Client Alert Archives

Europe

04/28/2025

CJEU | Fact Sheet | Case Law on Personal Data Protection

The Court of Justice of the European Union (“CJEU”) has updated its “case law fact sheet” on personal data protection which compiles its key rulings in the field.

For further information: CJEU Website

04/23/2025

European Data Protection Board | 2024 Annual Report

The European Data Protection Board (“EDPB”) has published its annual report for 2024.

The report provides an overview of the EDPB work in 2024 and highlights key achievements such as the adoption of the 2024-2027 strategy and an increase in the consistency opinions under Article 64(2) GDPR (e.g., on “Consent or Pay” models, the use of personal data to train AI models). The report also emphasizes the EDPB’s contribution to cross-regulatory cooperation for new pieces of legislation such as the Digital Services Act (DSA) and the AI Act.

For further information: EDPB Website

04/14/2025

European Data Protection Board | Guidelines | Personal data and blockchain

The European Data Protection Board (“EDPB”) has published Guidelines 02/2025 on processing of personal data through blockchain technologies, open to public consultation until 9 June 2025.

The guidelines describe the blockchain technologies and provide a framework for organizations considering their use. They outline key GDPR considerations for processing activities (e.g., data retention periods, data subjects’ rights), and clarify the responsibilities of different actors involved in a blockchain related processing.

For more information: EDPB Website

04/11/2025

European Commission | Public Consultation | EU Cybersecurity Act

The European Commission has opened a public consultation on the evaluation and revision of the 2019 EU Cybersecurity Act.

The EU Commission is seeking stakeholders’ feedback on key areas for the contemplated revision, including the mandate of the European Agency for Cybersecurity (ENISA), the European Cybersecurity Framework, challenges related to ICT supply chain security, and the simplification of cybersecurity measures. The public consultation is open until 20 June 2025.

For more information: European Commission Website

04/10/2025

European Commission | Guidelines | Generative AI in Research

The European Commission has updated its Living Guidelines on the responsible use of generative AI in research.

The guidelines provide recommendations for researchers and organizations to ensure they promote and support responsible use of generative AI in their research activities. They are regularly updated to reflect the technological developments in the field.

For more information: European Commission Website, Guidelines

04/10/2025

European Data Protection Board | Report | Large Language Models

The European Data Protection Board (“EDPB”) has published a report on AI Privacy Risks and Mitigations Large Language Models (“LLMs”).

The report provides a risk management methodology to help developers and users of LLMs identify, assess and mitigate privacy risks in the development and use of LLM systems. As such, it complements the Data Protection Impact Assessment process (Art. 35 GDPR) and supports requirements regarding data protection by design and by default (Art. 25 GDPR) and security of personal data (Art. 32 GDPR).

For more information: EDPB Website

04/02/2025

European Commission | Report | B2B Data Sharing & EU Data Act

The European Commission’s Expert Group has issued its final report on B2B data sharing and cloud computing contracts under the EU Data Act.

The report contains model contractual terms (MCTs) covering different data sharing scenarios (e.g., data holder to user, user to data recipient), as well as standard contractual clauses (SCCs) for cloud computing contracts.

For more information: European Commission Website

03/27/2025

European Commission | DORA Directive | Infringement Procedures

The European Commission has launched infringement procedures against 13 Member States (including France, Spain, and Belgium) for failing to fully transpose the Digital Operational Resilience Act (“DORA”) Directive within the given deadline (17 January 2025).

The Member States have two months to complete their transposition and notify the adopted measures to the Commission.

For more information: European Commission Website

France

04/29/2025

French Supervisory Authority | Annual Report | Enforcement

The French Supervisory Authority (“CNIL”) has released its 2024 annual report, recording 17,772 complaints, 87 sanctions, and over €55 million in fines.

The CNIL has stepped up enforcement efforts with 331 corrective actions and observed an increase in the use of simplified procedures. It has also strengthened its response to growing cybersecurity threats and expanded its oversight on AI and digital innovation.

For more information: CNIL Website [FR]

04/24/2025

French Supervisory Authority | Public Consultation | Multi-terminal Consent

The French Supervisory Authority (“CNIL”) has launched a public consultation for its draft recommendation on multi-terminal consent across various devices.

The draft recommendation concerns stakeholders which intend to collect multi-terminal consent when users are authenticated on an account. They offer concrete recommendations on how to validly collect multi-terminal consent. The public consultation will end on 5 June 2025.

For more information: CNIL Website [FR]

04/23/2025

French Supervisory Authority | Publication | Data Breach

The French Supervisory Authority (“CNIL”) has published a fictional data breach use case to help professionals better understand and prevent risks related to unauthorized access to data handled by processors.

The use case outlines a typical data breach based on a real-life incident that was reported to the CNIL.

For more information: CNIL Website [FR]

04/14/2025

French Supervisory Authority | 2025-2028 European and International Strategy

The French Supervisory Authority (“CNIL”) has released its European and international strategy for 2025-2028.

The strategy focuses on three priorities: improving European cooperation, promoting high international data protection standards while supporting innovation, and reinforcing CNIL’s global influence.

For more information: CNIL Website [FR]

04/09/2025

French Supervisory Authority | Public Consultation | Session Recording and Replay Tools

The French Supervisory Authority (“CNIL”) has launched a public consultation on browsing session recording and replay tools.

These tools, which capture detailed user interactions, raise significant privacy concerns due to their potential to collect sensitive personal data without users’ awareness. The goal of the consultation is to develop practical recommendations to help tool providers and website editors ensure GDPR compliance and better protect user privacy.

For more information: CNIL Website [FR]

04/08/2025

French Supervisory Authority | Guidelines | Mobile Applications

The French Supervisory Authority (“CNIL”) has published an updated version of its recommendations on mobile applications recommendations.

The CNIL has published an updated version of its recommendations on mobile applications, originally adopted in July 2024 and released in September 2024. The revised version includes corrections and clarifications in response to stakeholder feedback, and an annotated version is available to highlight the updates.

For more information: CNIL Website [FR]

04/01/2025

French Supervisory Authority | Guidelines | Multi-Factor Authentication (MFA)

The French Supervisory Authority (“CNIL”) has published a recommendation on the implementation of multi-factor authentication (“MFA”) to help online services implement privacy-compliant cybersecurity solutions.

The guidance aims to support controllers and solution providers in aligning MFA practices with the GDPR—covering legal bases, data minimization, retention periods, and the appropriate use of authentication factors such as biometrics, SMS codes, and employee devices.

For more information: CNIL Website [FR]

04/01/2025

ANSSI | Cybersecurity | Information System Security Accreditation

The French National Cybersecurity Agency (“ANSSI”) has published updated guidance on the security accreditation of information systems.

This publication details the steps and documentation required to accredit an information system, including risk assessment, security objectives, and verification processes. It aims to ensure a structured and high-assurance approach to system security within both public and private organizations. The guidance forms part of ANSSI’s broader efforts to promote cybersecurity resilience and regulatory compliance in France.

For more information: ANSSI Website [FR]

Germany

04/29/2025

Hamburg Supervisory Authority | Data Act | Guidance

The Hamburg Supervisory Authority (“HmbBfDI”) has published guidance on the new European Data Act, which will apply from 12 September 2025.

The HmbBfDI’s guidance provides an overview of the new obligations for companies under the Data Act, in particular in relation to data sharing obligations applicable to manufacturers of connected devices. The guidance also identified the key steps companies should take to prepare for the application of the Data Act (e.g., data mapping, updating contracts, marking trade secrets). Since the Data Act applies without prejudice to the GDPR, the guidance analyses the interactions between obligations related to personal data under the GDPR and those related to personal data under the Data Act. Finally, the HmbBfDI has highlighted the responsibilities of supervisory authorities.

For further information: HmbBfDI Website [DE]

04/24/2025

Hamburg Supervisory Authority | Compliance Review | Third Party Services

The Hamburg Supervisory Authority (“HmbBfDI”) has reviewed 1.000 websites for data protection compliance regarding the use of third-party cookies and services and identified deficiencies in 185 of them.

The HmbBfDI found that although most of the websites reviewed met the data protection requirements, deficiencies were found for approximately 185 websites. Most violations result from the fact that certain tracking technologies are activated immediately when the page is first accessed, with the result that users are tracked before consent is obtained.

For more information: HmbBfDI Website [DE]

04/24/2025

Hamburg Supervisory Authority | Q&A | Tracking

The Hamburg Supervisory Authority (“HmbBfDI”) has published FAQs on tracking via third-party services on websites.

The HmbBfDI emphasises that tracking is only permitted with the explicit consent of the respective data subject. The authority included guidance on the design of consent banners, emphasising the need to implement a “reject all” option on the same level as an “accept all” button. The guidance highlights the importance of complying with the requirements of the ePrivacy Directive (transposed into national law) in relation to tracking, alongside the provisions of the GDPR.

For more information: HmbBfDI Website [DE]

04/10/2025

Federal Commissioner for Data Protection and Freedom of Information | Annual Report

The German Federal Commissioner for Data Protection and Freedom of Information (BfDI) has published its annual report.

The Federal Commissioner for Data Protection and Freedom of Information is responsible for monitoring data protection at federal public bodies and at companies that provide telecommunications and postal services. The report shows that most proceedings are related to information and transparency obligations.

For more information: BfDI Website [DE]

04/09/2025

New German Government | Coalition Agreement | Future of Data Protection

The new German Government consisting of the CDU/CSU (Christian Democratic Union of Germany/Christian Social Union of Germany) and SPD (Social Democratic Party of Germany) have published their coalition agreement.

The new German government intends to liberalize data protection law at both national and EU level and work towards “data utilization”, “data sharing” and a “data economy”. It is planned to bundle the data protection authorities of the individual federal states into a nationwide authority. At EU level, the coalition intends to exclude low-risk data processing activities as well as small and medium-sized enterprises from the scope of the GDPR.

For more information: SPD Website [DE]

02/20/2025

Federal Labour Court | Judgement | Right to Compensation

The Federal Labour Court (BAG) ruled in a recently published decision that a delay in providing information under Art. 15 GDPR does not by itself justify a claim for compensation.

According to the BAG, a delayed provision of information under Article 15 GDPR by a former employer does not by itself constitute non-material damage within the meaning of Article 82(1) GDPR. The BAG held that a mere delay, absent specific and substantiated fears of data misuse or an actual loss of control over personal data, does not give rise to a claim for damages. Subjective emotional responses such as worry, annoyance, or nervousness are not sufficient unless they are objectively substantiated by a real risk of data misuse.

For more information: Official Court Website [DE]

Greece

04/08/2025

Greek Supervisory Authority | Guidance | AI and GDPR

The Greek Supervisory Authority (“HDPA”) offers training sessions on AI and GDPR.

The HDPA published educational materials and provides training programs developed by external experts from the European Data Protection Board (“EDPB”). It notably offers a Data Protection Officers and Privacy Professionals Program, as well as a program for ICT Professionals. The material covers various topics such as core concepts of AI, Data Protection and Large Language Models, and Transparency.

For more information: HDPA Website [GR]

Netherlands

04/16/2025

Dutch Supervisory Authority | Survey | Algorithmic Data Processing

The Dutch Supervisory Authority (“AP”) has published survey results showing that many companies feel unprepared to manage algorithms processing personal data. Businesses often lack clarity on whether and how such algorithms are used.

The AP plans to provide guidance and practical tools, as well as and collect best practices to improve responsible algorithm procurement and use. More specifically, the AP is currently developing a checklist for businesses to adequately deal with the rights of people who are subject to algorithmic decision-making.

For more information: AP Press release [NL]

United Kingdom

04/29/2025

CPPA & Information Commissioner’s Office | International Cooperation | Privacy Enforcement

The California Privacy Protection Agency (“CPPA”) and the Information Commissioner’s Office (“ICO”) signed a declaration of cooperation to strengthen international collaboration on data protection.

The agreement will enable joint research, best practice sharing, and coordinated enforcement efforts. It marks the CPPA’s third international partnership, following agreements with Korea’s PIPC and France’s CNIL, and reflects its broader commitment to global privacy cooperation.

For more information: CPPA 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)

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.

From the Derivatives Practice Group: This week, the CFTC placed certain staff on administrative leave pending ongoing investigations.

New Developments

CFTC Staff on Leave Pending Investigation. On May 5, pursuant to the President’s executive orders on lawful governance and accountability, the CFTC placed certain staff on administrative leave for potential violations of laws, government ethics requirements and professional rules of conduct. The CFTC stated it is committed to holding employees to the highest standards, as expected by American taxpayers. Investigations are currently ongoing into these matters and the CFTC has committed to provide updates as appropriate. [NEW]
SEC Publishes New Market Data, Analysis, and Visualizations. On April 28, the SEC’s Division of Economic and Risk Analysis (“DERA”) has published new data and analysis on the key market areas of public issuers, exempt offerings, Commercial Mortgage-Backed Securities (“CMBS”), Asset-Backed Securities (“ABS”), money market funds, and security-based swap dealers (“SBSD”) in an effort to increase transparency and understanding of our capital markets amongst the public.
Paul S. Atkins Sworn in as SEC Chairman. On April 21, Paul S. Atkins was sworn into office as the 34th Chairman of the SEC. Chairman Atkins was nominated by President Donald J. Trump on January 20, 2025, and confirmed by the U.S. Senate on April 9, 2025. Prior to returning to the SEC, Chairman Atkins was most recently chief executive of Patomak Global Partners, a company he founded in 2009. Chairman Atkins helped lead efforts to develop best practices for the digital asset sector. He served as an independent director and non-executive chairman of the board of BATS Global Markets, Inc. from 2012 to 2015.
CFTC Staff Seek Public Comment Regarding Perpetual Contracts in Derivatives Markets. On April 21, the CFTC issued a Request for Comment to better inform them on the potential uses, benefits, and risks of perpetual contracts in the derivatives markets the CFTC regulates (“Perpetual Derivatives”). This request seeks comment on the characteristics of perpetual derivatives, including those characteristics which may differ across products. as well as the implications of their use in trading, clearing and risk management. The request also seeks comment on the risks of perpetual derivatives, including risks related to the areas of market integrity, customer protection, or retail trading.
CFTC Staff Seek Public Comment on 24/7 Trading. On April 21, the CFTC issued a Request for Comment to better inform them on the potential uses, benefits, and risks of trading on a 24/7 basis in the derivatives markets the CFTC regulates. This request seeks comment on the implications of extending the trading of CFTC-regulated derivatives markets to an effectively 24/7 basis, including the potential effects on trading, clearing and risk management which differ from trading during current market hours. The request also seeks comment on the risks of 24/7 trading, and the associated clearing systems, including risks related to the areas of market integrity, customer protection, or retail trading.

New Developments Outside the U.S.

- ESMA Delivers Technical Advice on Market Abuse and SME Growth Markets as Part of the Listing Act. On May 7, ESMA published its advice to the European Commission to support the Listing Act’s goals to simplify listing requirements, enhance access to public capital markets for EU companies, and improve market integrity. In relation to Market Abuse Regulation (“MAR”), the advice covers: protracted processes, identifying key moments for public disclosure; delayed public disclosure, listing situations where delays are not allowed; and Cross-Market Order Book Mechanism, indicating the methodology for the identification of trading venues with significant cross-border activity. [NEW]
- ESMA Consults on Rules for ESG Rating Providers. On May 2, ESMA published a Consultation Paper on draft Regulatory Technical Standards (“RTS”) under the ESG Rating Regulation. The draft RTS cover the following aspects that apply to ESG rating providers: the information that should be provided in the applications for authorization and recognition; the measures and safeguards that should be put in place to mitigate risks of conflicts of interest within ESG rating providers who carry out activities other than the provision of ESG ratings; the information that they should disclose to the public, rated items and issuers of rated items, as well as users of ESG ratings. [NEW]
- ESMA Publishes the Annual Transparency Calculations for Non-equity Instruments and Bond Liquidity Data. On April 30, the European Securities and Markets Authority (“ESMA”), the EU’s financial markets regulator and supervisor, published the results of the annual transparency calculations for non-equity instruments and new quarterly liquidity assessment of bonds under MiFID II and MiFIR.
- ESMA Report Shows Increased Data Use Across EU and First Effects of Reporting Burden Reduction Efforts. On April 30, ESMA published the fifth edition of its Report on the Quality and Use of Data. The report reveals how the regulatory data collected has been used by authorities in the EU and provides insight into actions taken to ensure data quality. The document presents concrete cases on data use ranging from market monitoring to supervision, enforcement and policy making. The report also highlights ESMA’s Data Platform and ongoing improvements to data quality frameworks as key advancements in tools and technology for data quality.
- ESMA Issues Supervisory Guidelines to Prevent Market Abuse under MiCA. On April 29, ESMA published guidelines on supervisory practices to prevent and detect market abuse under the Market in Crypto Assets Regulation (“MiCA”). Based on ESMA’s experience under Market Abuse Regulation (“MAR”), the guidelines intended for National Competent Authorities (“NCAs”) include general principles for effective supervision and specific practices for detecting and preventing market abuse in crypto assets. They consider the unique features of crypto trading, such as its cross-border nature and the intensive use of social media.
- ESMA Assesses the Risks Posed by the Use of Leverage in the Fund Sector. On April 24, ESMA published its annual risk assessment of leveraged alternative investment funds (“AIFs”) and its first analysis on risks in UCITS using the absolute Value-at-Risk (“VaR”) approach. Both articles represent ESMA’s work to identify highly leveraged funds in the EU investment sector and assess their potential systemic relevance.

New Industry-Led Developments

ISDA Presents Proposed Charter for the Credit Derivatives Governance Committee. On May 8, ISDA presented the proposed Charter for the Credit Derivatives Governance Committee and accompanying DC Rule changes to implement. Pursuant to the announcement made in 2024, an ISDA working group formed from ISDA’s Credit Steering Committee has worked on producing the Governance Committee solution. ISDA views the Governance Committee as the first step in implementing the other recommended changes from the Linklaters’ report as part of an independent review on the composition, functioning, governance and membership of the DCs. [NEW]
ISDA Publishes Governance Committee Proposal for CDS Determinations Committees. On May 8, ISDA published a proposal for a new governance committee for the CDS Determinations Committees (“DCs”), the first in a series of amendments to improve the structure of the DCs and maintain their integrity in changing economic and market conditions. The governance committee would be responsible for taking market feedback and adopting rule changes affecting the structure and operations of the DCs to ensure their long-term viability and meet market expectations for efficiency and transparency in credit event determinations. [NEW]
ISDA Responds to FASB Proposal on KPIs for Business Entities. On April 30, ISDA submitted a response to the Financial Accounting Standards Board’s (“FASB”) proposal on financial key performance indicators (“KPIs”) for business entities. In the response, ISDA addressed the implications of KPI standardization, its potential impact on financial reporting and risk management, and the broader cost-benefit considerations for preparers and investors. Based on proprietary analysis, ISDA does not view financial KPI standardization or the proposed disclosures as urgent priorities for the FASB at this time.
CPMI-IOSCO Assesses that EU has Implemented Principles for Financial Market Infrastructures for Two FMI Types. On April 28, CPMI-IOSCO released a report that assessed the completeness and consistency of the legal, regulatory and oversight framework in place as of October 30, 2019. The report finds that the implementation of the Principles for Financial Market Infrastructures is complete and consistent for all Principles for payment systems. The legal, regulatory and oversight frameworks in the EU for central securities depositories and securities settlement systems are complete and consistent with the Principles in most aspects. However, the assessment identified some areas for improvement, particularly in aspects where implementation was broadly, partly, or not consistent, including risk and governance principles.
ISDA/IIF Responds to EC’s Consultation on the Market Risk Prudential Framework. On April 22, ISDA and the Institute of International Finance (“IIF”) submitted a joint response to the EC’s consultation on the application of the market risk prudential framework. The associations believe the capital framework should be risk-appropriate and as consistent as possible across jurisdictions to ensure a level playing field without competitive distortions due to divergent rules.
ISDA and FIA Respond to Consultation on Commodity Derivatives Markets. On April 22, ISDA and FIA submitted a joint response to the EC’s consultation on the functioning of commodity derivatives markets and certain aspects relating to spot energy markets. In addition to questions on position management, reporting and limits and the ancillary activities exemption, the consultation also addressed data and reporting and certain concepts raised in the Draghi report, such as a market correction mechanism to cap pricing of natural gas and an obligation to trade certain commodity derivatives in the EU only.

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

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

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

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

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

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

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

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

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)

We are pleased to provide you with the April 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

Oregon Attorney General Sues Coinbase
On April 18, Oregon Attorney General Dan Rayfield filed a lawsuit in state court against Coinbase alleging that the crypto exchange offers unregistered securities under Oregon law. The lawsuit largely parrots the theories the SEC recently abandoned in dismissing its enforcement action against Coinbase. In a blog post, Coinbase stated that “Oregon’s lawsuit, like the SEC’s, is meritless, and Coinbase will do whatever is required to beat it.” Coinbase Blog; Bloomberg Law; Complaint.
Long Island Man Gets 18-Year Term For $6 Million Crypto-Investor Fraud
On April 23, a federal court in the Southern District of New York sentenced Long Island resident Eugene William Austin, Jr. to 18 years in prison after a jury convicted him of fraud-related offenses, in connection with a scheme to defraud cryptocurrency investors. The court also ordered forfeiture of roughly $6 million and imposed restitution in an amount to be determined. Press Release.
FinCEN Identifies Cambodia-Based Huione Group as Institution of Primary Money Laundering Concern; Issues New Rule
On May 1, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a proposed rule that would prohibit U.S. financial institutions from opening or maintaining correspondent or payable-through accounts for or on behalf of Cambodia-based Huione Group because it has laundered illicit proceeds from cybercrimes. FinCEN said that Huione Group has been critical for laundering proceeds of cyber heists by the Democratic People’s Republic of Korea and for convertible virtual currency scams conducted by transnational criminal organizations in Southeast Asia. FinCEN.
SEC and DOJ File Charges Against Founder of Purported Crypto Investment Platform
On April 22, the SEC and federal prosecutors in the Eastern District of Virginia filed parallel cases against Ramil Palafox, founder of PGI Global, a purported Bitcoin investment platform, alleging that he misappropriated over $57 million of investor funds. The SEC’s complaint and the indictment allege that from January 2020 to October 2021, Palafox sold “membership” packages promising high returns from cryptocurrency investments but spent the money on luxury items instead. The complaint and the indictment further allege that Palafox ran a multilevel-marketing scheme, using remaining funds to pay other investors until the company’s collapse. Press Release; Law360.
SEC Dismisses Suit Against Dragonchain
On April 24, the SEC agreed to dismiss its enforcement action against blockchain platform Dragonchain and founder Joseph J. Roets. The SEC filed a joint stipulation in the U.S. District Court of Western District of Washington, citing the January 2025 launch of the SEC’s Crypto Task Force and its efforts to develop a regulatory framework for digital assets. The case was dismissed on April 25. The lawsuit, filed in August 2022, had alleged that Dragonchain sold unregistered securities via its DRGN tokens. Law360; CoinTelegraph.
SEC and Ripple File Joint Motion to Pause Appeals in XRP Case
On April 10, the SEC and Ripple Labs asked the U.S. Court of Appeals for the Second Circuit to pause their respective appeals in the agency’s ongoing enforcement action against the company. The Second Circuit granted the motion on April 16, holding the appeal in abeyance and requiring a status report from the SEC within 60 days. Joint Letter; CoinTelegraph; CoinDesk; Reuters.
SEC and Gemini Request Pause in Suit Over Gemini Earn Program
On April 1, the SEC and crypto exchange Gemini asked the district court for a 60-day stay of the regulator’s enforcement action while the parties discuss a potential resolution. The court granted the motion on April 2 and ordered the parties to file a joint status report on May 31. The SEC filed the action against Gemini and Genesis Global Capital, LLC in January 2023 alleging they offered unregistered securities; Genesis later agreed to a consent judgment in connection with bankruptcy proceedings. CoinTelegraph; Joint Letter.
Judge Denies SafeMoon CEO’s Motion to Dismiss Criminal Fraud Case
On April 18, U.S. District Court Judge Eric R. Komitee of the Eastern District of New York denied former SafeMoon CEO Braden Karony’s motion to dismiss his indictment, stating that a jury should assess his arguments regarding whether the charged conduct is extraterritorial and therefore not subject to U.S. law and whether SafeMoon’s token is a security. Karony faces charges of conspiracy to commit securities fraud, wire fraud, and money laundering. Trial is set for May 6. The indictment alleges that Karony, SafeMoon’s co-founder Kyle Nagy and former CTO Thomas Smith conspired to commit securities and wire fraud and money laundering in defrauding investors through a digital asset called SafeMoon. Former CTO Thomas Smith has pleaded guilty to related charges. Law360; Coin Telegraph.
Crypto Casino Founder Charged with Fraud and Misappropriation of Investor Funds
On April 13, Richard Kim, founder of cryptocurrency casino Zero Edge, was charged in the U.S. District Court in the Southern District of New York with securities fraud and wire fraud for allegedly stealing millions from investors between March 2024 and July 2024. According to the complaint, Kim raised $4.3 million from investors, promising to develop an online casino with on-chain games and a new cryptocurrency called “$RNG”, but instead allegedly used the investor funds for speculative cryptocurrency trades and gambling. He was arrested and released on a $250,000 bond. CoinDesk; Complaint.
Nova Labs Settles SEC Lawsuit Over False Client Claims
On April 23, Nova Labs, Inc., the creator of a decentralized wireless network known as the Helium Network, agreed to pay $200,000 to settle an SEC lawsuit filed in January 2025. The suit alleged that Nova Labs falsely claimed client relationships with various prominent businesses to sell preferred stock in a private placement. Nova Labs neither admitted nor denied the SEC’s allegations in its settlement. CoinDesk; Law360; Final Judgment.
CLS Global Sentenced for Running Fraudulent Wash Trading Scheme
On April 2, United Arab Emirates-based financial services firm CLS Global FZC LLC was sentenced in Massachusetts federal court for allegedly running a fraudulent “wash trading” scheme. The firm pleaded guilty to conspiracy to commit market manipulation and wire fraud and wire fraud in January. Additionally, CLS Global was ordered to pay approximately $428,059 in fines and seized cryptocurrency, and sentenced to three years of probation during which CLS Global cannot participate in U.S. cryptocurrency markets. CLS Global also entered into a separate agreement with the SEC over related civil claims. Press Release; Law360

INTERNATIONAL

ADGM Cancels HAYVN Licence, Imposes USD 8.85 Million Fine
On April 17, the ADGM Financial Services Regulatory Authority (“FSRA”) initiated an enforcement action against the HAYVN Group, a digital asset-focused financial institution, and its former CEO for regulatory breaches, including unlicensed virtual asset activity. The FSRA cancelled HAYVN ADGM’s license, banned the former CEO from ADGM’s financial sector, and imposed USD $8.85 million in fines across four related parties for misconduct including unlicensed virtual asset activity, AML failures such as not recording all of its client relationships and allowing client transactions to be routed through unregulated accounts, and providing false information to banks and the FSRA. ADGM.

