a certain level.[22] Similarly, under the Medical Device User Fee Act (MDUFA), FDA cannot assess medical device user fees if appropriated funding spend for medical device salaries and expenses falls beneath a threshold.[23] While this mechanism has not been an issue historically, recent staffing cuts, coupled with a lack of administration support for FDA funding and user fee programs, could significantly interfere with agency product reviews.

[1] Prescription Drug User Fee Amendments of 2022 (PDUFA), 21 U.S.C. § 379g et seq.

[2] Biosimilar User Fee Amendments of 2022 (BsUFA), 21 U.S.C. § 379j-51 et seq.

[3] Generic Drug User Fee Amendments of 2022 (GDUFA), 21 U.S.C. § 379j-41 et seq.

[4] OTC Monograph Drug User Fee Program (OMUFA), 21 U.S.C. § 379j-71 et seq.

[5] Medical Device User Fee Amendments of 2022 (MDUFA), 21 U.S.C.§ 379i et seq.

[6] Animal Drug User Fee Amendments of 2023 (ADUFA), 21 U.S.C. § 379j-11 et seq.

[7] Animal Generic Drug User Fee Amendments of 2023 (AGDUFA), 21 U.S.C. § 379j-21 et seq.

[8] See generally, e.g., FDA, “FDA: User Fees Explained” (last accessed Apr. 4, 2025).

[9] OMUFA is currently set to be reauthorized in September 2025. PDUFA, BsUFA, GDUFA, MDUFA are currently set to be reauthorized in September 2027. ADUFA and AGDUFA are currently set to be reauthorized in September 2028.

[10] FDA reviewers, inspectors, and investigators excluded from $25K buyout offer, Regulatory Focus (Mar. 10, 2025); Trump layoffs to erode FDA drug review system, Reuters (April 4, 2025).

[11] Trump layoffs to erode FDA drug review system, Reuters (April 4, 2025).

[12] “RFK Jr says 20% of Doge’s health agency job cuts were mistakes,” The Guardian (Apr. 4, 2025).

[13] See, e.g., “RFK Jr vow to purge FDA sets up collision with Big Pharma,” Reuters (Nov. 15, 2024); “Trump’s US FDA User Fee Cycle: ‘An Underappreciated Threat,’” Pink Sheet (Nov. 16, 2024); “Trump nominates Marty Makary, a critic of some COVID-19 health measures, to lead the FDA,” NBC Washington (Nov. 22, 2024).

[14] Exec. Order 14212, § 3, 90 Fed. Reg. 9833 (Feb. 19, 2025).

[15] Id. § 5(a)(ix).

[16] See, e.g., “Trump establishes MAHA Commission, with medicines – and maybe user fees – in its crosshairs,” AgencyIQ by Politico (Feb. 13, 2025).

[17] See, e.g., “The move to protect abortion clinics in states,” Politico (Mar. 19, 2025); Tucker Carlson, “Calley & Casey Means: How Big Pharma Keeps You Sick, and the Dark Truth About Ozempic and the Pill,” YouTube (Aug. 16, 2024).

[18] Following layoffs, the future of FDA’s user fee programs is in extreme jeopardy, AgencyIQ (April 3, 2025).

[19] See Bernie Sanders, U.S. Senator for Vermont, “Issues” (last visited Apr. 4, 2025).

[20] See, e.g., “Sigh of relief as Congress reauthorizes user fee agreements,” Regulatory Focus (Sept. 30, 2022).

[21] Subcommittee on Health, Committee on Energy and Commerce, Examining the FDA’s Regulation of Over-the-Counter Monograph Drugs (Apr. 1, 2025).

[22] 21 U.S.C. 379h(f)(1).

[23] 21 U.S.C. 379j(g)(1).

The following Gibson Dunn lawyers prepared this update: Katlin McKelvie and Carlo Felizardo.

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 FDA & Health Care or Consumer Protection practice groups:

Gustav W. Eyler – Washington, D.C. (+1 202.955.8610, geyler@gibsondunn.com)
Katlin McKelvie – Washington, D.C. (+1 202.955.8526, kmckelvie@gibsondunn.com)
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From the Derivatives Practice Group: Rahul Varma was named acting director of the CFTC’s Division of Market Oversight this week and CFTC staff withdrew two advisories.

New Developments

Rahul Varma Named Acting Director of CFTC Division of Market Oversight. On April 2, CFTC Acting Chairman Caroline D. Pham announced Rahul Varma will serve as the Acting Director of the Division of Market Oversight (“DMO”). Varma joined the CFTC in 2013 as an Associate Director for Market Surveillance in DMO, with responsibility for energy, metals, agricultural, and softs markets. In 2017, he helped start the Market Intelligence Branch in DMO and served as its Acting Deputy Director. In 2024, he took on the role of Deputy Director for the combined Market Intelligence and Product Review branches. [NEW]
CFTC Staff Withdraws Advisory on Review of Risks Related to Clearing Digital Assets. On March 28, the CFTC’s Division of Clearing and Risk (“DCR”) announced it is withdrawing CFTC Staff Advisory No. 23-07, Review of Risks Associated with Expansion of DCO Clearing of Digital Assets, effective immediately. As stated in the withdrawal letter, DCR determined to withdraw the advisory to ensure that it does not suggest that its regulatory treatment of digital asset derivatives will vary from its treatment of other products. [NEW]
CFTC Staff Withdraws Advisory on Virtual Currency Derivative Product Listings. On March 28, DMO and DCR announced they are withdrawing CFTC Staff Advisory No. 18-14, Advisory with Respect to Virtual Currency Derivative Product Listings, effective immediately. As stated in the withdrawal letter, DMO and DCR determined that the advisory is no longer needed given additional staff experience with virtual currency derivative product listings and increasing market growth and maturity. [NEW]
ICE and Circle Sign MOU to Explore Product Innovation Based on Circle’s USDC and USYC Digital Assets. On March 27, Intercontinental Exchange Inc. (“ICE”), a leading global provider of technology and data, and Circle Internet Group, Inc. (“Circle”), a global financial technology company and stablecoin market leader, today announced an agreement whereby ICE plans to explore using Circle’s stablecoin USDC, as well as tokenized money market offering US Yield Coin (“USYC”), to develop new products and solutions for its customers. Under the MoU, Circle and ICE plan to collaborate to explore applications for using Circle’s stablecoins and other product offerings within ICE’s derivatives exchanges, clearinghouses, data services, and other markets, to deliver innovation and build new markets and product offerings based on Circle’s products.
Updated FIA Disclosures For New CFTC Rules. On March 24, the FIA announced that is has published updated versions of the FIA Uniform Futures and Options on Futures Risk Disclosures Booklet and FIA Template Disclosures Regarding Separate Accounts for new CFTC rules. Both documents are available in the “Regulatory Disclosures” section of FIA’s US Documentation Library. The CFTC approved new rules in December revising the list of permitted investments for Futures Commissions Merchants (“FCMs”) and DCOs in CFTC Regulation 1.25 (“1.25 Rule”) and codifying no-action relief governing treatment of separate accounts (“Separate Accounts Rule”). The 1.25 Rule requires FCMs and Introducing Brokers to use a revised form of the 1.55 risk disclosure statement for customers onboarded on or after March 31, 2025. The revised disclosure statement reflects the scope of permissible investments, as modified by the 1.25 Rule. The FIA Uniform Futures and Options on Futures Risk Disclosures Booklet is intended to assist FCMs in delivering mandatory customer disclosures under CFTC, exchange and Self-Regulatory Organization rules. Among the disclosures contained in the booklet is the FIA Combined Risk Disclosure Statement. That document has been updated in accordance with the 1.25 Rule to reflect the modified list of permissible investments.
CFTC Staff Issues Interpretation Regarding Financial Reporting Requirements for Japanese Nonbank Swap Dealers. On March 20, the CFTC’s Market Participants Division issued an interpretation concerning financial reporting obligations for nonbank swap dealers subject to regulation by the Financial Services Agency of Japan (“Japanese nonbank SDs”). On July 18, 2024, the CFTC issued a comparability determination and related comparability order granting substituted compliance in connection with the CFTC’s capital and financial reporting requirements to Japanese nonbank SDs, subject to certain conditions in the order (“Japanese Comparability Order”). One of the conditions in the Japanese Comparability Order, condition 9, requires each Japanese nonbank SD to file a copy of its home regulator Annual Business Report with the CFTC and the National Futures Association (NFA). The staff interpretation clarifies that Japanese nonbank SDs may satisfy condition 9 of the Japanese Comparability Order by filing with the CFTC and the NFA certain enumerated schedules of the Annual Business Report (In Scope Schedules), subject to the translation, U.S. dollar conversion, and deadline requirements of condition 9. The interpretation was issued in response to a request from the Securities Industry and Financial Markets Association on behalf of its Japanese nonbank SD members that rely on the Japanese Comparability Order.
SEC’s Division of Corporation Finance Releases Statement on Certain Proof-of-Work Mining Activities. On March 20, the SEC’s Division of Corporation Finance (“Corp Fin”) released a statement providing its views on certain activities on proof-of-work networks known as “mining.” Specifically, the statement addressed the mining of crypto assets that are intrinsically linked to the programmatic functioning of a public, permissionless network, and are used to participate in and/or earned for participating in such network’s consensus mechanism or otherwise used to maintain and/or earned for maintaining the technological operation and security of such network. Corp Fin said that participants in “Mining Activities” (as defined in the statement) do not need to register transactions with the SEC under the Securities Act or fall within one of the Securities Act’s exemptions from registration in connection with these Mining Activities. Commissioner Crenshaw released a related statement, noting that Corp Fin’s statement delivers “neither progress nor clarity” and suffers from issues of flawed logic and limited and imprecise application. Commissioner Crenshaw said that Corp Fin’s statement “leaves us exactly where we started,” because it does not obviate the need for a facts and circumstances application under the investment contract test set forth in SEC v. W.J. Howey Co., 328 U.S. 293 (1946).
CFTC’s Office of Customer Education and Outreach Releases New Advisory on Fraud Using Generative AI. On March 19, the CFTC’s Office of Customer Education and Outreach (the “OCEO”) released a customer advisory that says generative artificial intelligence is making it increasingly easier for fraudsters to create convincing scams. The OCEO advisory describes how fraudsters use AI to create fraudulent identifications with phony photos and videos that can appear very real if one is not familiar with the advances of AI technology. The fraudsters also are using AI to forge government or financial documents. An FBI public service announcement also warns the public about how criminals are using AI to commit fraud and how the technology is being used in relationship investment scams.

