Expect sweeping changes ahead. But when looking back, an aggressive enforcement agenda continued as the SEC reported record high financial remedies, although—like all numbers that high—the SEC’s enforcement measures in 2024 require context and came alongside a drop in new actions.

I.  Introduction

The dichotomy of an aggressive enforcement agenda tempered by litigation setbacks set forth in our mid-year 2024 SEC Enforcement update persisted through the end of the SEC’s 2024 fiscal year.  The SEC filed a flurry of enforcement actions up until the very end of the previous administration.  Now that the Gensler-led SEC has ended and the incoming administration has nominated Paul Atkins as its new Chairman and appointed Commissioner Mark Uyeda as Acting Chairman, change is coming.  To be clear, the Commission’s three-part mission and the critical role that enforcement plays in that mission will remain the same.  But, from those who have worked with Atkins—and as covered in a Gibson Dunn webcast—shifts are coming at the agency.

A.  2024 Enforcement Results: The Ups and Downs

While measuring success goes beyond numbers, the reported drop in new actions piqued interest given the Commission’s aggressive enforcement posture.

As reported by the SEC on November 22, the enforcement statistics for the fiscal year ending September 30, 2024 reflect that the Commission filed a total of 583 actions, compared to 784 actions the prior year, a drop of 26 percent.[1]  Of those 583 actions, the agency reported 431 stand-alone enforcement actions—the most significant measure of activity, involving cases independently charged and not linked to a prior finding of violation—as compared to 501 stand-alone enforcement actions filed the prior year, a 14 percent drop.

While the Commission obtained orders for an all-time aggregate high of $8.2 billion— consisting of $6.1 billion in disgorgement and prejudgment interest, the highest amount on record, and $2.1 billion in civil penalties, the second-highest amount on record—the 2024 financial remedies stem in large part from the continued off-channel communications settlements ($600 million) and a single crypto judgment ($4.5 billion in disgorgement, interest, and penalty), that received unanimous Commission support but appears uncollectible.[2]  Consistent with its general pattern over the last several years, in 2024, the SEC again recovered over twice as much in disgorgement as compared to penalties.

Another important metric to highlight includes $345 million in money distributed to harmed investors in fiscal year 2024, a drop from $930 million distributed to harmed investors in fiscal year 2023.  And the agency also reported fiscal year 2024 orders barring 124 individuals from serving as officers and directors of public companies, the second-highest number of such bars following the prior year’s 133 such orders.

The distribution of actions across subject matter remained generally consistent with prior years.  The SEC brought 97 stand-alone actions against investment advisers and investment companies (23 percent of actions in 2024) reflecting a continued focus on investment adviser and company regulation and enforcement, and an increase from the prior year (86 cases, 17 percent of actions in 2023).  The 94 stand-alone enforcement actions relating to securities offerings reflected a decrease from the prior year (22 percent of actions in 2024, compared to 164 cases and 33 percent of actions in 2023), while broker-dealer enforcement remained relatively steady (61 cases and 14 percent of actions in 2024, compared to 60 cases and 12 percent of actions in 2023).  There were also decreases year-over-year in the areas of issuer reporting (49 cases and 11 percent of actions in 2024, compared to 86 cases and 17 percent of actions in 2023) and—as conveyed in more detail within Gibson Dunn’s forthcoming 2024 FCPA Year-End Update—FCPA matters (two cases and zero percent in 2024, compared to 11 cases and two percent of actions in 2023).  In fact, the combined number of issuer reporting and FCPA matters is the lowest since at least 1998.  Finally, there was a slight increase in the percentage of stand-alone actions relating to insider trading in 2024 (34 cases and eight percent of actions in 2024, compared to 32 cases and six percent of actions in 2023).

B.  Explaining the Numbers: Jarkesy

Impacts of recent court cases remain important to watch for the SEC and all agencies.

In a November podcast, the SEC’s former enforcement director remarked that the numbers show the impacts of, among other things, the U.S. Supreme Court decisions from last year including SEC v. Jarkesy (June 2024).  The director, who announced his departure in October,[3] stated after the decisions, “we [enforcement] basically needed to hit pause” and “assess the impact of Jarkesy” on resolved, pending, and pipeline matters, which took “several months between June, July and even creeping into August.”  The former director continued that “if we want to see how the last fiscal year [ending September 30] was, you should look at October and November [cases filed] because those are the two months or more that we lost as a result of Jarkesy ….” The agency filed 200 enforcement actions in the first fiscal quarter of 2025 (October to December 2024), with 75 actions in October 2024 alone.  Of note, the agency sent out a press release on the last business day of the Gensler administration, touting the record number of enforcement actions in fiscal Q1 2025 (October through December 2024), and the 40 actions filed in the first two business weeks of January 2025.[4]

The CFTC similarly reported decreased enforcement numbers for its recent fiscal year, 58 new actions as compared to 96 the prior year, although the impacts of any litigation setbacks on the CFTC’s pipeline may not have been as pronounced (it filed three actions in October 2024 and no actions in December 2024).[5]  At the same time, a similar trend surfaced concerning financial remedies: like the SEC, the CFTC reported record-breaking monetary results for its fiscal year, though there, too, a single crypto case played a leading role in the monetary relief.

While explaining the SEC numbers further may involve other factors such as a review of resource allocation and case priorities, former acting enforcement director Sanjay Wadhwa (who stepped down effective on January 31) stated that “[w]hat our numbers do not reflect, however, are countless investigations that may not have resulted in an enforcement action for evidentiary or other reasons, or where we declined to pursue an enforcement action, but that shined a spotlight on potentially problematic conduct and caused responsible market participants to cease engaging in it.”

Finally, other litigation setbacks remain on radar, including SEC v. Govil.  That Second Circuit case, covered in detail in a prior client alert, held the SEC is not entitled to disgorgement unless it can show the allegedly defrauded investors suffered pecuniary harm.  This important holding emerged in the past year in a litigated SEC case where the Southern District of New York denied the agency’s request for roughly $1 billion in disgorgement and interest based on Govil.[6]  Another notable setback was in Coinbase v. SEC where the Third Circuit recently faulted the Commission for failing to provide “meaningful guidance on which crypto assets it views as securities.”  In light of the Coinbase decision and the SEC’s new leadership, we expect to see significant change in the Commission’s approach to crypto assets in the coming year.  Indeed, within a day of the inauguration, Acting Chairman Mark Uyeda launched a new crypto task force, led by Commissioner Hester Peirce, with the stated mission of “developing a comprehensive and clear regulatory framework for crypto assets.”[7]

C.  What the Past Might Tell Us: Looking Back to the Future

Past Republican Commissioner statements note that the “vast majority of SEC enforcement actions are straightforward.” 

Although steady commentary suggests a pullback on crypto and off-channel communication cases, sweeps for technical violations, and the overuse of internal controls and certain other provisions of the securities laws, other areas highlighted in the 2024 results will most likely remain in focus.  Those “straightforward” areas include major fraud, individual accountability, gatekeeper accountability, and certain public company cases, among others. Moreover, investigations typically take time to complete even under the best of circumstances, with the average of all investigations taking slightly over two years.  And while case outcomes might look different, the past administration’s matters (including on subject matter similar to cases filed in 2024) will most likely remain active for some time.  Notwithstanding new priorities, those legacy matters may mature into actions filed in the future and shape early trends for the new administration.

Whistleblowers

The topic of whistleblowers remains an important one.  Although the potential for decreased penalties in the new administration may impact the analysis for some whistleblowers, given that any bounty paid to the whistleblower derives from monetary relief, expect continued tips to the SEC and others.  Credible allegations of misconduct will always be investigated vigorously under any administration.

Highlights from 2024 regarding whistleblowers:

• The SEC reported receipt of 24,000 whistleblower tips and announced awards of more than $255 million to 47 individuals, a decline from the prior year, and reportedly more than 14,000 of the 24,000 tips came from two individual whistleblowers.[8]
• The SEC also continued to aggressively enforce whistleblower protections. In an enforcement sweep announced in September 2024, the SEC ordered over $3 million in penalties against seven companies for allegedly violating whistleblower protection rules by, for example, requiring employees to waive their right to receive whistleblower awards, asking customers to agree to not contact the SEC, and requiring signees to certify that they had not provided information to the government in the past.[9]
• In one case, as reported in our mid-year update, and which received unanimous Commission support for action, a broker-dealer paid an $18 million penalty for allegedly impeding “hundreds of advisory clients and brokerage customers from reporting potential securities law violations to the SEC” by having them sign an agreement prohibiting them from “affirmatively reporting” information to the Commission staff.[10]

Artificial Intelligence

Another important area from 2024 includes cases involving emerging technologies and emerging risks.  This same subject area appears in the SEC’s 2025 examination priorities.  While internal agency referrals (from other SEC divisions including Exams) might change in the years ahead, they will not cease—and thus examination priorities are likely to continue to shape and become enforcement priorities.