REGULATION AND LEGISLATION

UNITED STATES

GOP Lawmakers Introduce Draft of Crypto Market-Structure Bill
On May 5, Republican lawmakers released a discussion draft of a bill that seeks to establish a comprehensive regulatory framework for digital assets. The bill provides for joint rulemaking by the SEC and CFTC, a pathway for digital-asset developers to raise funds under the SEC’s jurisdiction and a process for market participants to register with the CFTC for digital commodity trading. The bill would require digital-asset developers to provide accurate disclosures including relating to their digital asset’s operation, ownership and structure. Press Release; The Block.
New Hampshire Passes ‘Strategic Bitcoin Reserve’ Bill
On May 6, New Hampshire passed legislation allowing the state to invest up to 5% of the state’s public funds in precious metal and digital assets with a market cap of over $500 billion – a threshold that currently only permits Bitcoin. Business Insider.
President Trump Signs Resolution to Nullify Expanded IRS Crypto Broker Rule
On April 11, President Trump signed into law a resolution under the Congressional Review Act that nullifies a Treasury Department and IRS rule that would have subjected DeFi participants to onerous tax-reporting requirements for digital-asset transactions (the “DeFi Broker Rule”). The resolution not only effectively repeals the DeFi Broker Rule but also will prohibit the U.S. Treasury and the IRS from issuing a new rule that is “substantially the same” as the repealed rule absent new legislation. The resolution does not repeal the IRS’s July 2024 broker rule applicable to custodial digital asset trading platforms. Reuters; Bloomberg; CoinTelegraph; CoinDesk.
Paul Atkins Confirmed as SEC Chairman
On April 9, Paul Atkins was confirmed as the next Chairman of the SEC. Atkins served as an SEC commissioner under President George W. Bush and previously worked at the Commission during both Republican and Democratic administrations. Atkins founded a financial services consulting firm in 2008, Patomak Global Partners, which has advised clients on regulatory and compliance matters, including issues related to digital assets. Atkins was sworn in on April 21. SEC; New York Times.
SEC Staff Says Certain Reserve-Backed Stablecoins Are Not Securities
On April 4, the SEC’s Division of Corporation Finance issued guidance stating that the offer and sale of certain reserve-backed dollar stablecoins are not securities transactions. To qualify as a “Covered Stablecoin” under the guidance, the stablecoin’s value must be pegged to the U.S. dollar, and the stablecoin must be backed by dollars or other low-risk, liquid assets and be redeemable one-for-one for U.S. dollars at any time and in unlimited amounts, among other requirements. As is typical, the guidance states that it is nonbinding and does not have Commission-level approval. SEC.
SEC Staff Statement Urges Detailed Crypto Disclosures
On April 10, the SEC’s Division of Corporation Finance issued a staff statement providing the Division’s views about the application of certain disclosure requirements under the federal securities laws to offerings and registrations of securities in the digital-asset markets. The statement recommends that companies describe their business operations without overly relying on technical jargon and specify the business activity, “such as operating or developing a network or application, and the current stage of development” and how the issuer expects to generate revenue. With respect to risk factors for offerings and registrations of securities in the crypto asset markets, the guidance provides examples such as risks relating to technology and cybersecurity, price volatility, liquidity issues and potential registration requirements under state and federal laws. The statement also emphasizes that it “does not address all material disclosure items, and the disclosure topics addressed … may not be relevant for all issuers.” As is typical, the guidance states that it is nonbinding and does not have Commission-level approval. SEC; Coindesk.
DOJ Publishes Memorandum Announcing Shift in Enforcement Priorities and Disbandment of Crypto Enforcement Unit
On April 7, Deputy Attorney General Todd Blanche issued a memorandum (the “Blanche Memo”) announcing a shift in the Department of Justice’s enforcement priorities concerning digital assets. According to the memo, the DOJ “will no longer pursue litigation or enforcement actions that have the effect of superimposing regulatory frameworks on digital assets while President Trump’s actual regulators do this work outside the punitive criminal justice framework.” Instead, the focus will be on “prosecuting individuals who victimize digital asset investors, or those who use digital assets in furtherance of criminal offenses such as terrorism, narcotics and human trafficking, organized crime, hacking, and cartel and gang financing.” The memo also announced the disbandment of the National Cryptocurrency Enforcement Team. DOJ; Reuters; CoinDesk; New York Times.
Acting Chairman Pham Lauds DOJ Policy Ending Regulation by Prosecution of Digital Assets Industry and Directs CFTC Staff to Comply with Executive Orders
On April 8, CFTC Acting Chairman Caroline D. Pham praised the Blanche Memo, and directed CFTC staff to comply with the President’s executive orders and Administration policy. Consistent with the DOJ’s enforcement priorities, Pham has refocused the CFTC’s enforcement resources on cases involving combatting fraud and manipulation rather than regulating by enforcement. Specifically, Pham has directed CFTC staff not to charge regulatory violations in cases involving digital assets unless there is evidence that the defendant knew of the licensing or registration requirement at issue and willfully violated such requirement. CFTC.
Federal Reserve Retracts Crypto-Related Guidance for Banks
On April 24, the Federal Reserve Board announced that it withdrew guidance for banks related to their digital-asset and dollar-tokens activities. The agency rescinded a 2022 supervisory letter requesting state member banks to provide advance notification of digital-asset activities and a 2023 supervisory letter regarding the supervisory nonobjection process for state member bank engagement in dollar-token activities. These actions follow earlier comments from Fed Chair Jerome that the Fed does not intend to limit the bank sector’s interaction with digital assets. Federal Reserve; Cryptoslate; WSJ.
Illinois Lawmakers Advance Crypto Fraud Protection Measure
On April 10, Illinois state senators passed out of committee Senate Bill 1797, which requires crypto firms to register with the state and provide disclosures to protect consumers. It also empowers the Illinois Department of Financial and Professional Regulation to set and enforce guidelines for crypto companies. Sen. Mark Walker, one of the bill’s sponsors, emphasized the need for standards to prevent bankruptcy, fraud, and deceptive practices in the crypto industry. Illinois State Assembly; Cointelegraph.
Hidden Road Receives Broker-Dealer License Following Ripple Acquisition
On April 17, prime brokerage platform Hidden Road announced it received a broker-dealer license from the Financial Industry Regulatory Authority (FINRA), shortly after Ripple Labs agreed to acquire the firm for $1.25 billion. The license allows Hidden Road to offer FINRA-compliant prime brokerage, clearing, and financing services in fixed income assets. CoinDesk; Press Release.
CFTC Seeks Comments on 24/7 Trading and Perpetual Derivatives
On April 21, the CFTC issued a request for comment on the implications of extending the trading of CFTC-regulated derivatives markets to an effectively 24/7 basis, including the potential effects on trading, clearing and risk management which differ from trading during current market hours. 24/7 trading is already prevalent in digital assets markets. On the same day, the CFTC also requested comment on the characteristics of perpetual derivatives, the implications of their use in trading, clearing and risk management and the risks of such derivatives risks in connection with market integrity, customer protection, or retail trading. Perpetual derivatives are commonly traded on offshore digital asset exchanges. CFTC 24/7 Trading; CFTC Perpetual Derivatives.

INTERNATIONAL

European Securities and Markets Authority Publishes Official Translations of its Guidelines on Conditions for Qualification of Crypto Assets as Financial Instruments Under MiCA
On March 19, the European Securities and Markets Authority (“ESMA”) published the official translations of its guidelines on the conditions and criteria for the qualification of crypto assets as financial instruments (ESMA75453128700-1323) under Article 2(5) of MiCA. The guidelines clarify when MiCA or other rules apply to crypto assets. They are effective starting on May 18, 2025, and relevant authorities are required to update ESMA. ESMA.
Securities and Futures Commission and Hong Kong Monetary Authority Issue Circulars on Providing Virtual Asset Staking Services
On April 7, the Securities and Futures Commission (“SFC”) and the Hong Kong Monetary Authority (“HKMA”) issued circulars to SFC-licensed virtual asset trading platform (“VATP”) operators and authorized institutions to permit the offering of staking services. VATPs must obtain the SFC’s prior approval and agree to be bound by the SFC’s ‘Terms and Conditions for Staking Services’ before offering staking services. Broadly, other requirements to offer staking services include that VATPs must (i) maintain possession or control over all mediums through which clients’ virtual assets may be withdrawn from the staking service, (ii) implement policies, internal controls and operational rules to ensure that staked virtual assets are adequately safeguarded and (iii) manage operational risks and conflicts of interest. VATPs must also exercise skill, care and diligence when selecting a blockchain protocol for their staking service and when selecting its arrangement for participating in the validation process. VATPs must also ensure adequate disclosure of additional staking risks to their clients and obtain their written acknowledgement before providing them with staking services. SFC; HKMA.
Hong Kong SFC Revises Circular on SFC-Authorized Funds to Engage in Staking Activities Through VATPs and AIs
On April 7, the SFC revised an existing circular that was originally issued on December 22, 2023 delineating the requirements for authorizing investment funds with exposure to virtual assets of more than 10% of their net asset value for public offerings in Hong Kong. The fund manager must obtain the SFC’s prior approval before it can engage in staking activities for its managed SFC-authorized virtual asset fund, and the staking activities must be conducted through an SFC-licensed VATP or authorized institution, subject to a cap to manage fund liquidity. The fund manager must also ensure that the staking activities are consistent with the fund’s investment objective and strategy. SFC.
Monetary Authority of Singapore Consults on Prudential Treatment and Disclosure of Crypto Asset Exposures for Banks
On March 27, the Monetary Authority of Singapore (“MAS”) published a Consultation Paper seeking feedback on proposed amendments aimed at implementing standards promulgated by the Basel Committee on Banking Supervision (“BCBS”) on prudential treatment and disclosure of crypto asset exposures for banks. Specifically, the MAS has proposed to amend relevant MAS notices relating to capital, liquidity, large exposures and disclosure frameworks for banks to implement the BCBS’ standards on prudential treatment and disclosures for crypto asset exposures for banks. MAS.
Monetary Authority of Singapore Proposes Amendments to Anti-Money Laundering and Terrorism Financing Laws
On April 8, the MAS published a Consultation Paper seeking feedback on proposed amendments to MAS Notices on anti-money laundering and countering the financing of terrorism to take into account the latest money laundering, terrorism financing and proliferation financing developments. The amendments apply across the financial sector and are relevant to financial institutions including banks, insurers, capital markets intermediaries, payment service providers (including digital payment token or crypto asset service providers). Broadly, the proposed amendments reference the latest revised standards set by the Financial Action Task Force and cover topics ranging from risk assessments to the clarification of regulatory expectations on the filing of suspicious transaction reports. MAS.
Dubai Financial Services Authority Opens Tokenization Regulatory Sandbox for Expressions of Interest
On March 17, the Dubai Financial Services Authority (“DFSA”) called for expressions of interest to join its new Tokenization Regulatory Sandbox, with a deadline of April 24, 2025. The initiative forms part of the DFSA’s Innovation Testing Licence program and is aimed at firms offering tokenized financial products and services, including equities, bonds, sukuk, and fund units. The sandbox provides a controlled environment for testing tokenized investment solutions, offering a structured path to full regulatory authorization. DFSA.
Abu Dhabi Global Market and Chainlink Forge Alliance to Advance Tokenization Frameworks
On March 24, the Abu Dhabi Global Market (“ADGM”) signed a Memorandum of Understanding with decentralized network Chainlink to promote compliant tokenization and enhance blockchain innovation. The partnership will support projects under the ADGM Registration Authority by leveraging Chainlink’s technical expertise in blockchain interoperability and verifiable data solutions. Chainlink’s infrastructure has enabled over $19 trillion in transaction value globally and is trusted by leading financial institutions. Under the Memorandum of Understanding, ADGM and Chainlink will collaborate on regulatory dialogue and host educational initiatives focusing on blockchain, AI and tokenization. ADGM.

SPEAKER’S CORNER

New York Attorney General Letitia James Sends Letter to Congress Proposing Crypto Regulatory Framework
On April 10, New York Attorney General Letitia James sent a letter to congressional leaders warning that the lack of strong federal regulations on cryptocurrencies and digital assets increases the risk of fraud, criminal activity, and financial instability. She argued that federal regulations would bolster America’s national security, strengthen its financial markets and protect investors from cryptocurrency scams. James’s letter called for protections including “i) onshoring stablecoins to protect the U.S. dollar and the treasuries market, ii) requiring platforms to only conduct business with anti-money laundering compliant platforms, iii) providing for the registration of issuers and intermediaries to ensure accountability, transparency and basic protections to the public, iv) protecting against conflicts of interest, v) promoting price transparency, vi) requiring platforms and intermediaries to actively identify and prevent fraud and scams, and vii) disallowing digital assets in retirement accounts.” NY; Reuters.

OTHER NOTABLE NEWS

SoftBank, Tether and Cantor Fitzgerald Launch Twenty One Capital
On April 23, stablecoin issuer Tether, Bitfinex, SoftBank, and Cantor Fitzgerald announced the launch of Twenty One Capital, Inc., a Bitcoin investment vehicle. CCN.
HM Treasury and the UK Debt Management Office Publish Policy Paper on Pilot Digital Gilt Instrument
On March 18, HM Treasury and the UK Debt Management Office (“DMO”) released a policy paper detailing their pilot Digital Gilt Instrument (“DIGIT”). DIGIT is a new, short-dated, transferable security that will be held on a Distributed Ledger Technology (“DLT”) platform and issued within the Digital Securities Sandbox, operating independently from the Government’s standard debt issuance processes. The policy paper outlines the initial features of DIGIT and seeks input from financial sector firms to gauge investor demand and design preferences for further development. Additionally, it requests information from potential DLT suppliers to explore available technology options and the scope of services required for DIGIT issuance. Stakeholders are invited to submit their responses by April 13, 2025. HM Treasury.

The following Gibson Dunn lawyers contributed to this issue: Jason Cabral, Kendall Day, Jeff Steiner, Sara Weed, Sam Raymond, Nick Harper, Emma Li, Michelle Lou, Zachary Montgomery, Aliya Padhani, Henry Rittenberg, Nicholas Tok, and Apratim Vidyarthi.

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)

Nick Harper, Washington, D.C. (+1 202.887.3534, nharper@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)

The coalition agreement includes noteworthy planned changes in the area of white collar and international trade law that identify trends that will shape the near-term future of businesses operating in Germany and the EU.

On May 6, Friedrich Merz was elected Germany’s new Chancellor, marking the start of the new legislative period. The incoming government – formed by a coalition of the center left and right parties CDU, CSU, and SPD – recently published its coalition agreement.[1]

The coalition agreement outlines the common legislative goals of the German Government for the next four years.

Enforcement proceedings in money laundering cases shall become more efficient

In the area of financial crime, federal-level competencies will be consolidated. Cooperation and information exchange between the federal and state governments, as well as with national and international organizations, the EU, and the European Anti-Money Laundering Authority (AMLA), are to be improved.[2]
Improvements in anti-money laundering efforts are planned, particularly in light of the upcoming evaluation by the Financial Action Task Force (FATF).[3] These plans are not entirely new initiatives, as they had already been put forward by the previous government in light of Germany’s poor FATF assessment.
Gaps in the German Transparency Register, which is a central database that records information on the beneficial owners of legal entities, are to be closed.[4]
Legal transactions by legal entities exceeding a net amount of EUR 10,000 may not be carried out by parties subject to anti-money laundering obligations if one or more beneficial owners cannot be identified.[5]

Lowering the thresholds for asset seizures shall help fighting organized crime

An administrative procedure for asset investigation is to be introduced, with the aim of securing suspicious high-value assets where a legal origin cannot be clearly demonstrated.[6]
Existing asset seizure instruments are to be further developed and supplemented by a procedure for confiscating assets of unclear origin.[7]
The fight against organized crime is to be intensified by fully reversing the burden of proof in the confiscation of assets of unclear origin.[8]

EU-Directives on Corporate Crimes shall be implemented, but initiatives to reform German law relating to Corporate Crimes will not be pursued

Unlike the previous coalition agreements[9], the new agreement includes neither plans to regulate internal investigations nor to introduce any legal framework for corporate criminal law. However, it is likely that the EU Anti-Corruption Directive will have to be implemented during this legislative period, which may result in relevant changes in these two areas.

Supply Chain Due Diligence Requirements shall be brought in line with updated EU-Directives and the German Supply Chain Due Diligence Act will be repealed

The German Supply Chain Due Diligence Act (LkSG) is to be repealed. It is planned to replace it with a new “International Corporate Responsibility Act” designed to implement the European Corporate Sustainability Due Diligence Directive (CSDDD) in a low-bureaucracy and enforcement-friendly manner.[10]
The reporting obligations under the LkSG are to be abolished immediately and permanently.[11]
It is planned that existing due diligence obligations will not be sanctioned, except for severe human rights violations, until the new law comes into force.[12]

FDI and Export Control topics will remain high on the agenda, while making processes more efficient

The German Foreign Trade Act is to be revised. Screening and licensing procedures are to be made faster, simpler, and more practical. Foreign investments that conflict with national interests – particularly in critical infrastructure and strategic sectors – are to be effectively blocked.[13]
The effective national implementation of sanctions due to Russia’s war of aggression is to continue to be ensured. The EU’s plans to impose tariffs on fertilizer imports from Russia and Belarus are to be endorsed.[14]
Export licensing procedures are to be simplified and accelerated, with the aim of a paradigm shift in German international trade law. Comprehensive checks are to be replaced by targeted checks on a random basis, supported by heavy penalties for violations. Within the scope of this system, prior export authorizations would no longer be required.[15]
Germany’s China Strategy is to be revised in accordance with the principle of “de-risking”.[16]

To what extent these plans will be implemented in detail remains to be seen in the next few months.

[1] Coalition Agreement of the 21st legislative period, can be found on the websites of the three parties CDU: here; CSU: here; SPD: here; and the German Bundestag: here.

[2] Coalition Agreement of the 21st legislative period, para. 1548 et. seq.

[3] Ibid., para. 1545 et. seq.

[4] Ibid., para. 1550.

[5] Ibid., para. 1550 et seq.

[6] Ibid., para. 1553 et seq.

[7] Ibid., para. 1556 et seq.

[8] Ibid., para. 2261 et seq.

[9] Coalition Agreement of the 19th legislative period, p. 126; Coalition Agreement of the 20th legislative period, p. 111.

[10] Coalition Agreement of the 21st legislative period, para. 1909 et. seq.

[11] Ibid., para. 1911 et seq.

[12] Ibid., para. 1913 et seq.

[13] Ibid., para. 275 et seq.

[14] Ibid., para. 287 et seq.

[15] Ibid., para. 290 et seq.

[16] Ibid., para. 297 et seq.

The following Gibson Dunn lawyers prepared this update: Benno Schwarz, Katharina Humphrey, Nikita Malevanny, Karla Böltz, and Annabel Dornauer*.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. If you wish to discuss any of the matters set out above, please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of Gibson Dunn’s White Collar Defense & Investigations or International Trade Advisory & Enforcement practice groups, or the authors in Munich:

Benno Schwarz (+49 89 189 33 210, bschwarz@gibsondunn.com)

Katharina Humphrey (+49 89 189 33 217, khumphrey@gibsondunn.com)

Nikita Malevanny (+49 89 189 33 224, nmalevanny@gibsondunn.com)

Karla Böltz (+49 89 189 33 219, kboeltz@gibsondunn.com)

Annabel Dornauer* (+49 89 189 33 463, adornauer@gibsondunn.com)

*Annabel Dornauer is a trainee attorney in Munich and is not admitted to practice law.

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 May 2, Judge Beryl Howell of the U.S. District Court for the District of Columbia permanently enjoined enforcement of Executive Order 14230, which, among other things, ordered federal agencies to suspend security clearances for employees of the law firm Perkins Coie, restrict their access to federal buildings, restrict communications by government officials with Perkins lawyers and employees, terminate government contracts with the law firm, and review the government contracts of Perkins Coie’s clients, and directed the Acting Chair of the EEOC to investigate the DEI practices of large law firms. In a 102-page order, the Court denied the government’s motion to dismiss the complaint, granted Perkins Coie’s motion for summary judgment, and concluded that the EO “violates the Constitution and is thus null and void.” The Court observed that, “[n]o American president has ever before issued executive orders like the one at issue,” adding, “In purpose and effect, this action draws from a playbook as old as Shakespeare, who penned the phrase: ‘The first thing we do, let’s kill all the lawyers.’ . . . Eliminating lawyers as the guardians of the rule of law removes a major impediment to the path to more power.”

The Court held that the EO violates the First Amendment by retaliating against the law firm for protected activity—specifically, the firm’s statements and viewpoint in favor of DEI as well as its association with and advocacy on behalf of the President’s opponents in the 2016 and 2020 elections. The Court also held that the EO violates the firm’s clients’ Fifth and Sixth Amendment right to counsel and First Amendment associational rights, denies the firm Equal Protection, and violates Due Process. The Court also invalidated the EO as void for vagueness, in part because the EO directs adverse action against Perkins Coie purportedly in response to the firm engaging in illegal discrimination through its DEI policies, without explaining which of the firm’s policies violate the law or otherwise clarifying what conduct of Perkins Coie’s is unlawful. The Court noted “The terms diversity, equity, and inclusion . . . could refer to a wide range of actions and programs, formal or informal, as well as basic thoughts and beliefs. The Order provides no definition or guidance as to what form of program possibly described by these terms is considered unlawful discrimination by the Trump Administration, leaving plaintiff to guess at what is and is not permissible in the government’s view, while already facing the threat of adverse actions during the guessing.” The government identified two alleged acts of illegal discrimination in which Perkins Coie engaged: (1) participating in the Sponsors for Education Opportunity (“SEO”) summer fellowship program and (2) adopting the “Mansfield Rule.” The Court rejected the government’s arguments as to both, reasoning that (a) the firm’s summer fellowship was “open to all” and does “not contain discriminatory requirements,” and (b) the Mansfield Rule “does not establish any hiring quotas or other illegally discriminatory practices, requiring only that participating law firms consider attorneys from diverse backgrounds for certain positions.” The Court concluded that neither was evidence of unlawful discrimination.

With respect to the EO’s provision directing the Acting Chair of the EEOC to “review the practices of representative large, influential, or industry leading law firms,” the Court said that “no authority is identified by the government—and the Court is aware of none—empowering the President to direct the EEOC to target specific businesses or individuals for an investigation,” and that the EEOC’s investigative authority is generally limited to formal charges filed with the agency. Addressing specifically the investigative letter the EEOC sent Perkins Coie requesting information about its hiring and employment practices, the Court held that “By not following its own procedures, the EEOC has undermined the legitimacy of its own investigation, revealing this investigation . . . to be a product of the retaliation ordered by EO 14230 rather than any legitimate investigative activity.”

On April 23, President Trump issued an Executive Order entitled “Restoring Equality of Opportunity and Meritocracy,” seeking to “eliminate the use of disparate-impact liability in all contexts to the maximum degree possible.” The executive order directs the repeal or amendment of certain regulations that impose disparate-impact liability on recipients of federal funding under Title VI, such as universities, nonprofits, and certain contractors. It also directs the Attorney General, “in coordination with the heads of all other agencies,” to review “all existing regulations, guidance, rules, or orders that impose disparate-impact liability or similar requirements,” and to “detail agency steps for their amendment or repeal.” The order likewise directs all federal agencies to “deprioritize enforcement of all statutes and regulations to the extent they include disparate-impact liability.” This would include Title VII, the Fair Housing Act, the Age Discrimination in Employment Act, the Affordable Care Act, and the Equal Credit Opportunity Act. Finally, the executive order instructs all heads of federal agencies to “assess” or “evaluate” all pending proceedings relying on disparate-impact theories and “take appropriate action” within 45 days, and to conduct a similar review of “consent judgments and permanent injunctions” within 90 days. For more analysis on this executive order, please see our April 25 client alert.

On April 24, 2025, federal district courts in New Hampshire, Maryland, and Washington D.C. granted preliminary injunctions in three separate cases challenging recent actions by the U.S. Department of Education in relation to DEI. The challenged actions include the Department’s February 14, 2025 “Dear Colleague” letter, which purported to “clarify and reaffirm the nondiscrimination obligations of schools and other entities that receive federal financial assistance” and instructed educational institutions to “(1) ensure that their policies and actions comply with existing civil rights law; (2) cease all efforts to circumvent prohibitions on the use of race by relying on proxies or other indirect means to accomplish such ends; and (3) cease all reliance on third-party contractors, clearinghouses, or aggregators that are being used by institutions in an effort to circumvent prohibited uses of race.” The cases also challenge the Department’s February 28 guidance document entitled “Frequently Asked Questions About Racial Preferences and Stereotypes Under Title VI of the Civil Rights Act,” which addressed a range of issues relating to DEI initiatives in educational institutions, including by providing examples of DEI programming that the Administration might find discriminatory. Finally, the cases challenge the Department’s April 3, 2025 letter requiring state and local officials to certify their compliance with the administration’s interpretation of Title VI in relation to DEI. For more information on these agency actions, please see our February 19, March 5, and April 21 Task Force Updates.

The plaintiffs in these three lawsuits challenged the Department’s actions under the First and Fifth Amendments, as well as the Administrative Procedure Act (“APA”). While all three courts granted the plaintiffs’ preliminary injunction motions, each ruled on different—and at times, conflicting—grounds.

In American Federation of Teachers, et al. v. Department of Education, et al., 1:25-cv-00628 (D. Md. 2025), Judge Stephanie Gallagher concluded that the Dear Colleague letter constitutes a “legislative rule” prescribing “new law and policy”—and not merely an “interpretive rule” providing guidance on existing law—because it extends the existing reach of Title VI, substantively alters the legal landscape, and has the force and effect of law. Accordingly, Judge Gallagher concluded that the plaintiffs were likely to succeed in their procedural challenge to the Dear Colleague letter because the Department failed to follow the procedural requirements for legislative rules as set forth in the APA. Judge Gallagher also concluded that the Dear Colleague letter likely violated the APA because the Education Department likely exceeded its statutory authority, failed to explain its change of position, failed to produce any facts to support its position, failed to consider the reliance interests of educators, and acted arbitrarily and capriciously in publishing the letter. Judge Gallagher also concluded that the Dear Colleague letter likely violated the First Amendment by preemptively prohibiting speech. The court declined to enjoin the letter establishing a certification requirement because the plaintiffs had not adequately challenged it in their complaint.

In National Education Association, et al. v. Department of Education, et al., 1:25-cv-00091 (D.N.H. 2025), Judge Landya McCafferty similarly held that the Dear Colleague letter is a legislative rule because it imposes new, substantial obligations on schools. Accordingly, Judge McCafferty concluded that the plaintiffs were likely to succeed in their procedural challenge due to the Department’s failure to follow the procedural requirements that the APA imposes on legislative rules. Judge McCafferty also concluded that the Dear Colleague letter was likely impermissibly vague in violation of the Due Process Clause, and that the Frequently Asked Questions document “does not ameliorate” the letter’s vagueness “but rather, exacerbates it.” Judge McCafferty also concluded that the agency actions likely violated the First Amendment by targeting speech based on viewpoint.

In NAACP v. U.S. Department of Education, et al., 1:25-cv-01120 (D.D.C. 2025), by contrast, Judge Dabney Friedrich concluded that the challenged Department actions were not legislative rules but rather interpretive rules intended to provide guidance on existing obligations, rather than impose new obligations. Accordingly, Judge Friedrich concluded that they did not violate the APA’s procedural requirements, nor were they arbitrary and capricious or contrary to law. Judge Friedrich also concluded that the plaintiffs lacked standing to challenge the agency’s actions on First Amendment grounds. However, she agreed with the other courts in finding that agency actions were likely void for vagueness under the Fifth Amendment because they “fail[ed] to provide an actionable definition of what constitutes ‘DEI.’” Judge Friedrich also concluded that the “shortened timeframe for certifying compliance further exacerbate[d] vagueness concerns.”

On April 21, 2025, Harvard University sued to prevent the freezing of more than $2 billion in federal funding to the university after it refused to comply with policy change demands from the Trump Administration. Naming as defendants numerous federal officials and agencies, the complaint alleges violations of the First Amendment and the Administrative Procedure Act, as well as an unconstitutional exercise of executive authority under Article II of the U.S. Constitution. Harvard argues that the Administration’s actions—including the demand that Harvard discontinue all DEI practices—are unconstitutional government interference with a private actor’s speech. The funding freeze, Harvard argues, is an unlawful use of legal sanction by the Administration seeking to suppress disfavored speech. Harvard also alleges that the Administration violated the APA by failing to follow the prescribed procedures under Title VI before revoking federal funding based on discrimination concerns. Harvard asks the court to undo the funding freeze and declare it unconstitutional.

On April 21, the National Institutes of Health (“NIH”) issued guidance stating that recipients of NIH grant funding must not “operate any programs that advance or promote DEI, DEIA, or discriminatory equity ideology in violation of Federal anti-discrimination laws.” Relatedly, the National Science Foundation (“NSF”) announced on April 18 a shift in funding priorities, including that “[r]esearch projects with more narrow impact limited to subgroups of people based on protected class or characteristics do not effectuate NSF priorities.” In its announcement, NSF also stated that “[r]esearchers may recruit or study individuals based on protected characteristics when doing so is (1) intrinsic to the research question (e.g., research on human physiology), (2) not focused on broadening participation in STEM on the basis of protected characteristics, and (3) aimed to fill an important gap in [science and engineering] knowledge. For example, research on technology to assist individuals with disabilities may be supported even when the research subject recruitment is limited to those with disabilities.”