New Developments Outside the U.S.

ESMA Consults on Transparency Requirements for Derivatives Under MiFIR Review. On April 3, ESMA asked for input on proposals for Regulatory Technical Standards (“RTS”) on transparency requirements for derivatives, amendments to RTS on package orders, and RTS on input/output data for the over-the-counter (“OTC”) derivatives consolidated tape. ESMA said that it is developing various technical standards further specifying certain provisions set out in the Market in Financial Instruments Regulation Review. The consultation paper covers the following three areas: transparency requirements for derivatives, RTS on package orders, and RTS on input/output data for the OTC derivatives consolidated tape. The consultation will remain open until 3 July 2025. [NEW]
ESMA Publishes Annual Peer Review of EU CCP Supervision CCP Supervisory Convergence. On April 2, ESMA published its annual peer review report on the supervision of European Union (“EU”) Central Counterparties (“CCPs”) by National Competent Authorities (“NCAs”). The peer review measures the effectiveness of NCA supervisory practices in assessing CCP compliance with the European Market Infrastructure Regulation (“EMIR”) requirements on outsourcing and intragroup governance arrangements. ESMA indicated, for this exercise, the review of the functioning of CCP colleges remains overall positive. ESMA also said that the peer review identified the need to promote further supervisory convergence in respect of the definition of major activities linked to risk management. [NEW]
The European Supervisory Authorities Publish Evaluation Report on the Securitisation Regulation. On March 31, the Joint Committee of the European Supervisory Authorities published its evaluation report on the functioning of the EU Securitisation Regulation (SECR). The report purports to put forward recommendations to strengthen the overall effectiveness of Europe’s securitization framework through simplification, while ensuring a high level of protection for investors and safeguarding financial stability. This report identifies areas where the regulatory and supervisory framework can be enhanced, supporting the growth of robust and sound securitization markets in Europe. [NEW]
PRA, FCA Consult on Margin Requirements for Non-centrally Cleared Derivatives. On March 27, the UK Prudential Regulation Authority (“PRA”) and the Financial Conduct Authority published CP5/25 – Margin requirements for non-centrally cleared derivatives: Amendments to BTS 2016/2251. The consultation paper proposes to indefinitely exempt single-stock equity and index options from the bilateral margining requirements in the UK. In addition, it proposes to remove the requirement to exchange initial margin (“IM”) for legacy contracts once a counterparty falls out of scope of the margin requirements. It also proposes to permit UK firms, when transacting with a counterparty subject to the margin requirements in another jurisdiction, to use that jurisdiction’s threshold assessment calculation periods and dates of entry into the scope of IM requirements to determine whether those transactions are subject to IM requirements. [NEW]
MAS Responds to Feedback on Proposed Changes to Capital Framework. On March 27, the Monetary Authority of Singapore (“MAS”) published its response to feedback received to the consultation paper on proposed amendments to the capital framework for approved exchanges and approved clearing houses. The consultation was later extended to licensed trade repositories. MAS’s response addresses liquidity requirements, eligible capital, and total risk requirements. [NEW]
ESMA Makes Recommendations for the Supervision of STS Securitizations. On March 27, ESMA published its Peer Review Report on NCAs supervision of Simple, Transparent and Standardized (“STS”) securitizations. The Report looks into and provides recommendations on the supervisory approaches adopted by selected NCAs when supervising STS securitization transactions and the activities of their originators, sponsors and securitization special purpose entities. The Peer Review focused on the NCAs of France, Germany, Portugal, and the Netherlands.
ESMA Extends the Tiering and Recognition of the Three UK-Based CCPs. On March 17, ESMA announced its decision to temporarily extend the application of the recognition decisions under Article 25 of the EMIR for three CCPs established in the United Kingdom (“UK”). On January 30, 2025, the European Commission adopted a new equivalence decision in respect of the regulatory framework applicable to CCPs in the UK. Subsequently, ESMA has prolonged the tiering determination decisions and recognition decisions for the three recognized UK CCPs – ICE Clear Europe Ltd, LCH Ltd (as Tier 2) and LME Clear Ltd (as Tier 1) – that were adopted by ESMA on September 25, 2020, to align with the expiry date of the new equivalence decision. The application of the tiering determination decisions and recognition decisions is temporarily extended until 30 June 2028.
ESMA and Bank of England Conclude a Revised MoU in Respect of UK-Based CCPs Under EMIR. On March 17, ESMA and the Bank of England (“BoE”) signed a revised Memorandum of Understanding (“MoU”) on cooperation and information exchange concerning the three CCPs established in the UK (ICE Clear Europe Ltd, LCH Ltd and LME Clear Ltd) which have been recognized by ESMA under EMIR. ESMA said that, according to EMIR, one of the conditions for recognition of a third-country CCP (TC-CCP) by ESMA is the establishment of cooperation arrangements between ESMA and the relevant third-country authority. ESMA noted that the revised MoU follows the amendments introduced by EMIR 3 on the requirements concerning the content of such cooperation arrangements, in particular, cooperation in respect of systemically important TC-CCPs (Tier 2 TC-CCPs), and replaces the earlier version that ESMA and the BoE concluded in 2020.

New Industry-Led Developments

IOSCO Issues Final Report on Standards Implementation Monitoring for Regulator Principle. On April 2, IOSCO published a Final Report following its review of IOSCO Standards Implementation Monitoring (ISIM) for Regulator Principles 6 and 7, which address systemic risk and perimeter of regulation. IOSCO’s Objectives and Principles of Securities Regulation 6 and 7 stipulate that regulators should have or contribute to processes to identify, monitor, mitigate and manage systemic risk, as well as have or contribute to a process to review the perimeter of regulation regularly. This ISIM Review by IOSCO’s Assessment Committee found a high level of implementation across the 55 jurisdictions from both emerging and advanced markets. According to IOSCO, the report highlights some good practices and also identifies a few areas where there is room for improvement, observed primarily in some emerging markets. For example, the Report notes that some jurisdictions do not have clear responsibilities, definitions and regulatory processes with respect to systemic risk. [NEW]
ISDA Responds to EC on Amendments to Taxonomy Regulation Delegated Act. On March 26, ISDA and the Association for Financial Markets in Europe submitted a joint response to the EC’s proposed changes to EU Taxonomy Regulation reporting. The associations indicated that they welcome the EC’s commitment in the context of the Omnibus sustainability package to reduce Taxonomy reporting burdens and provide swift relief to reporters. However, they also noted concerns over whether the proposals go far enough to achieve these objectives, opining that they would not provide sufficient reduction in reporting burdens for banks and their clients and they would not achieve meaningful disclosures. The responses sets our specific priority measures for consideration. [NEW]
IOSCO Launches New Alerts Portal to Help Combat Retail Investment Fraud. On March 20, IOSCO announced the launch of the International Securities & Commodities Alerts Network (“I-SCAN”). IOSCO said that I-SCAN is a unique global warning system where any investor, online platform provider, bank or institution can check if a suspicious activity has been flagged for a particular company by financial regulators, which will submit alerts directly to I-SCAN, worldwide. According to IOSCO, I-SCN forms part of IOSCO’s Roadmap for Retail Investor Online Safety, an initiative which was launched in November last year.

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)

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

Graham Valenta and Zain Hassan are the authors of “Reining in the Wild West: A Survey of Carbon Capture Legislation in the United States” [PDF] published by the Texas Journal of Oil, Gas, and Energy Law in its March 2025 issue.

Join us for a 30-minute briefing covering several M&A practice topics. The program is part of a series of quarterly webcasts designed to provide quick insights into emerging issues and practical advice on how to manage common M&A problems. Steve Glover, a partner in the firm’s Global M&A Practice Group, acts as moderator.