Highlights from 2024 regarding emerging technologies and emerging risks:

• Like many other agencies, the SEC messaged a strong focus on artificial intelligence.
• The SEC’s enforcement results highlighted this particular area, and numerous speeches and other statements touched upon this significant technology. As covered in our mid-year 2024 update, the SEC announced two enforcement actions in March 2024 against investment advisers for “AI-washing” and violations of the Marketing Rule (another area of focus during the last administration) for marketing the use of AI in certain ways that were not accurate.
• The types of AI matters the Commission has brought so far are uncontroversial fraud cases. Although the new administration will have its own priorities, a focus on straightforward material misstatements by any market participant to investors will remain of significant interest to the agency.

Individual Accountability

When looking at SEC enforcement reports for years during the previous Trump administration, this topic received rightful attention given that charging culpable individuals, where appropriate, hits at the core of accountability and deterrence and also because corporate entities act through individuals.  That leads to dynamic charging considerations, which as we look ahead might tip the balance of Commission thoughts towards the side of pursuing even more individual cases.  In any event, while the SEC’s 2024 report reviewed multiple cases involving individual accountability, a rough through-line indeed involved allegations of fraud.

Market Abuse and MNPI

The SEC’s report further highlighted a mix of actions related to market abuse and insider trading, an area that for the most part proves less controversial for the SEC (save for certain recent cases, including one litigated in 2024).  In 2024, the SEC brought or settled charges against investment adviser representatives for a “cherry-picking” scheme that allegedly “defrauded their clients out of millions,” against a hacker for illegally obtaining and trading on a public company’s MNPI, and against several investment advisers for failing to implement and enforce policies and procedures to prevent MNPI misuse.  Notably, after the fiscal year end, the SEC filed a litigated matter against an investment adviser for such compliance failures.[11]

Other Notes

With respect to the largest area of enforcement cases in 2024, investment advisers and companies, and notwithstanding the strike-down of the private funds rule, these important market participants will remain in focus for egregious cases and continued examinations.  With respect to new(er) rules that survived or did not receive challenges, while some added grace period may be more likely in the coming years, those areas will ripen to enforcement risk.

A note on off-channel communication cases: numerous takes foresee fewer, if any, such stand-alone technical matters.  However, the communications might resurface as more and more investigations uncover the substance of any unreviewed communications where indeed the reasons for going off-channel extended beyond the mundane.

On balance, there are at present more questions than answers on what the future holds, as we all await priority pronouncements, personnel appointments of directors, what’s to come from the Department of Government Efficiency, and how litigation setbacks like Jarkesy and Govil, among others, impact the way in which the SEC and others litigate, which might be particularly important as the SEC likely pursues even more individual accountability.  Nevertheless, when issues arise and bad actors reveal themselves, the SEC will come calling.

D.  Senior Staffing Update

Beyond the more covered staffing changes—such as the nomination of Paul Atkins as Chairman, former Chair Gary Gensler’s announced retirement along with Mark Uyeda’s naming as Acting Chairman, and Gurbir Grewal’s announced departure from the Enforcement Director position along with Sanjay Wadha’s appointment as Acting Enforcement Director—there were further changes at the senior staff level and in regional leadership.  Many of these changes accompanied, or immediately preceded, the change in administration.

• In July, Keith E. Cassidy was named Interim Acting Director of the Division of Examinations while Director Richard Best took a leave of absence to focus on his health. Cassidy concurrently serves as the National Associate Director of the Division’s Technology Controls Program, where he oversees the SEC’s CyberWatch program and the Cybersecurity Program Office.[12]
• In September, the SEC announced that Richard R. Best would transition to the role of Senior Advisor to the Director of the Division of Examinations from his role as Director of the Division of Examinations. Before becoming the Director of the Division of Examinations in 2022, Mr. Best served as the Director of the SEC’s New York Regional Office and also previously served as the Director of the SEC’s Atlanta Regional Office and the SEC’s Salt Lake Regional Office.
• In December, the SEC announced the departure of Trading and Markets Division Director Haoxiang Zhu. During Mr. Zhu’s tenure, the SEC shortened the settlement cycle for equities, corporate bonds, and municipal bonds to one day, expanded central clearing for Treasury repurchase and cash transactions, and updated execution rules under Regulation National Market System (NMS).  David Saltiel, formerly a deputy director in the Office of Analytics and Research, assumed the role of Acting Director upon Mr. Zhu’s departure.[13]
• In December, Erik Gerding left his position as Director of the Division of Corporate Finance.[14] Gerding joined the SEC as Deputy Director of the Division of Corporate Finance in October 2021 and became the Division’s Director in February 2023.  For the time being, Cicely LaMothe—who was serving as Deputy Director for Disclosure Operations within the division—will serve as Acting Director.

More staffing changes occurred at the turn of the year, in relatively quick succession, before the change in administration.

• Chief Accountant Paul Munter retired after serving in his role for two years.[15] Munter joined the Commission in 2019, was named as Acting Chief Accountant in 2021, and was appointed to Chief Accountant in early 2023.  Ryan Wolfe currently serves as Acting Chief Accountant.[16]
• Chief Economist and Director of the Division of Economic and Risk Analysis (DERA) Jessica Wachter departed the Commission around the same time, announcing that she would return to the Wharton School at the University of Pennsylvania to serve as the Dr. Bruce I. Jacobs Chair of Quantitative Economics.[17] Robert Fisher currently serves as the Acting Director of DERA.[18]
• General Counsel Megan Barbero also departed the Commission. She had served as General Counsel since February 2023 and joined the SEC in July 2021 to serve as the Principal Deputy General Counsel.[19]  Jeffrey Finnel currently serves as Acting General Counsel.[20]
• The Director of the Office of International Affairs, YJ Fisher, also left the Commission after serving in her position since August 2021.[21] Kathleen Hutchinson currently serves as Acting Director of the Office of International Affairs.[22]
• The Commission’s Chief of Staff, Amanda Fisher, similarly announced her departure from the Commission.[23] She first joined the Commission in June 2021 as Senior Counselor, then served as Chief of Staff from January 2023 until her departure.
• The SEC Policy Director, Corey Klemmer, also announced that she would step down from her role, which she held since May 2024.[24] Klemmer joined the Commission in July 2021 to serve as Corporate Finance Counsel.
• Director of the Office of Public Affairs, Scott Schneider, also left the SEC.[25] Schneider had served in this role since April 2021 and had also served as a counselor to Chair Gensler.
• Finally, Sanjay Wadha—who has been serving as Acting Director of the Division of Enforcement—announced that he would depart the Commission as of January 31, 2025. Wadha first joined the SEC as a staff attorney in 2003.[26]  Between then and his being named Acting Enforcement Director in October 2024, Mr. Wadha served in many roles at the Commission, including Senior Associate Director of the Division of Enforcement in the New York Regional Office (NYRO), Deputy Chief of the Market Abuse Unit, and Assistant Director in the NYRO.  Samuel Waldon, the previous Acting Deputy Director, currently serves as the Acting Director; and Antonia Apps as the Acting Deputy Director.[27]

E.  Whistleblower Actions

As noted above, 2024 trends demonstrated that the Commission continued to make whistleblowers an important aspect of its enforcement agenda throughout the year.  In three separate enforcement actions in September, the SEC announced settled charges against over 10 entities in total for alleged violations of Rule 21-F, the SEC’s whistleblower protection rule.  These actions notably demonstrated that the Commission continued to interpret Rule 21-F’s scope to be broad.  For example, in the first action described below, the SEC found that the whistleblower protection rule pertained to agreements made with clients, and not with employees.  This action marks the second time—the first being the Commission’s settled charges against a large broker-dealer, as noted in our mid-year update—that were brought with respect to agreements made outside of the employment context.  These actions further show that the Commission has interpreted the rule from asking signees to certify that they, retrospectively, had not provided information to the government in the past, before signing the agreement at issue.  The Commission has taken the position that such clauses violate the whistleblower protection rules, even where other aspects of the agreement allow signees to provide information to the government prospectively, and to reap related whistleblower awards.

• The first action announced settled charges against a broker-dealer and two affiliated investment advisors for entering into confidentiality agreements with retail clients containing provisions that allegedly limited clients’ ability to provide information to the SEC by permitting communications only where the SEC first initiated an inquiry.[28] Without admitting or denying the allegations, the broker-dealer agreed to pay a civil penalty of $240,000 to settle the charges.
• The second action announced settled charges against seven entities for allegedly using employment and other agreements that either limited the signees’ ability to willingly and voluntarily provide information to the SEC, required signees to affirm that they had not provided information to the government in the past, or prevented signees from receiving whistleblower awards in return for providing information.[29] Without admitting or denying the SEC’s allegations, the entities agreed to pay civil penalties of over $3 million in the agreement, with individual penalties ranging from $19,500 to $1.4 million.
• The third action announced settled charges against a Florida-based investment advisor for allegedly entering into agreements with candidates for employment that, though allowing the candidates to provide information to the government in response to inquiries, prevented the candidates from making such disclosures voluntarily.[30] Without admitting or denying the allegations, the investment adviser agreed to pay a civil penalty of $500,000 to settle the charges.

The Commission relatedly continued to provide sizable awards to individuals that provided useful information through the whistleblower program.