Media Coverage and Commentary:

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

New York Times, “‘Vaguely Threatening’: Federal Prosecutor Queries Leading Medical Journal” (April 25): Teddy Rosenbluth of the New York Times reports that the interim U.S. Attorney for the District of Columbia, Ed Martin, has sent letters to various medical and scientific journals, including the New England Journal of Medicine, regarding their selection of papers for publication. According to Rosenbluth, the letters suggest the publications are “partisan in various scientific debates” and ask whether the journals “accept submissions from scientists with ‘competing viewpoints,” what they do if authors “may have misled their readers,” and whether they are “transparent about influence from ‘supporters, funders, advertisers, and others.’” The letters also ask what role the NIH plays “in the development of submitted articles.” Rosenbluth reports that it is “unclear how many journals have received these letters or the criteria that Mr. Martin used to decide which publications to target.”
NPR, “Trump Signs Executive Actions on Education, Including Efforts to Rein in DEI,” April 24): NPR’s Elissa Nadworny reports on a series of executive actions taken by the White House on April 23 aimed at educational institutions and relating to DEI. The first instructs Secretary of Education Linda McMahon to “overhaul” the college accreditation system and recognize new accreditors. The second provides that universities may lose federal grants unless they complete “full and timely disclosures of foreign funding.” The third calls for changes in disciplinary policies in K-12 schools, including by prohibiting use of “racially preferential discipline practices” and abandonment of disparate impact analyses of discipline.
Law.com, “Companies Toning Down ‘DEI’ References but Not Necessarily Ditching It, Analysis Reveals” (April 24): Law.com’s Chris O’Malley reports on an analysis of financial reports from 10 leading S&P 500 companies which found that companies are “‘recalibrating’ how they present diversity, equity and inclusion in their regulatory filings.” The study found a “measurable decline in explicit DEI mentions” in these reports. Nevertheless, “substantive commitments persist through neutral phrasing,” including “diversity of thought” and “global workforce composition.” Moreover, O’Malley notes that the study found some exceptions to the trend exist, including major companies with unchanging usage of DEI-related language in their reports year over year.
Law360, “How Proxy Advisory Firms Are Approaching AI And DEI” (April 21): Writing for Law360, Javier Ortiz, Geoffrey Liebmann, and Trevor Lamb report that proxy advisory firms Institutional Shareholder Services Inc. (“ISS”) and Glass Lewis & Co. LLC (“Glass Lewis”) have both issued updated proxy voting policy guidelines relating to DEI. ISS will cease to consider the gender, racial, or ethnic diversity of a company’s board when making voting recommendations for the election or re-election of directors at U.S. companies. Glass Lewis, by contrast, will continue to recommend votes against nominating committee members for companies where Glass Lewis believes the board lacks sufficient diversity. However, Glass Lewis will inform clients when its recommendation concerns diversity, and it will provide two recommendations in those instances, including one that excludes gender or community diversity considerations. Glass Lewis will apply the same policy to shareholder proposals. For more information, please see our February 2025 client alert.

Case Updates:

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

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

American Alliance for Equal Rights v. Ivey, No. 2:24-cv-00104 (M.D. Ala. 2024): On February 13, 2024, AAER filed a complaint against Alabama Governor Kay Ivey, challenging a state law that requires the governor to ensure there are no fewer than two individuals “of a minority race” on the Alabama Real Estate Appraisers Board. The Board has nine seats, including one for a member of the public with no real estate background, which has been unfilled for years. Because there was only one minority member among the Board at the time of filing, AAER asserts that state law requires that the open seat go to a person with a minority background. AAER states that one of its members applied for this final seat, but was denied on the basis of race, in violation of the Equal Protection Clause of the Fourteenth Amendment. On March 29, 2024, Governor Ivey answered the complaint, admitting that the Board quota is unconstitutional and will not be enforced. On March 19, 2025, AAER moved to substitute Laura Clark, whom AAER had referred to as “Member A” in its complaint, as the plaintiff. On April 2, 2025, Governor Ivey responded to the motion to substitute, arguing that AAER lacked good cause for the substitution, and that the motion was merely an attempt by AAER to “resist discovery.”
- Latest update: On April 17, 2025, the court denied AAER’s motion to substitute because AAER failed to show “good cause” for the substitution and could have substituted Ms. Clark as named plaintiff before the deadline to amend the pleadings, but chose not to do so.
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, alleging that it arbitrarily terminated previously awarded grants under the Teacher Quality Partnership (“TQP”) and Supporting Effective Educator Development (“SEED”) programs in violation of the APA. On March 6, 2025, the Plaintiff States filed a motion for a temporary restraining order to prevent the Department of Education from “implementing, giving effect to, maintaining, or reinstating under a different name the termination of any previously-awarded TQP and SEED grants.” The Plaintiff States argued that the “abrupt and immediate” termination of the TQP and SEED programs threatened imminent and irreparable harm. The court issued a TRO on March 10, 2025, concluding that the Plaintiff States were likely to succeed on the merits of their APA claim, that they adequately demonstrated irreparable harm absent temporary relief, and that the balance of the equities weighed in their favor. The government appealed the order the next day, arguing, among other things, that the district court lacked jurisdiction to review the Department of Education’s decisions on how to allocate funds because the APA does not permit judicial review of “agency action” that “is committed to agency discretion by law.” On April 4, 2025, the United States Supreme Court stayed the TRO, concluding that the government was likely to succeed in showing the district court lacked jurisdiction to grant the TRO under the Administrative Procedure Act
- Latest update: On April 15, 2025, the parties filed a joint status report. The government indicated it intends to move to dismiss the complaint on jurisdictional grounds by May 12, its deadline to answer the complaint. The plaintiffs asked the court to order “expedited production of the administrative record to assist the court in resolving the jurisdictional arguments that the government is expected to make in its motion to dismiss.” The government opposed expedited discovery and instead contended “that the proper and most efficient approach” would be for it to file the administrative record in conjunction with its answer, should the court deny the forthcoming motion to dismiss. On April 16, the court issued an order stating that it would assess the request for expedited production of the administrative record after reviewing the forthcoming motion to dismiss.
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. The parties filed cross-motions for summary judgment. On March 6, 2025, the court granted summary judgment to the university 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 12 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. On March 20, 2025, the plaintiff filed a supplemental brief in support of his remaining claims, arguing that these claims should proceed to trial. He presented what he asserted were undisputed facts to support his claims, including that he was reported for “micro aggressions” after objecting to racial harassment, that colleagues lodged false claims against him, and that he faced retaliatory disciplinary action and salary claw backs. On March 27, 2025, the university filed its own supplemental 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 university took adverse employment action against him, or there is no causal link between his alleged protected activity and adverse actions taken by the university.
- Latest update: On April 17, 2025, the court granted summary judgment for the university on the plaintiff’s remaining retaliation claims, concluding that none of the alleged acts by the university constituted adverse employment action.
Nat’l Urban League et al., v. President Donald J. Trump, et al., No. 1:25-cv-00471 (D.D.C. 2025): On February 19, 2025, the National Urban League, National Fair Housing Alliance, and AIDS Foundation of Chicago sued President Donald Trump challenging EO 14151, EO 14168, EO 14173, and related agency actions, as ultra vires and in violation of the First and Fifth Amendments and the Administrative Procedure Act. The plaintiffs allege that these orders penalize them for expressing viewpoints in support of diversity, equity, inclusion, and accessibility, and transgender people. They also claim that, because of these orders, they are at risk of losing federal funding. The complaint seeks a declaratory judgment holding that the EOs at issue are unconstitutional, as well as a preliminary injunction enjoining enforcement of these EOs. On February 28, the plaintiffs filed a motion for a preliminary injunction.
- Latest update: On May 2, 2025, the court denied the plaintiffs’ motion for a preliminary injunction. The court determined that the plaintiffs failed to establish standing to challenge provisions of the EOs that are intra-governmental and “not aimed at them.” For the remaining challenged provisions of the executive orders—including provisions mandating certification by government contractors that they do not operate unlawful DEI and terminating grants relating to DEI and gender ideology—the court concluded that the plaintiffs failed to show a likelihood that they would succeed on the merits.

2. Employment discrimination and related claims:

Beneker v. CBS Studios, Inc., et al., No. 2:24-cv-01659 (C.D. Cal. 2024): On February 29, 2024, a heterosexual, white male writer sued CBS, alleging that the company’s de facto hiring policy discriminated against him on the bases of sex, race, and sexual orientation. In his complaint, the plaintiff alleges that CBS violated Section 1981 and Title VII by refusing to hire him as a staff writer on the TV show “Seal Team,” instead hiring several black writers, female writers, and a lesbian writer. The plaintiff sought a declaratory judgment that CBS’s de facto hiring policy violates Section 1981 and Title VII, an injunction barring CBS from continuing to violate Section 1981 and Title VII, an order requiring CBS to offer the plaintiff a full-time producer job, and damages. CBS moved to dismiss the complaint on June 24, 2024, arguing that the First Amendment protects its hiring choices and that two of the plaintiff’s Section 1981 claims were untimely.
- Latest update: On April 18, 2025, the parties filed a joint stipulation to dismiss the case with prejudice, with each party bearing its own costs. The stipulation did not reveal whether the parties entered into a settlement agreement. The court ordered the case dismissed with prejudice on April 21, 2025.

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

Do No Harm v. Nat’l Assoc. of Emergency Medical Technicians, No. 3:24-cv-00011 (S.D. Miss. 2024): On January 10, 2024, Do No Harm challenged the diversity scholarship program operated by the National Association of Emergency Medical Technicians (“NAEMT”), an advocacy group representing paramedics, EMTs, and other emergency professionals. NAEMT awards up to four $1,250 scholarships annually to students of color hoping to become EMTs or paramedics. Do No Harm requested a temporary restraining order, preliminary injunction, and permanent injunction to prevent the continued operation of the program. On January 23, 2024, the court denied Do No Harm’s motion for a TRO, and NAEMT moved to dismiss Do No Harm’s amended complaint on March 18, 2024. On March 31, 2025, the court denied the defendants’ motion to dismiss, finding Do No Harm had standing and plausibly alleged a prima facie Section 1981 violation.
- Latest update: On April 17, 2025, the parties filed a joint stipulation of dismissal, indicating that the defendant will “revise” its scholarship program to remove eligibility requirements and preferences based on race or ethnicity.

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)

A recent declination by the U.S. Department of Justice offers one example of enforcement agencies’ expectations for how companies should respond to potential criminal export control violations.

Executive Summary

On April 30, 2025, the Department of Justice (DOJ) announced that it had declined to prosecute Universities Space Research Association (USRA), a nonprofit research firm and NASA contractor, for export control violations committed by a former employee. The case was jointly investigated by the Department of Commerce’s Bureau of Industry and Security (BIS), the Department of Defense’s Defense Criminal Investigative Service, and the FBI. The Counterintelligence and Export Control Section of DOJ’s National Security Division (NSD) and the U.S. Attorney’s Office for the Northern District of California prosecuted the case.

USRA is the second company to receive a declination of prosecution under NSD’s Enforcement Policy for Business Organizations (the “Policy”). As discussed in greater detail below, this case highlights steps companies can take to minimize – or avoid altogether – criminal exposure stemming from the export control violations of employees or agents. Those steps include maintaining robust compliance programs with rigorous due diligence, oversight, and auditing capabilities to detect and address misconduct. If wrongdoing nevertheless occurs, companies can consider taking advantage of the Policy by immediately conducting internal investigations, identifying root causes of the compliance violations, taking appropriate corrective actions, and promptly self-reporting.

Factual Background

According to the press release issued by DOJ, USRA contracted with NASA in 2016 to license and distribute aeronautics-related and military-owed flight control software. Between April 2017 and September 2020, Jonathan Soong, a former USRA program administrator responsible for performing due diligence on prospective purchasers, willfully exported flight control and optimization software to Beijing University of Aeronautics and Astronautics (a.k.a. “Beihang” or “Beihang University”) in the People’s Republic of China. Since May 2001, Beihang has been listed on the Commerce Department’s Entity List due to its involvement in developing military rocket and unmanned aerial vehicle systems. Under the Export Administration Regulations (EAR), a license from the Department of Commerce is required to export the software, developed by the U.S. Army and licensed by NASA, to parties on the Entity List.

Soong’s illegal scheme continued until USRA began to investigate based on an inquiry from NASA about the sales of software licenses to China-based purchasers. Soong initially attempted to conceal his action by lying to USRA and fabricating evidence of due diligence on the purchasers. He was later confronted by USRA’s counsel and eventually admitted to knowing that Beihang was on the Entity List and that a license was required when he exported the software.

According to the Declination Letter (the “Letter”), USRA self-disclosed the violations to NSD within days of Soong’s admission of misconduct and before the completion of the internal investigation. Soong was charged with willfully violating the EAR by exporting U.S. Army-developed aviation software to Beihang. He pleaded guilty in January 2023, admitting to willfully exporting software without a license, using an intermediary to complete the transfer and export to avoid detection, and separately embezzling at least $161,000 in software license sales by directing purchasers to make payment to his personal account. Soong was sentenced to 20 months in prison.

Multiple Theories of Liability Arising From The Same Facts

Companies should be aware that corporate criminal liability results from the illegal actions of employees or agents. In the USRA case, former employee Jonathan Soong exported unlicensed software to an entity subject to EAR restrictions, diverted license payments to his personal accounts, defrauded the government in connection with a federal contract, and presented false statements and falsified documentation during or in connection with a federal proceeding. According to the Letter, DOJ could have prosecuted USRA based on Soong’s misconduct for potential violations of multiple federal criminal statutes:

violations of the EAR and the Export Control Reform Act of 2018 (ECRA) predicated on export-related violations;
violations of the International Emergency Economic Powers Act (IEEPA) predicated on export-related violations;[1]
violations of the False Claims Act predicated on a federal contractor’s knowing submission of fraudulent claims to the U.S. government with the intent to receive payment or approval;
violations of 18 U.S.C. § 1001 predicated on knowingly making false statements in “any matter within the jurisdiction” of the federal government;
violations of 18 U.S.C. § 1343 predicated on using the U.S. electronic communication wires to deceive or defraud; and
violations of 18 U.S.C. § 1512 predicated on obstruction of justice during a federal proceeding.

Mitigating Factors

A declination of prosecution is a discretionary decision by NSD not to prosecute, guided by the evaluative factors set forth in the Policy. Here, by showing that it had initially lacked knowledge of the misconduct but then responded swiftly and transparently through a robust internal investigation, USRA reinforced its status as a good corporate actor and thus earned itself a declination.

Specifically, the Letter cited to a number of mitigating factors as reasons for the declination, including USRA’s “timely and voluntary” self-disclosure of misconduct, “exceptional and proactive” cooperation with the government, and “timely and appropriate” remediation measures, such as terminating the employment of Jonathan Soong, disciplining supervisory personnel, enhancing internal compliance controls, reimbursing NASA of Soong’s salary, and compensating the U.S. Treasury for financial losses resulting from Soong’s criminal embezzlement of $161,000 in sales. The government also considered the nature and seriousness of the offense to be a contributing mitigating factor given that only four unlicensed exports of software were made and the software was based on publicly available information. Furthermore, the government determined that USRA did not obtain any unlawful gains from Soong’s offenses.

Broader Context: NSD’s Voluntary Self-Disclosure Policy and MilliporeSigma

VSD Policy

NSD is responsible for criminal enforcement of U.S. export control and sanctions laws, among other matters related to national security. To qualify for the Policy, companies should make prompt disclosure directly to NSD of all potentially criminal violations of the Arms Export Control Act (22 U.S.C. § 2778), the Export Control Reform Act (50 U.S.C. § 4819), or the International Emergency Economic Powers Act (50 U.S.C. § 1705), as well as potential violations of other criminal statutes that affect national security when they arise out of or relate to enforcement of export control and sanctions laws.

When a company:

voluntarily self-discloses to NSD potentially criminal violations arising out of or relating to the enforcement of export control or sanctions laws,
fully cooperates, and
timely and appropriately remediates the underlying causes of the violation,

absent aggravating factors, NSD generally will not seek a guilty plea, and there is a presumption that the company will receive a non-prosecution agreement and will not pay a fine. NSD also has the discretion to issue a declination when warranted by the principles of federal prosecution. See Justice Manual § 9-27.000.

A deferred prosecution agreement (DPA) or guilty plea may result if the following aggravating factors are present:

pervasive and egregious conduct, including repeat violations;
concealment or involvement by upper management;
significant profit from misconduct;
involvement with Foreign Terrorist Organizations or Specially Designated Global Terrorists;
exports of items controlled for nonproliferation or missile technology reasons; or
exports of WMD components or military items to countries of concern.

Even when a DPA or guilty plea is required, though, companies can still benefit from VSDs, as they are eligible for up to a 50% reduction in criminal fines if they receive full cooperation and remediation credit.

Recent Example: MilliporeSigma Declination

USRA is only the second declination NSD has issued under the Policy. In May 2024, NSD declined to prosecute MilliporeSigma in a factually analogous case where a company employee shipped biochemical products to a Chinese customer using falsified export documents. Notably, the MilliporeSigma case shares many common factors with USRA, including prompt disclosure of misconduct after retaining counsel and before the internal investigation concluded, proactive and full cooperation, effective remediation, and lack of corporate gain or involvement. In addition, NSD considered the limited quantities of biochemical exports as a mitigating factor.

Key Takeaways

Maintain a Robust Compliance Program

The USRA case once again underscores the importance for companies, especially those consistently dealing with sensitive or controlled technologies, to maintain robust compliance programs. An effective compliance framework should implement thorough due diligence procedures, a strong oversight mechanism, and routine audits capable of detecting potentially unauthorized activities. Although companies can work to mitigate enforcement outcomes – as USRA successfully did here – through extensive post-violation cooperation with the enforcement authorities, stronger internal control and supervisory oversight can help detect and address employee misconduct involving illicit exports and embezzlement internally and thus further reduce the serious legal and reputational risks.

Conduct an Internal Investigation

Upon uncovering the misconduct, companies are well advised to acknowledge the seriousness and urgency of the violation and promptly undertake a thorough internal investigation. USRA’s response was crucial in demonstrating to NSD that the company was effectively a defender of corporate compliance integrity, rather than an enabler of the employee’s criminal actions. The comprehensive nature of USRA’s internal investigation, coupled with its full and prompt cooperation, voluntary self-disclosure, disciplinary measures, and updates to internal controls contributed to DOJ’s successful prosecution of the employee and convinced DOJ to decline charges against the company itself.

Carefully Weigh Voluntary Self-Disclosure Considerations

The Letter recognized USRA’s timely VSD to NSD as having a significant impact on DOJ’s decision to not to bring charges against the company. By choosing to self-disclose early – within days of the employee’s admission of wrongdoing and before completing its internal investigation – USRA earned significant VSD credit under the Policy. While each voluntary self-disclosure decision is dependent on individual facts and circumstances, this case, like MilliporeSigma, showcases how voluntary and timely disclosures to DOJ has the potential to substantially reduce corporate criminal exposure by demonstrating to the government corporate responsibility and commitment to compliance.

We have decades of experience conducting investigations and supporting clients with disclosures before the Department of Commerce, State, Treasury, Justice, and other international trade regulatory and enforcement agencies of the United States. We also have the deep experience advising clients on how to construe and implement trade regulation in their business operations, which is critical to mounting the most effective defense to resulting enforcement actions when they arise. Our team includes key architects of U.S. export control enforcement policies at both the Department of Justice and Department of Commerce. David P. Burns, a co-chair of Gibson Dunn’s National Security practice group, previously held senior positions within both the Criminal Division and National Security Division of the U.S. Department of Justice prior to rejoining the firm. David served at NSD during the pivotal 2019 update to its corporate enforcement policy. Mathew S. Axelrod, a co-chair of Gibson Dunn’s newly established Sanctions and Export Enforcement practice group, recently joined the firm following his tenure at the Department of Commerce’s BIS as Assistant Secretary for Export Enforcement. While at BIS, Matt overhauled a number of the agency’s enforcement policies, including those on voluntary self-disclosures. Matt brings valuable firsthand insights to help clients navigate complex export enforcement issues.

[1] The export control system created pursuant to the Export Administration Act of 1979, a statute that expired in 2001, was continued by a presidential declaration of a national emergency and the invocation of IEEPA until the passage of the ECRA in 2018.

The following Gibson Dunn lawyers prepared this update: Matthew S. Axelrod, David P. Burns, Janice Yingzhuang Jiang, Soo-Min Chae*, Adam M. Smith, Christopher T. Timura, and Samantha Sewall.

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 Sanctions & Export Enforcement, International Trade Advisory & Enforcement, and National Security practice groups:

United States:
Matthew S. Axelrod – Co-Chair, Washington, D.C. (+1 202.955.8517, maxelrod@gibsondunn.com)
Adam M. Smith – Co-Chair, Washington, D.C. (+1 202.887.3547, asmith@gibsondunn.com)
Ronald Kirk – Dallas (+1 214.698.3295, rkirk@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)
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)
Karsten Ball – Washington, D.C. (+1 202.777.9341, kball@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)

*Soo-Min Chae, a visiting attorney based in Washington, D.C., is not admitted to practice.

In a transformative step to enhance and better protect its business environment, Saudi Arabia has enacted a new Trade Name Law, which was published in the Official Gazette (Um AlQura) on October 4, 2024, and has come into effect on April 3, 2025.

Introduction

The law came into effect on April 3, 2025, replacing the previous legislation that had been in force since November 23, 1999. The implementing regulations were published on March 30, 2025, and took effect concurrently with the new law.

This law reform marks yet another significant step in the modernization of Saudi’s legal framework, streamlining processes and fostering a transparent, efficient business landscape. Below, we outline the key features of the new law and its practical implications in Saudi Arabia.

Key Features of the New Trade Name Law

1. Simplified Trade Name Selection

The updated Trade Name Law offers businesses greater flexibility in reserving and registering trade names. Trade names can be reserved for an initial period of 60 days, with the possibility of extending for an additional 60 days. Further extensions may be granted but are subject to specific registration circumstances. Given the exclusivity associated with registered/reserved trade names, there is a greater practical need to register desired trade names ahead of time. If the reservation period expires and the procedures for the issuance of a commercial register certificate are not complete, the reservation will lapse, and the trade name will become available for reservation by any person. All reservations and extensions will be subject to payment of fees.

2. Linguistic Flexibility

The old trade names regime was renowned for its strict restrictions on the use of foreign trade names with only a few exceptions being permitted for certain foreign companies or as determined on a case-by-case basis by the Minister of Commerce. The new Trade Name Law ushers in a new era as trade names can now be registered in Arabic, transliterated Arabic (i.e., Arabic words or text that have been written using the Latin (Roman) alphabet instead of the Arabic script), English, or combinations of letters and numbers (with a maximum of 9 digits).

It is recommended that all businesses ensure linguistic consistency in branding to maximize recognition. Foreign investors will need to ensure that the foreign trade name is writable in English and is capable of being translated into Arabic.

3. Independent Trade Name Ownership

Trade names are capable of being owned, sold, or assigned to other persons, which enhances their commercial value. Given that trade names are exclusive and cannot be replicated, registering and owning a trade name provides businesses with a potentially valuable asset.

What Else Has Changed? A Deeper Look at the New Trade Name Law

Trade Name Registration Process

Article 5 of the new law provides a clearer process regarding the trade name application process, including clearer decision-making timelines of up to 10 days from the date of submission of the application, compared to the old timeline which took up to 30 days (see Article 7 of the old regulation). The decision timeline is extendable in certain cases to 30 days when external approval of a trade name is required.

The Ministry of Commerce has integrated the trade name reservation service into the Saudi Business Center portal, which now manages all trade name applications. After a trade name application is accepted, publication is now mandatory, with applicants bearing associated costs.

Priority is given to the first applicant i.e. first in time to submit an application, if multiple applications for the same name exist. If the registrar rejects an application, applicants will have 60 days to appeal to the Ministry.

Trade Name Protection Against Unauthorized Use

The new law, under its Article 6, strengthens protection against unauthorized use such that no person is entitled to use a trade name registered that belongs to someone else. A fine of SAR 10,000 is now imposed as per Article 15 of the implementing regulations to strengthen adherence to the law and limit unauthorized use of registered or reserved trade names. Businesses with registered names in the Commercial Register have the right to seek compensation for damages caused by unauthorized use. This means that the commercial register serves as proof of ownership, and any person who makes any unauthorized use of a registered trade name will have committed a violation and may be liable to pay compensation to the registered owner of the trade name.

Prohibited Trade Names

Article 7 of the new law outlines the following prohibitions:

Trade names must not violate public order or morality.
Names that are misleading, deceptive, or resemble an already registered trade name (regardless of activity type) are not allowed.
Names similar to famous trademarks are restricted unless owned by the applicant.
Names containing political, military, or religious references are prohibited.
Trade names must not resemble symbols of local, regional, or international organizations.

The Ministry of Commerce will also maintain and update a public list of prohibited names regularly, for transparency. Some of the prohibitions introduced by the Trade Names Law are quite broad in nature (particularly the prohibitions relating to “public order or morality” and “famous trademarks”).

It remains unclear how broadly these prohibitions will be interpreted and applied by the Registrar, and the practical challenges such prohibitions may create for applicants wishing to register their trade names. It also remains to be seen whether other restrictions will be unilaterally imposed by the Ministry by way of practice or by way of circumstance and how far the Ministry may go in enforcing these restrictions. To date, the Ministry has already started to reject applications containing the word “company” or that otherwise include a description of an ordinary business activity such as “regional headquarter”.

Monetary Fees for Name Reservations

Article 14 of the implementing regulation introduces the following new fee structure for trade name reservations:

SAR 200 for an Arabic trade name.
SAR 500 for an English trade name.
SAR 100 to extend reservation duration.
SAR 100 to dispose of the trade name.

New Guidelines for Trade Names Similarity Criteria

Article 5 of the implementing regulation stipulates a formal set of criteria and guidelines that will be used to determine whether a trade name is deemed too similar to an existing one, reducing ambiguity. Under these guidelines, a trade name will be considered like another if its written form closely resembles that of a registered, famous, or reserved trade name. This includes:

Identical spelling with different word arrangements.
Identical spelling with a one-letter difference.
Identical spelling with minor changes, such as adding, removing, or altering pronouns, definite articles, pluralization, or diminutives.
Identical pronunciation despite differences in spelling or numbers replacing letters, and vice versa.

Criteria mentioned above shall apply to English trade names and their corresponding wording with the use of Arabic letters.

Use of ‘Saudi’ or names of Saudi Cities and Regions in Trade Names

As per Article 4 of the implementing regulation, businesses can now reserve names containing ‘Saudi’ or the name of a Saudi city or region, subject to the following conditions:

The name must not be identical or similar to any governmental entity.
The main component or essential element of the name must not be ‘Saudi’ or a Saudi city or region.
The name must not be used in a manner that would cause harm to the reputation of the Kingdom of Saudi Arabia.
For both Makkah and Madinah regions, approval from the Royal Commission for Makkah and the Holy Sites or the Madinah Development Authority is required.

Practical Considerations for Businesses

Saudi Arabia’s new Trade Name Law enhances transparency, secures commercial identities, and increases business interests in Saudi. In line with this, businesses should consider the following:

Ensure Distinctiveness: With stricter rules on name similarity and given the relative ease of reserving/registering a trade name, applicants should conduct comprehensive trade name searches and check the Ministry’s prohibited names list before applying to avoid getting rejected.
Understand New Protections: Trade names are now valuable commercial assets—businesses should actively monitor for unauthorized use and take prompt legal action if necessary.
Consider Linguistic Strategy: With increased linguistic flexibility, businesses can choose names that enhance global branding while remaining compliant with local regulations.

For Tailored Legal Guidance

For expert legal advice on trade name registration and compliance, contact our team below.

The following Gibson Dunn lawyers prepared this update: Mohamed A. Hasan and Hadeel Tayeb.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. To learn more, please contact the Gibson Dunn lawyer with whom you usually work, or the authors in Riyadh:

Mohamed A. Hasan (+966 55 867 5974, malhasan@gibsondunn.com)

Hadeel Tayeb (+966 53 944 3329, htayeb@gibsondunn.com)

In the context of M&A agreements, the choice-of-law decision between Delaware and Texas could impact the interpretation and applicability of several common provisions. Below is a brief overview of distinctions and similarities that sellers and buyers should consider when negotiating the governing law provision.

Introduction

In large M&A transactions, sophisticated parties historically default to Delaware law to govern M&A agreements. This default treatment stems from more than just habit; it also applies in light of Delaware’s specialized business court – the Court of Chancery – decades of legal precedent, a sophisticated, business-minded judicial bench, and business-favorable statutory law, all of which combine to provide greater predictability regarding how M&A provisions will be interpreted in the event of a dispute.

However, several other states have recently renewed efforts to lure entities to incorporate in their states. In particular, Texas has created a new business court and is reforming its statutory law in an effort to encourage more companies to be formed in Texas and adjudicate their business disputes in specialized Texas business courts. If more companies choose to incorporate in Texas, and a fulsome, more predictable body of case law develops in respect of M&A disputes adjudicated in Texas, M&A counterparties may seek to supplant the standard Delaware governing law provision in their M&A agreements with a Texas governing law provision.