Topics discussed:

The FTC’s Decision to Impose a $5.6 Million “Gun Jumping” Penalty
How Buyers Can Mitigate Aiding and Abetting Risk
Reincorporation and the Status of Proposed Delaware Law Changes

MCLE CREDIT INFORMATION:

This program has been approved for credit by the New York State Continuing Legal Education Board for a maximum of 0.5 credit hours in the professional practice category. This course is approved for transitional and non-transitional credit.

Gibson, Dunn & Crutcher LLP certifies this activity is approved for 0.5 hours of MCLE credit by the State Bar of California 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 0.5 hours. Regulated by the Solicitors Regulation Authority (Number 324652).

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

PANELISTS:

Jamie France is a partner in the Washington, D.C. office of Gibson, Dunn & Crutcher and a member of the firm’s Antitrust and Competition Practice Group. Jamie represents clients in antitrust merger and non-merger investigations before the U.S. Federal Trade Commission, U.S. Department of Justice Antitrust Division, state Attorneys General, and international competition authorities, as well as in complex private and government antitrust litigation. She also counsels clients on a range of antitrust merger and conduct matters. Her experience encompasses a broad set of industries, including healthcare, technology, consumer goods, retail, pharmaceuticals, software, gaming, wood products, and chemicals. Jamie has been recognized in the 2024 edition of the Best Lawyers: Ones to Watch® in America for Antitrust Law and Litigation – Antitrust.

Harrison A. Korn is a partner in the Washington, D.C. office of Gibson, Dunn & Crutcher, where he is a member of the firm’s corporate department. Harrison advises public and private companies, private equity firms, boards of directors and special committees in a wide variety of complex corporate matters, including mergers and acquisitions, asset sales and other carve-out transactions, spin-offs, joint ventures, strategic investments and corporate governance matters, including securities law compliance. He also has substantial expertise advising public benefit corporations (PBCs).

Alexander L. Orr is a partner in the Washington, D.C. office of Gibson, Dunn & Crutcher where his practice focuses primarily on mergers and acquisitions. Mr. Orr advises public and private companies, private equity firms, boards of directors and special committees in a wide variety of complex corporate matters, including mergers and acquisitions, asset sales, leveraged buyouts, spin-offs, joint ventures, equity and debt financing transactions and corporate governance matters, including securities law compliance.

Julia Lapitskaya is a partner in the New York office of Gibson Dunn. She is a Co-Chair of the firm’s ESG: Risk, Litigation, and Reporting Practice Group and a member of the firm’s Securities Regulation and Corporate Governance Practice Group. Ms. Lapitskaya’s practice focuses on SEC, NYSE/Nasdaq and Securities Exchange Act of 1934 compliance, securities and corporate governance disclosure issues, corporate governance best practices, state corporate laws, the Dodd-Frank Act of 2010, SEC regulations, shareholder activism matters, ESG and sustainability matters and executive compensation disclosure issues, including as part of initial public offerings and spin-off transactions.

Stephen I. Glover is a partner in the Washington, D.C. office of Gibson, Dunn & Crutcher who has served as Co-Chair of the firm’s Global Mergers and Acquisitions Practice. Mr. Glover has an extensive practice representing public and private companies in complex mergers and acquisitions, joint ventures, equity and debt offerings and corporate governance matters. His clients include large public corporations, emerging growth companies and middle market companies in a wide range of industries. He also advises private equity firms, individual investors and others.

FDA v. Wages & White Lions Investments, LLC, No. 23-1038 – Decided April 2, 2025

Today, the Supreme Court held unanimously that the Food and Drug Administration did not unlawfully change position in denying marketing authorization for flavored e-cigarettes.

“[A] belief about how an agency is likely to exercise its enforcement discretion is not a ‘serious reliance interest.’”

Justice Alito, writing for the Court

Background:

The Family Smoking Prevention and Tobacco Control Act of 2009 (“TCA”) requires the makers of tobacco products to apply for and obtain premarketing authorization before introducing any “new tobacco product” to the market. 21 U.S.C. § 387j(a). In 2016, the FDA issued a rule that deemed e-cigarettes tobacco products subject to the TCA. However, the FDA delayed enforcement for existing e-cigarette products and set a September 2020 deadline for manufacturers to file applications for premarketing authorization. Before that deadline, the FDA issued a proposed rule concerning premarket tobacco product applications, and guidance concerning the types of scientific evidence that would be required for approval and manufacturers’ marketing plans.

Two companies submitted applications seeking approval to market and sell flavored e-liquids for use in e-cigarettes, but the FDA denied the applications because they had not provided sufficient evidence from scientific studies. The FDA did not consider the marketing plans submitted by the companies with their applications.

After the manufacturers sought judicial review, the en banc Fifth Circuit set aside and remanded the FDA’s denial orders. The court held that the FDA’s denial of the companies’ applications under standards different from those articulated in its pre-decisional guidance was arbitrary and capricious, and that the FDA’s failure to consider the companies’ marketing plans was unlawful and prejudicial (not harmless) error.

Issue:

Did the court of appeals err in setting aside and remanding the FDA’s denial orders as arbitrary and capricious?

Court’s Holding:

The FDA’s denial orders were not arbitrary and capricious and did not constitute an unlawful change in position from the FDA’s pre-decisional guidance. Further, the Fifth Circuit applied an incorrect harmless-error standard to the agency’s failure to consider the marketing plans.

What It Means:

The Court largely deferred to the FDA’s decision to deny manufacturer applications for approval to market and sell flavored e-liquids for e-cigarettes. The decision is an example of the Court giving broad latitude to agency action under the arbitrary and capricious standard of review.
The Court clarified the “change-in-position doctrine,” which applies when an agency changes course on a question of law or policy. The Court explained that an agency does not unlawfully change positions where its previous positions were “largely noncommittal” and the agency gives specific reasons for its actions, or where its previous statements do not directly contradict its later actions. Op. 29, 33, 38. The Court further reasoned that a regulated party’s mere “belief about how an agency is likely to exercise its enforcement discretion is not a ‘serious reliance interest.’” Op. 39–40.
The Court also clarified the “tension” between the harmless-error doctrine, under which courts can excuse agency errors that are not prejudicial, and the Chenery doctrine, under which courts may not uphold agency action with alternative reasoning not considered by the agency. Op. 41–46. The Court explained that courts may uphold agency action—and need not remand to the agency—where it is clear that the agency’s error had no bearing on the procedure used or the substance of the decision reached. The Court remanded to the Fifth Circuit to apply that standard in deciding whether the FDA’s failure to consider marketing plans was a harmless error.
The Court declined to address statutory and constitutional challenges to the FDA’s denial orders that were raised for the first time after certiorari was granted. Parties challenging agency action thus should be mindful of the need to preserve statutory and constitutional challenges at all stages of the litigation.

The Court’s opinion is available HERE.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the U.S. Supreme Court. Please feel free to contact the following practice group leaders:

Appellate and Constitutional Law Practice

Thomas H. Dupree Jr. +1 202.955.8547 tdupree@gibsondunn.com	Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com	Julian W. Poon +1 213.229.7758 jpoon@gibsondunn.com
Lucas C. Townsend +1 202.887.3731 ltownsend@gibsondunn.com	Bradley J. Hamburger +1 213.229.7658 bhamburger@gibsondunn.com	Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com

Related Practice: FDA and Health Care

Jonathan M. Phillips
+1 202.887.3546
jphillips@gibsondunn.com

Gustav W. Eyler
+1 202.955.8610
geyler@gibsondunn.com

John D.W. Partridge
+1 303.298.5931
jpartridge@gibsondunn.com

Related Practice: Administrative Law and Regulatory

Eugene Scalia +1 202.955.8210 escalia@gibsondunn.com	Helgi C. Walker +1 202.887.3599 hwalker@gibsondunn.com	Stuart F. Delery +1 202.955.8515 sdelery@gibsondunn.com
Matt Gregory +1 202.887.3635 mgregory@gibsondunn.com

This alert was prepared by partner Grace Hart and associate Aly Cox.

Medical Marijuana, Inc. v. Horn, No. 23-365 – Decided April 2, 2025

Today, in a 5-4 decision, the Supreme Court held that damages can be available under civil RICO for harm to business or property by reason of a racketeering activity, even when such harm stems from a personal injury.

“[A] plaintiff can seek damages for business or property loss regardless of whether the loss resulted from a personal injury.”

Justice Barrett, writing for the Court

Background:

More than five decades ago, Congress passed the Racketeer Influenced and Corrupt Organizations Act (“RICO”) to bolster efforts to fight organized crime. In addition to imposing criminal penalties for violating RICO, Congress also authorized “any person injured in his business or property by a violation of” RICO to bring a civil suit and recover triple damages. 18 U.S.C. § 1964(c).

Douglas Horn bought Medical Marijuana, Inc.’s hemp-based product after reading that it contained CBD but not THC, the active chemical compound in marijuana. After Horn failed a THC blood test, he was fired from his job as a commercial truck driver. Horn sued under RICO, alleging that the makers of the product had engaged in mail and wire fraud that caused him to suffer injury to his business or property. The district court granted summary judgment to the company, concluding that Horn sought recovery for a personal injury—unwitting consumption of THC—and so did not allege an injury to “business or property.” The Second Circuit reversed, holding that Horn could recover under RICO because his lost employment is an injury to business even if it flowed from a personal injury.