• In July, the SEC announced two separate whistleblower awards, each coincidentally for approximately $37 million, to two different whistleblowers that provided information that purportedly facilitated successful enforcement actions. In one of the matters, the whistleblower purportedly provided information directly to the Commission and further conserved the Staff’s time and resources by identifying potential witnesses and documents.[31]  In the other matter, the respective whistleblower initially reported their concerns internally, which led their employer to conduct an internal investigation and also eventually helped prompt the SEC to open up its own investigation.  The whistleblower then purportedly facilitated the Staff’s investigation by providing ongoing, extensive, and timely assistance.[32]
• In August, the SEC announced two whistleblower awards totaling more than $98 million for information and assistance that led to an SEC enforcement action and an action brought by another agency. The first whistleblower received an award of $82 million for making the tip that prompted the opening of the investigations and for providing critical ongoing assistance to the investigations.  The second whistleblower received an award of $16 million for, at a later stage of the investigations, providing information that significantly contributed to one aspect of the actions.[33]
• Also in August, the SEC awarded $24 million to two whistleblowers who, after reporting conduct internally, provided information that prompted an SEC enforcement action and an action by another agency. Although the first whistleblower’s information prompted the SEC investigation, the second whistleblower received a higher award, purportedly because their “information played a more significant role in the investigation.”  The second whistleblower provided, among other things, “important information about key witnesses and their roles in the schemes,” which purportedly was “heavily” relied on by the SEC during the investigation.  The $24 million award was based on the entire amount ordered by the Commission, including disgorgement and prejudgment interest, as well as on the amount collected by the other agency in its separate action.[34]
• In October, the SEC announced a $12 million award to three whistleblowers who provided critical assistance to an SEC enforcement action. In determining the amount of the award, the SEC considered, among other things, the significance of the information provided to the commission, the assistance provided, the law enforcement interest in deterring violations, and participation in internal compliance systems.[35]

II.  Public Company Accounting, Financial Reporting, and Disclosure

A.  Purported Fraudulent Schemes

In June 2024, the SEC announced settled charges against an advanced materials and nanotechnology company, and filed related charges against its former CEOs, for alleged violations of fraud, reporting, internal accounting controls, and books and records provisions.[36]  The alleged scheme involved the two former CEOs issuing a special dividend—the value of which was allegedly overstated by the former CEOs—and effecting a merger between their former companies.  When the company’s stock price did indeed rise, the company sold over 16 million shares, raising $137.5 million.  The SEC alleges the true purpose of the merger and dividend were to create a short squeeze, which was allegedly never communicated publicly.  The company neither admitted nor denied the findings and agreed to pay a $1,000,000 penalty.  The charges against the former CEOs are pending in the U.S. District Court for the Southern District of New York, and the SEC is seeking permanent officer-and-director bars, disgorgement of ill-gotten gains, and civil penalties from them.

In August, the SEC announced that an Alabama-based shipbuilder and its Austrian parent company had agreed to settle charges brought by the SEC in the U.S. District Court for the Southern District of Alabama.[37]  The SEC’s complaint alleged that the companies conducted a purportedly fraudulent revenue recognition scheme from January 2013 to July 2016 to artificially reduce the estimated cost of completion of projects for the U.S. Navy by tens of millions of dollars.  As a result, the companies allegedly prematurely recognized revenue.  To settle the charges, both companies consented to permanent injunctions, and the Alabama-based shipbuilder agreed to pay a $24 million civil penalty.  The Department of Justice also announced settled charges against the Alabama-based shipbuilder.

B.  Financial Reporting

In August, the SEC announced settled charges against an electric vehicle company, its current CEO, former Chairman and CEO, and former CFO for allegedly reporting misleading information about the company’s financial performance from 2017 to 2019.[38]  Specifically, the SEC alleged that the company and the former Chairman and CEO reported 2017 revenue guidance of $300 million despite known issues that would negatively impact revenue, and misled the company’s auditor by allegedly providing a fraudulent letter of intent from a buyer in order to avoid writing down certain assets.  The SEC also alleged that the company and all three individuals improperly accounted for a cryptocurrency deal in 2019, resulting in an overstatement of revenues by more than $40 million, and made false representations in the company’s financial statements.  Finally, the SEC alleged that the former Chairman and CEO hid from the auditor his personal interest in two companies that received millions of dollars in cash and stock in deals with the company.  Without admitting or denying the SEC’s findings, the company agreed to pay a $1.4 million penalty and retain an independent compliance consultant; the current CEO and former CFO each agreed to pay a $75,000 penalty, and the former CFO further accepted a two-year accounting suspension; in addition, the former Chairman and CEO agreed to a $200,000 civil penalty, more than $3.3 million in disgorgement, and a 10-year officer-and-director bar.

In September, the SEC charged the former CFO; former audit committee chair; and former Chair, CEO, and President of a software company in connection with the company’s alleged overstated revenue as part of two public stock offerings.[39]  The complaint, filed in the U.S. District Court for the Southern District of New York, alleged that the former Chair, CEO, and President fabricated reports of successful testing of a software program, which resulted in the company’s recognizing $1.3 million in revenue—nearly all of its revenue leading up to its IPO.  The SEC also alleged that the former CFO and former audit committee Chair learned that these reports were false during the company’s secondary stock offering, but continued to make false statements about revenue, and, along with the third defendant, made related misrepresentations to the company’s auditor.  The former Chair, CEO, and President has agreed to a partial settlement of a permanent injunction, but continues to litigate the appropriate remedies.  The SEC is seeking injunctions and civil penalties against the other two defendants, as well as disgorgement and prejudgment interest and reimbursement from the former CFO.  The U.S. Attorney’s Office for the Southern District of New York also announced charges against the former Chair, CEO, and President.

In November 2024, the SEC announced settled charges against a major logistics company for allegedly misrepresenting its earnings by failing to follow generally accepted accounting principles (GAAP) in valuing one of its business units.[40]  Though the company had booked a goodwill impairment with respect to the business unit at issue, the SEC alleged that the company should have booked the impairment earlier than it had, and that its late recognition of the impairment was due to purported overreliance on an allegedly inadequate analysis by a third-party consultant showing no loss in value.  Without admitting or denying the findings, the company agreed to pay a $45 million civil penalty and committed to certain undertakings, including the adoption of training requirements for certain officers and employees, as well as retention of an independent compliance consultant to review and make recommendations about its fair value estimates and disclosure obligations.

C.  Public Statements and Disclosures

In mid-August, the SEC announced settled charges against a publicly traded Florida-based company and its founder for allegedly failing to disclose information related to pledges of company securities.[41]  In its order, the SEC alleged that the company’s founder had pledged approximately 51 to 82 percent of the company’s securities as collateral to secure personal loans and had allegedly failed to disclose such beneficial ownership to the SEC.  Further, the SEC alleged that the company had also failed to disclose the founder’s pledges of securities in its filings to the Commission and its investors.  In agreeing to settle the charges, the Commission considered the cooperation of the company and the founder, including providing to the Commission compilations of relevant documents, information, and data.  Without admitting or denying the charges, the company and the founder agreed to pay civil penalties of $1.5 million and $500,000, respectively.

In early September, the SEC announced settled charges against a publicly traded Massachusetts- and Texas-based company for allegedly making inaccurate statements to the SEC and its investors regarding the recyclability of its product.[42]  The SEC alleged that in the company’s 2019 and 2020 annual filings, the company indicated that its product was recyclable despite allegedly having some potential knowledge to the contrary.  Without admitting or denying the charges, the company agreed to pay a civil penalty of $1.5 million.

Later in September, the SEC announced settled charges against a biotechnology company related to alleged misrepresentations and omissions made during and after the company’s IPO.[43]  According to the SEC, the company misled investors regarding a large market opportunity, revenue prospects, and a customer pipeline for its products.  Despite allegedly receiving contradictory analysis from its sales team which valued the company’s total market opportunity at five to 10 percent of the initial published projection, the company allegedly failed to reassess the market opportunity it touted to investors.  Similarly, in the leadup to its IPO, the company allegedly shared revenue projections with research analysts that lacked a reasonable basis and were materially higher than the projections prepared by the company’s own sales team.  Lastly, the company allegedly misled investors about the strength of its customer pipeline, omitting key adverse facts known to the company’s sales team, including delays, dropouts, and growing concerns about potential purchases.  The company settled the charges without admitting or denying the SEC’s findings, agreeing to continue cooperating with the SEC’s investigation and to pay a $30 million civil penalty.  The settlement is subject to bankruptcy court approval because of the company’s pending bankruptcy proceeding.

Also in September, the SEC announced settled charges against the former CEO and independent director of a publicly traded consumer goods company, alleging violations of the proxy disclosure provisions of the federal securities laws.[44]  The SEC filed a complaint in the U.S. District Court for the Southern District of New York alleging that the former CEO—who was elected an independent director in 2020—failed to disclose that he maintained a close personal friendship with an executive at the company.  The former CEO also allegedly asked the executive to hide the fact of their relationship to avoid the appearance of bias, so that the former CEO could, as part of his independent director role, participate in the CEO succession process, in which the executive was being evaluated for appointment as the next CEO.  The former CEO settled the charges without admitting or denying the SEC’s allegations, agreeing to a five-year officer-and-director bar, permanent injunction, and civil penalty of $175,000.