Below is a summary of the treatment of common M&A provisions under Delaware and Texas law and considerations for deal participants in selecting the governing law to apply to their M&A agreements.

Non-Reliance

In negotiating a non-reliance provision in an M&A agreement, the question is whether a seller can be liable for fraud for representations made outside of the transaction agreement. In Delaware, parties cannot contractually limit liability for fraud contained within the transaction agreement. However, parties can include a clear and specific non-reliance provision in the transaction agreement wherein the buyer agrees that it is not relying on representations made outside the transaction agreement. Such provisions effectively waive an essential element of a fraud claim, reliance, as it pertains to representations outside the M&A agreement, such as the confidential information memorandum.

In Texas, courts will similarly uphold clear non-reliance provisions to limit a seller’s liability for statements made outside the M&A agreement; similar to Delaware, a merger clause or a provision that states that the parties have not made representations outside the M&A agreement are insufficient to foreclose fraud liability. Consequently, carefully crafted non-reliance provisions should operate to eliminate liability for fraud outside the four corners of the M&A agreement under both Delaware and Texas law.

Sandbagging

“Sandbagging” refers to a buyer seeking indemnification for breaches of representations and warranties that it knew to be false prior to closing. Under Delaware law, if the contract is silent with respect to the ability of the buyer to recover for breaches of which it had pre-closing knowledge, a buyer can recover damages for breach of a representation even if the buyer had knowledge pre-closing that the representation was false. In other words, the buyer’s pre-closing knowledge of the breach does not matter. The policy behind this approach is that the parties negotiated for the specific terms of the contract, including the division of risk between the buyer and seller, and knowledge of the buyer should not undermine this allocation of risk.

In Texas, practitioners commonly state that reliance on the seller’s representations is required for a buyer to bring a claim for indemnification. In other words, the buyer’s knowledge does matter if the contract is silent with respect to the buyer’s ability to recover for breaches of which it had pre-closing knowledge. The policy behind this approach is that the buyer did not rely on the representation to its detriment by closing the transaction if the buyer knew the representation was false prior to closing. However, the case law in Texas addressing sandbagging is less than clear. While there is nothing in the case law suggesting that Texas follows Delaware’s view, there is not a modern case specifically accepting the proposition that the “default” in Texas is that pre-closing knowledge matters in the context of sandbagging.

Parties to agreements governed by either Delaware or Texas law can include contractual provisions specifically allowing or disallowing sandbagging. But if Texas governing law applies, it would be particularly advisable to allow or disallow sandbagging explicitly rather than remaining silent because there is some uncertainty in how Texas courts would address the issue.

Statute of Limitations

In the context of an M&A agreement, a state’s statute of limitations governs the deadline by which a party must bring a claim for breach of contract. In Delaware, the statute of limitations for non-Article 2 claims is three years. However, parties can contractually agree to lengthen the statute of limitations to up to twenty years so long as the contract is in writing and involves at least $100,000. The statute of limitations in Texas for non-Article 2 transactions is four years. In contrast to Delaware, parties may not contractually agree to lengthen the statute of limitations beyond the four-year statutory period. As a result, Delaware affords parties more flexibility than Texas to negotiate a longer contractual survival period for breach claims.

Material Adverse Effect

An M&A agreement will often allow a buyer to walk away from a deal in the interim period between signing and closing if the seller’s business suffers a significant negative impact. This concept is contained within a material adverse effect (MAE) closing condition. Whether a particular occurrence constitutes an MAE can be a source of negotiation and disagreement.

There is a long line of Delaware cases interpreting the meaning of MAE clauses. In general, under this line of cases, the buyer must show that the negative change is long-term, unforeseen, and will have a substantial impact on the seller’s business. The negative impact must be seller-specific; industry-wide downturns are generally insufficient even if the impact on the seller’s business is severe. Even in Delaware courts, where MAE cases are commonly litigated, judicial determinations that an event constituted an MAE are extremely rare. A commonly repeated industry rule-of-thumb is that the seller’s financial results must decline at least 20% to trigger an MAE walk-away right.

In contrast to Delaware, very little case law in Texas exists interpreting MAE clauses. As in Delaware, whether an event is an MAE will likely depend upon the contractual language and the facts. Because the breadth of case law in Delaware provides parties a higher degree of predictability, parties signing M&A agreements governed by Texas law should be aware that in the event of future litigation, there is greater uncertainty regarding the ultimate interpretation of the MAE clause. This uncertainty may weigh in favor of including more precise contractual language in the M&A agreement describing the parties’ intent regarding what constitutes an MAE.

Lost Premium Damages

In an M&A deal where the target is a public company, the counterparties often negotiate what damages the target company can obtain in the event of a termination of the deal due to the buyer’s breach. A potential measure of damages is the diminution in the target’s share price caused by the deal failing to close, otherwise known as lost premium damages. Whether lost premium damages are an appropriate measure of damages has been hotly contested because the recovery, theoretically paid to compensate the shareholders, is retained by the target company. Some argue in favor of lost premium damages because of the practical difficulty in calculating damages without using the diminution in share price, because buyers would otherwise lack incentives to close the deal, and because the shareholders’ interests in the transaction closing closely mirror the target’s interest. Others argue against awarding lost premium damages because the shareholders, who were neither party to the M&A agreement nor third-party beneficiaries thereunder, cannot recover the damages themselves.

Following the latter reasoning, courts in Delaware historically have been reluctant to allow lost premium damages. In response to this reluctance, the Delaware General Corporation Law was amended in 2024 to specifically allow lost premium damages so long as the transaction agreement contains a provision allowing loss in shareholder value to be used as a measure of damages. Courts in Texas have not yet addressed the issue of lost premium damages. Given the debate outlined above, how Texas courts would view these provisions is uncertain.

If lost premium damages are a desired remedy, parties to M&A agreements governed by Delaware and Texas law should include a clause in the agreement specifically allowing lost premium damages. However, in the case of M&A agreements governed by Texas law, practitioners should consider additional contractual protections in the event that the lost premium provision is not upheld in court.

Successor Liability in Asset Purchases

Buyers in asset purchases typically do not inherit the seller’s obligations that are not specifically assumed liabilities in the deal. However, buyers can be liable for the seller’s debts and obligations, also termed successor liability, under several common law theories. First, the buyer expressly or impliedly assumes the liability under the transaction. Second, the transaction is a de facto merger under state law. Third, the transaction is fraudulent or was entered into to defraud creditors. Fourth, the buyer is a mere continuation of the seller.

Courts in Delaware mostly reject the traditional theories of successor liability and only impose liability on the buyer if the buyer expressly assumes the liability or if not allowing a creditor to recover from the buyer would be unjust given the circumstances. There is limited case law upholding successor liability under the traditional theories, but Delaware courts construe these narrowly. As a result, successor liability is relatively uncommon in Delaware.

In contrast, Texas’ successor liability law is governed by statute and is more restrictive than Delaware. Under the Texas Business Organizations Code, a buyer is not subject to successor liability unless required by statutory law or unless the buyer expressly assumes the liability under the transaction. This approach rejects the common law theories wholesale and provides parties with more certainty regarding whether a buyer can be held liable post-closing for a liability of the seller. In determining whether to subject the M&A agreement to Texas or Delaware governing law in the context of an asset purchase transaction, particularly in a transaction where the buyer wants to exclude particularly significant liabilities from the transaction, the buyer should weigh the treatment of successor liability issues under Delaware common law versus Texas’ statutory regime.

Conclusion

Delaware law is the default governing law for many M&A agreements due to its decades of case law, sophisticated bench, and business-friendly statutory law, which provide a high degree of certainty regarding the likely outcome of disputed matters. While Texas continues to build out its body of case law, there will be, in some respects, greater uncertainty for M&A agreements governed by Texas law. However, by being informed of the subtle differences in the relevant Delaware and Texas law, utilizing clear language that has been upheld in other jurisdictions, and contracting in the alternative so that protections are in place regardless of judicial interpretation, parties seeking to subject their M&A agreements to Texas governing law can help bridge the uncertainty gap.

The following Gibson Dunn lawyers prepared this update: Robert Little and Marie Baldwin.

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

Mergers & Acquisitions:
Robert B. Little – Dallas (+1 214.698.3260, rlittle@gibsondunn.com)
Saee Muzumdar – New York (+1 212.351.3966, smuzumdar@gibsondunn.com)
George Sampas – New York (+1 212.351.6300, gsampas@gibsondunn.com)

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

From the Derivatives Practice Group: This week, ESMA was active, publishing various reports and guidelines concerning non-equity instruments, liquidity assessments of bonds, and data usage.

New Developments

SEC Publishes New Market Data, Analysis, and Visualizations. On April 28, the SEC’s Division of Economic and Risk Analysis (“DERA”) has published new data and analysis on the key market areas of public issuers, exempt offerings, Commercial Mortgage-Backed Securities (“CMBS”), Asset-Backed Securities (“ABS”), money market funds, and security-based swap dealers (“SBSD”) in an effort to increase transparency and understanding of our capital markets amongst the public. [NEW]
Paul S. Atkins Sworn in as SEC Chairman. On April 21, Paul S. Atkins was sworn into office as the 34th Chairman of the SEC. Chairman Atkins was nominated by President Donald J. Trump on January 20, 2025, and confirmed by the U.S. Senate on April 9, 2025. Prior to returning to the SEC, Chairman Atkins was most recently chief executive of Patomak Global Partners, a company he founded in 2009. Chairman Atkins helped lead efforts to develop best practices for the digital asset sector. He served as an independent director and non-executive chairman of the board of BATS Global Markets, Inc. from 2012 to 2015.
CFTC Staff Seek Public Comment Regarding Perpetual Contracts in Derivatives Markets. On April 21, the CFTC issued a Request for Comment to better inform them on the potential uses, benefits, and risks of perpetual contracts in the derivatives markets the CFTC regulates (“Perpetual Derivatives”). This request seeks comment on the characteristics of perpetual derivatives, including those characteristics which may differ across products. as well as the implications of their use in trading, clearing and risk management. The request also seeks comment on the risks of perpetual derivatives, including risks related to the areas of market integrity, customer protection, or retail trading.
CFTC Staff Seek Public Comment on 24/7 Trading. On April 21, the CFTC issued a Request for Comment to better inform them on the potential uses, benefits, and risks of trading on a 24/7 basis in the derivatives markets the CFTC regulates. This request seeks comment on the implications of extending the trading of CFTC-regulated derivatives markets to an effectively 24/7 basis, including the potential effects on trading, clearing and risk management which differ from trading during current market hours. The request also seeks comment on the risks of 24/7 trading, and the associated clearing systems, including risks related to the areas of market integrity, customer protection, or retail trading.
CFTC Staff Issues Advisory on Referrals to the Division of Enforcement. On April 17, the CFTC’s Market Participants Division, the Division of Clearing and Risk, and the Division of Market Oversight (“Operating Divisions”) and the Division of Enforcement (“DOE”) issued a staff advisory providing guidance on the materiality or other criteria that the Operating Divisions will use to determine whether to make a referral to DOE for self-reported violations, or supervision or non-compliance issues. According to the CFTC, this advisory furthers the implementation of DOE’s recent advisory, issued February 25, 2025, addressing its updated policy on self-reporting, cooperation, and remediation.
CFTC Staff Issues No-Action Letter Regarding the Merger of UBS Group and Credit Suisse Group. On April 15, the CFTC’s Market Participants Division (“MPD”) and Division of Clearing and Risk (“DCR”) issued a no-action letter in response to a request from UBS AG regarding the CFTC’s swap clearing and uncleared swap margin requirements. The CFTC said that the letter is in connection with a court-supervised transfer, consistent with United Kingdom laws, of certain swaps from Credit Suisse International to UBS AG London Branch following the merger of UBS Group AG and Credit Suisse Group AG. The no-action letter states, in connection with such transfer and subject to certain specified conditions: (1) MPD will not recommend the Commission take an enforcement action against certain of UBS AG London Branch’s swap dealer counterparties for their failure to comply with the CFTC’s uncleared swap margin requirements for such transferred swaps; and (2) DCR will not recommend the Commission take an enforcement action against UBS AG or certain of its counterparties for their failure to comply with the CFTC’s swap clearing requirement for such transferred swaps.
CFTC Staff Issues Interpretation Regarding U.S. Treasury Exchange-Traded Funds as Eligible Margin Collateral for Uncleared Swaps. On April 14, MPD issued an interpretation intended to clarify the types of assets that qualify as eligible margin collateral for certain uncleared swap transactions under CFTC regulations. CFTC Regulation 23.156 lists the types of collateral that covered swaps entities can post or collect as initial margin (“IM”) and variation margin (“VM”) for uncleared swap transactions. The CFTC indicated that the regulation, which includes “redeemable securities in a pooled investment fund” as eligible IM collateral, aims to identify assets that are liquid and will hold their value in times of financial stress. Additionally, MPD noted that the interpretation clarifies its view that shares of certain U.S. Treasury exchange-traded funds may be considered redeemable securities in a pooled investment fund and may qualify as eligible IM and VM collateral subject to the conditions in CFTC Regulation 23.156. According to MPD, swap dealers, therefore, (1) may post and collect shares of certain UST ETFs as IM collateral for uncleared swap transactions with any covered counterparty and (2) may also post and collect such UST ETF shares as VM for uncleared swap transactions with financial end users.

New Developments Outside the U.S.

ESMA Publishes the Annual Transparency Calculations for Non-equity Instruments and Bond Liquidity Data. On April 30, the European Securities and Markets Authority (“ESMA”), the EU’s financial markets regulator and supervisor, published the results of the annual transparency calculations for non-equity instruments and new quarterly liquidity assessment of bonds under MiFID II and MiFIR. [NEW]
ESMA Report Shows Increased Data Use Across EU and First Effects of Reporting Burden Reduction Efforts. On April 30, ESMA published the fifth edition of its Report on the Quality and Use of Data. The report reveals how the regulatory data collected has been used by authorities in the EU and provides insight into actions taken to ensure data quality. The document presents concrete cases on data use ranging from market monitoring to supervision, enforcement and policy making. The report also highlights ESMA’s Data Platform and ongoing improvements to data quality frameworks as key advancements in tools and technology for data quality. [NEW]
ESMA Issues Supervisory Guidelines to Prevent Market Abuse under MiCA. On April 29, ESMA published guidelines on supervisory practices to prevent and detect market abuse under the Market in Crypto Assets Regulation (“MiCA”). Based on ESMA’s experience under Market Abuse Regulation (“MAR”), the guidelines intended for National Competent Authorities (“NCAs”) include general principles for effective supervision and specific practices for detecting and preventing market abuse in crypto assets. They consider the unique features of crypto trading, such as its cross-border nature and the intensive use of social media. [NEW]
ESMA Assesses the Risks Posed by the Use of Leverage in the Fund Sector. On April 24, ESMA published its annual risk assessment of leveraged alternative investment funds (“AIFs”) and its first analysis on risks in UCITS using the absolute Value-at-Risk (“VaR”) approach. Both articles represent ESMA’s work to identify highly leveraged funds in the EU investment sector and assess their potential systemic relevance.
ESAs Publish Joint Annual Report for 2024. On April 16, the Joint Committee of the European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) published its 2024 Annual Report. The main areas of cross-sectoral focus in 2024 were joint risk assessments, sustainable finance, operational risk and digital resilience, consumer protection, financial innovation, securitisation, financial conglomerates and the European Single Access Point (“ESAP”). Among the Joint Committee’s main deliverables were policy products for the implementation of the Digital Operational Resilience Act (“DORA”) as well as ongoing work related to the Sustainable Finance Disclosure Regulation.
EC Publishes Consultation on the Integration of EU Capital Markets. On April 15, the European Commission (“EC”) published a targeted consultation on the integration of EU capital markets. This forms part of the EC’s plan to progress the Savings and Investment Union (“SIU”) strategy, published in March. According to the EC, the objective of the consultation is to identify legal, regulatory, technological and operational barriers hindering the development of integrated capital markets. Its focus includes barriers related to trading, post-trading infrastructures and the cross-border distribution of funds, as well as barriers specifically linked to supervision. The deadline for responses is June 10, 2025.
Japan’s Financial Services Agency Publishes Explanatory Document on Counterparty Credit Risk Management. On April 14, Japan’s Financial Services Agency (“JFSA”) published an explanatory document on the Basel Committee on Banking Supervision’s Guidelines for Counterparty Credit Risk Management. The document, co-authored with the Bank of Japan, indicates that it was published to facilitate better understanding of the Basel Committee’s guidelines and is available in Japanese only.

New Industry-Led Developments

ISDA Responds to FASB Proposal on KPIs for Business Entities. On April 30, ISDA submitted a response to the Financial Accounting Standards Board’s (“FASB”) proposal on financial key performance indicators (“KPIs”) for business entities. In the response, ISDA addressed the implications of KPI standardization, its potential impact on financial reporting and risk management, and the broader cost-benefit considerations for preparers and investors. Based on proprietary analysis, ISDA does not view financial KPI standardization or the proposed disclosures as urgent priorities for the FASB at this time. [NEW]
CPMI-IOSCO Assesses that EU has Implemented Principles for Financial Market Infrastructures for Two FMI Types. On April 28, CPMI-IOSCO released a report that assessed the completeness and consistency of the legal, regulatory and oversight framework in place as of October 30, 2019. The report finds that the implementation of the Principles for Financial Market Infrastructures is complete and consistent for all Principles for payment systems. The legal, regulatory and oversight frameworks in the EU for central securities depositories and securities settlement systems are complete and consistent with the Principles in most aspects. However, the assessment identified some areas for improvement, particularly in aspects where implementation was broadly, partly, or not consistent, including risk and governance principles. [NEW]
ISDA/IIF Responds to EC’s Consultation on the Market Risk Prudential Framework. On April 22, ISDA and the Institute of International Finance (“IIF”) submitted a joint response to the EC’s consultation on the application of the market risk prudential framework. The associations believe the capital framework should be risk-appropriate and as consistent as possible across jurisdictions to ensure a level playing field without competitive distortions due to divergent rules.
ISDA and FIA Respond to Consultation on Commodity Derivatives Markets. On April 22, ISDA and FIA submitted a joint response to the EC’s consultation on the functioning of commodity derivatives markets and certain aspects relating to spot energy markets. In addition to questions on position management, reporting and limits and the ancillary activities exemption, the consultation also addressed data and reporting and certain concepts raised in the Draghi report, such as a market correction mechanism to cap pricing of natural gas and an obligation to trade certain commodity derivatives in the EU only.
ISDA Submits Letter on Environmental Credits. On April 15, ISDA submitted a response to the Financial Accounting Standards Board’s (FASB) consultation on environmental credits and environmental credit obligations. ISDA said that the response supports the FASB’s overall proposals to establish clear and consistent accounting guidance for environmental credits, but highlights that clarification is needed in certain areas, including those related to recognition, derecognition, impairment and hedge accounting impacts.

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

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

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

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

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

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

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

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

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)

For the eighth successive Congress, Gibson Dunn is pleased to release a table of authorities summarizing the oversight and investigative (O&I) authorities of each House and Senate committee. Congressional investigations can arise with little warning and immediately attract the media spotlight. Understanding the full extent of a committee’s investigative arsenal is crucial to successfully navigating a congressional investigation.

Congressional committees have broad investigatory powers, including the power to issue subpoenas to compel witnesses to produce documents, testify at committee hearings, and, in some cases, appear for depositions.

Unique Features of Congressional Investigations

Congressional investigations are unlike more familiar executive branch investigations in several respects. First, there are often complex motivations at work. Committee chairs may want to advance their political agenda, heighten their public profile, develop support for a legislative proposal, expose alleged criminal wrongdoing or unethical practices, pressure a company to take certain actions, or respond to public outcry. Recognizing these underlying objectives and evaluating the political context surrounding an inquiry can therefore be a key component of developing an effective response strategy.

Second, Congress’s power to investigate is broad—as broad as its legislative authority—which can often make investigations unpredictable. The “power of inquiry” is inherent in Congress’s authority to “enact and appropriate under the Constitution.”[1] And while Congress’s investigatory power is not a limitless authorization to probe any private affair or to conduct law enforcement investigations, but rather must further a valid legislative purpose,[2] the term “legislative purpose” is understood broadly to include gathering information not only for the purpose of legislating, but also for overseeing governmental matters and informing the public about the workings of government.[3]

Finally, unlike the relatively controlled environment of a courtroom or a confidential investigation, congressional investigations often unfold through public letters and subpoenas and before television cameras in hearing rooms. Targets must coordinate their legal, political, and communications strategies to respond effectively.

Investigatory Tools of Congressional Committees

Congress has a broad range of investigatory tools at its disposal, which enable it to gather information, ensure compliance with legal and regulatory standards, and inform legislative and policy agendas. Although many of Congress’s tools present opportunities for targets to comply voluntarily, it does have the ability to issue subpoenas to compel the production of documents and testimony. It is essential for subjects of congressional oversight to understand both the scope and the limitations of these investigatory powers in order to respond effectively.

Requests for Information: Any member of Congress may request information from an individual or entity, including through documents, briefings, or other formats.[4] Absent the issuance of a subpoena, responding to such requests is voluntary as a legal matter (although of course there may be public or political pressure to respond). As such, recipients of such requests should carefully consider the merits of different degrees of engagement.
Interviews: Interviews also are voluntary, led by committee staff, and occur in private (in person or remotely). They tend to be less formal than depositions and are sometimes transcribed. Committee staff may take copious notes and rely on interview testimony in subsequent hearings or public reports. Although interviews are typically not conducted under oath, false statements to congressional staff can be criminally punishable as a felony under 18 U.S.C. § 1001.

Depositions: Depositions can be compulsory, transcribed, and taken under oath. As such, depositions tend to be more formal than interviews and are similar to those in traditional litigation. The number of committees with authority to conduct staff depositions has increased significantly over the last few years, and a member no longer needs to be present in a House committee deposition.

Hearings: While both depositions and interviews allow committees to acquire information quickly and (at least in many circumstances) confidentially,[5] testimony at hearings, unless on a sensitive topic, is conducted in a public session led by the members themselves (or, on occasion, committee counsel).[6] Hearings can either occur at the end of a lengthy staff investigation or take place more rapidly, often in response to an event that has garnered public and congressional concern. Most akin to a trial in litigation (though without many of the procedural protections or the evidentiary rules applicable in judicial proceedings), hearings are often high profile and require significant preparation to navigate successfully.
Executive Branch Referral: Congress also has the power to refer its investigatory findings to the executive branch for criminal prosecution. After a referral from Congress (or independently on its own initiative), the Department of Justice may charge an individual or entity with making false statements to Congress, obstruction of justice, or destruction of evidence. Importantly, while Congress may make a referral, the executive branch retains the discretion to prosecute, or not.

Subpoena Power

As noted, Congress will usually seek voluntary compliance with its requests for information or testimony as an initial matter. If requests for voluntary compliance are met with resistance, however, or if time is of the essence, Congress may compel disclosure of information or testimony by issuing a subpoena.[7] Like Congress’s power of inquiry generally, there is no explicit constitutional provision granting Congress the right to issue subpoenas.[8] But the Supreme Court has recognized that the issuance of subpoenas is “a legitimate use by Congress of its power to investigate” and its use is protected from judicial interference in some respects by the Speech or Debate Clause.[9] Congressional subpoenas are subject to few legal challenges,[10] and “there is virtually no pre-enforcement review of a congressional subpoena” in most circumstances.[11]

The authority to issue subpoenas is initially governed by the rules of the House and Senate, which delegate further rulemaking to each committee.[12] While every standing committee in the House and Senate has the authority to issue subpoenas, the specific requirements for issuing a subpoena vary by committee. These rules are still being developed by the committees of the 119th Congress and can take many forms. For example, in the 118th Congress, most House committee chairs were authorized to issue subpoenas unilaterally if they provided notice to the ranking member. Other chairs, however, required approval of the ranking member, or, upon the ranking member’s objection, required a vote of the majority of the committee in order to issue a subpoena.

Contempt of Congress

Failure to comply with a subpoena can result in one of three enforcement avenues: a criminal contempt referral, a civil contempt action, or exercise of Congress’s inherent contempt power.

Statutory Criminal Contempt Power: Congress possesses statutory authority to certify recalcitrant witnesses for criminal contempt prosecutions in federal court. In 1857, Congress enacted this criminal contempt statute as a supplement to its inherent authority.[13] Under the statute, a person who refuses to comply with a congressional subpoena is guilty of a misdemeanor and subject to a fine and imprisonment.[14] “Importantly, while Congress initiates an action under the criminal contempt statute, the Executive Branch prosecutes.”[15] This relieves Congress of the burdens associated with its inherent contempt authority. The statute simply requires the House or Senate to certify a contempt finding to the Department of Justice. Thereafter, the statute provides that it is the “duty” of the “appropriate United States attorney” to prosecute the matter,[16] although the Department of Justice maintains that it always retains discretion not to prosecute and often declines to do so. Although Congress rarely uses its criminal contempt authority, the House Democratic majority, following the events of January 6, 2021, employed it against a flurry of Trump administration officials, including Attorney General Bill Barr, Secretary of Commerce Wilbur Ross, Secretary of Homeland Security Chad Wolff, political adviser Steve Bannon, Trade Director Peter Navarro, and White House Chief of Staff Mark Meadows. The Department of Justice prosecuted Bannon and Navarro for defying subpoenas from the Select January 6 Committee. Juries found each guilty, and the D.C. Circuit upheld Bannon’s conviction.[17] In September 2024, the Senate unanimously voted to find Ralph de la Torre, the CEO of a bankrupt hospital operator, Steward Health Care, in contempt of the Senate and to certify the report of his contempt to the U.S. Attorney for prosecution. This was the first time the Senate had held someone in criminal contempt since 1971.[18]

Civil Enforcement Authority: Congress may seek civil enforcement of its subpoenas, which is often referred to as civil contempt. The Senate’s civil enforcement power is expressly codified.[19] This statute authorizes the Senate to seek enforcement of legislative subpoenas issued to private parties in a U.S. District Court. In contrast, the House does not have a civil contempt statute, but federal district judges have held that it may pursue a civil contempt action “by passing a resolution creating a special investigatory panel with the power to seek judicial orders or by granting the power to seek such orders to a standing committee.”[20]

Inherent Contempt Power: The oldest, and least relied upon, form of compulsion is Congress’s inherent contempt power. The inherent contempt power has not been used by either body since 1935.[21] Much like the subpoena power itself, the inherent contempt power is not specifically authorized in the Constitution, but the Supreme Court has recognized its existence and legitimacy.[22] To exercise this power, the House or Senate must pass a resolution and then conduct a full trial or evidentiary proceeding, followed by debate and (if contempt is found to have been committed) imposition of punishment.[23] As is apparent in this description, the inherent contempt authority is cumbersome and inefficient, and it is potentially fraught with political peril for legislators.[24]

Committee Procedural Rules

Committees may adopt their own procedural rules for issuing subpoenas, taking testimony, and conducting depositions, and many committees update their rules each Congress. Committees are also subject to the rules of the full House or Senate, and, in the House, the Chair of the Committee on Rules issues regulations prescribing general deposition procedures applicable to all committees. Typically, House committee chairs can issue subpoenas unilaterally, while Senate committees generally cannot. To issue a subpoena, Senate committee rules for all but one committee—Homeland Security and Governmental Affairs—and one subcommittee—Permanent Subcommittee on Investigations—require (1) consent from the Ranking Member or (2) a majority vote of the committee to authorize the subpoena.

Further, House and Senate committees afford certain subcommittees the authority to authorize the issuance of subpoenas. House Rules provide that subcommittees may authorize and issue subpoenas by a majority vote of subcommittee members.[25] In the 119th Congress, 13 House committees have given a total of 71 subcommittees subpoena authority—either implicitly or explicitly—through committee rules.[26] On the other hand, 7 committees[27] either limit or proscribe subcommittee subpoena authority, often because committee rules delegate subpoena authority solely to the committee chair. In contrast with the House, only 3 Senate committees[28]—Banking, Housing, and Urban Affairs; Health, Education, Labor, and Pensions; and Homeland Security and Governmental Affairs—provide for 12 subcommittees to exercise subpoena authority.

Failing to comply with a subpoena from a committee or to otherwise adhere to committee rules during an investigation may have severe legal, strategic, and reputational consequences. If a subpoena recipient refuses to comply with a subpoena, committees may resort to additional demands, initiate judicial enforcement or contempt proceedings (as noted above), and/or generate negative press coverage of the noncompliant recipient. Although rarely used, criminal contempt prosecutions can also be brought in the event of willful refusals to comply with lawful congressional subpoenas. As we have detailed in previous client alerts,[29] however, defenses exist to congressional subpoenas, including challenging a committee’s jurisdiction or failure to follow applicable rules, asserting attorney-client privilege and work product claims, and raising constitutional challenges.