Issue:

Whether RICO’s civil-action provision permits recovery for injuries to “business or property” resulting from personal injuries.

Court’s Holding:

Yes. Injuries to business or property resulting from personal injuries can be recovered under RICO’s civil-action provision.

What It Means:

The Court interpreted the phrase “injured in his business or property” in RICO’s civil-action provision as “not preclud[ing] recovery for all economic harms that result from personal injuries.” Op. 19. Thus, injuries to business or property flowing from a personal injury may be recoverable under 18 U.S.C. § 1964(c).
The Court took pains to emphasize the narrowness of its decision: “The only question we address is the one squarely before us: whether civil RICO bars recovery for all business or property harms that derive from a personal injury.” Op. 5. The Court expressed no views on whether respondent suffered an antecedent personal injury at all, whether the term “business” includes “employment,” or whether an injury to “property” includes “all pecuniary loss.” Op. 4–5. The Court left these issues for another day.
In response to the dissent’s concern that today’s decision would “eviscerate RICO’s ‘business or property’ limitation,” the Court highlighted several guardrails that constrain civil RICO claims: (1) the requirement that there be “some direct relation between the injury asserted and the injurious conduct,” (2) the requirement that civil RICO plaintiffs establish a pattern of racketeering activity, and (3) the possibility that “business” does not “encompass every aspect of employment” or that “property” does not include “every penny in the plaintiff’s pocketbook.” Op. 17–18.

The Court’s opinion is available HERE.

Appellate and Constitutional Law Practice

Thomas H. Dupree Jr. +1 202.955.8547 tdupree@gibsondunn.com	Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com	Julian W. Poon +1 213.229.7758 jpoon@gibsondunn.com
Lucas C. Townsend +1 202.887.3731 ltownsend@gibsondunn.com	Bradley J. Hamburger +1 213.229.7658 bhamburger@gibsondunn.com	Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com

Related Practice: Litigation

Reed Brodsky +1 212.351.5334 rbrodsky@gibsondunn.com	Trey Cox +1 214.698.3256 tcox@gibsondunn.com	Theane Evangelis +1 213.229.7726 tevangelis@gibsondunn.com
Helgi C. Walker +1 202.887.3599 hwalker@gibsondunn.com

This alert was prepared by associates Elizabeth A. Kiernan and Bryston Gallegos.

Branden Berns and Ryan Murr are the authors of “The Current Landscape of Reverse Mergers: An In-Depth Analysis and Q&A” [PDF] published by DealLawyers.com.

We are pleased to provide you with the March edition of Gibson Dunn’s digital assets regular update. This update covers recent legal news regarding all types of digital assets, including cryptocurrencies, stablecoins, CBDCs, and NFTs, as well as other blockchain and Web3 technologies. Thank you for your interest.

ENFORCEMENT ACTIONS

UNITED STATES

SEC Drops Ripple Appeal
On March 25, Ripple Labs CLO Stuart Alderoty announced that the company will pay the SEC a $50 million civil penalty to resolve the agency’s enforcement action, and the agency and company will each drop their appeals of an adverse decision in the district court. The SEC brought the action initially in 2020. Last year, U.S. District Judge Analisa Torres ruled that secondary sales and other distributions of XRP are not securities transactions but ordered Ripple to pay $125 million for failing to register institutional sales of the XRP token, which she held were securities transactions. The SEC and Ripple cross-appealed these decisions to the Second Circuit. Law360; CoinDesk; Reuters.
DOJ Dismisses BitClout Crypto Fraud Case
Federal prosecutors have dropped their fraud case against the founder of crypto project BitClout, whom they had accused of defrauding a venture capital firm by misleading investors. According to a joint filing by the SEC and BitClout’s founder Nader Al-Naji, the SEC is also considering dropping a parallel action against Al-Naji. The Department of Justice’s order did not give a reason for the dismissal. Law360; Order Dismissing Criminal Complaint; Joint Letter.
DOJ Disrupts and Takes Down Russian Cryptocurrency Exchange and Indicts Foreign Nationals
On March 7, the DOJ announced that in coordination with German and Finnish law enforcement, it has taken down the online infrastructure of Garantex, a cryptocurrency exchange allegedly used to facilitate money laundering for transnational criminal organizations and sanctions violations. The coordinated action seized Garantex’s domain names and servers and froze over $26 million in funds. DOJ alleged that Garantex has processed at least $9 billion in cryptocurrency transactions since April 2019 and was operated by Lithuanian resident Alksej Besciokov and Russian national Aleksandr Mira Sera, who have been indicted for money laundering conspiracy and other charges that carry maximum penalties of 20+ years in prison. According to a subsequent news story, Besciokov was later arrested in India. DOJ Press Release; BBC.
Brooklyn Man Sentenced to 45 Months in Prison for $2M Crypto Fraud
On March 13, Thomas John Sfraga was sentenced by Judge Frederic Block of the Eastern District of New York to 45 months in prison and was ordered to pay $1,337,700 in forfeiture, with restitution pending. Allegedly posing as a serial entrepreneur, Sfraga allegedly solicited more than $2 million in investments from at least 17 victims for fake property flips and cryptocurrency ventures, promising returns up to 60% in three months. Sfraga then used such funds for personal expenses and to repay earlier victims. Press Release; Sentencing Memorandum.
Cryptocurrency Founder Convicted of Wire Fraud and Money Laundering
On March 12, Rowland Marcus Andrade, the founder and CEO of NAC Foundation, was convicted at trial of fraud and money laundering in the Northern District of California. By promoting a cryptocurrency, AML Bitcoin, Andrade allegedly defrauded tens of thousands of investors of over $10 million through making false statements about the AML Bitcoin’s technology and its business deals. He allegedly diverted over $2 million for personal use and laundered funds through multiple accounts. Andrade’s sentencing is scheduled on July 22. He faces up to 30 years in prison and potential forfeiture of all assets traceable to the crimes. Press Release; Law360.
Russian Cryptocurrency Manipulator Pleads Guilty and Forfeits $23 Million
On March 21, Aleksei Andriunin, a Russian founder of a market-making service company, and that company, Gotbit Consulting LLC, pleaded guilty in Massachusetts federal court. Andriunin and Gotbit both pled guilty to charges of conspiracy to commit market manipulation, and wire fraud, and agreed to forfeit $23 million in cryptocurrency. Andriunin allegedly developed codes to artificially inflate trading volume in order to list cryptocurrency on larger exchanges and has gained tens of millions of dollars through his fraudulent services. Gotbit Plea Agreement; Andriunin Plea Agreement; Law360.
SEC Closes Investigation into Crypto.com
On March 27, Crypto.com announced that it was informed by the SEC that the SEC ended its investigation into the company with no enforcement action. According to Crypto.com, it received a Wells notice from the SEC in August 2024, alleging that the company acted as an “unregistered broker-dealer and securities clearing agency under the federal securities laws.” In October 2024, Crypto.com filed a complaint seeking declaratory and injunctive relief against the SEC. Press Release; Complaint.
President Trump Pardons BitMEX Founders
On March 27, President Trump granted pardons to four former executives of the BitMEX global cryptocurrency exchange, as well as HDR Global Trading Limited, the entity that owned and operated BitMEX, all of which had pled guilty to violating the Bank Secrecy Act. The former executives, Arthur Hayes, Benjamin Delo, Samuel Reed and Gregory Dwyer, had received criminal sentences of probation and fines of more than $30 million for willfully failing to maintain anti-money laundering and know-your-customer programs. HDR had been sentenced to a $100 million fine in addition to its previous $100 million no-admit no-deny settlements with CFTC and FinCEN due to compliance failures. Pardons; Law360.

INTERNATIONAL

FCA Announces Sentencing of Individual for Unregistered Crypto-Asset Activity
On February 28, the UK Financial Conduct Authority announced that it has secured a four-year sentence for an individual for illegally operating crypto ATMs. The individual allegedly operated crypto ATMs at 28 different locations across the UK, despite being refused an FCA license for his business in 2021 due to concerns over compliance with regulations. This is the first sentence for unregistered crypto-asset activity in the UK. FCA Press Release.