In October, the SEC announced settled charges against four current and former publicly traded technology companies for allegedly making materially misleading disclosures to the Commission and investors regarding significant cybersecurity incidents that the companies had experienced in 2020.[45]  The SEC alleged that, despite investigating and disclosing the cybersecurity incidents in their public filings, the companies inaccurately disclosed the incidents by minimizing their significance and not providing detailed information related thereto.  The SEC further alleged that one company failed to maintain proper disclosure controls and procedures surrounding cybersecurity incidents, leading to materially misleading disclosures to the SEC and investors.  In agreeing to settle the charges, the SEC considered the cooperation and remedial measures taken by the companies, including, among others, providing Commission staff with detailed explanations, analysis, and summaries of multiple specific factual issues, promptly following up on the staff’s requests for additional documents and information, and conducting internal investigations regarding the incidents.  Without admitting or denying the SEC’s findings, the four companies agreed to pay civil penalties of $990,000, $995,000, $1 million, and $4 million.

In December, the SEC announced settled charges against a publicly traded Texas-based biotherapeutics company, its former CEO, and its former CFO for allegedly failing to disclose material information about two of the company’s drug candidates.[46]  The Commission alleged that the company failed to disclose to the SEC and its investors that two of the company’s drug candidates had been placed on an FDA clinical hold—an order to delay proposed clinical investigations—before, during, and after a 2021 public offering.  The company neither admitted nor denied the charges, and was not ordered to pay civil penalties, purportedly because of its self-reporting, cooperation, and remediation.  The individual defendants, however, agreed to pay civil penalties of $125,000 and $20,000, respectively, and the company’s former CEO further agreed to a three-year officer-and-director bar.

Also in December, the SEC announced settled charges against a New Jersey-based medical device manufacturer for allegedly misleading investors between 2016 and 2020 regarding risks associated with one of its medical devices, and for allegedly overstating the company’s income and understating its costs.[47]  The Commission alleged that the company knew that it could not obtain FDA clearance for the device, failed to make the necessary changes to the device to obtain FDA clearance, and failed to inform investors of the risk that the FDA would block sales of the device.  Further, the SEC alleged that the company misled investors regarding its profitability in 2019 by failing to follow GAAP and not accounting for costs associated with potentially recalling the device.  Without admitting or denying the charges, the company agreed to retain an independent compliance consultant to review and make recommendations concerning its disclosure controls and procedures, and to pay a civil penalty of $175 million.

Later in December, the SEC announced settled charges against a fashion retailer for allegedly failing to disclose nearly $1 million in perks to its former CEO.[48]  The SEC order alleged that the company failed to disclose the perks, mostly associated with company-authorized expensing of personal travel on privately chartered aircraft in 2019, 2020, and 2021.  In April 2023, the company released its fiscal year 2022 proxy statement, which included updated disclosures about perks in 2020 and 2021, and disclosed that the CEO voluntarily reimbursed the company around $454,000 for personal expenses.  The SEC noted the company’s self-reporting, cooperation, and remedial efforts, and therefore did not impose a civil penalty.

D.  External Accountants and Internal Accounting Controls

In early September, the SEC charged the former finance director of a technology manufacturer for allegedly manipulating the company’s internal accounting records to falsify financial results ahead of inclusion in the company’s financial statements, and that he further fabricated documents to conceal his misconduct.[49]  Through its complaint filed in the U.S. District Court for the District of Massachusetts, the SEC is seeking a permanent injunction, civil penalty, and disgorgement and prejudgment interest.  The SEC also announced settled charges against the technology manufacturer for allegedly failing to maintain sufficient internal accounting controls that could have prevented the alleged fraud and the company’s overstatement of its financial performance for 2019, 2020, and through Q3 2021, but did not charge the company with fraud.  The company was not charged a civil penalty, purportedly because the company self-reported the violations to the SEC following an internal investigation, provided substantial cooperation to Commission staff, and implemented remedial measures.  Without admitting or denying the SEC’s findings, the company agreed to cease and desist from further violations.

In mid-September, the SEC announced that two related accounting firms had agreed to settle charges in two separate cases filed by the SEC.[50]  In the first case, filed in the U.S. District Court for the Southern District of Florida, the SEC alleged that the firms improperly included indemnification provisions in engagement letters for more than 200 audits, reviews, and exams in violation of auditor independence requirements.  The SEC sought a permanent injunction, civil penalty, and disgorgement and prejudgment interest, and the firms agreed to permanent injunctions and to pay a combined $1.2 million in civil penalties and disgorgement.  In the second case, filed in the U.S. District Court for the Southern District of New York, the SEC alleged that the firms misrepresented that they complied with Generally Accepted Auditing Standards (GAAS) in two audits of FTX, including by failing to understand the risk associated with the relationship between FTX and a hedge fund controlled by FTX’s CEO.  Without admitting or denying the charges, the firms agreed to permanent injunctions and a $745,000 civil penalty—both of which the SEC sought in its complaint—and to retain an independent consultant.

In December, the SEC announced settled charges against a Louisiana-based utility company for alleged failure to maintain internal accounting controls.[51]  The SEC alleged that, starting in mid-2018, the utility company included materials and supplies at their average cost as an asset on its balance sheets despite allegedly having been warned by employees and management consultants that this asset included a substantial amount of surplus.  The SEC alleged that the utility company failed to follow GAAP by not establishing a process to identify surplus, remeasure it, and record as an expense the differences between the remeasured cost and the average cost.  Without admitting or denying the allegations in the SEC’s complaint, which was filed in the U.S. District Court for the District of Columbia, the utility company agreed to a permanent injunction, to adopt recommendations from an independent consultant, and to pay a $12 million civil penalty.

III.  Private Companies

In July, the SEC charged the founder and former CEO of a defunct social media startup for allegedly defrauding investors by making false and misleading statements about the startup’s growth and operating expenses.[52]  According to the SEC, the individual misleadingly ascribed the startup’s rising userbase to viral popularity and organic growth when, in reality, the CEO allegedly paid millions of dollars through third parties for “incent” advertisements, which offered users incentives to download the app.  The SEC also alleged that the founder and former CEO and his wife hid from investors hundreds of thousands of dollars in personal expenses related to clothing, home furnishings, travel, and everyday living expenses charged to the startup’s business credit cards.  The SEC’s complaint, filed in the U.S. District Court for the Northern District of California, seeks a permanent injunction, an officer-and-director bar, disgorgement, and civil monetary penalties.

In September, the SEC announced settled charges against a large, privately held family company and its founder, Chairman, and former CEO in connection with the public announcement of a tender offer that the company allegedly did not have the cash to purchase.[53]  The SEC alleged that the company, at the direction and approval of the founder, made a public tender offer to purchase a large, public industrial manufacturing company at $35 per share, which would have required $7.8 billion in cash to complete.  The day after the public offer was made, the founder allegedly appeared on a large national news program and stated that the company had over $10 billion in cash committed to the deal, and would not put up any company assets as collateral.  The SEC further alleged that the company had only one percent of the required $7.8 billion in cash, and that neither the company nor founder had a reasonable belief that the company had the financial means to complete the tender offer.  The tender offer was allegedly withdrawn nine days after it was first announced.  The SEC alleged violations of Section 14(e) of the Securities Exchange Act of 1934 and Rule 14e-8 thereunder.  Without admitting or denying the SEC’s findings, the founder and company agreed to cease and desist from further violations and agreed to pay civil penalties of $100,000 and $500,000 respectively.

In September, the SEC filed charges in U.S. District Court for the Northern District of California against the former CEO of a technology startup, alleging that he defrauded investors by overstating revenue and forging bank statements.[54]  The SEC’s complaint details that the CEO allegedly raised over $30 million from investors by falsely inflating the company’s annual recurring revenue in the millions of dollars, despite the actual recurring revenue never exceeding $170,000.  The complaint further alleges that the CEO misappropriated at least $270,000 of investor funds for personal expenses such as mortgage payments and home renovations.  The SEC seeks permanent injunctions, including a conduct-based injunction, disgorgement, civil penalties, and an officer-and-director bar.  The U.S. Attorney’s Office for the Northern District of California also announced criminal charges against the former CEO.

Later in September 2024, the SEC charged three former executives of a digital pharmacy startup, alleging that they defrauded investors by overstating revenue with fake prescriptions while raising over $170 million.[55]  The complaint filed in the U.S. District Court for the Eastern District of New York alleges the company used a subsidiary in India for accounting and financial analysis while barring U.S.-based employees from accessing financial systems in an alleged effort to conceal the fraud.  The SEC seeks permanent injunctions, civil money penalties, disgorgement, and officer-and-director bars against all three defendants.

In December, the SEC announced settled charges against two private companies and one registered investment adviser for failing to file Forms D on time for multiple unregistered securities offerings.[56]  The SEC alleged that over the last several years, the two private companies and the registered investment adviser independently engaged in unregistered securities offerings, soliciting hundreds of potential investors and raising close to $300 million.  In reaching a settlement, the SEC credited the parties’ remedial acts and cooperation during the investigation.  Without admitting or denying the allegations, the two private companies and the registered investment adviser agreed to pay a total of $430,000 in civil penalties.