Under the Republican majority, committee investigations have focused on censorship of conservative speech, China, environmental issues, discrimination, including failure to adequately address antisemitism, media bias, debanking, COVID origins and vaccines, and antitrust issues. We also anticipate that committees in both chambers will pursue investigations regarding healthcare, cybersecurity, and other topics.[30]

This client alert provides a table that presents the key investigative powers and authorities for each House and Senate committee. The table includes information for each committee that answers key O&I related questions, including:

What is the scope of the committee’s investigative authority?
What are the procedures for exercising the committee’s subpoena power?
Can the chair of the committee issue a subpoena unilaterally?
Does the committee permit staff to question witnesses at a hearing?
Can the committee compel a witness to sit for a deposition? If so, what are the procedures for doing so?
What are the rules that apply to depositions before the committee?

Below, we have highlighted noteworthy changes in the committee rules, which House and Senate committees of the 119th Congress adopted earlier this year.[31]

Noteworthy Changes

House

As we detailed in a client alert from earlier this year,[32] House Republicans will continue to use expansive investigative tools, including the ability to issue subpoenas without consulting the minority and deposition powers that allow staff to conduct depositions without members present.
The Rules of the 119th Congress reauthorized the Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party and broadened its jurisdiction.[33] The Select Committee’s expanded jurisdiction now consists of “policy recommendations on countering the economic, technological, security, and ideological threats of the Chinese Communist Party to the United States and allies and partners of the United States,”[34] a seemingly broader and more pointed focus than its jurisdiction in the 118th Congress, which was “to investigate and submit policy recommendations on the status of the Chinese Communist Party’s economic, technological, and security progress and its competition with the United States.”[35]

Senate

In the Senate, the new Republican majority can make use of unilateral subpoena authority on one committee—Homeland Security and Governmental Affairs—and one subcommittee—Permanent Subcommittee on Investigations. Three committees—Agriculture, Nutrition, and Forestry, Small Business and Entrepreneurship, and Veterans’ Affairs—afford the committee Chair qualified unilateral subpoena authority, requiring the Chair to notify the Ranking Member and, if the Ranking Member does not communicate their objection within a period of 48 to 72 hours, the Chair may issue the subpoena without the Ranking Member’s approval.
Of note, the Committee on Commerce, Science, and Transportation scheduled a mark up in January 2025 to change its rules to give the Chair unilateral subpoena authority. The Committee postponed the markup which, to date, has not been rescheduled.[36] Accordingly, the Committee is currently operating under its rules from the 118th Congress, meaning that for the Chair to issue a subpoena the Ranking Member must consent or the Committee must authorize the subpoena through a majority vote.[37]

Our table of authorities provides an overview of how individual committees can compel a witness to cooperate with their investigations. But each committee conducts congressional investigations in its own particular way, and investigations vary materially even within a particular committee. While our table of authorities provides a general overview of what rules apply in given circumstances, it is essential to look carefully at a committee’s rules and be familiar with its practices to understand how its authorities apply in a particular context.

Gibson Dunn lawyers have extensive experience defending targets of and witnesses in congressional investigations. They know how investigative committees operate and can anticipate strategies and moves in particular circumstances because they also ran or advised on congressional investigations when they worked on the Hill. If you have any questions about how a committee’s rules apply in a given circumstance or the ways in which a particular committee tends to exercise its authorities, please feel free to contact us for assistance. We are available to assist should a congressional committee seek testimony, information, or documents from you.

[1] Barenblatt v. United States, 360 U.S. 109, 111 (1957).

[2] See Wilkinson v. United States, 365 U.S. 399, 408-09 (1961); Watkins v. United States, 354 U.S. 178, 199-201 (1957).

[3] Michael D. Bopp, Gustav W. Eyler, & Scott M. Richardson, Trouble Ahead, Trouble Behind: Executive Branch Enforcement of Congressional Investigations, 25 Corn. J. of Law & Pub. Policy 453, 456-57 (2015).

[4] Id.

[5] Id. at 457.

[6] Id. at 456-57.

[7] Id. at 457.

[8] Id.

[9] Eastland v. U.S. Servicemen’s Fund, 421 U.S. 491, 504 (1975).

[10] Bopp, supra note 3, at 458.

[11] Id. at 459. The principal exception to this general rule arises when a congressional subpoena is directed to a custodian of records in which a third party (typically the actual target of the investigation) has a legal interest. In those circumstances, the Speech or Debate Clause does not bar judicial challenges brought by the third party seeking to enjoin the custodian from complying with the subpoena, and courts have reviewed the validity of such subpoenas. See, e.g., Trump v. Mazars, 140 S. Ct. 2019 (2020); Bean LLC v. John Doe Bank, 291 F. Supp. 3d 34 (D.D.C. 2018). It also could be argued that a subpoena is subject to pre-enforcement challenge if it lacks a valid legislative purpose. The idea is that the Speech or Debate Clause might not preclude a preemptive litigation challenge to such a subpoena on the rationale that a subpoena lacking any valid legislative purpose is not a legislative act at all. In Trump v. Committee on Ways & Means, the district court explained that “in the context of investigations, and in particular cases involving congressional efforts to gather information, . . . Speech or Debate Clause immunity is available only when those efforts are undertaken for a legitimate legislative purpose, that is, to gather information ‘concerning a subject “on which legislation could be had.”‘“ 415 F. Supp. 3d 38, 45-46 (D.D.C. 2019) (quoting McSurely v. McClellan, 553 F.2d 1277, 1284-85 (D.C. Cir. 1976) (en banc), in turn quoting Eastland, 421 U.S. at 506). The argument faces the challenges discussed earlier in that we have not seen a successful challenge based on the absence of a legislative purpose in nearly a century and a half.

[12] Bopp, supra note 3 at 458.

[13] Id. at 461.

[14] See 2 U.S.C. §§ 192 and 194.

[15] Bopp, supra note 3, at 462.

[16] See 2 U.S.C. § 194.

[17] United States v. Bannon, 101 F.4th 16, 18 (D.C. Cir. 2024). Navarro’s appeal from his conviction is still pending before the court of appeals. See United States v. Navarro, No. 24-3006 (D.C. Cir.).

[18] 170 Cong. Rec. S6405-02 (daily ed. Sept. 25, 2024); S. Res. 837 (118th Cong.).

[19] See 2 U.S.C. §§ 288b(b), 288d.

[20] Bopp, supra note 3, at 465. A panel of the U.S. Court of Appeals for the D.C. Circuit ruled in August 2020 that the House may not seek civil enforcement of a subpoena absent statutory authority. Committee on the Judiciary of the United States House of Representatives v. McGahn, 973 F.3d 121 (D.C. Cir. 2020). That decision was vacated when the D.C. Circuit decided to rehear the case en banc, but the case then settled without a final judicial resolution, thereby leaving the question unresolved in the D.C. Circuit.

[21] See Congress’s Contempt Power and the Enforcement of Congressional Subpoenas: Law, History, Practice, and Procedure, Congressional Research Service (May 12, 2017), at 12.

[22] Bopp, supra note 3, at 460 (citing Anderson v. Dunn, 19 U.S. 204, 228 (1821)).

[23] Id.

[24] Id. at 466.

[25] House Rule XI(2)(m).

[26] Ten committees—Agriculture, Appropriations, Armed Services, Education and Workforce, Ethics, Foreign Affairs, Judiciary, Oversight and Government Reform, Rules, and Transportation and Infrastructure—either explicitly or implicitly provide for subcommittee subpoena authority. Three committees—House Administration, Natural Resources, and Small Business—do not reference subcommittee subpoena authority and thus default to House Rules’ default provision that allows for such authority. Two committees—the Committee on the Budget and the Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party—do not have any subcommittees.

[27] Energy and Commerce; Financial Services; Homeland Security; Permanent Select Committee on Intelligence; Science, Space, and Technology; Veterans’ Affairs; and Ways and Means.

[28] Nine committees do not provide for subcommittee subpoena authority: Agriculture, Nutrition, and Forestry; Appropriations; Armed Services; Commerce, Science, and Transportation; Energy and Natural Resources; Environment and Public Works; Finance; Foreign Relations; and Judiciary. Seven committees do not have any subcommittees: Special Committee on Aging, Budget, Ethics, Indian Affairs, Rules and Administration, Small Business and Entrepreneurship, and Veterans’ Affairs.

[29] Congressional Investigations in the 119th Congress (Jan. 22, 2025), https://www.gibsondunn.com/congressional-investigations-in-the-119th-congress/.

[30] Id.

[31] This alert will be updated to reflect several committees finalizing their rules and any subsequent changes to already-adopted committee rules.

[32] Congressional Investigations in the 119th Congress, supra note 1.

[33] See H.R. Res. 5, 119th Cong. § 4(a) (2025).

[34] Id. § 4(a)(2) (2025) (emphasis added).

[35] H.R. Res. 11, 118th Cong. § 1(b)(2) (2023) (emphasis added).

[36] Senate Commerce Committee, Executive Session 2 (Postponed), January 29, 2025, https://www.commerce.senate.gov/2025/1/executive-session-2_2.

[37] Senate Commerce Committee, Rules of the Committee, https://www.commerce.senate.gov/committee-rules.

Please click below to view the complete Table of Authorities of House & Senate 119th Congress:

Table of Authorities

The following Gibson Dunn lawyers assisted in preparing this update: Michael Bopp, Thomas Hungar, Jillian Katterhagen, Kareem Ramadan, Maya Jeyendran, Tate Rosenblatt, and Kelly Yahner.

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 Congressional Investigations or Public Policy practice groups, or the following authors:

Michael D. Bopp – Chair, Congressional Investigations Practice Group,
(+1 202.955.8256, mbopp@gibsondunn.com)

Stuart F. Delery – Co-Chair, Administrative Law & Regulatory Practice Group,
(+1 202.955.8515, sdelery@gibsondunn.com)

Barry H. Berke – Co-Chair, Litigation Practice Group,
(+1 212.351.3860, bberke@gibsondunn.com)

Thomas G. Hungar – Partner, Appellate & Constitutional Law Practice Group,
(+1 202-887-3784, thungar@gibsondunn.com)

Amanda H. Neely – Of Counsel, Congressional Investigations Practice Group,
(+1 202.777.9566, aneely@gibsondunn.com)

Sophia Brill – Of Counsel, Congressional Investigations Practice Group,
(+1.202.887.3530, sbrill@gibsondunn.com)

Jillian N. Katterhagen – Associate Attorney, Congressional Investigations Practice Group,
(1.202.955.8283, jkatterhagen@gibsondunn.com)

Kareem W. Ramadan – Associate Attorney, Congressional Investigations Practice Group
(+1.202.887.3542, kramadan@gibsondunn.com)

Kelly M. Yahner – Associate Attorney, Congressional Investigations Practice Group
(+1.202.777.9581, kyahner@gibsondunn.com)

We are pleased to provide you with the April 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

The federal banking agencies continue to revisit their approach to digital asset- and blockchain-related activities.
- The Board of Governors of the Federal Reserve System (Federal Reserve) rescinded (i) SR 22-6, which established an expectation that state member banks notify the Federal Reserve prior to engaging in crypto-asset-related activities and (ii) SR 23-8, which required state member banks to obtain written supervisory nonobjection prior to engaging in certain “dollar token” activities.
- The Federal Reserve and Federal Deposit Insurance Corporation (FDIC) withdrew from the “Joint Statement on Crypto-Asset Risks to Banking Organizations” (Jan. 3, 2023) and the “Joint Statement on Liquidity Risks to Banking Organizations Resulting from Crypto-Asset Market Vulnerabilities” (Feb. 23, 2023), joining the Office of the Comptroller of the Currency (OCC) which had previously withdrawn on March 7, 2025.
- The most recent actions by the Federal Reserve and FDIC now generally align the three federal banking agencies on crypto-related activities, no longer requiring institutions to receive nonobjection prior to engaging in certain crypto-related activities.
- As noted in the FDIC’s release announcing its withdrawal, the agencies “are exploring issuing additional clarity with respect to banking organizations’ crypto-asset and related activities in the coming weeks and months.”
Acting Chairman Travis Hill highlighted key policy issues in focus by the FDIC, including encouraging de novo bank formation, revamping the FDIC’s approach to digital assets and blockchain-related activities (see above), resolution planning and the failed bank resolution process (see below), and reevaluating quantitative asset thresholds in FDIC regulations.
The Federal Reserve requested comment on a proposal to reduce the volatility of the capital requirements stemming from the Federal Reserve’s annual stress test, consistent with its December 23, 2024 announcement and the December 24, 2024 suit challenging the legality of the current the stress testing framework.

DEEPER DIVES

Federal Reserve and FDIC Withdraw Guidance on Certain Crypto-Related Activities to Align with OCC. On April 24, 2025, the Federal Reserve announced the withdrawal of guidance related to crypto-asset and dollar token activities and related changes to the Federal Reserve’s supervisory expectations. The Federal Reserve rescinded both SR 22-6 establishing that state member banks should notify the Federal Reserve prior to engaging in crypto-asset-related activities and SR 23-8 requiring state member banks to obtain written supervisory nonobjection prior to engaging in certain “dollar token” activities. On the same date, the Federal Reserve and the FDIC also withdrew two other joint interagency statements that addressed crypto-asset risks and liquidity risks stemming from crypto-asset market vulnerabilities. The Federal Reserve did not issue replacement guidance, but stated that the change ensures that the Federal Reserve’s “expectations remain aligned with evolving risks and further support innovation in the banking system,” and committed to working with the agencies to consider whether additional guidance is appropriate. Similarly, the FDIC noted it is exploring issuing additional clarity with respect to banking organizations’ crypto-asset and related activities in the future.

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 OCC and FDIC’s related actions last month, the withdrawal and rescission of additional guidance from the Biden Administration serves as the latest of many incremental steps toward a regulatory environment that is more accepting of crypto- and blockchain-related activities and product offerings.

As noted by Acting Chairman Hill in his April 8, 2025 update on key policy issues, “one specific area that merits attention is the use of public, permissionless blockchains by banks.” The Federal Reserve’s Policy Statement on Section 9(13) of the Federal Reserve Act notes in the preamble to the final rule that the Federal Reserve “generally believes that issuing tokens on open, public, and/or decentralized networks, or similar systems is highly likely to be inconsistent with safe and sound banking practices.” At this time, there is no indication the Federal Reserve’s Policy Statement on Section 9(13) of the Federal Reserve Act is under consideration for amendment or reversal through a subsequent rulemaking process.

In addition, other crypto-related activities and product offerings may present thorny legal authority/permissibility issues under law or raise safety and soundness concerns, all of which must continue to be evaluated by institutions. In practice, banks are still expected to engage with the Federal Reserve, FDIC and OCC regarding proposed crypto-related activities.

Acting Chairman Hill Provides an Update on Key Policy Issues. On April 8, 2025, Acting Chairman Hill highlighted key policy issues in focus by the FDIC, including encouraging de novo bank formation, revamping the FDIC’s approach to digital assets and blockchain-related activities, resolution planning and the failed bank resolution process, and reevaluating quantitative asset thresholds in FDIC regulations. With respect to de novo bank formation, Acting Chairman Hill described the de novo rate as having “fallen off a cliff.” He noted that the FDIC is considering whether there are scenarios that could warrant adjusted standards, including with respect to up-front and ongoing capital expectations for noncomplex, community banks, or adjustments to deposit insurance applications for innovative business models. He also noted that the FDIC is actively working on a request for information to ask “a comprehensive set of questions addressing issues related to ILC [industrial loan company] applications.”

He also referenced “just a few” of the issues that the FDIC is considering with respect its approach to digital assets and blockchain-related activities, noting that the FDIC expects to issue additional guidance on particular crypto-related activities and raised the prospect of whether the agency “should [] more comprehensively identify which crypto-related activities are permissible.” He highlighted the use of public, permissionless blockchains by banks as an area where additional guidance could be forthcoming, particularly in light of the withdrawal by the FDIC from the aforementioned interagency letters (see above).

On reevaluating rules’ quantitative asset thresholds, he noted the agency has been “inventorying and analyzing the dozens of numerical thresholds used by the FDIC” and “considering different options for indexing and the impact those options would have.” He called out two specific thresholds in his remarks – $100 billion and $10 billion, noting in particular that “while some uses of the $10 billion threshold are statutory, others exist at regulators’ discretion.”

Insights. The statements by Acting Chairman Hill represent a tonal change that may result in a substantial shift to legacy FDIC positions. His comments on de novos and ILCs raise potential options to consider for potential de novo community and regional banks and for fintechs that want to engage in limited banking activities, respectively. As noted above, the consistent refrain on digital assets and blockchain technology suggests that guidance will be forthcoming in the near future, but coordination and practicality will be critical.

The FDIC Revises Approach to Resolution Planning for Large Banks. In his April 8, 2025 key policy updates, Acting Chairman Hill also identified the FDIC’s work on resolution planning and the failed bank resolution process. Shortly thereafter, on April 18, 2025, the FDIC announced changes in its approach to resolution planning and issued responses to Frequently Asked Questions (FAQs) regarding IDI Resolution Planning. According to Acting Chairman Hill, the changes “deemphasize and broaden the ‘strategy’ discussion and waive the expectation that banks identify and build their plans around a hypothetical failure scenario,” to better focus instead on providing the FDIC the information it would need to rapidly sell a bank and, if needed, operate the institution for a short period of time.

Insights. Those changes align with Acting Chairman Hill’s discussion of resolution planning in his key policy updates. On resolution planning, he also noted: (i) for large institution resolutions, the FDIC’s “primary goal should be maximizing the likelihood of the optimal resolution option, which experience has demonstrated to generally be a weekend sale”; and (ii) the FDIC plans “to engage in outreach with large institutions in their capacity as potential acquirers” and engage with potential nonbank bidders “to facilitate their ability both to partner with banks on bids and to bid individually on particular asset pools.”

The OCC Restructures Supervision and Other Functions. On April 16, the OCC announced that effective June 2, 2025, the agency will: (1) combine the Midsize and Community Bank Supervision and Large Bank Supervision functions within a Bank Supervision and Enforcement Division; (2) reinstate the Chief National Bank Examiner office and both the Bank of Supervision Policy and Supervision Risk and Analysis divisions therein; and (3) elevate the Information Technology and Security function.

Insights. According to the OCC, the reorganization is intended to promote the seamless sharing of expertise and resources to address bank-specific issues or novel needs, both in practice and in approach. The streamlined structure accompanies reports from earlier this year of a hiring freeze and layoffs within the OCC, and midsize and community bank group specifically, consistent with efforts across the federal government. It is not clear whether or how the organizational change may impact existing supervisory teams, though banks on the cusp of growing into the Large Bank Supervision group may experience increased continuity if their supervisory teams remain the same as the institution grows. The announcement also comes after the OCC reported a “major security incident” to Congress earlier this month, and the elevation of the Information Technology and Security function may be an attempt to calm concerns within the industry regarding the safety of proprietary and customer information at the agency.

OTHER NOTABLE ITEMS

Federal Reserve Requests Comments on Proposal Regarding Stress Capital Buffer Requirements. On April 17, 2025, the Fed issued a proposal for comment aimed at reducing the volatility of capital requirements stemming from stress testing. The proposal is consistent with its December 23, 2024 announcement and the December 24, 2024 suit challenging the legality of the current the stress testing framework. In its announcement, the Federal Reserve also previewed that later this year, it will propose additional changes to improve the transparency of the stress test, including disclosing and seeking public comment on the models that determine the hypothetical losses and revenue of banks under stress and ensuring that the public can comment on the hypothetical scenarios used for the annual stress test before the scenarios are finalize—also consistent with the December 2024 announcement and suit.

Federal Reserve Board Publishes Financial Stability Report. On April 25, 2025, the Federal Reserve published its semi-annual Financial Stability Report. According to the Federal Reserve Bank of New York’s industry survey, there was a meaningful increase relative to its fall 2024 survey in the percentage of respondents citing risks emanating from changes to global trade policy as their top risk to financial stability, with moderate increases in the percentage of respondents citing policy uncertainty, persistent inflation, corrections in asset markets and Treasury market functioning as top risks to financial stability, with a moderate decline in the percentage of respondents citing U.S. fiscal debt sustainability as a top risk to financial stability—though it did remain at 50%.

Acting Comptroller Hood Address Areas of Strategic Focus. On April 16, 2025, Acting Comptroller Hood gave remarks before the Exchequer Club in which he expanded on his four key areas of strategic focus for the OCC: (1) reducing regulatory burden (“regulations must be effective, not excessive”); (2) promoting financial inclusion (“financial inclusion is the civil rights issue of our time”); (3) embracing bank-fintech partnerships (“innovation is not optional—it is essential”); and (4) expanding responsible bank activities involving digital assets (“Interpretive Letter 1183 confirms that national banks may engage in certain digital asset activities, provided they do so safely and soundly and under appropriate risk management standards”).

Speech by Governor Barr on AI, Fintechs and Banks. On April 4, 2025, Federal Reserve Board Governor Barr gave a speech titled “AI, Fintechs, and Banks.” In his speech, Governor Barr discussed innovation in the context of generative artificial intelligence (Gen AI) in banking and how bank–fintech partnerships may accelerate the integration of the technology and banking. He advised that bank risk managers and regulators should monitor developments outside the bank perimeter so that they are not caught off guard as this technology quickly enters the banking system, the importance of an appropriate incentive structure, and the unique role of fintechs in “laying the groundwork for good risk management of Gen AI.”

Speech by Governor Barr on AI and Cybersecurity. On April 17, 2025, Federal Reserve Board Governor Barr gave a speech titled “Deepfakes and the AI Arms Race in Bank Cybersecurity.” In his speech, Governor Barr addressed how generative AI has the potential to enable deepfake technology and “supercharge identity fraud.” Governor Barr emphasized the role of “strong, resilient financial institutions in preventing attacks” and advocated for bank controls to evolve in kind with AI-powered advances by, for example, adapting facial recognition, voice analysis and behavioral biometrics to detect potential deepfakes, among other controls. He also advocated for updated guidance and regulation, use of AI technologies by banking regulators, increasing the penalties for cybercrime and targeting upstream organizations.

Speech by Acting Comptroller Hood on AI in Financial Services. On April 29, 2025, Acting Comptroller Hood gave a pre-recorded speech titled “AI in Financial Services.” In his remarks, Acting Comptroller Hood, referencing both the “tremendous potential” as a risk management and business operations tool and the risks accompanying reliance on complex technology, championed “effective, but not burdensome, regulatory oversight” and directed banks to consider the risk-based and technology-neutral principles in existing OCC and interagency guidance.

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)

The Guidance reflects a clear intent on the SFO’s part to tighten enforcement strategy, clarify procedural expectations, and encourage early and responsible engagement from corporates facing potential criminal exposure.

On 24 April 2025, the UK Serious Fraud Office (the SFO) issued new guidance (the Guidance) concerning the self-reporting of suspected offending, expectations around cooperation and the negotiation of Deferred Prosecution Agreements (DPAs).

The Guidance removes ambiguity in some key areas, introduces defined timelines for engagement and reinforces the SFO’s commitment to using DPAs as an enforcement tool where conditions are met. It also, however, leaves a number of open questions, particularly in relation to the timing of self-reports and judicial oversight.

Summary of the Guidance

1. DPAs

The Guidance now explicitly states that corporates which self-report and provide full cooperation will be invited to enter into DPA negotiations.[1] This represents a firm commitment by the SFO, removing the previous uncertainty around the benefits of early disclosure. The Guidance is a strong signal that timely transparency will be met with prosecutorial engagement.

It is important to note, however, that while the SFO may offer to negotiate a DPA, any such agreement must ultimately be approved by a judge. This judicial safeguard remains unchanged and is not explicitly addressed in the Guidance.

2. Self-Reporting: Timing

The Guidance stops short of attempting to define precise thresholds for when corporates should self-report. It states that a report is expected once “direct evidence” of offending emerges.[2] Yet the SFO offers no clarification of what constitutes such evidence. This leaves scope for continued uncertainty, particularly where preliminary findings of any internal investigation of potential misconduct may be incomplete, contested or circumstantial, such as where the availability of relevant defences has not yet been assessed. Corporates must therefore continue to exercise judgment in assessing whether internal red flags rise to a level warranting disclosure.

3. Defined Timelines for SFO Engagement

The Guidance provides clarity on the SFO’s process and timelines around self-reporting. This offers welcome predictability for corporates and reduces uncertainty at a time when corporates may also be facing complex issues and engagement with other internal and external stakeholders.[3]

A response will be issued by the SFO’s Intelligence Division within 48 business hours of a self-report made by the company.
A decision on whether to open an investigation will follow within six months.
DPA negotiations, if appropriate, should conclude within six months of the formal invitation to negotiate.

4. Cooperation: Expectations and Exemplary Conduct

The SFO emphasises that having self-reported and being cooperative are not one and the same.[4] The Guidance provides some non-exhaustive examples of cooperative conduct covering these areas:[5]

Preservation of evidence: Promptly and proactively preserving all digital and hard copy materials that may be relevant to the investigation.
Document identification and disclosure: Identifying and providing relevant documentation, including details of document custodians, material locations, overseas documents within the organisation’s control, potentially relevant third-party materials, and translations of foreign language documents.
Factual presentation: Setting out the facts concerning the suspected criminal conduct, including identification of all individuals involved, both internal and external to the organisation.
Internal investigation protocols: Where an internal investigation is undertaken, engaging with the SFO at an early stage regarding its scope, notifying the SFO in advance of any proposed steps (particularly interviews), providing regular updates and findings, and disclosing non-privileged interview records.
Transparency: Refraining from interviewing employees where requested, and promptly notifying the SFO of any interest or involvement from other regulatory bodies, law enforcement agencies or prosecuting authorities.

The Guidance addresses the issue of legally privileged material, which has been the subject of previous litigation. It states that corporates are not required, as a pre-condition of being considered to be cooperative, to waive legal professional privilege over material. However, it also states that doing so will be a significant cooperative act and weigh strongly in favour of being considered cooperative.[6] The issue of waiver of privilege is fraught with legal risk, and is one to be considered in the context of the implications of such waiver in all relevant jurisdictions where the company may face disputes.

Crucially, the SFO preserves the route to a DPA even where no self-report is made, provided the company subsequently engages in “exemplary cooperation”.[7] This is a high threshold, effectively requiring that the organisation involve the SFO in the internal investigation process from a very early stage and that the organisation fulfil at least all the cooperation steps set out in the Guidance.[8] This may provide a valuable (albeit potentially narrow) second chance for organisations that may have delayed disclosure to achieve a non-prosecution outcome, provided their subsequent conduct meets the requisite standard once the SFO is engaged.

5. Uncooperative Conduct

By contrast, the Guidance also helpfully clarifies what the SFO considers uncooperative conduct. This includes:[9]

Forum shopping: Unreasonably reporting offending to another jurisdiction for strategic reasons.
Exploiting legal disparities: Using differences between international law enforcement agencies or legal systems.
Lack of Transparency: Concealing individual involvement or the full extent of misconduct.
Delay tactics: Tactically delaying providing information or material.
Obstructive disclosure: Submitting excessive or unnecessarily voluminous material to hamper the SFO’s investigation.

The SFO emphasises that the nature and extent of the organisation’s cooperation is one of many factors which it will take into consideration when determining an appropriate resolution alongside those detailed in the Code for Crown Prosecutors, the Corporate Prosecutions Guidance and the DPA Code.[10]

Some Observations

1. Alignment with Legislative Developments

The Guidance is timely given the imminent introduction of the failure to prevent fraud offence under the Economic Crime and Corporate Transparency Act 2023 (discussed in more detail in our client alert of November 2024). This new offence seeks to make companies criminally liable where a specified fraud offence is committed by a person associated with the company (such as an employee or agent) with the intention of benefitting, for example, the company or its clients. The Guidance appears to reinforce the SFO’s public message that enforcement of this new offence is imminent.

2. Clarity and Certainty

For in-house counsel and compliance professionals, some of the most valuable aspects of the Guidance are its clarity on cooperation and the incentives for early engagement. The defined timelines will help organisations manage expectations and resources more effectively, notwithstanding some measure of lack of definition around “direct evidence”.

3. Global Enforcement Outlook

The publication of the Guidance is particularly noteworthy in the light of recent developments in the US. In February 2025, President Trump signed an executive order suspending enforcement of the Foreign Corrupt Practices Act for 180 days, citing the need to reduce compliance burdens on American businesses. As discussed in our client alert of February 2025, this move represents a shift from the long-held view that international anti-corruption efforts benefit US businesses by creating a level playing field and strengthening the rule of law.