REGULATION AND LEGISLATION

UNITED STATES

SEC Says Cryptocurrency Mining Doesn’t Trigger Securities Laws
On March 20, the SEC’s Division of Corporation Finance confirmed in a statement that cryptocurrency mining activities, including both self-mining and mining pools, do not involve the offer and sale of securities, and thus do not require registration or exemption under securities laws. Under the previous administration, SEC has declared that proof-of-stake blockchains fall under the regulation of securities laws. SEC Statement.
CFTC Withdraws Two Staff Advisories to Ease Crypto Oversight
On March 28, the CFTC announced its withdrawal of two staff advisories that imposed extra scrutiny on the clearing and trading of digital-asset derivatives, aiming to align the regulatory treatment of these products with other derivatives under its jurisdiction. The CFTC stressed that the same listing standards and risk-management principles still apply to all derivative products, and that the withdrawal would not affect its oversight of clearing and systemic risk. Press Release; Bloomberg.
In Bipartisan Votes, Congress Votes to Overturn Crypto Tax Reporting Rule
In a significant victory for the crypto industry, Congress has passed a joint resolution under the Congressional Review Act that will repeal a Treasury Department and IRS rule that would have subjected DeFi participants to onerous tax-reporting requirements for digital-asset transactions (DeFi Broker Rule). On March 11, the House voted 292-131 to pass the resolution, which was then passed by the Senate with a 70-28 vote on March 26. Once signed into law by President Trump, the resolution will not only effectively repeal the DeFi Broker Rule, but also will prohibit Treasury and the IRS from issuing a new rule that is “substantially the same” as the repealed rule absent new legislation. The resolution will not repeal the IRS’s July 2024 broker rule applicable to custodial digital asset trading platforms. Joint Resolution; Law360; CoinDesk; Cointelegraph.
Trump Order Establishes Strategic Bitcoin Reserve, and States Consider Doing the Same
On March 6, President Trump signed an Executive Order to establish a Strategic Bitcoin Reserve and a U.S. Digital Asset Stockpile. The order aims to position to United States as a leader in digital-asset strategy. The reserve will be funded with Bitcoin finally forfeited in criminal or civil proceedings and will not be sold, akin to a “digital Fort Knox” according to newly appointed “crypto czar,” David Sacks. Texas soon followed suit on March 6 when the Texas Senate passed S.B. 21, which would establish the Texas Strategic Bitcoin Reserve and allow the state to invest public money into digital assets. The bill is waiting to be voted by the House. Similarly, on March 5, New Hampshire’s H.B. 302, which would allow the state to invest up to 5% of state funds into bitcoin and other assets, was passed by the House committee and is pending for a full floor vote. Executive Order; White House Fact Sheet; Texas S.B. 21; New Hampshire H.B. 302.
Senate Banking Committee Votes to Advance Stablecoin Bill
On March 13, a bipartisan group of senators in the Senate Banking Committee, led by Senator Bill Hagerty (R-Tenn), voted to advance the “GENIUS Act” (Guiding and Establishing National Innovation for US Stablecoins) to the Senate. The Act aims to create a regulatory framework for stablecoins, defining when issuers fall under state or federal oversight. Senator Elizabeth Warren (D-Ma) expressed concern over the bill, cautioning that it could allow tech billionaires like Elon Musk to issue their own currencies to compete with the US dollar. The Block.
OCC Clarifies Certain Crypto Activities are Permissible for Banks
In an Interpretive Letter issued on March 7, the OCC reaffirmed that banks may engage in certain cryptocurrency-related activities, including crypto-asset custody, stablecoin transactions, and participation in independent node verification networks. The Letter removes existing requirements for banks to obtain supervisory nonobjection before engaging in such activities. According to Rodney Hood, the acting Chief of the OCC, the agency intends to align the regulations of novel and traditional bank activities. Interpretive Letter; Press Release.
FDIC Allows Banks to Engage in Crypto Activities without Prior Approval
On March 28, the FDIC issued a Financial Institution Letter clarifying that banks may engage in permissible activities without prior FDIC approval, as long as they manage the risks. The FDIC will coordinate with the President’s Working Group on Digital Asset Markets and the other banking agencies to issue further guidance or regulations. Press Release.
Tim Scott (R.-S.C.) Introduces FIRM Act Aimed at Debanking
On March 6, Senate Banking Chair Tim Scott introduced the Financial Integrity and Regulation Management (FIRM) Act to address concerns about the debanking of certain companies, particularly in the crypto industry. The bill aims to eliminate the use of reputational risk as a component of regulatory supervision, which Scott argues has been misused by federal regulators to carry out political agendas. The bill has passed out of the Senate Banking Committee and will next move to the Senate for a vote. Bill; Press Release; Axios.
OCC Ceases Examinations for Reputational Risk
On March 20, the OCC issued a statement that it will no longer examine national banks for reputational risk and is removing references to reputational risk from its Handbook and guidance issuances. Certain crypto companies have previously argued that examinations focused on reputational risk contributed to banks refusing to open accounts or otherwise work with crypto companies. This action indicates that the OCC may be seeking to ease the compliance path for banks engaging with crypto businesses. Press Release; Law360; Coindesk;
SEC Acting Chairman Directs Staff to Reexamine Proposed Crypto Custody Rule
During a March 17 speech, the SEC’s Acting Chairman, Mark Uyeda, said that the SEC is considering modifying or eliminating a crypto custody rule proposed by the prior administration that would have required registered investment advisors to custody digital assets with a qualified custodian, among other things. Given the concerns expressed by commenters, Uyeda said, “there may be significant challenges to proceeding with the original proposal.” Uyeda said that he had directed SEC staff to work with the SEC’s new crypto task force to “consider appropriate alternatives.” The Block; Reuters.
Nebraska Enacts New Law to Prevent Crypto ATM Fraud
On March 12, Nebraska Governor Jim Pillen signed into law legislation requiring kiosk operators to be licensed and make adequate disclosures to customers including warnings about crypto fraud. The law was passed after the U.S. Federal Trade Commission pointed out in a September report that there has been a massive increase in consumer losses due to scams involving Bitcoin ATMs. The Block.

INTERNATIONAL

Japanese Ruling Party Considers Slashing Crypto Capital Gains Tax Rate
On March 6, Japan’s ruling Liberal Democratic Party (LDP) proposed reducing the crypto capital-gains tax rate from a maximum of 55% to 20% and is seeking public feedback until March 31. The proposal aims to reclassify cryptocurrencies as “financial products” under a new regulatory framework, which would introduce a separate 20% tax rate similar to securities investments. The LDP’s proposal also includes deferring taxes on crypto-to-crypto swaps until the crypto is exchanged for fiat currency. CoinTelegraph; The Block.
South Korea Plans to Publish Institutional Cryptocurrency Investment Guideline
On March 12, following its statement in January that it would gradually lift the de facto ban on institutional investment in cryptocurrencies, the Financial Services Commission (FSC) of South Korea announced its plan to issue a two-phase guideline. The first part will be released in April to establish the framework and address anti-money-laundering issues. The second part, scheduled in the third quarter, will cover comprehensive instructions for public companies and professional investors. Coin Edition; The Block; Binance.
Bank of Russia Submits Proposal to Allow Cryptocurrency Investment by Selected Investors
On March 12, the Bank of Russia announced a proposal to allow “limited circle of Russian Investors” to trade cryptocurrency under a special experimental legal regime for three years, despite the country’s current ban on cryptocurrency to be used as payments. Eligible investors include those with securities and deposits exceeding 100 million rubles ($1.14 million) or with income for the past year exceeding 50 million rubles ($570K). Yahoo Finance; CoinTelegraph.
Dubai Financial Services Authority Seeks Expressions of Interest for Tokenization Regulatory Sandbox
On March 17, the Dubai Financial Services Authority invited firms to express interest in participating in its Tokenization Regulatory Sandbox, with submissions due by 24 April 2025. The initiative, part of the DFSA’s Innovation Testing Licence program, allows firms to test tokenized investment products and services in a controlled environment. The sandbox aims to facilitate a regulatory pathway from experimentation to full authorization. DFSA.
Dubai Virtual Assets Regulatory Authority Issues Reminder on AML/CFT Compliance for Virtual Asset Service Providers
On February 25, the Dubai Virtual Assets Regulatory Authority issued a compliance reminder to cryptocurrency companies in Dubai, including those operating in mainland and free zones, reminding them of their obligations under the UAE’s anti-money-laundering and combating the financing of terrorism framework. The circular also included a reminder for VASPs to adhere to the Travel Rule for transfers exceeding AED 3,500, ensuring that originator and beneficiary information is obtained, stored, and made available upon request. VARA.
EU Commission Publishes Regulations on Notification of Intention to Provide Crypto-Asset Services Under Markets in Crypto-Asset Regulations
On February 20, the EU Commission published two regulations to supplement the Regulation on Markets in Crypto-Assets ((EU) 2023/1114) (MiCA) in the Official Journal of the European Union. Regulation 2025/303 supplements MiCA by specifying the information to be included by certain financial entities in the notification of their intention to provide crypto-asset services, while Regulation 2025/304 supplements MiCA by laying down implementing technical standards with regard to standard forms, templates and procedures for the notification by certain financial entities of their intention to provide crypto-asset services. Both regulations came into force on March 12. Commission Delegated Regulation (EU) 2025/303; Commission Implementing Regulation (EU) 2025/304.
European Securities and Markets Authority Publishes Official Translations of its Guidelines on the Procedures and Policies Applicable to Transfer Services for Crypto-Assets
On February 26, the European Securities and Markets Authority (ESMA) published the official translations of its guidelines on the procedures and policies in the context of transfer services for crypto-assets. The guidelines apply to competent authorities and to crypto-asset service providers that provide transfer services for crypto-assets on behalf of clients within the meaning of Article 3(1)(26) of MiCA. They are intended to establish consistent, efficient and effective supervisory practices and to ensure the common, uniform and consistent application of the provisions in Article 82 of MiCA. The guidelines apply from 27 April 2025 (that is, 60 calendar days after the date of publication of the official translations on ESMA’s website). ESMA.
Monetary Authority of Singapore Responds to Parliamentary Question on Tightening of Regulations for Digital Payment Token Service Providers
On March 5, the Monetary Authority of Singapore (MAS) responded to a Parliamentary Question on the Singapore Government’s key considerations in deciding to tighten regulations for Digital Payment Token Service Providers including the prohibition of payments via locally issued credit cards. Minister of State Alvin Tan, speaking on behalf of Deputy Prime Minister and Chairman of the MAS, Gan Kim Yong, noted in his response that MAS continues to view cryptocurrencies as highly volatile and unsuitable for the general public. Using credit cards to buy them can lead to high-interest debt and compounded losses, therefore MAS prohibits digital payment token service providers from offering credit or leverage to retail customers. MAS Oral Reply.