IV.  Investment Advisers

A.  Purportedly Fraudulent Schemes

In July, the SEC charged an activist short seller and his firm for violating antifraud provisions of the federal securities laws by allegedly engaging in a $20 million scheme from March 2018 through December 2020 to defraud followers by publishing false and misleading statements regarding stock trading recommendations.[57]  According to the complaint, the short seller allegedly used his website and related social media platforms to publicly recommend taking long or short positions in various companies and held out the positions as consistent with his own and his firm’s positions.  The complaint goes on to allege that following the short seller’s recommendations, the price of the target stocks moved more than 12 percent on average, and that once the recommendations were issued and the stocks moved, the short seller and his firm allegedly reversed their positions to capitalize on the stock price movements.  Additionally, the SEC alleged that the short seller and his firm made several false and misleading statements in connection with the scheme and that they falsely represented that the short seller’s website had never received compensation from third parties to publish information about target companies when, in fact, it had.  The complaint seeks disgorgement and civil penalties against both the short seller and his firm and an officer-and-director bar, a penny stock bar and permanent injunctions against the short seller.  The Fraud Section of the Department of Justice and the U.S. Attorney’s Office for the Central District of California announced charges against the short seller as well.

In September, the SEC announced settled charges against a registered investment adviser and subsidiary of a global financial services company for alleged violations of antifraud and compliance provisions of the federal securities laws.[58]  The SEC’s order alleged that the adviser overvalued collateralized mortgage obligations and overstated the performance of client accounts holding those positions.  The order separately alleged that the adviser executed unlawful cross trades to limit certain investor losses, favoring some investors over others.  Without admitting or denying the SEC’s findings, the adviser agreed to pay a penalty and disgorgement totaling almost $80 million and to retain a compliance consultant to review its policies and procedures.

In November, the SEC charged an investment advisory firm and its owner for defrauding nearly two dozen investors out of approximately $2.1 million.[59]  The SEC alleged that the firm and owner raised $10.5 million from investors to be invested in short-term loans to professional athletes and sports agents.  However, the owner and his firm allegedly made misrepresentations to investors on undisclosed fees and took hundreds of thousands of dollars from these investments for themselves.  The owner and his firm also allegedly misappropriated $1.5 million that was supposed to be returned to investors, allegedly using the misappropriated funds for personal expenses, such as cars, rental homes, country club dues, and college tuition.  The SEC seeks a permanent injunction, disgorgement, civil monetary penalties, and a conduct-based injunction and officer-and-director bar against the firm’s owner.

In December, the SEC announced settled charges against an investment advisory firm for allegedly failing to reasonably supervise four investment advisers and registered representatives who allegedly stole millions of dollars from advisory clients and brokerage customers.[60]  The SEC alleged that the firm failed to adopt policies that could have detected and prevented the alleged theft.  Specifically, the SEC’s order alleged that the firm failed to prevent the advisers from using authorized third-party disbursements, which allowed hundreds of unauthorized transfers from customer and client accounts to adviser accounts.  Without admitting or denying the SEC’s findings, the firm consented to undertakings, including engaging a compliance consultant to review all forms of third-party cash disbursements from customer and client accounts, and to pay a $15 million penalty.

B.  Misleading Statements and Disclosures

In August, the SEC charged a China-based investment adviser, its U.S.-based holding company, and the company’s CEO with fraud violations involving the marketing of AI-based investments.[61]  The SEC’s complaint alleges that the companies and the CEO misled clients about the safety of their investments, made false claims about relationships with reputable financial and legal firms, and misled investors to believe the company would soon be listed on the NASDAQ.  The SEC further alleges that the company collected over $6 million from individual investors before cutting off client communication and taking down access to client accounts through their website.  The SEC’s complaint in the U.S. District Court for the District of South Dakota seeks a permanent injunction, disgorgement, civil penalties, and an officer-and-director bar.

In September, the SEC announced settled fraud charges against an Idaho-based investment adviser for allegedly misleading investors and failing to comply with its own investment strategy.[62]  The adviser positioned itself as having a “biblically responsible” investment strategy by utilizing a data-driven methodology to evaluate companies and exclude any companies that did not align with biblical values.  Instead, according to the SEC, from at least 2019 to March 2024, the adviser allegedly used a manual research process that did not always evaluate companies based on eligibility under the investment adviser’s own investing criteria.  The SEC also alleged that the adviser lacked written policies or procedures setting forth a process for evaluating companies’ activities as part of its investment process, which caused inconsistent application of criteria and led to investments in companies that failed to align with the adviser’s own stated criteria.  Without admitting or denying the SEC’s findings, the adviser agreed to pay a $300,000 civil penalty and to retain a compliance consultant.

In October, the SEC announced settled charges against an investment adviser for violating antifraud provisions of the federal securities laws by allegedly misrepresenting that certain environmental, social, and governance factors (ESG) exchange-traded funds would not be used to invest in companies that were involved in fossil fuel or tobacco.[63]  Between 2020 and 2022, the investment adviser allegedly used data from third-party vendors that did not screen out these company types.  This practice allegedly led to fund investments in fossil fuel and tobacco-related companies, including in coal mining and transportation, natural gas extraction and distribution, and retail sales of tobacco products.  The SEC also alleged that the adviser did not have any policies and procedures over the screening process that would exclude those company types.  Without admitting or denying the SEC’s findings, the adviser agreed to pay a $4 million civil penalty.

In November, the SEC announced settled charges against an investment advisory firm for allegedly making misleading statements about the percentage of its parent company’s assets that were ESG integrated.[64] The SEC order alleged that though the marketing materials claimed that between 70 and 94 percent of its parent company’s assets were ESG integrated, the firm did not have a policy defining ESG integration and a substantial number of assets were allegedly held in passive ETFs that did not consider ESG factors in investment decisions.  Without admitting or denying the SEC’s findings, the firm agreed to pay a $17.5 million penalty.

C.  Safeguards and Policies

In August, the SEC announced settled charges against a New York-based registered transfer agent for allegedly failing to assure that client securities and funds were protected against theft or misuse.[65] The SEC claimed that the alleged failures led to the loss of more than $6.6 million of client funds as a result of two separate cyber intrusions in 2022 and 2023. Without admitting or denying the SEC’s findings, the registered agent agreed to pay an $850,000 civil penalty.  The SEC’s order made note of the registered agent’s cooperation and remedial efforts, including the full reimbursement of all clients and accounts for losses resulting from the cyber incidents.

Also in August, the SEC announced settled charges against a New York-based registered investment adviser for failing to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information concerning its trading of collateralized loan obligations.[66] According to the SEC’s order, the adviser maintained a credit business through which it obtained material nonpublic information (MNPI) about companies whose loans were held in collateralized loan obligations that the adviser traded, but did not establish, maintain, or enforce any written policies or procedures concerning the potential impact of the MNPI for over five years.  Without admitting or denying the SEC’s findings, the adviser agreed to pay a $1.8 million civil penalty.  The SEC’s order made note of the adviser’s prompt remedial acts and cooperation.

In September, the SEC announced settled charges against 11 institutional investment managers for allegedly failing to file Forms 13F, which report quarterly holdings and are required for institutional investment managers that have discretion over $100 million in certain types of securities (Section 13(f) securities).[67]  Two of the managers were also charged with allegedly failing to file Forms 13H, a form required for large traders with a substantial number of transactions of securities listed on national securities exchanges.  All 11 managers settled without admitting or denying the SEC’s findings.  Nine of the managers agreed to pay an aggregate of more than $3.4 million in civil penalties, with individual penalties ranging from $175,000 to $725,000.  Two of the managers were not ordered to pay any civil penalties, however, purportedly because they self-reported the alleged violations.

D.  Recordkeeping

The Commission continues to bring heavy fines against a multitude of broker-dealers, investment advisors, and dual registrants for failing to preserve electronic communications.  As demonstrated below, this trend persisted through the second half of 2024, and the SEC has already announced settled charges related thereto so far in 2025 with Gensler as the Chair.[68]

In September, the SEC resolved three separate enforcement actions involving recordkeeping violations.  In the first action, the SEC announced settled charges against six nationally recognized statistical rating organizations for failing to maintain and preserve electronic communications.[69]  All six firms admitted to the SEC’s findings and agreed to pay an aggregate of more than $49 million in civil penalties, with firms agreeing to pay between $100,000 and $20 million individually.  Five of the firms further agreed to retain a compliance consultant.  In the second action, the SEC announced settled charges against 12 municipal advisors for failing to preserve electronic communications sent or received by personnel related to their activities as municipal advisors.[70]  Because the failures included personnel at the supervisory level, the advisors were also charged with supervision failures.  All 12 advisors admitted to the SEC’s findings and agreed to pay an aggregate of more than $1.3 million in civil penalties, with individual penalties ranging from $40,000 to over $300,000. In the third action, the SEC announced settled charges against an investment advisory firm for allegedly failing to keep records, including off-channel communications, related to recommendations and advice to purchase and sell securities.[71]  Without admitting or denying the SEC’s findings, the firm agreed to a cease and desist and a censure.  The SEC did not impose a penalty because the firm self-reported the conduct, promptly remediated the violations, and cooperated on the third-party investigation.