Against this backdrop, the UK appears to be reaffirming its commitment to corporate accountability, particularly in the light of the new International Anti-Corruption Taskforce established by the UK, France and Switzerland in March 2025, which signals a heightened focus on coordinated cross-border enforcement. The SFO’s structured approach may seek to drive more self-reports from corporates that operate across jurisdictions.

A new openness at the SFO?

The Guidance provides welcome clarity on the circumstances in which a corporate may be invited to negotiate a DPA and outlines concrete expectations for cooperation. It removes some ambiguity and reinforces the message that the SFO wants corporates to act early and transparently when faced with suspected offending.

At a recent GIR Live event, SFO Director Nick Ephgrave reinforced this message, emphasising that companies should feel able to rely on the assurances offered in the Guidance: “No ifs, no buts, no maybes, it’s as good a guarantee as you can get; if you come and work with us, we will work with you.” In a more colourful aside, he likened his approach to Margaret Thatcher’s relationship with the leader of the former Soviet Union, adding: “That’s how I like to do business … I’d like you to look at me as the Mikhail Gorbachev of the SFO.” While the Guidance may be more in the nature of glasnost than any major perestroika, it is encouraging that the Director of the SFO is describing himself explicitly and publicly as “a man [companies] can do business with”.[11]

[1] Paragraph 2 of the Guidance.

[2] Paragraph 7 of the Guidance.

[3] Paragraphs 15-17 of the Guidance.

[4] Paragraph 19 of the Guidance.

[5] Paragraph 22 of the Guidance.

[6] Paragraphs 20 and 22 of the Guidance.

[7] Paragraph 19 of the Guidance.

[8] At paragraph 22 of the Guidance, the SFO states: “Corporates which take all these steps are likely to be assessed as providing exemplary co-operation.”

[9] Paragraph 23 of the Guidance.

[10] Paragraph 24 of the Guidance.

[11] See https://globalinvestigationsreview.com/article/look-me-the-mikhail-gorbachev-of-the-sfo-nick-ephgrave.

The following Gibson Dunn lawyers prepared this update: Allan Neil, Patrick Doris, Marija Bračković, and Victor Tong.

Allan Neil – London (+44 20 7071 4296, aneil@gibsondunn.com)
Patrick Doris – London (+44 20 7071 4276, pdoris@gibsondunn.com)
Marija Bračković – London (+44 20 7071 4143 mbrackovic@gibsondunn.com)
Victor Tong – London (+44 20 7071 4054, vtong@gibsondunn.com)

This update provides an overview of key class action-related developments from the first quarter of 2025 (January through March).

Table of Contents

Part I reviews decisions from the Fourth and Eighth Circuits affirming the denial of class certification where plaintiffs failed to prove predominance under Rule 23(b)(3);
Part II summarizes a pair of decisions from the Fourth Circuit discussing Article III standing requirements at class certification, ahead of the Supreme Court’s forthcoming decision in Laboratory Corp. of America v. Davis; and
Part III highlights decisions from the Fourth and Ninth Circuits analyzing the enforceability of arbitration agreements.

1. The Fourth and Eighth Circuits Reinforce the Predominance Requirement

In two decisions from the past quarter, federal appellate courts rejected class certification under Rule 23(b)(3)’s demanding predominance requirement.

In Vogt v. Progressive Casualty Insurance Co., 129 F.4th 1071 (8th Cir. 2025), the Eighth Circuit reiterated that claims requiring an individualized look at consumers’ purchasing decisions make “poor candidates for class litigation.” Id. at 1074. The plaintiff bought a van and later learned that the insurance company that sold the van to the dealer had classified it as totaled but had sold it with a clean (rather than a salvage) title. Id. at 1072. The plaintiff brought a putative class action against the insurance company on behalf of purchasers of similarly mistitled vehicles. Id. The Eighth Circuit affirmed the denial of class certification because individual issues of reliance and causation would predominate. Id. The court explained that although “some putative class members bought their vehicles because they understood . . . that the vehicles were free of salvage title restrictions,” others “may have been satisfied with their purchase even if those restrictions applied” because salvage title cars still “have value.” Id. at 1073-74. Vogt illustrates that “common” issues often will not predominate even in cases involving uniform policies and measurable consumer spending.

In Mr. Dee’s Inc. v. Inmar, Inc., 127 F.4th 925 (4th Cir. 2025), the plaintiff companies bought coupon-processing services on behalf of retailers and later filed a putative class action claiming that the defendant had engaged in horizontal price-fixing resulting in higher fees. Id. at 927-28. In affirming the denial of certification for lack of predominance, the Fourth Circuit emphasized that the plaintiffs’ model did not show any impact of higher fees for 32% of the proposed class. “Whatever the resolution of the question posed in” Labcorp, the court concluded, “the presence of 32% of uninjured members in a proposed class [is] much too high” and would inevitably lead to many individualized proceedings. Id. at 933-34.

Mr. Dee’s and Vogt show different sides of the predominance coin—Vogt, for cases where the number of class members that would be subject to individualized proceedings is difficult to estimate, and Mr. Dee’s, where expert modeling provides some estimate of the number of uninjured class members.

2. The Fourth Circuit Discusses Article III Standing of Class Members Ahead of
the Supreme Court’s Decision in Labcorp

In two recent cases, the Fourth Circuit held that putative class representatives and absent class members lacked Article III standing, illustrating the ongoing importance of justiciability issues—especially given that the U.S. Supreme Court is poised to address whether a Rule 23(b)(3) class can be certified when some members of the proposed class lack any Article III injury.

In one case, the Fourth Circuit emphasized that a mere “risk” of economic harm is insufficient to satisfy Article III. In Alig v. Rocket Mortgage, LLC, 126 F.4th 965 (4th Cir. 2025), the plaintiffs sought to represent a class of homeowners who sued a mortgage lender, claiming that the lender shared their estimates of their homes’ market values with appraisers and so made the appraisals they bought “unreliable and worthless.” Id. at 970. The district court certified the class, but the Fourth Circuit reversed, holding that there was no evidence that class members actually did not receive fair or independent appraisals. Id. at 974-75. At best, exposing the appraisers to the homeowners’ estimates created “a risk of influence,” but that risk was not enough to create a concrete injury for standing. Id. at 975 (emphasis added).

Another case from the Fourth Circuit, Opiotennione v. Bozzuto Management Co., 130 F.4th 149 (4th Cir. 2025), reiterated Article III’s requirement that the party seeking relief suffer genuine, concrete harm. The plaintiff, who is over 50, claimed that property management companies discriminated by targeting Facebook ads for housing to users under 50. Id. at 151-52. But the district court dismissed the complaint for lack of standing, reasoning that the plaintiff did not allege that she requested housing information or was personally denied any housing opportunity based on her age. Id. at 154-55. In affirming the dismissal, the Fourth Circuit explained that the plaintiff had alleged that she was a member of a disfavored age group but not that she had suffered any concrete, personal injury due to her age. Id. at 153-56.

These decisions spotlight Article III standing ahead of the Supreme Court’s consideration of the interplay between that fundamental requirement and class actions in Laboratory Corp. of America v. Davis, No. 24-304. In late January 2025, the Court granted certiorari to decide “[w]hether a federal court may certify a class action pursuant to Federal Rule of Civil Procedure 23(b)(3) when some members of the proposed class lack any Article III injury.” Labcorp provides the Court with an opportunity to resolve a long-standing circuit split over how courts should approach the issue of uninjured class members at class certification—as we have discussed here. The Second and Eighth Circuits have applied a bright-line rule prohibiting certification if any members lack standing. The First, Seventh, and D.C. Circuits take a middle-ground approach, permitting certification if the number of uninjured members is “de minimis.” And the Ninth Circuit permits certification even when more than a de minimis number of class members lack standing. The decision in Labcorp is expected by late June.

3. The Fourth and Ninth Circuits Address Arbitrability and Assent

In a pair of recent cases, the Fourth Circuit took different approaches to clauses in arbitration agreements that allow the defendant to unilaterally change the agreement. In Johnson v. Continental Finance Co., 131 F.4th 169 (4th Cir. 2025), the court, applying Maryland law, held that a change-in-terms clause rendered an agreement illusory because such clauses are “so one-sided and vague that [they] allow[ ] a party to escape all of its contractual obligations at will.” Id. at 179. But a few days later, in Meadows v. Cebridge Acquisition, LLC, 132 F.4th 716 (4th Cir. 2025), the court held that a similar change-in-terms clause was not illusory, provided “the modifying party must give reasonable notice of modification.” Id. at 728.

Although there is apparent tension between the two cases, Judge Wynn, who concurred in both, attributed the different outcomes to differences in state law. Meadows, 132 F.4th at 735 (concurrence). Whether a change-in-terms clause is dispositive, in his view, depends on whether the state law views an arbitration provision as a “separate agreement that requires separate consideration in order to be legally formed.” Johnson, 131 F.4th at 182 (concurrence).

The Ninth Circuit also took on a pair of cases involving modern arbitration agreements. In Chabolla v. ClassPass Inc., 129 F.4th 1147 (9th Cir. 2025), the court considered the enforceability of an arbitration agreement formed through a sign-up website. Id. at 1151. The agreement was listed on the Terms of Use page, but this page was provided only as a link on login screens, and the website did not require users to read the terms before subscribing. Id. at 1154. The Ninth Circuit held that the agreement was unenforceable because it lacked reasonably conspicuous notice of and an unambiguous manifestation of assent to the terms. The court emphasized that one sign-up screen was insufficiently conspicuous because the notice was on the “periphery” of the page and that additional screens were ambiguous as to manifestation of assent because they prompted users only to “continue” or “redeem.” Id. at 1157–58.

In another case, Jones v. Starz Entertainment, LLC, 129 F.4th 1176 (9th Cir. 2025), the Ninth Circuit upheld an arbitration provider’s consolidation of thousands of mass individual arbitration demands. Id. at 1178. One plaintiff petitioned to compel individual arbitration in federal court, but the district court denied the petition and the court of appeals affirmed. The Ninth Circuit explained that federal courts had no authority to second-guess an arbitration provider’s interpretation of its rules, including to permit consolidation, and that consolidation did not present the same due process risks as in “class or representative arbitration.” Id. at 1182. The court also called out the obvious strategy behind plaintiffs’ counsel’s attempting to leverage individual arbitration fees to extract a large settlement. Specifically, the panel questioned “the true motivation underlying the mass-arbitration tactic deployed [in the case], which appear[ed] to be geared more toward racking up procedural costs to the point of forcing [the defendant] to capitulate to a settlement than proving the allegations . . . to seek appropriate redress on the merits.” Id.

The following Gibson Dunn lawyers contributed to this update: Jessica Pearigen, Katie Geary, Elizabeth Strassner, Matt Aidan Getz, Wesley Sze, Lauren Blas, Bradley Hamburger, Kahn Scolnick, and Christopher Chorba.

Gibson Dunn attorneys 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 in the firm’s Class Actions, Litigation, or Appellate and Constitutional Law practice groups, or any of the following lawyers:

Theodore J. Boutrous, Jr. – Los Angeles (+1 213.229.7000, tboutrous@gibsondunn.com)

Christopher Chorba – Co-Chair, Class Actions Practice Group, Los Angeles (+1 213.229.7396, cchorba@gibsondunn.com)

Theane Evangelis – Co-Chair, Litigation Practice Group, Los Angeles (+1 213.229.7726, tevangelis@gibsondunn.com)

Lauren R. Goldman – Co-Chair, Technology Litigation Practice Group, New York (+1 212.351.2375, lgoldman@gibsondunn.com)

Kahn A. Scolnick – Co-Chair, Class Actions Practice Group, Los Angeles (+1 213.229.7656, kscolnick@gibsondunn.com)

Bradley J. Hamburger – Los Angeles (+1 213.229.7658, bhamburger@gibsondunn.com)

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

Lauren M. Blas – Los Angeles (+1 213.229.7503, lblas@gibsondunn.com)

Wesley Sze – Palo Alto (+1 650.849.5347, wsze@gibsondunn.com)

In Cunningham v. Cornell University, the Supreme Court held that “[P]laintiffs seeking to state a [prohibited transaction] claim must plausibly allege that a plan fiduciary engaged in a transaction proscribed therein, no more, no less.” However, the Court cautioned that “[t]o the extent future plaintiffs do bring barebones [prohibited transaction] suits, district courts can use existing tools at their disposal to screen out meritless claims before discovery.”

On April 17, 2025, the Supreme Court issued its decision in Cunningham v. Cornell University, which addresses the pleading requirements for prohibited transaction claims brought under the Employee Retirement Income Security Act of 1974 (ERISA). In Cunningham, the Court confronted the question of whether a plaintiff seeking to bring a claim must plead not only the elements of an ERISA Section 406 prohibited transaction, but also that the exemptions set forth in ERISA Section 408 do not apply. Justice Sotomayor, writing for a unanimous Court, answered this question in the negative, explaining that Section 408 “sets out affirmative defenses, so it is defendant fiduciaries who bear the burden of pleading and proving that a [Section 408] exemption applies to an otherwise prohibited transaction under [Section 406].”[1]

While confirming a relatively low bar for ERISA plaintiffs’ pleading requirements, the Court was also cognizant of the “serious concerns” raised by respondents that, under this standard, “plaintiffs could too easily get past the motion-to-dismiss stage and subject defendants to costly and time-intensive discovery.”[2] The Court emphasized that these concerns “cannot overcome the statutory text and structure” of ERISA but also noted various tools available to the district courts to “screen out meritless claims before discovery.”[3] In a concurring opinion, Justice Alito, with whom Justice Thomas and Justice Kavanaugh joined, encouraged district courts to “strongly consider” using these procedural “safeguards” “to achieve the prompt disposition of insubstantial claims.”[4]

Anticipating that plan sponsors and fiduciaries may have questions about the practical implications of the Court’s Cunningham decision, in this alert, we provide a brief overview of ERISA’s prohibited transaction framework, a summary of the background and key take-aways from the Cunningham decision, and a preview of what may be next for ERISA plan sponsors and fiduciaries after Cunningham.

Background on ERISA’s Prohibited Transaction Provisions

ERISA prohibits plan fiduciaries from causing a plan to enter into certain transactions with parties who may be in a position to exercise improper influence over the plan.[5] Specifically, Section 406 (29 U.S.C. § 1106) provides that, “[e]xcept as provided in [Section 408],” a fiduciary “shall not cause the plan to engage” in certain transactions with a “party in interest.” A “party in interest” is defined to include various entities that administer or support the administration of a plan, including the plan’s administrator, sponsor, officers, and other entities “providing services to [the] plan.”[6]

Examples of prohibited transactions identified in Section 406 include a direct or indirect: “sale or exchange, or leasing of any property between the plan and a party-in-interest;”[7] “lending of money or other extension of credit between the plan and a party-in-interest;”[8] and, “transfer to, or use by or for the benefit of a party in interest, of any assets of the plan.”[9]

The Cunningham case focused specifically on Section 406(a)(1)(C), which bars a plan fiduciary from “caus[ing] the plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect . . . furnishing of goods, services, or facilities between the plan and a party in interest.”[10] As written, this provision, if construed broadly, could encompass many routine arms-length dealings between a plan and a third-party service provider (such as a third-party recordkeeper, claims administrator, investment manager, etc.) to the plan.[11]

Section 408 (29 U.S.C. § 1108), in turn, enumerates 21 exemptions to the prohibited transactions identified in Section 406. Section 408(b)(2)(A) exempts from Section 406 any transaction that involves “[c]ontracting or making reasonable arrangements with a party in interest for office space, or legal, accounting, or other services necessary for the establishment or operation of the plan, if no more than reasonable compensation is paid therefore.”[12]

The District Court’s and Second Circuit’s Decisions in Cunningham

The Cunningham lawsuit was brought in 2017 by a class of current and former employees of Cornell University who participated in the University’s defined-contribution retirement plans between 2010 and 2016.[13] During this time, Cornell contracted with two third-party service providers to provide recordkeeping services for the plans, which included tracking participants’ account balances and providing account statements, among other services.[14] Cornell compensated the recordkeepers using plan assets.[15] Plaintiffs sued Cornell and its plan fiduciaries alleging, among other claims, that defendants violated Section 406 by causing the plans to engage in prohibited transactions with the two service providers for recordkeeping services for the plans.[16]

Specifically, Plaintiffs claimed that the recordkeepers provided services to the plans and accordingly were “parties-in-interest” under ERISA, and that by allowing the recordkeepers to furnish services to the plans, Cornell engaged in prohibited transactions, unless it could prove an exemption.[17]

Cornell moved to dismiss plaintiffs’ prohibited transaction claims, and the district court granted the motion. The court held that a plaintiff, in addition to pleading the required elements of a prohibited transaction claim under Section 406, must also allege “some evidence of self-dealing or other disloyal conduct.”[18] The district court concluded that plaintiffs had not made that showing, and thus, dismissed their claim.

The Second Circuit affirmed, but on different grounds. The court rejected the district court’s conclusion that Section 406 “demand[s] allegations of ‘self-dealing or disloyal conduct.’”[19] But the court also noted that reading Section 406 in insolation would lead to “absurd results” because it “would appear to prohibit payments by a plan to any entity providing it with any services.”[20] The court held that plaintiffs must plead not only the elements of a prohibited transaction, but also that the applicable Section 408 exemption did not apply to the transaction.[21] And the court found that plaintiffs’ allegations failed to satisfy this standard.[22]

The Supreme Court Reverses and Remands

The Supreme Court granted certiorari in Cunningham to determine “whether a plaintiff can state a claim for relief by simply alleging that a plan fiduciary engaged in a transaction proscribed by [Section 406(a)(1)(C)], or whether a plaintiff must plead allegations that disprove the applicability of the [Section 408(b)(2)(A)] exemption.”[23] And, on April 17, 2025, in a unanimous decision, the Court concluded “that plaintiffs need do no more than plead a violation of [Section 406(a)(1)(C)], and [] therefore reverse[d].”[24]

The Court explained that Section 406(a)(1)(C) imposes a “categorical bar” on transactions that satisfy the three enumerated elements of that provision.[25] Accordingly, the Court held that, “under [Section 406(a)(1)(C)], plaintiffs need only plausibly allege each of those elements of a prohibited-transaction claim.”[26] In contrast, the Court found that Section 408’s exemptions are affirmative defenses because they are “set forth in a different part of the statute” and are “‘writ[ten] in the orthodox format of an affirmative defense.’”[27] Thus, the Court held, the Section 408 exemptions “must be pleaded and proved by the defendant who seeks to benefit from them.”[28]

Importantly, the Court also weighed Cornell’s assertion that “there will be an avalanche of meritless litigation” if plaintiffs need only plead the elements of Section 406 to state a prohibited transaction claim.[29] Although recognizing that Cornell raised “serious concerns” about “meritless litigation” that could “subject defendants to costly and time-intensive discovery,” the Court concluded that those concerns “cannot overcome the statutory text and structure.”[30]

Defendants are not without recourse, however. The Court explained that “district courts can use existing tools at their disposal to screen out meritless claims before discovery.”[31] These tools include invoking Federal Rule of Civil Procedure 7 to require that plaintiffs file a reply to a defendant’s answer and affirmative defenses that “‘put[s] forward specific, nonconclusory factual allegations’ showing the exemption does not apply.”[32] The Court also emphasized that “[d]istrict courts must also, consistent with Article III standing, dismiss suits that allege a prohibited transaction occurred but fail to identify an injury.”[33] And courts also “retain discretionary authority” to expedite or limit discovery to mitigate unnecessary costs and to impose Rule 11 sanctions against parties and counsel who lack a good faith basis for their claims.[34] The Court also recognized ERISA’s cost shifting provision that “gives district courts an additional tool to ward off meritless litigation.”[35]

In a concurring opinion, Justice Alito (joined by Justice Thomas and Justice Kavanaugh) recognized that the Court’s “straightforward application of established rules has the potential to cause . . . untoward practical results.”[36] Justice Alito noted that administrators of ERISA plans will “almost always find it necessary to employ outside firms to provide services the plan needs,” and because those firms become “parties in interest” under ERISA, their service to the plans are unlawful under Section 406, unless one of the exemptions in Section 408 applies.[37] The “upshot” Justice Alito explained, is that “all a plaintiff must do in order to file a complaint that will get by a motion to dismiss under Federal rule of Civil Procedure 12(b)(6) is to allege that the administrator did something that, as a practical matter, it is bound to do.”[38] And, “in modern civil litigation,” Justice Alito continued, “getting by a motion to dismiss is often the whole ball game because of the cost of discovery.”[39] Against this backdrop, Justice Alito encouraged district courts to “strongly consider” insisting that a plaintiff file a reply to an answer that raises one of the Section 408 exemptions as an affirmative defense “and employing the other safeguards that the Court describes” in its opinion to achieve “the prompt disposition of insubstantial claims.”[40]

What’s Next for Plan Sponsors and Fiduciaries

It remains to be seen whether the specter of an “avalanche of meritless litigation” will come to pass. For now, however, the Supreme Court has made clear that plaintiffs need only plausibly plead the three elements of a Section 406 prohibited transaction to survive a motion to dismiss. Plaintiffs need not also plead that a Section 408 exemption does not apply to their claims. As the Cunningham majority opinion and concurrence suggest, this standard may open the door to more claims against plan sponsors and fiduciaries.

Accordingly, sponsors and fiduciaries may want to consider reviewing their service provider agreements to assess whether the services their plans are receiving are necessary and the fees the plans are paying for those services are reasonable. Fiduciaries should also consider documenting their decision-making processes related to plan administration, particularly with respect to service provider selection and monitoring.

Additionally, the Court in Cunningham detailed a series of tools available to plan sponsors and fiduciaries to seek early dismissal of prohibited transaction claims, limit burdensome discovery, and shift the cost of litigating meritless claims to plaintiffs. The Court’s invocation of Rule 7(a)(7) as a potential solution for screening out meritless claims is particularly notable. This rarely used procedure may help defendants dispose of claims early, and without significant discovery. Specifically, Rule 7(a)(7) requires a party, “if the court orders” it, to file “a reply to an answer.”[41] Most commonly used in the context of qualified immunity, this procedure allows defendants subject to barebones claims to test whether plaintiffs can “put forward specific, nonconclusory factual allegations” that establish that an affirmative defense does not apply.[42] As the Supreme Court explained in Crawford-El v. Britton, the Rule 7(a)(7) reply mechanism, together with motions for a more definite statement under Rule 12(e), are the “two primary options” for resolving predicate issues like the application of an affirmative defense “prior to permitting discovery at all.”[43] However, even if a court ultimately decides that discovery is warranted, defendants could still pursue an order bifurcating discovery and potentially also an early dispositive motion targeting the claims. After Cunningham, these procedures may become part of a standard toolset for sponsors and fiduciaries defending prohibited transaction claims.

Finally, it is worth noting that the Cunningham decision does not purport to limit or otherwise relax the well-established pleading standards under Twombly and Iqbal. Thus, plaintiffs seeking to bring prohibited transaction claims must still allege facts that make the claims “‘plausible,’” not merely “‘conceivable.’”[44] The Court’s opinion also does not curtail its directive in Hughes v. Northwestern University that “the circumstances facing an ERISA fiduciary will implicate difficult tradeoffs, and courts must give due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise.”[45] Plan sponsors and fiduciaries targeted with prohibited transaction claims can and should draw on the Court’s language in Hughes to support dismissal of unmeritorious claims.

[1] Cunningham v. Cornell, No. 23-1007, 604 U.S. ___ (2025), Slip. Op. 1.

[2] Id. at 14.

[3] Id.

[4] Cunningham v. Cornell, No. 23-1007, 604 U.S. ___ (2025), Concurring Op. 3.

[5] 29 U.S.C. § 1106; see also Dept. of Labor, elaws – ERISA Fiduciary Advisor, Are some transactions prohibited? Is there a way to make them permissible?, available at https://webapps.dol.gov/elaws/ebsa/fiduciary/q4d.htm (last accessed Apr. 23, 2025).

[6] 29 U.S.C. § 1002(14).

[7] 29 U.S.C. § 1106(a)(1)(A).

[8] 29 U.S.C. § 1106(a)(1)(B).

[9] 29 U.S.C. § 1106(a)(1)(D).

[10] 29 U.S.C. § 1106(a)(1)(C).

[11] See Cunningham v. Cornell, No. 23-1007, 604 U.S. ___ (2025), Concurring Op. 1-2.

[12] 29 U.S.C. § 1108(b)(2)(A).

[13] Cunningham v. Cornell Univ., 86 F.4th 961, 969 (2d Cir. 2023).

[14] Id. at 970.

[15] Id.

[16] Id. at 970-71.

[17] Id. at 973.

[18] Cunningham v. Cornell Univ., 2017 WL 4358769, at *10 (S.D.N.Y. Sept. 29, 2017).

[19] Cunningham, 86 F.4th at 975.

[20] Id. at 973.

[21] Id. at 975.

[22] Id. at 978–70 (quoting Jones v. Harris Assoc. L.P., 559 U.S. 335, 346 (2010)).

[23] Cunningham v. Cornell, No. 23-1007, 604 U.S. ___ (2025), Slip Op. 6.

[24] Id.

[25] Id.

[26] Id.

[27] Id. at 6, 8 (quoting Meacham v. Knolls Atomic Power Lab’y, 554 U.S. 84, 102 (2008)).

[28] Id. at 8.

[29] Id. at 13.

[30] Id. at 14.

[31] Id.

[32] Id. (quoting Crawford-El v. Britton, 523 U.S. 574, 598 (1998)).

[33] Id. at 15.

[34] Id.

[35] Id.

[36] Cunningham v. Cornell, No. 23-1007, 604 U.S. ___ (2025), Concurring Op. 1.

[37] Id.

[38] Id. at 2.

[39] Id.

[40] Id. at 3 (quoting Crawford-El, 523 U.S. at 597).

[41] Fed. R. Civ. P. 7(a)(7).

[42] Crawford-El, 523 U.S. at 598 (quoting Siegert v. Gilley, 500 U.S. 226, 236 (1991) (Kennedy, J., concurring)).

[43] Id.

[44] See Ashcroft v. Iqbal, 556 U.S. 662, 680 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007)).

[45] Hughes v. Nw. Univ., 595 U.S. 170, 177 (2022).

The following Gibson Dunn lawyers prepared this update: Eugene Scalia, Karl Nelson, Ashley Johnson, and Jennafer Tryck.

Gibson Dunn lawyers are available to assist in addressing any questions you may have about these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s Labor & Employment or Executive Compensation & Employee Benefits practice groups, or the authors:

Labor & Employment:

Eugene Scalia – Washington, D.C. (+1 202.955.8673, dforrester@gibsondunn.com)
Jason C. Schwartz – Washington, D.C. (+1 202.955.8242, jschwartz@gibsondunn.com)
Katherine V.A. Smith – Los Angeles (+1 213.229.7107, ksmith@gibsondunn.com)
Karl G. Nelson – Dallas (+1 214.698.3203, knelson@gibsondunn.com)
Ashley E. Johnson – Dallas (+1 214.698.3111, ajohnson@gibsondunn.com)
Jennafer M. Tryck – Orange County (+1 949.451.4089, jtryck@gibsondunn.com)

Executive Compensation & Employee Benefits:

Michael J. Collins – Washington, D.C. (+1 202-887-3551, mcollins@gibsondunn.com)
Sean C. Feller – Los Angeles (+1 310.551.8746, sfeller@gibsondunn.com)
Krista Hanvey – Dallas (+1 214.698.3425, khanvey@gibsondunn.com)

From the Derivatives Practice Group: This week, Paul S. Atkins was sworn into office as the 34th Chairman of the Securities and Exchange Commission.