CIVIL LITIGATION

UNITED STATES

Treasury Lifts Sanctions Against Tornado Cash
On March 21, the Department of Treasury removed the economic sanctions against Tornado Cash. Treasury soon filed a notice requesting briefing on mootness in Van Loon v. Department of the Treasury, which is on remand after the Fifth Circuit held that Treasury exceeded its statutory authority in designating Tornado Cash. On March 24, the plaintiffs responded, arguing the case is not moot and asking the court to enter final judgment. August 2022 Press Release; March 2025 Press Release; Treasury Notice; Plaintiff Response; CoinTelegraph.
Delaware Bankruptcy Court Grants Three Arrows Capital’s Amended $1.5B Claim in FTX Bankruptcy
On March 13, Judge John T. Dorsey held that liquidators for hedge fund Three Arrows Capital could amend its original complaint to bring a $1.53 billion bankruptcy claim in the FTX Trading Ltd. bankruptcy, over the objection of FTX. The Court held that the Three Arrows Capital liquidators did not learn until more than a year after filing the initial claim in June 2023 that Three Arrows had $1.53 billion in assets on the FTX platform. Because their initial claim was based on limited information, the liquidators were within their rights to amend the claim once more details became available. Opinion; Law360.
Western District of Texas Enters Default Judgment a gainst Bancor DAO
On March 13, Judge Robert Pitman of the Western District of Texas issued a default judgment against Bancor DAO, which operates the decentralized finance platform Bancor, after it failed to respond to a January 2024 online summons. The default judgment stems from a class-action lawsuit involving investors’ claims that they lost tens of millions of dollars due to Bancor’s allegedly failure to warn about liquidity issues during a 2022 withdrawal spike and its allegedly deceptive practices regarding claims that Bancor’s token was an unregistered security. CoinTelegraph; Law360.

SPEAKER’S CORNER

UNITED STATES

SEC Moves Quickly to Remake Crypto Policy
The SEC is actively working with the crypto industry to develop policy for overseeing digital-asset transactions. At the agency’s first crypto-focused roundtable on March 21, SEC commissioners assured attendees they are “earnestly” seeking to find a “workable framework.” The panel featured industry advocates and critics. Commissioner Hester Peirce indicated that non-fungible tokens may be the subject of the SEC’s next staff statement. On March 25, SEC announced four more roundtables between April to June, covering topics including crypto-trading regulation, crypto custody, tokenization and DeFi. All roundtables will be open to the public. Coindesk; Press Release.
OCC Chief Voices Opposition to Debanking and Support to Crypto and Fintech
On March 18, at the Consumer Bankers Association’s annual conference, the acting chief of the OCC, Rodney Hood, expressed his opposition to debanking and emphasized his commitment to reduce regulatory burdens on community banks, foster financial inclusion, and promote bank-fintech collaboration. Hood believes all customers should have fair access to financial services, including digital assets. According to Hood, the OCC will not interfere with bank’s account decisions or create hurdles to discourage banks from creating accounts with individualized risks. This signals a shift of OCC regulatory priorities since the new administration, as regulators used to caution banks against involving with cryptocurrency during the last administration. Law360.

OTHER NOTABLE NEWS

Crypto Leaders Meet at White House for First-of-its-Kind Crypto Summit
On March 7, President Donald Trump hosted the first “crypto summit” at the White House, gathering over two dozen leaders from the U.S. cryptocurrency industry. In the remarks given at the summit, President Trump reaffirmed his support for the growth of the crypto industry and emphasized that the United States should “stay in the front of this one” to secure its leading role in the global financial system. President Remarks; Reuters.
Ripple-Funded Non-Profit Launches
On March 5, the National Cryptocurrency Association (NCA), a new non-profit organization aimed at enhancing crypto literacy launched. NCA was seeded with $50 million in funding from Ripple and Ripple CLO, Stuart Alderoty, and aims to demystify cryptocurrency and provide resources for users, including educational materials and real-life stories. Business Wire; CoinDesk.

The following Gibson Dunn lawyers contributed to this issue: Jason Cabral, Kendall Day, Jeff Steiner, Sara Weed, Sam Raymond, Nick Harper, Raquel Alexa Sghiatti, Simon Moskovitz, Apratim Vidyarthi, and Gabriela Li.

FinTech and Digital Assets Group Leaders / Members:

Ashlie Beringer, Palo Alto (+1 650.849.5327, aberinger@gibsondunn.com)

Michael D. Bopp, Washington, D.C. (+1 202.955.8256, mbopp@gibsondunn.com

Stephanie L. Brooker, Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)

Jason J. Cabral, New York (+1 212.351.6267, jcabral@gibsondunn.com)

Ella Alves Capone, Washington, D.C. (+1 202.887.3511, ecapone@gibsondunn.com)

M. Kendall Day, Washington, D.C. (+1 202.955.8220, kday@gibsondunn.com)

Sébastien Evrard, Hong Kong (+852 2214 3798, sevrard@gibsondunn.com)

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

Martin A. Hewett, Washington, D.C. (+1 202.955.8207, mhewett@gibsondunn.com)

Sameera Kimatrai, Dubai (+971 4 318 4616, skimatrai@gibsondunn.com)

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

Stewart McDowell, San Francisco (+1 415.393.8322, smcdowell@gibsondunn.com)

Hagen H. Rooke, Singapore (+65 6507 3620, hhrooke@gibsondunn.com)

Mark K. Schonfeld, New York (+1 212.351.2433, mschonfeld@gibsondunn.com)

Orin Snyder, New York (+1 212.351.2400, osnyder@gibsondunn.com)

Ro Spaziani, New York (+1 212.351.6255, rspaziani@gibsondunn.com)

Jeffrey L. Steiner, Washington, D.C. (+1 202.887.3632, jsteiner@gibsondunn.com)

Eric D. Vandevelde, Los Angeles (+1 213.229.7186, evandevelde@gibsondunn.com)

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

Sara K. Weed, Washington, D.C. (+1 202.955.8507, sweed@gibsondunn.com)

We are pleased to provide you with the March edition of Gibson Dunn’s monthly U.S. bank regulatory update. Please feel free to reach out to us to discuss any of the below topics further.

KEY TAKEAWAYS

Federal Reserve Board Governor Michelle Bowman was nominated as the next Vice Chair for Supervision.
Debanking and reputational risk remain a focus:
- The Office of the Comptroller of the Currency (OCC) announced that it “will no longer examine its regulated institutions for reputation risk” and is “removing references to reputation risk from its Comptroller’s Handbook booklets and guidance issuances.”
- Federal Deposit Insurance Corporation (FDIC) Acting Chairman Travis Hill stated in a letter to House Financial Services Committee member Rep. Dan Meuser (R-PA) that the FDIC plans to “eradicate” reputational risk (or similar terms) from its regulations, guidance, examination manuals and other policy documents.
- The OCC’s and FDIC’s announcements follow Chair Powell’s commitment to the Senate Banking Committee during his February testimony to “revise the Federal Reserve’s supervision manuals to remove reputational risk.”
- The Senate Banking Committee voted to advance out of committee by a 13-11 vote the Financial Integrity and Regulation Management (FIRM) Act, which would eliminate reputational risk as a bank supervisory component.
The federal banking agencies and Congress began taking steps to revisit their approach to digital asset- and blockchain-related activities:
- The OCC announced that a range of crypto-related activities are permissible for national banks and federal savings associations and rescinded the requirement that OCC-supervised institutions receive supervisory nonobjection and demonstrate that they have adequate controls in place before they can engage in such crypto-related activities.
- The FDIC rescinded Financial Institution Letter (FIL) 16-2022 and clarified that FDIC-supervised institutions may engage in permissible crypto-related activities without prior FDIC approval.
- The Senate Banking Committee voted to advance out of committee by an 18-6 vote the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act of 2025.
The FDIC Board commenced acting on priorities outlined by Acting Chairman Travis Hill in his January 2025 statement.
- The FDIC Board approved a proposal to rescind the FDIC’s 2024 Statement of Policy on Bank Merger Transactions and reinstate the prior Statement of Policy on Bank Merger Transactions on an interim basis while the FDIC reevaluates its bank merger review process.
- The FDIC Board also withdrew three proposed rulemakings relating to brokered deposits, corporate governance, and the Change in Bank Control Act and withdrew authority for staff to publish in the Federal Register a proposed rule related to incentive-based compensation arrangements.
The federal banking agencies announced their intent to both rescind the 2023 Community Reinvestment Act (CRA) final rule and reinstate the CRA framework that existed prior to the October 2023 final rule.