E.  Custody Rule

In September, the SEC announced settled charges against a registered investment adviser for allegedly failing to comply with requirements related to the safekeeping of client assets from at least 2018 through 2022 and for its use of allegedly impermissible liability disclaimers in advisory and private fund agreements beginning in 2019.[72] According to the SEC’s order, the adviser allegedly violated the “custody rule” under the Advisors Act—which requires advisers to implement various safeguarding measures unless the adviser instead distributes audited financials prepared in accordance with GAAP—because it failed to implement the enumerated safeguards or timely distribute annual audited financial statements to investors in certain private funds that it advised.  In addition, the SEC alleged that the adviser included liability disclaimers in its advisory agreements and certain private fund partnership and operating agreements that could have led a client to incorrectly believe that the client had waived non-waivable causes of action against the adviser.  The order further alleged that certain of the liability disclaimers also contained misleading statements regarding the adviser’s otherwise unwaivable fiduciary duty.  Without admitting or denying the SEC’s findings, the adviser agreed to pay a $65,000 civil penalty.  According to the order, the SEC considered the adviser’s remedial acts—which included revising its procedures regarding compliance with the custody rule, and removing problematic clauses from its advisory and private fund agreements—when deciding upon settlement.

Also in September, the SEC announced settled charges against a privately held Florida-based advisory firm for allegedly violating the custody rule by purportedly failing to ensure that certain crypto assets held by its client were maintained with a qualified custodian.[73] The SEC further alleged that the firm misled certain investors by representing to them that redemptions required at least five business days’ notice before month-end while allowing other investors to redeem with fewer days’ notice.  The firm agreed, without admitting or denying the allegations, to a civil penalty of $225,000.

F.  Marketing Rule

In September, the SEC announced settled charges against nine registered investment advisers for violating the new Marketing Rule by allegedly disseminating advertisements that included untrue or unsubstantiated statements of material facts, testimonials, endorsements, or third-party ratings without required disclosures.[74]  All nine advisers settled without admitting or denying the SEC’s findings and agreed to pay an aggregate of $1.24 million in civil penalties, with individual penalties ranging from $60,000 to $325,000, and to review their advertisements and certify compliance with the Marketing Rule.

V.  Broker-Dealers

A.  Regulation Best Interest and Pricing

In September, the SEC announced settled charges against a Tennessee-based broker-dealer for failing to maintain and enforce policies and procedures reasonably designed to achieve compliance with Regulation Best Interest (Reg BI).[75]  The SEC alleged that, in 2021, the company merged with another broker-dealer, but due to incompatibilities between the two parties’ systems, the company lacked accurate customer information for more than 5,000 customer brokerage accounts that migrated to its platform.  Additionally, the SEC alleged the new registered representatives that joined the company post-merger did not have access to the site the company used to review structured notes transactions flagged as non-compliant and that, as a result, the company approved such note recommendations without all the documentation required by its own Reg BI policies and procedures.  Without admitting or denying the allegations, the broker-dealer agreed to a civil penalty of $325,000.

In October, the SEC announced settled charges against two affiliates of a large multinational financial services firm in five separate enforcement actions for allegedly misleading disclosures to investors, breach of fiduciary duty, prohibited joint transactions and principal trades, and failure to make recommendations in the best interest of customers.[76] Without admitting or denying the SEC’s findings, the affiliates agreed to pay more than $151 million in combined civil penalties and voluntary payments to investors.

The first three enforcement actions pertained to one affiliate.  The first of these orders alleged that the affiliate made misleading disclosures to investors about the extent to which it had discretion over when to sell and the number of shares to be sold, subjecting customers to market risk and failing to sell certain shares for months, which resulted in a decline in value.  The second order alleged that the affiliate failed to fully and fairly disclose the financial incentive that it and its advisers had when recommending their own portfolio management programs over third-party programs between July 2017 and October 2024. The third SEC order alleged that, in violation of Reg BI, the affiliate recommended certain mutual fund products to its retail brokerage customers despite the fact that materially less expensive ETF products already existed, and offered the same portfolio as being available between June 2020 and July 2022. No civil penalty was imposed in this third order, as the affiliate promptly self-reported, conducted an internal investigation, provided substantial cooperation, and voluntarily repaid impacted customers approximately $15.2 million.

The other two enforcement actions pertained to the second affiliate.  The first of these orders alleged that the affiliate caused $4.3 billion in prohibited joint transactions that advantaged an affiliated foreign money market fund.  The second SEC order alleged that this same affiliate engaged in or caused 65 prohibited principal trades with a combined notional value of approximately $8.2 billion between July 2019 and March 2021. The order alleged that the affiliate directed an unaffiliated broker-dealer to buy commercial paper or short-term fixed income securities from the affiliate, which the affiliate then purchased back on behalf of its clients.

B.  Market Manipulation

In September, the SEC announced settled charges against a registered broker-dealer for allegedly manipulating the U.S. Treasury cash securities market through an illicit trading strategy known as spoofing.[77]  The SEC order alleged that between April 2018 and May 2019, a trader employed by the broker-dealer entered orders on one side of the market that they had no intention of executing in order to obtain more favorable execution prices on bona fide orders on the other side of the market.  Allegedly, once the bona fide orders were filled, the spoofed orders were then canceled.  The broker-dealer allegedly lacked adequate controls and failed to take reasonable steps to scrutinize the trader after receiving warnings of his potentially irregular trading activity.  The broker-dealer settled the charges and agreed to pay a penalty and disgorgement totaling more than $6.9 million, which will be credited from a monetary sanction of more than $15 million from a deferred prosecution agreement the broker-dealer entered into with the DOJ.  The broker-dealer separately agreed to pay a $6 million fine to FINRA to resolve related charges.

C.  Safeguards and Policies

In July, the SEC announced settled charges against a California-based parent company of a cryptocurrency bank, its former CEO, and former Chief Risk Officer for allegedly misleading investors.[78]  The Commission alleged that from 2022 to 2023, the company and its officers misled investors about the strength of its Bank Secrecy Act/Anti-Money Laundering compliance program and falsely stated in its SEC filings that it conducted ongoing monitoring of its high-risk crypto customers.  The SEC further alleged that following the collapse of one of its customers, the company misrepresented its financial condition.  Without admitting or denying the charges, the company agreed to pay a civil penalty of $50 million, and its officers agreed to pay civil penalties of $1 million and $250,000, respectively, in addition to five-year officer-and-director bars.  In parallel actions, the company also settled charges with the Federal Reserve System (FRB) and the California Department of Financial Protection and Innovation (DFPI).

In August, the SEC announced settled charges against a New York-based broker-dealer for allegedly failing to adopt or implement reasonably designed anti-money laundering policies and procedures between March 2020 to May 2023.[79]  As a result, the broker-dealer allegedly did not surveil certain types of purportedly risky transactions for red flags of potentially suspicious conduct, nor did it allocate sufficient resources to review alerts generated from its automated surveillance of other types of transactions.  Without admitting or denying the alleged facts, the broker-dealer agreed to a censure and a cease-and-desist order, in addition to paying a $1.19 million penalty.

In September, the SEC announced settled charges against two investment adviser firms for allegedly exceeding clients’ designated investment limits over a two-year period beginning in March 2016.[80] The SEC order alleged that one of the firms was the primary investment adviser and portfolio manager for a trading strategy in which options were traded in a volatility index with the aim of generating incremental returns.  The firm allegedly allowed many accounts to exceed the exposure levels that investors had set, including dozens of accounts that exceeded the limit by 50 percent or more.  The other firm allegedly introduced its clients to the trading strategy despite knowing that investors’ exposure levels were being exceeded, and purportedly failed to adequately inform affected investors.  Both firms allegedly received management and incentive fees, as well as trading commissions from the trading strategy.  The SEC also alleged that both firms neglected to adopt and implement policies and procedures reasonably designed to ensure that they kept their clients abreast of material facts and excessive exposure.  Without admitting or denying the findings, both firms agreed to civil penalties and disgorgement totaling $5.5 million and $3.8 million, respectively.

In November, the SEC announced settled charges against three broker-dealers related to suspicious activity reports (SARs) filed by the broker-dealers that allegedly lacked certain important, required information.[81] Over a four-year period beginning in 2018, the three broker-dealers filed multiple allegedly deficient SARs in violation of Section 17(a) of the Exchange Act, as well as Rule 17a-8 promulgated thereunder.  Without admitting or denying the charges, the firms agreed to civil penalties of $125,000, $75,000, and $75,000, respectively, and two of the broker-dealers further agreed to have their anti-money laundering programs reviewed by compliance consultants.