New Developments

Paul S. Atkins Sworn in as SEC Chairman. On April 21, Paul S. Atkins was sworn into office as the 34th Chairman of the SEC. Chairman Atkins was nominated by President Donald J. Trump on January 20, 2025, and confirmed by the U.S. Senate on April 9, 2025. Prior to returning to the SEC, Chairman Atkins was most recently chief executive of Patomak Global Partners, a company he founded in 2009. Chairman Atkins helped lead efforts to develop best practices for the digital asset sector. He served as an independent director and non-executive chairman of the board of BATS Global Markets, Inc. from 2012 to 2015. [NEW]
CFTC Staff Seek Public Comment Regarding Perpetual Contracts in Derivatives Markets. On April 21, the CFTC issued a Request for Comment to better inform them on the potential uses, benefits, and risks of perpetual contracts in the derivatives markets the CFTC regulates (“Perpetual Derivatives”). This request seeks comment on the characteristics of perpetual derivatives, including those characteristics which may differ across products. as well as the implications of their use in trading, clearing and risk management. The request also seeks comment on the risks of perpetual derivatives, including risks related to the areas of market integrity, customer protection, or retail trading. [NEW]
CFTC Staff Seek Public Comment on 24/7 Trading. On April 21, the CFTC issued a Request for Comment to better inform them on the potential uses, benefits, and risks of trading on a 24/7 basis in the derivatives markets the CFTC regulates. This request seeks comment on the implications of extending the trading of CFTC-regulated derivatives markets to an effectively 24/7 basis, including the potential effects on trading, clearing and risk management which differ from trading during current market hours. The request also seeks comment on the risks of 24/7 trading, and the associated clearing systems, including risks related to the areas of market integrity, customer protection, or retail trading. [NEW]
CFTC Staff Issues Advisory on Referrals to the Division of Enforcement. On April 17, the CFTC’s Market Participants Division, the Division of Clearing and Risk, and the Division of Market Oversight (“Operating Divisions”) and the Division of Enforcement (“DOE”) issued a staff advisory providing guidance on the materiality or other criteria that the Operating Divisions will use to determine whether to make a referral to DOE for self-reported violations, or supervision or non-compliance issues. According to the CFTC, this advisory furthers the implementation of DOE’s recent advisory, issued February 25, 2025, addressing its updated policy on self-reporting, cooperation, and remediation.
CFTC Staff Issues No-Action Letter Regarding the Merger of UBS Group and Credit Suisse Group. On April 15, the CFTC’s Market Participants Division (“MPD”) and Division of Clearing and Risk (“DCR”) issued a no-action letter in response to a request from UBS AG regarding the CFTC’s swap clearing and uncleared swap margin requirements. The CFTC said that the letter is in connection with a court-supervised transfer, consistent with United Kingdom laws, of certain swaps from Credit Suisse International to UBS AG London Branch following the merger of UBS Group AG and Credit Suisse Group AG. The no-action letter states, in connection with such transfer and subject to certain specified conditions: (1) MPD will not recommend the Commission take an enforcement action against certain of UBS AG London Branch’s swap dealer counterparties for their failure to comply with the CFTC’s uncleared swap margin requirements for such transferred swaps; and (2) DCR will not recommend the Commission take an enforcement action against UBS AG or certain of its counterparties for their failure to comply with the CFTC’s swap clearing requirement for such transferred swaps.
CFTC Staff Issues Interpretation Regarding U.S. Treasury Exchange-Traded Funds as Eligible Margin Collateral for Uncleared Swaps. On April 14, MPD issued an interpretation intended to clarify the types of assets that qualify as eligible margin collateral for certain uncleared swap transactions under CFTC regulations. CFTC Regulation 23.156 lists the types of collateral that covered swaps entities can post or collect as initial margin (“IM”) and variation margin (“VM”) for uncleared swap transactions. The CFTC indicated that the regulation, which includes “redeemable securities in a pooled investment fund” as eligible IM collateral, aims to identify assets that are liquid and will hold their value in times of financial stress. Additionally, MPD noted that the interpretation clarifies its view that shares of certain U.S. Treasury exchange-traded funds may be considered redeemable securities in a pooled investment fund and may qualify as eligible IM and VM collateral subject to the conditions in CFTC Regulation 23.156. According to MPD, swap dealers, therefore, (1) may post and collect shares of certain UST ETFs as IM collateral for uncleared swap transactions with any covered counterparty and (2) may also post and collect such UST ETF shares as VM for uncleared swap transactions with financial end users.

New Developments Outside the U.S.

ESMA Assesses the Risks Posed by the Use of Leverage in the Fund Sector. On April 24, the European Securities and Markets Authority (“ESMA”), the EU’s financial markets regulator and supervisor, published its annual risk assessment of leveraged alternative investment funds (AIFs) and its first analysis on risks in UCITS using the absolute Value-at-Risk (VaR) approach. Both articles represent ESMA’s work to identify highly leveraged funds in the EU investment sector and assess their potential systemic relevance. [NEW]
ESAs Publish Joint Annual Report for 2024. On April 16, the Joint Committee of the European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) published its 2024 Annual Report. The main areas of cross-sectoral focus in 2024 were joint risk assessments, sustainable finance, operational risk and digital resilience, consumer protection, financial innovation, securitisation, financial conglomerates and the European Single Access Point (“ESAP”). Among the Joint Committee’s main deliverables were policy products for the implementation of the Digital Operational Resilience Act (“DORA”) as well as ongoing work related to the Sustainable Finance Disclosure Regulation. [NEW]
EC Publishes Consultation on the Integration of EU Capital Markets. On April 15, the European Commission (“EC”) published a targeted consultation on the integration of EU capital markets. This forms part of the EC’s plan to progress the Savings and Investment Union (“SIU”) strategy, published in March. According to the EC, the objective of the consultation is to identify legal, regulatory, technological and operational barriers hindering the development of integrated capital markets. Its focus includes barriers related to trading, post-trading infrastructures and the cross-border distribution of funds, as well as barriers specifically linked to supervision. The deadline for responses is June 10, 2025.
Japan’s Financial Services Agency Publishes Explanatory Document on Counterparty Credit Risk Management. On April 14, Japan’s Financial Services Agency (“JFSA”) published an explanatory document on the Basel Committee on Banking Supervision’s Guidelines for Counterparty Credit Risk Management. The document, co-authored with the Bank of Japan, indicates that it was published to facilitate better understanding of the Basel Committee’s guidelines and is available in Japanese only.

New Industry-Led Developments

ISDA/IIF Responds to EC’s Consultation on the Market Risk Prudential Framework. On April 22, ISDA and the Institute of International Finance (“IIF”) submitted a joint response to the EC’s consultation on the application of the market risk prudential framework. The associations believe the capital framework should be risk-appropriate and as consistent as possible across jurisdictions to ensure a level playing field without competitive distortions due to divergent rules. [NEW]
ISDA and FIA Respond to Consultation on Commodity Derivatives Markets. On April 22, ISDA and FIA submitted a joint response to the EC’s consultation on the functioning of commodity derivatives markets and certain aspects relating to spot energy markets. In addition to questions on position management, reporting and limits and the ancillary activities exemption, the consultation also addressed data and reporting and certain concepts raised in the Draghi report, such as a market correction mechanism to cap pricing of natural gas and an obligation to trade certain commodity derivatives in the EU only. [NEW]
ISDA Submits Letter on Environmental Credits. On April 15, ISDA submitted a response to the Financial Accounting Standards Board’s (FASB) consultation on environmental credits and environmental credit obligations. ISDA said that the response supports the FASB’s overall proposals to establish clear and consistent accounting guidance for environmental credits, but highlights that clarification is needed in certain areas, including those related to recognition, derecognition, impairment and hedge accounting impacts.

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

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

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

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

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

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

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

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

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)

Gibson Dunn’s DEI Task Force is available to help clients understand what these and other expected policy and litigation developments will mean for them and how to comply with new requirements.

On April 23, President Trump issued an Executive Order entitled Restoring Equality of Opportunity and Meritocracy. The order seeks to “eliminate the use of disparate-impact liability in all contexts to the maximum degree possible.”

Disparate impact is a theory of discrimination applied when a facially neutral practice has a statistically significant impact on a protected group. According to the Executive Order, “disparate-impact liability” creates “a near insurmountable presumption of unlawful discrimination … where there are any differences in outcomes in certain circumstances among different races, sexes, or similar groups, even if there is no facially discriminatory policy or practice or discriminatory intent involved, and even if everyone has an equal opportunity to succeed.” The order criticizes disparate-impact liability as “all but requir[ing] individuals and businesses to consider race and engage in racial balancing to avoid potentially crippling legal liability.” Thus, according to President Trump, disparate-impact liability prevents employers from “act[ing] in the best interests of the job applicant, the employer, and the American public” and undermines “meritocracy,” “a colorblind society,” and “the American Dream.”[*]

A. Regulatory Changes

Section 3 and Section 5 of the Executive Order direct the repeal or amendment of certain regulations that impose disparate-impact liability on, and require affirmative action by, recipients of federal funding under Title VI, such as universities, nonprofits, and certain contractors. Section 3 states that it is revoking the “Presidential approval” of these regulations. (Title VI provides that no “rule, regulation, or order” implementing the statute “shall become effective unless and until approved by the President.” 42 U.S.C. § 2000d-1.) And Section 5(a) directs the Attorney General to “initiate appropriate action to repeal or amend” those regulations.

The Title VI regulations identified by the Executive Order for repeal prohibit recipients of federal funding from “utiliz[ing] criteria or methods of administration which have the effect of subjecting individuals to discrimination,” selecting “the site or location of facilities” in a manner that has “the purpose or effect of defeating or substantially impairing the accomplishment of the objectives” of Title VI, or engaging in “employment practices” that “tend[]” to discriminate. 28 C.F.R. § 42.104(b)(2), (b)(3), (c)(2). The regulations also allow recipients to “take affirmative action to overcome the effects of conditions which resulted in [discrimination],” even if there were no prior discrimination by the recipient. § 42.104(b)(6)(ii).

Section 5(b) also directs the Attorney General, “in coordination with the heads of all other agencies,” to review “all existing regulations, guidance, rules, or orders that impose disparate-impact liability or similar requirements,” and to “detail agency steps for their amendment or repeal, as appropriate under applicable law.” Unlike Section 5(a), this portion of the Executive Order is not limited to Title VI, and likely contemplates Title VII, the Fair Housing Act, the Age Discrimination in Employment Act, the Affordable Care Act, and the Equal Credit Opportunity Act, several of which are mentioned in other sections of the order.

Section 7 of the Executive Order further instructs the Attorney General to “determine whether any Federal authorities preempt State laws, regulations, policies, or practices that impose-disparate-impact liability,” and to “take appropriate measures consistent with the policy of this order.” Section 7 also directs the Attorney General and Chair of the Equal Employment Opportunity Commission (EEOC) to “issue guidance or technical assistance to employers regarding appropriate methods to promote equal access to employment regardless of whether an applicant has a college education.”

B. Enforcement Actions

Section 4 of the Executive Order directs all federal agencies to “deprioritize enforcement of all statutes and regulations to the extent they include disparate-impact liability.” Consistent with that direction, Section 6 instructs all heads of federal agencies, including “the Attorney General,” “the Chair of the Equal Employment Opportunity Commission,” “the Secretary of Housing and Urban Development, the Director of the Consumer Financial Protection Bureau, the Chair of the Federal Trade Commission, and the heads of other agencies responsible for enforcement of the Equal Credit Opportunity Act (Public Law 93-495), Title VIII of the Civil Rights Act of 1964 (the Fair Housing Act (Public Law 90-284, as amended)),” to “assess” or “evaluate” all pending proceedings relying on disparate-impact theories, including under Title VII, and “take appropriate action” within 45 days. Agencies must conduct a similar review of “consent judgments and permanent injunctions” within 90 days.

C. Analysis

As a result of this Executive Order, federal agencies are unlikely to initiate investigations or enforcement actions relying on disparate-impact theories. They might also close, dismiss, or narrow existing investigations, enforcement actions, and ongoing monitorships pursuant to consent decrees or other agreements where the underlying legal theory relied on disparate-impact liability. Companies facing such investigations, actions, and monitorships might wish to ask for their closure in light of the order.

Agencies also may move to repeal or amend regulations and guidance documents imposing or recognizing disparate-impact liability, such as the EEOC’s guidelines concerning affirmative action that address disparate-impact liability. See 29 C.F.R. Part 1608. Among other things, the current EEOC guidance opines that affirmative action plans are allowed to remedy “employment practices” that “[r]esult in disparate treatment,” even if there is no “violation of Title VII.” 29 C.F.R. § 1608.4(b). The EEOC may repeal or amend these guidelines, including because it is consistent with President Trump’s prior repeal of Executive Order 11246 and Acting Chair Lucas’s view that such plans may be used in “very limited circumstances.” And given that Title VII provides that “good faith” compliance with a written EEOC “interpretation or opinion” is a defense to liability, 42 U.S.C. § 2000e-12(b), rescission of the affirmative action plan guidelines could eliminate a safe harbor if the guidelines are formally rescinded. Employers with affirmative action plans should review their plans and consider whether to make changes in light of forthcoming EEOC action.

Litigation challenging the actions directed by the order is possible. Title VI is silent, for example, on whether the President may unilaterally revoke approval of regulations without a full notice-and-comment rulemaking process. Democratic state attorneys general might also litigate if the Trump Administration takes the position that federal laws preempt state laws or regulations that impose or recognize disparate-impact liability.

Meanwhile, the order does not directly impact private plaintiff litigation invoking disparate impact. The order also has no immediate impact on existing disparate-impact case law. However, litigation catalyzed by the order could lead to reconsideration of precedents upholding disparate-impact theories of liability, such as the Supreme Court’s decision interpreting Title VII in Griggs v. Duke Power Co., 401 U.S. 424 (1971).

[*] This order is consistent with other Administration actions regarding disparate-impact liability. On April 23, for example, President Trump issued an executive order rejecting the use of disparate-impact analysis to evaluate the lawfulness of school discipline. And earlier this year, Attorney General Bondi ordered the Department of Justice to issue updated guidance that “narrow[s] the use of ‘disparate impact’ theories that effectively require use of race- or sex-based preference” and “emphasize that statistical disparities alone do not automatically constitute unlawful discrimination.” Moreover, these actions were proposed in the Project 2025 policy document.

The following Gibson Dunn lawyers prepared this update: Jason Schwartz, Ryan Stewart, Cynthia Chen McTernan, and Josh Zuckerman.

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

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)

Naima L. Farrell – Partner, Labor & Employment Group,
Washington, D.C. (+1 202.887.3559, nfarrell@gibsondunn.com)

Cynthia Chen McTernan – Partner, Labor & Employment Group,
Los Angeles (+1 213.229.7633, cmcternan@gibsondunn.com )

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

Greta B. Williams – Partner, Labor & Employment Group,
Washington, D.C. (+1 202.887.3745, gbwilliams@gibsondunn.com)

Zoë Klein – Of Counsel, Labor & Employment Group,
Washington, D.C. (+1 202.887.3740, zklein@gibsondunn.com)

Anna M. McKenzie – Of Counsel, Labor & Employment Group,
Washington, D.C. (+1 202.955.8205, amckenzie@gibsondunn.com)

The French Ministry of Justice has unveiled the first draft of the reform of French arbitration law, a major step in modernizing the country’s arbitration framework. This draft reform builds on the 2011 overhaul, aiming to consolidate France’s position as a leading place of international arbitration.

A Reform Rooted in Continuity, Aimed at Autonomy

The reform is built on the foundation of France’s established arbitration tradition but proposes a dedicated Arbitration Code to enhance clarity and coherence, and strengthen the autonomy of arbitration law while improving its integration with French judicial procedures.

Three Main Pillars of the Reform:

1. A More Flexible Arbitration Framework

Trend towards unification of the rules governing domestic and international arbitration, favoring the more liberal international standards.
Reduced formalism: No mandatory form for arbitration clauses, electronic awards explicitly recognized.
Practice-driven updates: Simplified signing requirements, streamlined communication of awards.

2. A More Protective Legal Environment

Impartiality and independence of arbitrators reaffirmed.
Financial hardship mechanism introduced: Courts may provide assistance in case of proven inability to pay arbitration costs to avoid denial of justice.
Strengthened guarantees for weaker parties (e.g., consumers, employees, financially constrained parties).
Protection of third-party rights: Provisions allowing third-party intervention in court proceedings relating to the award (annulment / exequatur) and possibility for third-party opposition against court decisions.

3. A More Efficient System

Reinforced “juge d’appui”: Enhanced powers to support arbitration proceedings, prevent denial of justice, and enforce interim measures issued by the arbitral tribunal.
Enhanced tribunal tools: Consolidation of related claims into a single arbitral proceeding, liquidation of penalty payments (astreintes), obligation for parties to raise all claims and objections concurrently under penalty of subsequent inadmissibility, and issuance of binding preliminary determinations on jurisdiction or admissibility.
Streamlined enforcement and recourse: Revised procedural rules on recognition, exequatur, and appeal proceedings before French courts; stay of annulment no longer automatic in domestic cases.

A Strategic Move for Arbitration in France:

This initiative reflects France’s commitment to arbitration-friendly policies and to the continuing reinforcement of its position in the global dispute resolution landscape.

A consultation is now open to refine the draft, collect the industry feedback and clarify outstanding issues.

We are closely monitoring the legislative process and will continue to provide insights as it evolves.

The following Gibson Dunn lawyers prepared this update: Eric Bouffard, Martin Guermonprez, and Imane Choukir.

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 International Arbitration practice group, or the authors in Paris at +33 1 56 43 13 00:

Eric Bouffard – ebouffard@gibsondunn.com

Martin Guermonprez – mguermonprez@gibsondunn.com

Imane Choukir – ichoukir@gibsondunn.com

We are pleased to provide you with Gibson Dunn’s Accounting Firm Quarterly Update for Q1 2025. The Update is available in .pdf format at the below link, and addresses news on the following topics that we hope are of interest to you:

Presidential and SEC Transitions Continue
SEC Abandons Defense of Climate Rule
Ninth Circuit Considers First Amendment Challenge to SEC’s Gag Rule
AICPA Seeks Comment on Alternative Practice Structures
CPAB Amends Rules to Increase Disclosure of Inspection Results
Supreme Court Distinguishes Between False and Misleading Statements
Second Circuit Applies Crime-Fraud Exception to Overcome Attorney-Client Privilege
Texas Supreme Court Adopts Anti-Fracturing Rule
EU Proposes Simplified Rules Regarding Sustainability Reporting
Other Recent PCAOB Regulatory and Enforcement Developments

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

Download Full Newsletter

Warmest regards,
Jim Farrell
Monica Loseman
Michael Scanlon

Chairs, Accounting Firm Advisory and Defense Practice Group, Gibson, Dunn & Crutcher LLP

In addition to the practice group chairs, this update was prepared by David Ware, Benjamin Belair, Monica Limeng Woolley, Bryan Clegg, Hayden McGovern, John Harrison, Nicholas Whetstone, and Ty Shockley.

Accounting Firm Advisory and Defense Group Chairs:

Jim Farrell – Co-Chair, New York (+1 212-351-5326, jfarrell@gibsondunn.com)

Monica K. Loseman – Co-Chair, Denver (+1 303-298-5784, mloseman@gibsondunn.com)

Michael Scanlon – Co-Chair, Washington, D.C.(+1 202-887-3668, mscanlon@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 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 15, three current law students sued the Equal Employment Opportunity Commission (EEOC) in the U.S. District Court for the District of Columbia, seeking to enjoin the EEOC’s efforts to collect workplace demographic information from twenty law firms. The plaintiffs, who are proceeding pseudonymously, state that they have applied to work at one or more of the twenty targeted firms and that they are “deeply worried that their data will be divulged [to the EEOC], and that they may be targeted as a result.” The plaintiffs assert that the EEOC engaged in ultra vires action by informally investigating the law firms without a charge being filed with the agency. They ask the court to enjoin the EEOC from “investigating any law firm through means that do not satisfy the requirements of conducting an investigation under Title VII’s EEOC charge process,” to order the EEOC to withdraw the letters it sent to the twenty law firms, and to order the EEOC to return any information already collected from those firms.

As reported in our April 8 Task Force Update, on March 27, Judge Matthew Kennelly of the U.S. District Court for the Northern District of Illinois granted a nationwide temporary restraining order (TRO) blocking the Department of Labor from enforcing the Certification Provision of Executive Order (EO) 14173, which requires federal contractors and grantees to certify that they do not operate any unlawful DEI programs. The TRO also prohibited enforcement of the Termination Provision of EO 14151, which requires termination of all “equity-related” federal grants, against the plaintiff, the non-profit organization Chicago Women in Trade (CWIT). On April 14, the court issued an opinion preliminarily enjoining enforcement of these EOs to the same extent and for the same reasons articulated in its prior opinion. Accordingly, the Department of Labor remains prohibited from enforcing the Certification Provision nationwide. It is also enjoined from enforcing the Termination Provision against CWIT. The court’s order leaves the remainder of the EOs’ provisions in effect, and it does not impede other agencies’ ability to enforce the Certification or Termination Provisions, nor does it hinder the Department of Labor’s ability to enforce the Termination Provision against other federal grantees. The court’s entry of a preliminary injunction clears the path for the government to appeal to the Seventh Circuit and seek a stay of the court’s order pending the outcome of the appeal.

In an April 3 letter to state leaders, the U.S. Department of Education stated that it will withdraw Title I funding from public schools that maintain DEI-related programs. The letter stated that “the use of [DEI] programs to advantage one’s race over another” violates civil rights laws and is thus “impermissible.” The letter directed schools and state officials to return an attached certification within 10 days, confirming compliance with the directive. Craig Trainor, the Department’s Acting Assistant Secretary for Civil Rights, said in a statement that “[f]ederal financial assistance is a privilege, not a right . . . [and that] [w]hen state education commissioners accept federal funds, they agree to abide by federal antidiscrimination requirements. Unfortunately, we have seen too many schools flout or outright violate these obligations, including by using DEI programs to discriminate against one group of Americans to favor another based on identity characteristics.” Following an emergency motion by the National Educational Association for a temporary restraining order blocking this certification requirement, the Department agreed to extend the deadline to April 24. As Jonaki Mehta of NPR reports, the threat to withdraw funding could have sizable effects on schools nationwide. While the federal government only provides around 10% of public-school funding, Title I funding benefits nearly 90% of school districts nationwide. To date, the Department has already allocated $18.38 billion under Title I in the current fiscal year.

Media Coverage and Commentary:

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

Reuters, “Former US Labor Officials Urge Contractors to Stand Firm on DEI” (April 15): Simon Jessop and Richa Naidu of Reuters report on an open letter sent from ten former U.S. Department of Labor officials to federal contractors, urging them to maintain their corporate diversity policies despite legal threats from the Trump Administration. The letter reads: “Although the federal government has chosen to dismantle diversity, equity, inclusion, and accessibility programs in its own workplaces at its own peril, the government cannot prohibit private employers from engaging in fully lawful strategies to advance equal opportunity for all.” The letter explains why, in the authors’ view, President Trump may not retroactively impose liability for complying with prior federal requirements or change legal standards through executive order. The letter also extolls the benefits of “proactive barrier analysis,” including collecting and analyzing workforce data and setting demographic benchmarks, which the letter asserts do not violate federal anti-discrimination law.
New York Times, “Harvard Says It Will Not Comply With Trump Administration’s Demands” (April 14): Vimal Patel of the New York Times reports on Harvard University’s decision to reject the policy changes requested of it by the Trump Administration, making it “the first university to directly refuse to comply with the administration’s demands and setting up a showdown between the federal government and the nation’s wealthiest university.” In an April 11 letter, the Administration requested that Harvard engage in a series of changes to its hiring, admissions, student discipline, and DEI policies and practices. In a statement following the letter, Harvard’s president Alan Garber said: “No government—regardless of which party is in power—should dictate what private universities can teach, whom they can admit and hire, and which areas of study and inquiry they can pursue.” Patel reports that, shortly thereafter, the Administration announced it would freeze $2.2 billion in multiyear grants to Harvard along with a $60 million contract.
Law360, “Florida Won’t Hire Law Firms With DEI Initiatives, AG Says” (April 9): Madison Arnold of Law360 reports that the Attorney General of Florida, James Uthmeier, has issued a memorandum stating that the state will no longer engage law firms with DEI programs or environmental, social, and governance (ESG) initiatives. The memorandum also provided that Uthmeier will cease approving engagements between firms with these programs and other Florida agencies. The Attorney General’s office will also conduct a review of existing outside counsel engagements to assess compliance with the memorandum’s requirements. Uthmeier identified several initiatives he views as problematic, such as the Mansfield Certification Program and diversity mentorship programs. Uthmeier stated, “Like the EEOC, I am deeply troubled that these discriminatory practices have been embraced and amplified by many of our nation’s law firms. If we are truly committed to the rule of law, then we must be truly committed to equal justice under law. DEI and ESG practices flout those bedrock principles.”
LA Times, “California Signals Possible Defiance of Trump Anti-DEI Order that Threatens School Funding” (April 8): Howard Blume of the LA Times reports that California is resisting the Trump administration’s threat to cut federal funding for public schools that maintain DEI programs. The state’s education officials argue that DEI initiatives are essential for creating inclusive and equitable learning environments. California Governor Gavin Newsom and other state leaders have vowed to fight the administration’s directive, which they view as an attempt to undermine civil rights protections.
The New York Times, “When It Comes to D.E.I. and ICE, Trump Is Using Federal Grants as Leverage” (April 7): Benjamin Oreskes, Zolan Kanno-Youngs, and Hamed Aleaziz of The New York Times report that the Department of Homeland Security (DHS) is updating its grant funding contracts to require city and state grantees—many of which receive money from DHS for public safety services, such as police, fire, and emergency response—to “honor requests for cooperation, such as participation in joint operations, sharing of information or requests for short-term detention of an alien pursuant to a valid detainer.”