DEEPER DIVES

Federal Reserve Board Governor Michelle Bowman Nominated as Next Vice Chair for Supervision. On March 17, 2025, the White House announced the nomination of Federal Reserve Board Governor Michelle Bowman as the next Vice Chair for Supervision following Governor Barr’s resignation from the same position effective February 28, 2025. Bowman has served on the Board of Governors since November 26, 2018, and her current term ends January 31, 2034. She was the first person to fill the community bank seat on the Board of Governors required by the Terrorism Risk Insurance Program Reauthorization Act of 2015, which amended Section 241 of the Federal Reserve Act. Bowman would serve in her role as Vice Chair for Supervision for a term of four years. Bowman’s nomination generally was met with support from industry trade groups and Republican leadership.

Insights. Since joining the Board of Governors, Governor Bowman has been consistent in her messaging for the need for appropriately tailored regulation; more transparency in bank supervision and bank application processes; increased focus on safety and soundness, as opposed to operational risk; and a comprehensive review and modernization of banking laws (see, e.g., ABA’s Conference for Community Bankers (Feb. 17, 2025); “Bank Regulation in 2025 and Beyond“ (Feb. 5, 2025); California Bankers Association (Jan. 9, 2025)). Most recently, on March 21, 2025, Governor Bowman issued a statement in connection with the approval of a branch application by Commonwealth Business Bank. In her statement, Governor Bowman noted the need for change to the Federal Reserve’s review of applications, noting that one single adverse comment resulted in a branch application normally acted upon under delegated authority being sent to the Board of Governors for review and approval, resulting in a six-month review and approval process. In the past, Governor Bowman has been an active dissenter on a board known for its desire for consensus—in the past three years and 2025, she has dissented to at least nine proposed or final rulemakings or supervisory guidance releases, including the Basel III endgame proposal, the proposal to amend the Bank Secrecy Act Compliance Program Rule, proposed revisions to interchange fees, climate-related guidance, resolution planning, CRA, the long-term debt proposal and third-party risk management guidance, often along the same lines she consistently echoes in her public statements (e.g., the need for tailoring and right-sizing, reducing complexity, rationalization and the need to avoid duplicative regulations).

Regulators and Lawmakers Take Steps to Remove Reputational Risk as a Supervisory Component. Leadership of the OCC and FDIC have committed to removing reputational risk considerations from their supervisory and regulatory toolboxes. On March 20, 2025, the OCC announced that it “will no longer examine its regulated institutions for reputation risk” and is “removing references to reputation risk from its Comptroller’s Handbook booklets and guidance issuances,” and on March 24, 2025, FDIC Acting Chairman Travis Hill indicated that the FDIC plans to “eradicate” reputational risk from its regulations, guidance, examination manuals and other policy documents. In addition, the Financial Integrity and Regulation Management Act (FIRM), co-sponsored by every Republican on the Senate Banking Committee, advanced out of committee. The FIRM Act is aimed to prohibit debanking for reputational risk concerns. The bill would require the bank regulatory agencies to report to Congress on their elimination of reputational risk as a component of supervision, as well as prohibit federal agencies from making new rules or guidance that includes reputational risk as a supervisory factor.

Insights. Although the focus on reputational risk stems from the administration’s efforts to curtail “debanking” of certain industries, institutions should anticipate that entry into the traditional banking sector may still be subject to hurdles because banks are not relieved of the burden on ensuring they are operating in a safe and sound manner and are not facilitating illegal or unlicensed activities. From a bank perspective, this will continue to require robust due diligence inquiries in order to address core risk assessments, like credit risk, market risk and legal and compliance risk, as banks increase their relationships in and exposure to certain markets – e.g., the digital assets space.

OCC and FDIC Clarify Bank Authority to Engage in Certain Crypto-Related Activities. On March 7, 2025, the OCC announced that “a range of cryptocurrency activities are permissible in the federal banking system.” OCC Interpretive Letter No. 1183 formally reaffirms interpretive letters issued during the prior Trump administration authorizing banks to provide crypto-asset custody services, hold dollar deposits serving as reserves backing stablecoins, and use digital assets to perform traditional bank-permissible activities, like payment activities. Interpretive Letter No. 1183 also rescinds OCC Interpretive Letter No. 1179, which required banks to receive supervisory nonobjection prior to engaging in crypto-related activities. Interpretive Letter No. 1183 reminds banks that any crypto-asset activities, like any other activities, must be conducted in a safe, sound, and fair manner and in compliance with applicable law. The OCC also withdrew its participation in joint statements on crypto-asset risks to banking organizations and liquidity risks resulting from crypto-asset market vulnerabilities.

On March 28, 2025, the FDIC followed suit, providing new guidance to FDIC-supervised banks engaging or seeking to engage in crypto-related activities. The FDIC rescinded FIL-16-2022, providing that FDIC-supervised institutions may engage in permissible crypto-related activities without receiving prior FDIC approval.

Insights. As we have previously highlighted, the federal banking agencies continue to signal increased receptivity to crypto-related activities and digital assets. Coupled with the GENIUS Act’s progression out of the Senate Banking Committee, the OCC’s and FDIC’s actions very clearly illustrate an appetite to further develop U.S. stablecoin and other digital assets offerings. Institutions considering new activity in the digital assets space should ensure both appropriate individualized risk assessments and requisite adaptation of control programs, but the current environment presents an opportunity for leaders in this space to work collaboratively with the OCC, FDIC and other agencies to align on practical and prudent expectations.

FDIC Board Begins Implementing Acting Chairman Hill’s Regulatory Priorities. Upon assuming his role, Acting Chairman Hill announced more than a dozen matters or topics that he expected the FDIC to address in short order. Since that time, the FDIC has made substantial headway in furtherance of a number of Acting Chairman Hill’s priorities (see above).

Insights. Given Acting Chairman Hill’s speedy pursuit of a number of regulatory and supervisory priorities, we expect the FDIC to similarly swiftly act on Hill’s remaining priorities. In addition to further action consistent with broad identified goals, like “[c]onduct[ing] a wholesale review of regulations, guidance, and manuals” and encouraging more de novo activity, the FDIC appears poised to take on some of the more specific priorities. This includes (1) modernizing implementation of the Bank Secrecy Act, consistent with Acting Chairman Hill’s letter to FinCEN last month regarding CIP requirements under the PATRIOT Act; (2) reviewing the supervisory appeals process; (3) improving the bidding process related to financial institution resolutions; and (4) working with other agencies to finalize tailored capital and liquidity rules.

OTHER NOTABLE ITEMS

Federal Banking Agencies Announce Intent to Rescind 2023 Community Reinvestment Act Final Rule. On March 28, 2025, the federal banking agencies announced, in light of pending litigation, their intent to issue a proposal to both rescind the CRA final rule issued in October 2023 and reinstate the CRA framework that existed prior to the October 2023 final rule.

Jonathan Gould Appears Before the Senate Banking Committee. On March 27, 2025, Jonathan Gould, the nominee to lead the OCC, appeared before the Senate Banking Committee. In his remarks, he advocated for banks to be allowed “to engage in prudent risk-taking” and echoed recent sentiments that reputational risk is often used as a pretext for other, more quantifiable, risks such as BSA/AML risk.

NYDFS Hires Former CFPB Official For Top Financial Enforcement Role. On March 13, 2025, the New York State Department of Financial Services (NYDFS) announced that Gabriel O’Malley would join the NYDFS to lead the Consumer Protection and Financial Enforcement Division, the NYDFS division that handles investigations, enforcement and consumer compliance examinations. Mr. O’Malley most recently served as the CFPB’s deputy enforcement director for policy and strategy.

Senate Votes to Overturn CFPB Overdraft Rule Capping Fees at Large Banks at $5. On March 27, 2025, the Senate passed a measure to overturn the CFPB’s December 2024 final overdraft rule under the Congressional Review Act on largely party lines; the House has not yet advanced the companion bill. The rule was slated to go into effect in October 2025 and apply to banks and credit unions with at least $10 billion in assets.

District Court Case Regarding the FDIC’s Use of Administrative Law Judges Advances to Tenth Circuit. Following the FDIC’s filing of a notice stating that it will not continue to defend the use of administrative law judges, the United States District Court for the District of Kansas nonetheless dismissed the action brought by CBW Bank, finding that the District Court lacked subject matter jurisdiction over the bank’s claims by virtue of 12 U.S.C. § 1818(i)(1). CBW Bank filed a notice of appeal on March 28, 2025.

Speech by Governor Barr on Small Business Lending. On March 24, 2025, Federal Reserve Board Governor Barr gave a speech titled “Helping Small Businesses Reach Their Potential.” In his speech, Governor Barr highlighted the critical role small businesses play in the U.S. economy and called for enhancements to “financial transparency,” citing the Truth in Lending Act and Regulation Z as examples of laws that do not extend to small businesses and highlighting state laws in California and New York as examples of statues that mandate clearer disclosures to small business owners.