In December, the SEC filed charges against a registered investment adviser for allegedly failing to establish, implement, and enforce written policies and procedures reasonably designed to prevent the misuse of material nonpublic information (MNPI) relating to its participation on ad hoc creditors’ committees.[82]  The SEC’s complaint focused on one of the investment adviser’s attorney-consultants, who sat on the private side of the investment adviser’s information barrier, which was the subject of extensive policies and procedures.  The SEC alleged that this attorney-consultant sat on an ad hoc creditors’ committee in connection with certain distressed municipal bonds and received MNPI pursuant to a customary confidentiality agreement.  According to the complaint, the attorney-consultant then allegedly had unspecified communications with the investment adviser’s public trading desk when he had MNPI and while the firm continued to buy the distressed issuer’s bonds.  The SEC did not allege, and presumably had no evidence, that any MNPI was communicated by the attorney-consultant to the public-side investment team; nor did the SEC allege any improper trading violation of any kind nor any harm to investors.  The investment adviser is charged with allegedly violating provisions of the Investment Advisers Act of 1940 related to establishing and enforcing reasonably designed compliance policies and procedures.  The SEC is seeking a civil penalty and permanent injunctive relief.  The investment adviser has stated that it fully cooperated with the SEC in its years-long investigation and would not agree to settle a dispute in which there was no wrongdoing nor any deficiency in its detailed information barrier policies or its compliance program.

D.  Recordkeeping

In August, the SEC announced settled charges against 26 broker-dealers and investment advisers for alleged widespread and longstanding failures by the firms and their personnel to maintain and preserve electronic communications.[83] The firms admitted to the facts alleged against them and agreed to pay civil penalties of $392.75 million in the aggregate, ranging between $400,000 and $50 million each.  Three of the firms self-reported their violations and resultingly incurred lower civil penalties.  The CFTC also announced settlements for related conduct with three of the entities.

In September, the SEC announced settled charges against 12 broker-dealers and investment advisers for failures to maintain and preserve electronic communications.[84] The firms admitted to the facts alleged against them and agreed to pay civil penalties of over $88 million in the aggregate, ranging between $35 million and $325,000. One firm will not pay a penalty because it self-reported, self-policed, and demonstrated substantial efforts at compliance.  Two other firms similarly self-reported and incurred lower civil penalties as a result.  The CFTC announced a settlement for related conduct with an additional entity on the same day.

E.  Failure to Register

In September, the SEC announced settled charges against three sales agents from a Delaware investment advisor for unregistered broker activity, including selling membership interests in LLCs that purported to invest in shares of pre-IPO companies.[85] The SEC alleged that the sales agents engaged in broker activities—including providing investors with marketing materials, advising investors on the merits of investments, and receiving transaction-based compensation—despite not being registered as brokers.  Without admitting or denying the findings, each sales agent agreed to industry and penny stock bars, and to pay disgorgement ranging from $431,287 to $1,392,367, along with a civil penalty ranging from $90,000 to $300,000.  One of the sales agents also settled related fraud charges that the SEC had previously announced in March 2023.

F.  Technical Violations

In December, the SEC announced settled charges against two broker-dealer firms for failing to provide complete and accurate securities trading information to the SEC, known as blue sheet data.[86]  The SEC orders found that, over a period of several years, due to a number of errors, one broker-dealer made approximately 11,195 blue sheet submissions to the SEC with missing or inaccurate data, while the other firm made approximately 3,679 submissions with misreported or missing data.  The SEC orders did find that both broker-dealers engaged in remedial efforts to correct and improve their blue sheet reporting systems and controls, and that one of the broker-dealers self-identified and self-reported all but one of the errors affecting its blue sheet submissions.  The broker-dealers admitted the findings, agreed to be censured, and to each pay a $900,000 penalty.  The broker-dealers separately settled with FINRA for related conduct.

Also in December, the SEC announced settled charges against a registered broker-dealer for failing to file certain Suspicious Activity Reports (SARs) in a timely manner.[87]  According to the order, in certain instances between April 2019 and March 2024, the broker-dealer received requests in connection with law enforcement or regulatory investigations/litigation but allegedly failed to conduct or complete SARs investigations within a reasonable period of time.  The broker-dealer settled the charges and agreed, without denying or admitting the allegations, to pay a $4 million civil penalty, to a censure, and to cease and desist.

VI.  Cryptocurrency

A.  Purported Fraud

In July, the SEC filed fraud charges against a high-profile software engineer and social media platform founder.[88]  The SEC accused the individual of raising more than $257 million from unregistered offers and sales of crypto assets, while falsely telling investors that proceeds would not be used to compensate him or other employees.  The SEC alleged that the individual nonetheless spent more than $7 million of investor funds on personal expenditures, and further misled investors by portraying his company as a decentralized project.  The individual was charged with violating the registration and anti-fraud provisions of the Securities Act of 1933 and the anti-fraud provisions of the Securities Exchange Act of 1934.

In August, the SEC announced partially settled fraud charges against a privately held entity, the entity’s co-owner and CEO, its co-owner and COO, and its promoters.[89] The SEC alleged that, from 2019 through 2023, the entity was operated as a multi-level marketing and crypto asset investment program.  The SEC further alleged that the entity and individuals misled investors by claiming they would invest their funds on crypto assets and foreign exchange markets despite using the majority of investor funds to make payments to existing investors and to pay commissions to promoters.  The co-owners further allegedly siphoned millions of dollars of investor assets for themselves, allegedly raising more than $650 million in crypto assets from more than 200,000 investors worldwide.  The SEC charged most parties involved with violations of the registration regulations and antifraud provisions of the federal securities laws, and seeks permanent injunctive relief, disgorgement of ill-gotten gains, and civil penalties.  The case is still ongoing against the entity and co-owners, but one of the parties involved agreed, without admitting or denying the allegations, to a $100,000 civil penalty and an injunction.

B.  Unregistered Offerings

In August, the SEC charged a privately held Georgia-based crypto asset lender for allegedly operating as an unregistered investment company and for offering unregistered securities.[90]  The SEC Complaint alleged that, in and around 2020, the company used their crypto lending program to offer and sell a product, which the SEC alleged qualified as a security, that allowed U.S. investors to tender their crypto assets in exchange for the company’s promise to pay a variable interest rate.  The SEC further alleged that the company operated for at least two years as an unregistered investment company because it issued securities and held more than 40 percent of its total assets, excluding cash, in investment securities, including its loans of crypto assets to institutional borrowers.  The company agreed, without admitting or denying the allegations, to an injunction and to pay a civil penalty of $1,650,000.

In September, the SEC announced settled charges against a privately held New Jersey-based investment platform.[91]  The SEC alleged that since at least 2020, the company operated as a broker and clearing agency by providing U.S. customers the ability, through the company’s online trading platform, to trade crypto assets allegedly being offered and sold as securities without complying with the registration provisions of the federal securities laws.  The company agreed, without admitting or denying the allegations, to the entry of a cease-and-desist order, to pay a penalty of $1.5 million, and to liquidate any crypto assets being offered and sold as securities that the company is unable to transfer to its customers, and return the proceeds to the respective customers.  The company publicly announced that the only crypto assets that will continue to be traded on their platform will be Bitcoin, Bitcoin Cash, and Ether.

Also in September, the SEC announced settled charges against a decentralized finance protocol and its three co-founders for allegedly misleading investors and engaging in unregistered broker activity.[92]  The SEC order alleged that the protocol conducted unregistered offers and sales of securities by offering investors crypto asset investment funds using tokens that earned returns as well as offering certain investors governance tokens.  The SEC also alleged that the protocol and its co-founders misled investors by touting high annual percentage yields without accounting for the various fees charged and by telling investors their assets would be rebalanced automatically, when in actuality the rebalancing mechanism often required manual input, which was, in some cases, not initiated.  The protocol and its co-founders, without admitting or denying the SEC’s allegations, agreed to various forms of relief to settle the SEC’s charges, including permanent injunctions, conduct-based injunctions, civil penalties, disgorgement, and equitable officer-and-director bars against the co-founders for a period of five years.

Later in September, the SEC announced settled charges against an issuer of a purported stablecoin and the developer and operator of a lending protocol.[93]  The SEC alleged that the companies, from November 2020 until April 2023, engaged in the unregistered offer and sale of investment contracts, which the SEC alleged qualified as securities, in the form of the stablecoin.  The SEC further alleged that the companies falsely marketed the investment contracts as safe and trustworthy by claiming that the stablecoin was fully backed by U.S. dollars or their equivalent, despite investing a substantial portion of the assets purportedly backing the stablecoin in a speculative and risky offshore investment fund to earn additional returns for the companies.  The companies agreed, without admitting or denying the allegations, to the entry of final judgments enjoining them from violating applicable provisions of the federal securities laws and to pay civil penalties of $163,766 each.  The issuer of the stablecoin also agreed to pay a disgorgement of $340,930.

At the end of September, the SEC announced settled charges against two affiliated entities, one a purported decentralized autonomous organization, and the other a Panamanian entity.[94]  The SEC alleged that the entities engaged in the unregistered offer and sale of certain crypto assets, which the SEC alleged qualified as securities, since August 2021, raising more than $70 million.  According to the SEC Order, the entities engaged in unregistered broker activity related to the allegedly unregistered securities by actively soliciting and recruiting users to trade securities, providing advice and valuations as to the merits of an investment in securities, and helping to facilitate securities transactions on their platform by assisting customers in opening accounts and regularly handling customer funds and securities.  The entities settled the charges and agreed, without admitting or denying the allegations, to injunctions and orders to collectively pay nearly $700,000 in civil penalties.  The entities further agreed to destroy certain crypto tokens, to request the removal of those tokens from trading platforms, and to refrain from soliciting any trading platform to allow trading in, offering, or selling those tokens.