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:

American Alliance for Equal Rights v. American Bar Association, No. 1:25-cv-03980 (N.D. Ill. 2025): On April 12, 2025, the American Alliance for Equal Rights (AAER) sued the American Bar Association (ABA) in relation to its Legal Opportunity Scholarship, which AAER asserts violates Section 1981. According to the complaint, the scholarship awards $15,000 to 20-25 first year law students per year. To qualify, an applicant must be a “member of an underrepresented racial and/or ethnic minority.” The complaint alleges that “White students are not eligible to apply, be selected, or equally compete for the ABA’s scholarship.” AAER seeks a TRO and preliminary injunction barring the ABA from selecting winners for this year’s scholarship, as well as a permanent injunction barring the ABA from knowing or considering applicants’ race or ethnicity when administering the scholarship.
- Latest update: The docket does not yet reflect that the ABA has been served.
American Alliance for Equal Rights v. Southwest Airlines Co., No. 24-cv-01209 (N.D. Tex. 2024): On May 20, 2024, AAER filed a complaint against Southwest Airlines, alleging that the company’s ¡Lánzate! Travel Award Program, which awards free flights to students who “identify direct or parental ties to a specific country” of Hispanic origin, unlawfully discriminates based on race. AAER seeks a declaratory judgment that the program violates Section 1981 and Title VI, a temporary restraining order barring Southwest from closing the next application period (set to open in March 2025), and a permanent injunction barring enforcement of the program’s ethnic eligibility criteria. On March 3, 2025, AAER filed a motion for summary judgment, arguing that there was no genuine dispute of material fact on three relevant questions: (1) whether ¡Lánzate! involved contracts; (2) whether ¡Lánzate! intentionally discriminated against non-Hispanics; and (3) whether that ethnic discrimination harmed one of AAER’s members by preventing them from competing for ¡Lánzate! in 2024.
- Latest update: On April 10, 2025, the United States filed an unopposed motion for Leave to File Statement of Interest in support of AAER’s Motion for Summary Judgment. In a three-page motion, the United States argued that it had a strong interest in protecting the civil rights of all Americans, including the right to be free from discrimination on the basis of protected characteristics. On April 9, 2025, Southwest filed a Motion for Entry of Judgment of $0.01 in nominal damages for AAER. Southwest argued the following: (i) it previously moved to dismiss AAER’s complaint in its entirety on the basis of mootness, as Southwest has already ceased operating the challenged Award Program, (ii) it is willing to accept judgment against it for $0.01 in nominal damages, without an admission of liability, (iii) its request to accept judgment for $0.01 follows a straightforward path to end this litigation, (iv) Justice Kavanaugh’s concurrence in Uzuegbunam v. Preczerski supports the conclusion that this path is available in a case like this one, (v) the proposed judgment would resolve AAER’s allegation that Southwest was resisting judgment and, therefore, had not obtained mootness, and (vi) the proposed judgment would also address the Court’s earlier conclusion that an offer to settle does not render the nominal damages claim moot.
National Association of Diversity Officers in Higher Educ., et al., v. Donald J. Trump, et al., No. 1:25-cv-00333-ABA (D. Md. 2025): On February 3, 2025, the National Association of Diversity Officers in Higher Education, the American Association of University Professors, the Restaurant Opportunities Centers United and the Mayor and City Council of Baltimore, Maryland brought suit against the Trump Administration challenging EOs 14151 and 14173. The plaintiffs contend that the executive orders exceed presidential authority, violate the separation of powers and the First Amendment, and are unconstitutionally vague. On February 13, the plaintiffs moved for a temporary restraining order and a preliminary injunction to prevent the Trump Administration from enforcing the executive orders. On February 21, the Court granted in part the preliminary injunction. The Fourth Circuit Court of Appeals stayed the injunction on March 14.
- Latest update: On March 21, the plaintiffs filed a motion in the district court to vacate the preliminary injunction without prejudice, asserting that they “intend to seek additional relief based on developments that have occurred since the motion for preliminary injunction was filed on February 13, 2025.” The defendants opposed the motion on the ground that the district court lost jurisdiction when the defendants appealed the preliminary injunction order to the Fourth Circuit. The court heard argument on the motion on April 10.
Desai v. PayPal, No. 1:25-cv-00033-AT (S.D.N.Y. 2025): On January 2, 2025, Andav Capital and its founder Nisha Desai sued PayPal, alleging that PayPal unlawfully discriminates by administering its investment program for minority-owned businesses in a way that favors Black and Latino applicants. Desai, an Asian-American woman, alleges PayPal violated Section 1981, Title VI, and New York state anti-discrimination law (NYSHRL) by failing to fully consider her funding application and announcing first-round investments only in companies with “at least one general partner who was black or Latino.” She seeks a declaratory judgment that the investment program is unlawful, an injunction barring PayPal from “knowing or considering race or ethnicity” in administering the program, and damages. PayPal is represented by Gibson Dunn in this matter.
- Latest update: On April 16, 2025, PayPal moved to dismiss the complaint, asserting that the plaintiffs lack standing because they never applied for funding under the challenged program. PayPal also argued that the plaintiffs’ claims are untimely because the challenged conduct occurred outside the three-year limitations period and that the plaintiffs engaged in improper “group pleading” by failing to make allegations against each defendant. Lastly, PayPal argued that complaint fails to state a claim on the merits because the plaintiffs allege no contractual relationship (Section 1981), do not allege PayPal received federal financial assistance (Title VI), and do not allege PayPal extended “credit” (NYSHRL).
National Association of Scholars v. U.S. Dep’t of Energy, et al., No. 25-cv-00077 (W.D. Tex. 2025): On January 16, 2025, the National Association of Scholars—a group of professors, faculty, and researchers at colleges and universities across the United States—sued the United States Department of Energy, alleging that the Department’s Office of Science unlawfully requires research grant applicants to show how they would “promote diversity, equity, and inclusion in research projects” through its Promoting Inclusive and Equitable Research (PIER) plan. The Association alleges that requiring grant applicants to show how they would promote DEI in their projects violates applicants’ First Amendment rights by requiring them to express ideas with which they disagree, that the Department lacked statutory authority to adopt the plan, and that the plan violates the procedural requirements of the Administrative Procedure Act. The Association seeks declaratory and injunctive relief. On March 31, 2025, the defendants filed a motion to dismiss. The defendants argue that the Association’s claims are moot, as the Department of Energy has rescinded the PIER plan requirement after President Trump issued EO 14151.
- Latest update: On April 14, 2025, the Association filed an opposition to the motion to dismiss, arguing that the recission of the PIER plan requirement does not sufficiently moot the controversy because the requirement was “suspended,” and not “rescinded,” making the change temporary. The Association also argues that EO 14151 is currently being challenged in multiple lawsuits, and it is likely that the PIER plan requirement, or something similar, could be reimposed.
San Francisco AIDS Foundation et al. v. Donald J. Trump et al., No. 3:25-cv-01824 (N.D. Cal. 2025): On February 20, several LGBTQ+ groups filed suit against President Trump, Attorney General Pam Bondi, and several other government agencies and actors, challenging the President’s recent executive orders regarding DEI (EO 14151, EO 14168, and EO 14173). The complaint alleges that these EOs are unconstitutional on several grounds, including the Equal Protection Clause of the Fifth Amendment, the Due Process Clause of the Fifth Amendment, and the Free Speech Clause of the First Amendment. It also argues the EOs are ultra vires and exceed the authority of the President. The plaintiffs seek preliminary and permanent injunctive relief. On March 3, the plaintiffs filed a motion for preliminary injunction.
- Latest update: On April 11, 2025, the defendants filed an opposition to the plaintiff’s motion for preliminary injunction. The defendants argued that the plaintiffs are not likely to establish the Court’s jurisdiction, the plaintiffs’ Due Process, First Amendment, separation-of-powers, statutory, and Equal Protection Clause claims will likely fail on the merits, the plaintiffs have not shown irreparable injury, and the balance of inequities and public interest weigh against relief. The defendants also argued that “to the extent the Court intends to grant Plaintiffs’ request for a preliminary injunction, such relief should be narrowly tailored to apply only to [the] defendant agencies, Plaintiffs, and the provisions that affect them” and that any injunctive relief should be stayed pending an appeal and bond.
Strickland et al. v. United States Department of Agriculture et al., No. 2:24-cv-00060 (N.D. Tex. 2024): On March 3, 2024, plaintiff farm owners sued the USDA over the administration of financial relief programs that allegedly allocated funds based on race or sex. The plaintiffs alleged that only a limited class of socially disadvantaged farmers, including certain races and women, qualify for funds under these programs. On June 7, 2024, the court granted in part the plaintiff’s motion for a preliminary injunction. The court enjoined the defendants from making payment decisions based directly on race or sex. However, the court allowed defendants to continue to apply their method of appropriating money, if done without regard to the race or sex of the relief recipient. On February 10, 2025, the parties requested a 30-day stay of proceedings to discuss a resolution following the USDA’s determination to “no longer employ the race- and sex-based ‘socially disadvantaged’ designation” in light of recent executive orders. The court granted the request on February 11, 2025. On March 27, 2025, the parties filed a joint status report requesting additional time to discuss “the possibility of a resolution.” On March 31, 2025, the court granted the parties’ request to stay all proceedings until April 10, 2025.
- Latest update: On April 10, 2025, the parties filed a joint status report. The defendants stated they would be open to a voluntary remand to “take any available and necessary administrative steps to no longer use the race- and sex-based ‘socially disadvantaged’ designation[s] in the challenged programs,” and to financially compensate the plaintiffs, but aver they are unable to compensate non-parties affected by the program, either by clawing back funds paid to disadvantaged farmers under the challenged program or by providing compensation to non-disadvantaged farmers previously denied funds under the program. The plaintiffs argued that USDA’s objection “misses the point,” because “[t]he only way to cure Plaintiffs’ injuries is to rework the challenged programs to be lawful.”

2. Employment discrimination and related claims:

Dill v. International Business Machines, Corp., No. 1:24-cv-00852 (W.D. Mich. 2024): On August 20, 2024, America First Legal filed a discrimination suit against IBM on behalf of a former IBM employee, alleging violations of Title VII and Section 1981. The plaintiff claims that IBM placed him on a performance improvement plan as a “pretext to force him out of [IBM] due to [its] stated quotas related to sex and race.” The complaint cites to a leaked video in which IBM’s Chief Executive Officer and Board Chairman, Arvind Krishna, allegedly states that all executives must increase representation of underrepresented minorities on their teams by 1% each year to receive a “plus” on their bonuses. On March 26, 2025, the court denied a motion to dismiss, concluding that the plaintiff alleged sufficient facts to support a discrimination claim.
- Latest update: On April 9, 2025, IBM answered the complaint, denying that the plaintiff consistently received high scores on the internal employee performance metric. IBM also denied having “executive compensation metrics that include a diversity modifier.” IBM raised seventeen affirmative defenses, including (1) failure to state a claim, (2) failure to show the irreparable harm required for injunctive relief, (3) failure to show the plaintiff was treated less well or materially different from other similarly situated employees, and (4) failure to mitigate damages.
Steffens v. Walt Disney Co., No. 25NNCV00944 (Cal. Super. Ct. Los Angeles Cnty. 2025): On February 11, 2025, a white former executive for Marvel Entertainment sued Disney, alleging the company discriminated against him on the basis of race, sex, and age. He alleged he was denied a promotion because of his race and age, and that the Company failed to promote him as retaliation for his objection to “effort[s] to promote presidents to senior vice presidents based on their race and a memorandum that would have referred to employees with the racial signifier ‘BIPOC.’” He brought claims under California state antidiscrimination and unfair business practices laws. On February 13, the court issued an order to show cause for failure to file proof of service. On March 17, 2025, the plaintiff filed a proof of personal service.
- Latest update: On April 9, 2025, Disney answered the complaint, “generally den[ying] each and every material allegation set forth in the complaint,” and the amount or manner in which the plaintiff has been injured. Disney also asserted twenty-two affirmative defenses, including (1) failure to state a claim, (2) failure to file within the applicable statute of limitations period, (3) failure to exhaust administrative remedies, and (4) failure to mitigate damages.

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

American Alliance for Equal Rights v. City of Chicago, et al., No. 1:25-cv-01017 (N.D. Ill. 2025): On January 29, 2025, AAER and two white male individuals filed a complaint against the City of Chicago and the City’s new casino, Bally’s Chicago, alleging that the City precluded them from investing in the new casino based on their race, in violation of Sections 1981, 1982, 1983, and 1985. Under the Illinois Gambling Act, an application for a casino owner’s license must contain “evidence the applicant used its best efforts to reach a goal of 25% ownership representation by minority persons and 5% ownership representation by women.” The plaintiffs alleged that the casino precluded them from participating in the casino’s initial public offering by limiting certain shares to members of specified racial minority groups.
- Latest update: On April 4, 2025, the City of Chicago moved to dismiss the complaint for failure to state a claim on the following grounds: (1) AAER lacks both organizational and associational standing; (2) the plaintiffs’ Sections 1981, 1982, and 1983 claims fail because the complained of action was undertaken by a private company, not a state actor; and (3) the plaintiffs’ Section 1985 claim fails because the alleged harm was not caused by a City policy. Also an April 4, 2025, the individual named defendants—all members of the Illinois Gaming Board—also moved to dismiss, contending that (1) the plaintiffs lack Article III standing; (2) Section 1981 does not create a private right of action against state actors; (3) in any event, the Eleventh Amendment bars the plaintiffs’ claim for damages; and (4) the plaintiffs fail to allege any action by the Board that caused any injury. That same day, defendants Bally’s Chicago and Bally’s Chicago Operating Company moved to dismiss for failure to state a claim under Sections 1981, 1982, and 1985.
American Alliance for Equal Rights v. Walz, 24-cv-1748 (D. Minn. 2024): On May 15, 2024, AAER filed a complaint against Minnesota Governor Tim Walz, challenging a state law that requires Governor Walz to ensure that five members of the Minnesota Board of Social Work are from a “community of color” or “an underrepresented community.” AAER claimed that two of its white female members were “qualified, ready, willing and able to be appointed to the board,” but that they would not be given equal consideration. AAER sought a permanent injunction and a declaration that the law violates the Equal Protection Clause of the Fourteenth Amendment. On January 3, 2025, AAER filed an amended complaint to reflect the fact that they no longer rely on one of their original white female members. On January 17, 2025, Governor Walz answered the amended complaint, denying the allegations of unlawful discrimination and asserting that the plaintiffs lacked standing and failed to state a claim upon which relief can be granted. He specifically denied that the law required him to consider the race of potential appointees to the Board or otherwise limits the pool of candidates based on race or ethnicity.
- Latest update: On April 3, 2025, the parties filed a joint stipulation of dismissal, in which Governor Walz denied any wrongdoing. On April 4, 2025, the court dismissed the case.
Doe 1 v. Office of the Director of Nat’l Intel., No. 1:25-cv-00300 (E.D. Va. 2025): On February 17, 2025, 11 unnamed employees of the Office of the Director of National Intelligence and the Central Intelligence Agency sued their employers after they were placed on administrative leave from their DEI-related positions. They assert that the decision to place them on administrative leave violates the Administrative Leave Act, the Administrative Procedure Act, and the First and Fifth Amendments of the U.S. Constitution. On February 17, 2025, the plaintiffs moved for a temporary restraining order. The court entered an administrative stay to allow additional briefing on the motion. On February 24, 2025, the plaintiffs filed an amended complaint adding eight unnamed plaintiffs to the case. The court held a hearing on the plaintiffs’ motion for a temporary restraining order on February 27, 2025. That same day, the court denied the motion in a single page order and lifted the administrative stay.
- Latest update: On March 27, 2025, the plaintiffs moved for a preliminary injunction preventing the defendants from terminating their employment, as well as the employment of similarly situated individuals. The plaintiffs argued that they are likely to succeed on their Fifth Amendment Due Process claim, they will suffer irreparable economic and reputational harm absent an injunction, the balance of hardships weigh in their favor, and an injunction will serve the public interest. They asked the court to (1) order the CIA Director to “personally review and reconsider his termination decisions”; (2) order the CIA Director and the Director of National Intelligence “to state why each individual termination somehow serves the national interest”; and/or (3) allow the plaintiffs and other similarly situated individuals to be considered for reassignment to positions in the Intelligence Community. On March 31, 2025, the court enjoined the defendants from “effectuating or implementing any decision to terminate the Plaintiffs without further Court authorization.” The court ordered the defendants to “provide Plaintiffs a requested appeal from any decision to terminate him or her” and to “consider any Plaintiffs’ request for reassignment for open or available positions in accordance with their qualifications and skills.”

4. Actions against educational institutions:

Students for Fair Admissions v. Air Force Academy, No. 1:24-cv-03430 (D. Co. 2024): On December 10, 2024, Students for Fair Admissions (SFFA) filed a complaint against the United States Air Force Academy alleging that the Academy considers race in admissions decisions in violation of the equal protection component of the Fifth Amendment. SFFA alleges that the Academy impermissibly considers the race of applicants to achieve explicit statistical goals for the racial makeup of each incoming class. SFFA claims that the Academy’s admissions decisions “treat race as a ‘plus factor,’” in violation of Students for Fair Admissions v. President & Fellows of Harvard College. SFFA also alleges that the Academy’s justifications for considering race in admissions—that prioritizing diversity assists with recruiting and retaining top talent and preserves unit cohesion and the Air Force’s legitimacy—are flawed and not meaningfully furthered by the Academy’s admissions policies. SFFA seeks both declaratory relief and a permanent injunction preventing the Academy from considering race in admissions.
- Latest update: On April 11, 2025, the defendants filed a motion to hold the case in abeyance while the parties consider a recent change in the United States Air Force Academy’s admissions policy. On January 27, 2025, Acting Secretary of the Air Force Gary A. Ashworth issued a memorandum directing “cessation of all Diversity, Equity, and Inclusion (DEI) considerations regarding the Department of the Air Force (DAF) officer applicant pools.” And on February 6, 2025, Acting Assistant Secretary of the Air Force for Manpower and Reserve Affairs Gwendolyn R. DeFilippi eliminated “quotas, objectives, and goals based on sex, race or ethnicity for organizational composition, academic admission, career fields, or class composition.” The defendants asked the court to hold the case in abeyance to provide the parties an opportunity to determine how to proceed in light of these recent developments. In a minute order issued on April 14, 2025, the court, construing the consent motion to hold the case in abeyance as a motion to stay the case, granted the motion to stay.
Students for Fair Admissions v. United States Naval Academy et al., No. 1:23-cv-02699 (D. Md. 2023), on appeal at No. 24-02214 (4th Cir. 2024): On October 5, 2023, SFFA filed suit against the Naval Academy, claiming that the Academy’s consideration of race in its admissions process violates equal protection guarantees. After a year of discovery, the dispute proceeded to a nine-day trial in September 2024, during which SFFA argued that the Academy’s consideration of race in its admissions process violated the Constitution because it was not narrowly tailored to achieve a compelling government interest. The Academy countered that its consideration of race is necessary to achieve a diverse officer corps, which furthers a compelling government interest in national security. On December 6, 2024, the court issued a decision finding that the Academy’s admissions process withstands strict scrutiny mandated by Students for Fair Admissions v. President & Fellows of Harvard College, 600 U.S. 181 (2023), and entered judgment in favor of the Academy. SFFA appealed the decision to the Fourth Circuit. On March 28, 2025, the parties filed an unopposed motion to hold briefing in abeyance while the parties “consider a recent change in the United States Naval Academy’s admissions policy.”
- Latest update: On April 1, 2025, the court held the “case in abeyance to allow the parties a reasonable amount of time to discuss the details of the Academy’s new policy and to consider the appropriate next steps for this litigation.” The court directed the parties to file a status report on June 2, 2025.

Legislative Updates

On March 20, 2025, West Virginia State Senator Tom Willis introduced Senate Bill 850. The bill provides that a corporate director’s or officer’s “prioritiz[ation of] any element of environmental, social, and governance interest over pecuniary interests” serves as “prima facie evidence” that the corporation at which the director or officer works breached its fiduciary duty to its shareholders. SB 850 would define “environmental, social, and governance” to include “considering diversity, equity, and inclusion” in corporate decision-making.

On March 26, 2025, the Ohio legislature passed and sent to the Governor Senate Bill 1, the Advance Ohio Higher Education Act. The Act would direct the boards of trustees of state public institutions of higher education to adopt and enforce policies that prohibit the following: (1) “any orientation or training course regarding [DEI]” absent permission from the state chancellor of higher education; (2) operation of DEI offices and departments; (3) “[u]sing [DEI] in job descriptions”; (4) the “establishment of any new institutional scholarships that use diversity, equity, and inclusion in any manner”; and (5) contracting with consultants or third parties whose role is to promote racial, gender, religious, or sexual orientation diversity in admissions and hiring. The Act would also require these institutions to publicly declare alongside their mission statements—as well as in any offer of admission or employment—that their “duty is to treat all faculty, staff, and students as individuals, to hold them to equal standards, and to provide them equality of opportunity, with regard to those individuals’ race, ethnicity, religion, sex, sexual orientation, gender identity, or gender expression.”

On April 9, 2025, Texas Senate Bill 1006, was referred to the Texas House Insurance Committee. The bill had been approved by the Texas Senate on March 26, 2025. The bill would amend the Texas Insurance Code to require that insurers provide a quarterly report to the Texas Department of Insurance “summarizing the insurer’s written statements of reasons for declination, cancellation, or nonrenewal provided to applicants for insurance or policyholders.” The report must disclose if any decision to decline, cancel, or fail to renew a policy was based on “a score that is based on measuring exposure to long-term environmental, social, or governance risks” or “diversity, equity, and inclusion factors.”

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)

From the Derivatives Practice Group: This week, the CFTC issued a staff advisory that provides additional guidance on the criteria used to determine whether to refer self-reported violations or supervision or non-compliance issues to the Division of Enforcement.

New Developments

CFTC Staff Issues Advisory on Referrals to the Division of Enforcement. On April 17, the CFTC’s Market Participants Division, the Division of Clearing and Risk, and the Division of Market Oversight (“Operating Divisions”) and the Division of Enforcement (“DOE”) issued a staff advisory providing guidance on the materiality or other criteria that the Operating Divisions will use to determine whether to make a referral to DOE for self-reported violations, or supervision or non-compliance issues. According to the CFTC, this advisory furthers the implementation of DOE’s recent advisory, issued February 25, 2025, addressing its updated policy on self-reporting, cooperation, and remediation. [NEW]
CFTC Staff Issues No-Action Letter Regarding the Merger of UBS Group and Credit Suisse Group. On April 15, the CFTC’s Market Participants Division (“MPD”) and Division of Clearing and Risk (“DCR”) issued a no-action letter in response to a request from UBS AG regarding the CFTC’s swap clearing and uncleared swap margin requirements. The CFTC said that the letter is in connection with a court-supervised transfer, consistent with United Kingdom laws, of certain swaps from Credit Suisse International to UBS AG London Branch following the merger of UBS Group AG and Credit Suisse Group AG. The no-action letter states, in connection with such transfer and subject to certain specified conditions: (1) MPD will not recommend the Commission take an enforcement action against certain of UBS AG London Branch’s swap dealer counterparties for their failure to comply with the CFTC’s uncleared swap margin requirements for such transferred swaps; and (2) DCR will not recommend the Commission take an enforcement action against UBS AG or certain of its counterparties for their failure to comply with the CFTC’s swap clearing requirement for such transferred swaps. [NEW]
CFTC Staff Issues Interpretation Regarding U.S. Treasury Exchange-Traded Funds as Eligible Margin Collateral for Uncleared Swaps. On April 14, MPD issued an interpretation intended to clarify the types of assets that qualify as eligible margin collateral for certain uncleared swap transactions under CFTC regulations. CFTC Regulation 23.156 lists the types of collateral that covered swaps entities can post or collect as initial margin (“IM”) and variation margin (“VM”) for uncleared swap transactions. The CFTC indicated that the regulation, which includes “redeemable securities in a pooled investment fund” as eligible IM collateral, aims to identify assets that are liquid and will hold their value in times of financial stress. Additionally, MPD noted that the interpretation clarifies its view that shares of certain U.S. Treasury exchange-traded funds may be considered redeemable securities in a pooled investment fund and may qualify as eligible IM and VM collateral subject to the conditions in CFTC Regulation 23.156. According to MPD, swap dealers, therefore, (1) may post and collect shares of certain UST ETFs as IM collateral for uncleared swap transactions with any covered counterparty and (2) may also post and collect such UST ETF shares as VM for uncleared swap transactions with financial end users. [NEW]
Senate confirms Atkins as SEC chair. On April 9, the Senate voted 52-44 to confirm Paul Atkins as the next chair of the SEC. Atkins, a former SEC commissioner and a longtime financial industry consultant, was tapped in December by Donald Trump for the position. In his March 27 confirmation hearing before the Senate Banking Committee, Atkins indicated he would streamline the agency’s regulatory activity. Atkins is expected to be friendlier toward the financial industry than the previous SEC chair, Gary Gensler.
CFTC Releases Staff Letter Relating to Certain Foreign Exchange Transactions. On April 9, MPD and DMO issued an interpretative letter providing the divisions’ views on the characterization of certain foreign exchange (“FX”) transactions as being “swaps,” “foreign exchange forwards,” or “foreign exchange swaps,” in each case, as defined in the Commodity Exchange Act. Specifically, the interpretative letter states: Window FX Forwards, as described in the letter, should be considered to be “foreign exchange forwards;” and Package FX Spot Transactions, as described in the letter, should not be considered to be “foreign exchange swaps” or “swaps.”
Acting Chairman Pham Lauds DOJ Policy Ending Regulation by Prosecution of Digital Assets Industry and Directs CFTC Staff to Comply with Executive Orders. On April 8, CFTC Acting Chairman Caroline D. Pham praised a recently-announced Justice Department policy ending the practice of regulation by prosecution that has targeted the digital asset industry in recent years, and directed CFTC staff to comply with the President’s executive orders and Administration policy, consistent with DOJ’s digital assets enforcement priorities and charging considerations. The DOJ policy comes as Acting Chairman Pham has similarly refocused the CFTC’s enforcement resources on cases involving fraud and manipulation.
CFTC Staff Issues No-Action Letter Regarding Pre-Trade Mid-Market Mark. On April 4, MPD issued a no-action letter in relation to the Pre-Trade Mid-Market Mark (“PTMMM”) requirement in Regulation 23.431 for swap dealers and major swap participants. The CFTC first issued a no-action letter regarding the PTMMM requirement in 2012, shortly after the PTMMM compliance date, because it did not provide significant informational value and created costly operational challenges. Unlike prior no-action letters which provided relief nofor certain specified types of swaps, this relief under this no-action letter applies to all swaps and does not require advanced counterparty consent.
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 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 Developments Outside the U.S.

EC Publishes Consultation on the Integration of EU Capital Markets. On April 15, the European Commission (“EC”) published a targeted consultation on the integration of EU capital markets. This forms part of the EC’s plan to progress the Savings and Investment Union (“SIU”) strategy, published in March. According to the EC, the objective of the consultation is to identify legal, regulatory, technological and operational barriers hindering the development of integrated capital markets. Its focus includes barriers related to trading, post-trading infrastructures and the cross-border distribution of funds, as well as barriers specifically linked to supervision. The deadline for responses is June 10, 2025. [NEW]
JFSA Publishes Explanatory Document on Counterparty Credit Risk Management. On April 14, Japan’s Financial Services Agency published an explanatory document on the Basel Committee on Banking Supervision’s Guidelines for Counterparty Credit Risk Management. The document, co-authored with the Bank of Japan, indicates that it was published to facilitate better understanding of the Basel Committee’s guidelines and is available in Japanese only. [NEW]
ESMA Publishes Consultation on Clearing Thresholds. On April 8, ESMA published a consultation on a revised approach to clearing thresholds under the European Market Infrastructure Regulation (“EMIR”) 3. The consultation covers the following topics: proposals for a revised set of clearing thresholds; considerations for hedging exemptions for non-financial counterparties; and a trigger mechanism for reviewing the clearing thresholds.
FCA Publishes Policy Statement on the Derivatives Trading Obligation and Post-trade Risk Reduction Services. On April 3, the UK Financial Conduct Authority (“FCA”) published policy statement PS25/2 on changes to the scope of the UK derivatives trading obligation (“DTO”) and an extension of exemptions from certain obligations under the UK Markets in Financial Instruments Directive (“MIFID”) and MIFIR.
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.
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.
The European Supervisory Authorities Publish Evaluation Report on the Securitization Regulation. On March 31, the Joint Committee of the European Supervisory Authorities published its evaluation report on the functioning of the EU Securitization Regulation. 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 Industry-Led Developments

ISDA Submits Letter on Environmental Credits. On April 15, ISDA submitted a response to the Financial Accounting Standards Board’s (FASB) consultation on environmental credits and environmental credit obligations. ISDA said that the response supports the FASB’s overall proposals to establish clear and consistent accounting guidance for environmental credits, but highlights that clarification is needed in certain areas, including those related to recognition, derecognition, impairment and hedge accounting impacts. [NEW]
ISDA CEO Testifies Before House Financial Services Committee Task Force. On April 8, ISDA CEO Scott O’Malia testified on the implementation of mandatory US Treasury clearing before the House Committee on Financial Services Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity. The testimony highlighted several key issues that need to be resolved before the clearing mandate comes into effect, including recalibration of the supplementary leverage ratio to ensure banks have the balance sheet capacity to provide intermediation and client clearing services in the US Treasury market, making changes to the proposed Basel III endgame and surcharge for global systemically important banks to avoid a disproportionate capital charge for client clearing businesses, and ensuring the margining and capital treatment of client exposures reflects the actual risk of a client’s overall portfolio.
ISDA Responds to ESMA Consultation on CCP Model Validation. On April 7, ISDA responded to ESMA’s consultation on the draft RTS under article 49(5) of the EMIR, on the conditions for an application for validation of model changes and parameters under Articles 49 and 49a of EMIR, which have been revised as part of EMIR 3. In the consultation paper, ESMA sets out proposed quantitative thresholds and qualitative elements to be considered when determining whether a model change is significant. In the response, ISDA noted that more information would be necessary to understand the rationale behind the thresholds that are proposed. ISDA provided comments on ESMA’s interpretation of ‘concentration risk’ and on the proposed lookback period for assessing whether a change in significant.
Cross-product Netting Under the US Regulatory Capital Framework. On April 4, ISDA, the Futures Industry Association (“FIA”) and the Securities Industry and Financial Markets Association (“SIFMA”) developed a discussion paper to: (i) provide an overview of cross-margining programs developed by clearing organizations and their importance in the context of implementing recent market reforms with respect to US Treasury securities clearing; (ii) describe cross-product netting arrangements with customers as a means to effectively reduce risk and their relation to cross-margining programs; (iii) describe the treatment of cross-product netting arrangements under the current US regulatory capital framework; and (iv) propose potential targeted changes to US regulatory capital rules to more appropriately reflect the economics of, and facilitate firms’ use of, cross-product netting arrangements with customers, particularly with respect to transactions based on US Treasury securities.
ISDA/IIB/SIFMA Request to Extend 22-14. On April 3, a joint ISDA/IIB/SIFMA letter requested reporting relief for certain non-US swap dealers in Australia, Canada, the European Union, Japan, Switzerland or the United Kingdom with respect to their swaps with non-US persons. The joint trade association letter, submitted to CFTC on 26 March 2025, requests an extension of the no-action relief in Letter 22-14 until the adoption and effectiveness of final rules addressing the cross-border application of Part 45/46.
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.
ISDA Sends Letter on Changes to the French General Tax Code. On March 31, ISDA, the Association for Financial Markets in Europe and the International Securities Lending Association sent a letter to the French tax authority about changes being made to Articles 119 bis A and 119 bis 2 of the general French tax code in the Loi des Finances pour 2025. In February, the French parliament passed budget legislation that broadened the application of withholding tax for both cleared and non-cleared derivatives involving payments related to manufactured dividends. In the letter, the associations request that detailed administrative guidelines are issued as soon as possible. The lack of guidelines makes it more difficult for the associations’ member firms to accurately determine the scope of the new legislation and calculation of the withholding tax when due.

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

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

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

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

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

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

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

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

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)