Acting Comptroller Hood Discusses Financial Inclusion. On March 24, 2025, Acting Comptroller Hood gave remarks on financial inclusion at the National Association of Hispanic Real Estate Professionals’ Homeownership and Housing Policy Conference. In his remarks, Acting Comptroller Hood discussed the OCC’s Project REACh, which aims to advance financial inclusion by focusing on (1) affordable homeownership, (2) small businesses, (3) technology and (4) geographic-specific efforts aimed at combatting challenges unique to specific neighborhoods. Acting Comptroller Hood gave a similar speech titled “Innovation Fosters Financial Inclusion” at the National Community Reinvestment Coalition’s Just Economy Conference 2025.

FDIC Updates PPE List. On March 31, 2025, the FDIC updated the list of companies that have submitted notices for a Primary Purpose Exception (PPE) under the 25% or Enabling Transactions test.

OCC to Host Virtual Innovation Office Hours. The OCC announced that it would host virtual office hours with its Office of Financial Technology on May 6-8, 2025, to provide banks and fintechs the opportunity to “engage with OCC staff on matters related to bank-fintech partnerships, cryptocurrency activities, or other matters related to responsible innovation in the federal banking system.”

OCC Launches Digitalization Resources for Community Banks. The OCC launched a new Digitalization page on its website dedicated to resources to help banks meet their digitalization objectives.

FRBNY’s Liberty Street Economics Blog Examines Payment Systems Interoperability. On March 27, 2025, the Federal Reserve Bank of New York published a Liberty Street Economics blog post titled, “An Interoperability Framework for Payment Systems.” The first post in a two-part series examines concerns whether novel payment systems based on blockchain networks can be made interoperable.

OCC Withdraws Principles for Climate-Related Financial Risk Management for Large Financial Institutions. On March 31, 2025, the OCC announced it withdrew its participation in the interagency principles for climate-related financial risk management for large financial institutions.

The following Gibson Dunn lawyers contributed to this issue: Jason Cabral, Ro Spaziani, and Rachel Jackson.

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 or any of the member of the Financial Institutions practice group:

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

Ro Spaziani, New York (212.351.6255, rspaziani@gibsondunn.com)

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

M. Kendall Day, Washington, D.C. (202.955.8220, kday@gibsondunn.com)

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

Sara K. Weed, Washington, D.C. (202.955.8507, sweed@gibsondunn.com)

Ella Capone, Washington, D.C. (202.887.3511, ecapone@gibsondunn.com)

Sam Raymond, New York (212.351.2499, sraymond@gibsondunn.com)

Rachel Jackson, New York (212.351.6260, rjackson@gibsondunn.com)

Zack Silvers, Washington, D.C. (202.887.3774, zsilvers@gibsondunn.com)

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

Nathan Marak, Washington, D.C. (202.777.9428, nmarak@gibsondunn.com)

Kensington Title-Nevada, LLC v. Tex. Dep’t of State Health Servs., No. 23-0644 – Decided March 28, 2025

On March 28, a unanimous Texas Supreme Court held that the Texas Administrative Procedure Act authorizes parties to challenge whether an agency rule applies to them.

The Texas Administrative Procedure Act “expressly allows parties who do not believe an administrative rule governs them to challenge its applicability in a judicial proceeding when that rule threatens to interfere with their rights.”

Chief Justice Busby, writing for the Court

Background:

A real estate company acquired property containing abandoned radioactive material. The company initially tried to clean up the material but stopped after municipal taxing entities obtained a lien on the material and threatened to sue the company for removing it. The Texas Department of State Health Services then began administrative proceedings against the company for possessing radioactive material without a license in violation of 25 Texas Administrative Code § 289.252(a)(2).

Faced with these conflicting government demands, the real estate company sought a declaration under Texas Government Code § 2001.038(a) that the Department’s licensing rule didn’t apply to it because it didn’t own or possess the abandoned radioactive material. In response, the Department filed a plea to the jurisdiction, arguing that the real estate company improperly challenged the application of the rule rather than its applicability. The trial court denied the plea, but the court of appeals reversed.

Issue:

Does Texas Government Code § 2001.038(a) authorize suits challenging whether parties are subject to an agency rule?

Court’s Holding:

Yes. The real estate company had constitutional standing to bring, and properly alleged, a rule-applicability challenge.

What It Means:

The Court’s decision preserves a pathway for challenging the applicability of agency rules directly in court without exhausting administrative remedies.
The Court held that parties have standing to request declaratory relief when an agency rule threatens to interfere with or impair their rights. Here, the Department sought to impose an administrative penalty against the real estate company for violating the licensing rule. And a declaration that the rule didn’t apply to the company would redress that financial threat.
The Court rejected the Department’s proposed distinction between a rule’s applicability and its application. Instead, the Court explained that Section 2001.038(a) authorizes “suits seeking a declaration of whether a rule applies to the plaintiff” even if those suits would also “yield guidance on . . . the outcome of [the rule’s] application.” Op. at 12. The trial court had jurisdiction here because the real estate company was challenging whether the rule applied to it—that the answer to that inquiry might involve factual disputes in an ongoing agency proceeding was beside the point.

Continuing to provide insight into the newly created Fifteenth Court of Appeals, the Court observed in a footnote that the Fifteenth Court would, in the future, hear these kinds of appeals under the Texas APA. It also underscored that the Fifteenth Court would “not [be] bound by precedent of the Third Court of Appeals.” Op. at 11 n.4.

The Court’s opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Texas Supreme Court. Please feel free to contact the following practice group leaders:

Appellate and Constitutional Law Practice

Thomas H. Dupree Jr. +1 202.955.8547 tdupree@gibsondunn.com	Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com	Julian W. Poon +1 213.229.7758 jpoon@gibsondunn.com
Brad G. Hubbard +1 214.698.3326 bhubbard@gibsondunn.com

Related Practice: Texas General Litigation

Trey Cox +1 214.698.3256 tcox@gibsondunn.com	Collin Cox +1 346.718.6604 ccox@gibsondunn.com	Gregg Costa +1 346.718.6649 gcosta@gibsondunn.com
Mike Raiff +1 214.698.3350 mraiff@gibsondunn.com	Russ Falconer +1 214.698.3170 rfalconer@gibsondunn.com

This alert was prepared by Texas of counsels Ben Wilson and Kathryn Cherry and associates Elizabeth Kiernan, Stephen Hammer, and Joseph Barakat.

This Royalty Report provides an analysis of publicly reported royalty finance transactions for the last five years (2020 to 2024) in the life sciences sector, focusing on both traditional and synthetic royalty transactions. Traditional royalty transactions encompass monetizations of royalties under existing license agreements. Synthetic royalty transactions involve the sale of a portion of future product sales, rather than the sale of an existing future royalty entitlement.

INTRODUCTION

Methodology and limitations: We analyzed a total of 102 publicly announced royalty transactions over this time period involving the largest and/or most active funds in the space, consisting of the following: Royalty Pharma, HealthCare Royalty Partners (HCRx), Blackstone, OMERS, XOMA Royalty, CPPIPB, Oberland Capital, and DRI Capital. Survey data are based on publicly reported information, including in SEC filings, as well as data from 27 financing transactions executed by Gibson Dunn (representing approximately 30% of the total transactions reviewed during this period). While this is an expansive survey, it does not capture certain transactions that would not have been reported on EDGAR or announced in press releases. Additionally, global pharmaceutical companies are increasingly using clinical funding arrangements (often structured as a type of synthetic royalty financing transaction) to defray development costs and many of these transactions are not sufficiently material to require disclosure. This analysis highlights the growing complexity and dynamism of the pharmaceutical royalty finance market.

TRENDS AND MARKET OUTLOOK

Key Trends (2020-2024)

Rising Use of Synthetic Royalties: Emerging as a viable alternative to debt or equity financing transactions, with an average annual growth rate of 33% over the five-year period.
Increased Activity in recent years (2023 and 2024): Driven in particular by high-value deals and late-stage product transactions.
Milestone-Heavy Transactions: Growing preference for performance-linked payments, allowing buyers to lower their risk profile and allowing sellers to lower their cost of capital.

Factors Driving Market Dynamics

Economic Conditions: Depressed equity valuations have prompted more companies to seek non-dilutive capital, including through royalty financing. At the same time, a higher interest rate environment has increased discount rates that royalty finance providers apply when valuing royalty streams, which increased the cost of capital, likely moderating the volume of royalty financing transactions.
Clinical and Regulatory Process: Funds tend to focus on commercial-stage products, though opportunities exist for pre-approval products, in the form of debt, clinical funding arrangements, and/or where positive clinical data bolsters the investment thesis for a particularly de-risked asset.

Please click on the link below to view the complete Royalty Report:

READ MORE

The following Gibson Dunn lawyers prepared this update: Todd Trattner and Ryan Murr.

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 or Royalty Finance practice groups, or the authors:

Todd Trattner – San Francisco (+1 415.393.8206, ttrattner@gibsondunn.com)

Ryan Murr – San Francisco (+1 415.393.837, rmurr@gibsondunn.com)

Who’s in scope?

What’s required?

How will it be enforced?

How are companies preparing?

What’s next?

By-Design Approach

The Right Benchmark?

GDPR’s ‘Warning’