In October, the SEC filed charges against a privately held Chicago-based crypto market-maker.[95]  The SEC alleged that the company operated as an unregistered dealer in more than $2 billion of crypto assets offered and sold as securities from at least March 2018 through the present.  According to the SEC’s Complaint, public statements made by the issuers and promoters of the crypto assets, and retransmitted by the company, would have led investors to reasonably believe that the crypto assets were being offered as investment contracts that, according to the SEC, qualified as securities.  Therefore, the SEC alleged that, because the company did not register its offering of the crypto assets, it failed to comply with the Securities Exchange Act of 1934’s registration requirements for dealers of securities.  The SEC is seeking permanent injunctive relief, disgorgement of ill-gotten gains, prejudgment interest, and civil penalties.

VII.  Insider Trading

Insider Trading proved yet again to be a consistent area of enforcement for the Commission in 2024.  Indeed, the Commission has already announced settled insider trading charges in 2025 under Gensler,[96] and nothing suggests that this area will receive any less attention under the new administration.

In September, the SEC filed insider trading charges against a former employee of a national consulting firm, his father, and his two friends.[97]  In the complaint, the SEC alleged that the employee obtained material nonpublic information (MNPI) indicating that his firm’s client was interested in purchasing an infrastructure business, and that the employee tipped that information to his father and friend, who then shared the information with another mutual friend.  The employee’s father and friends then traded on this MNPI and collectively realized approximately $1.1 million in ill-gotten profits.  The defendants agreed to a to-be-determined civil penalty and the father and two friends agreed to disgorgement of the ill-gotten gains.  The U.S. Attorney’s Office for the Southern District of Florida also filed parallel criminal charges against all four individuals.[98]  Three of the defendants entered guilty pleas and one entered a joint motion with the government for pretrial diversion.

Also in September, the SEC filed charges against a U.K. citizen, alleging that he had violated the antifraud provisions of the federal securities laws by engaging in a “hack to trade” scheme.[99]  As part of that scheme, the individual allegedly hacked into computer systems of five U.S. public companies—by allegedly resetting several senior-level executives’ email passwords—to obtain MNPI about the companies’ corporate earnings, including draft earnings releases, press releases, and scripts.  The SEC alleges that the individual used such information to earn $3.75 million in illicit profits by establishing large and risky option positions in the companies and then later selling his positions after the companies made impactful public earnings announcements.  The Commission seeks injunctive relief, disgorgement, and civil penalties.  In a parallel action, the U.S. Attorney’s Office for the District of New Jersey announced criminal charges against the individual.[100]

Also in September, the SEC announced settled charges against 23 entities and individuals for alleged failures to timely report information about their holdings and transactions in public company stock.[101] The charges came as a result of the SEC’s enforcement initiatives on (1) Schedules 13D and 13G reports, which provide information about the holdings and intentions of investors who own more than five percent of the registered voting shares of a public company stock, and (2) Forms 3, 4, and 5, which are required to be filed by certain corporate insiders who own more than 10 percent of their company’s stock.  The SEC alleged that the charged entities and individuals filed the required reports late.  Without admitting or denying the SEC’s findings, all of the entities and individuals agreed to cease and desist from further violations and have agreed to pay an aggregate of more than $3.8 million in civil penalties; the entities have agreed to pay between $40,000 and $750,000, while the individuals have agreed to pay between $10,000 and $200,000. Two of the entities are public companies that the SEC alleged contributed to the filing failures, and each has agreed to pay $200,000 in civil penalties.

In December, the SEC and DOJ filed insider trading charges against the former CEO of a publicly traded telecommunications company.[102]  The SEC’s complaint alleges that the CEO received a confidential presentation regarding the company’s upcoming earnings results, and that several days later, the CEO learned he would be terminated for cause.  Shortly after being terminated, and while being subject to two trading blackout periods, the CEO allegedly sold shares of the company and directed his financial advisor to sell shares held in a joint account.  A week later, the company announced negative quarterly earnings, which caused its stock price to fall more than 25 percent.  The SEC alleges that, because the SEC sold shares in advance of the negatively impactful earnings release, the CEO avoided losses of over $12,400.  Moreover, according to the SEC’s complaint, although the CEO’s financial advisor was unable to trade the shares within the CEO’s joint account due to a blackout period, the CEO would have avoided an additional $110,000 of losses had the financial advisor proceeded with the trades.  The complaint seeks permanent injunctions, disgorgement, civil penalties, and an officer or director bar.

[1] SEC Press Release, SEC Announces Enforcement Results for Fiscal Year 2024 (Nov. 22, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-186.

[2] See Dave Michaels, SEC Writes Off $10 Billion in Fines it Can’t Collect, The Wall Street Journal (Dec. 31, 2024), available at https://www.wsj.com/finance/regulation/sec-fines-penalties-collection-write-off-071cb768.

[3] SEC Press Release, SEC Announces Departure of Enforcement Director Gurbir S. Grewal (Oct. 2. 2024), available at https://www.sec.gov/newsroom/press-releases/2024-162.

[4] SEC Press Release, SEC Announces Record Enforcement Actions Brought in First Quarter of Fiscal Year 2025 (Jan. 17, 2025), available at https://www.sec.gov/newsroom/press-releases/2025-26.

[5] CFTC Press Release, CFTC Releases FY 2024 Enforcement Results (Dec. 4, 2024), available at https://www.cftc.gov/PressRoom/PressReleases/9011-24; CFTC Press Release, CFTC Releases FY 2023 Enforcement Results (Nov. 7, 2023), available at https://www.cftc.gov/PressRoom/PressReleases/8822-23.

[6] See SEC v. Ripple Labs, Inc. 2024 WL 3730403 (S.D.N.Y. Aug. 7, 2024).

[7] SEC Press Release, SEC Crypto 2.0: Acting Chairman Uyeda Announces Formation of New Crypto Task Force (Jan. 21, 2025), available at https://www.sec.gov/newsroom/press-releases/2025-30.

[8] SEC Press Release, SEC Announces Enforcement Results for Fiscal Year 2024 (Nov. 22, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-186.

[9] SEC Press Release, SEC Charges Seven Public Companies with Violations of Whistleblower Protection Rule (Sept. 9, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-118.

[10] SEC Press Release, J.P. Morgan to Pay $18 Million for Violating Whistleblower Protection Rule (Jan. 16, 2024), available at https://www.sec.gov/news/press-release/2024-7.

[11] In the Matter of Marathon Asset Management, L.P., Inv. Advisers Act Rel. No. 6737 (Sept. 30, 2024), available at https://www.sec.gov/files/litigation/admin/2024/ia-6737.pdf.

[12] SEC Press Release, Keith E. Cassidy Named Interim Acting Director of the Division of Examinations (July 22, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-87.

[13] SEC Press Release, SEC Announces Departure of Trading and Markets Division Director Haoxiang Zhu (Dec. 9, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-191.

[14] SEC Press Release, SEC Announces Departure of Corporation Finance Division Director Erik Gerding (Dec. 13, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-200.

[15] SEC Press Release, SEC Announces Chief Accountant Paul Munter to Retire From Federal Service This Month (Jan. 14, 2025), available at https://www.sec.gov/newsroom/press-releases/2025-9.

[16] SEC Press Release, Acting Chairman Mark T. Uyeda Names Acting Senior Staff (Jan. 24, 2025), available at https://www.sec.gov/newsroom/press-releases/2025-31.

[17] SEC Press Release, SEC Announces Departure of Chief Economist Jessica Wachter (Jan. 15, 2025), available at https://www.sec.gov/newsroom/press-releases/2025-11.

[18] SEC Press Release, Acting Chairman Mark T. Uyeda Names Acting Senior Staff (Jan. 24, 2025), available at https://www.sec.gov/newsroom/press-releases/2025-31.

[19] SEC Press Release, SEC Announces Departure of General Counsel Megan Barbero (Jan. 16, 2025), available at https://www.sec.gov/newsroom/press-releases/2025-13.

[20] SEC Press Release, Acting Chairman Mark T. Uyeda Names Acting Senior Staff (Jan. 24, 2025), available at https://www.sec.gov/newsroom/press-releases/2025-31.

[21] SEC Press Release, SEC Announces Departure of Director of International Affairs YJ Fischer (Jan. 16, 2025), available at https://www.sec.gov/newsroom/press-releases/2025-14.

[22] SEC Press Release, Acting Chairman Mark T. Uyeda Names Acting Senior Staff (Jan. 24, 2025), available at https://www.sec.gov/newsroom/press-releases/2025-31.

[23] SEC Press Release, SEC Announces Departure of Chief of Staff Amanda Fischer (Jan. 17, 2025), available at https://www.sec.gov/newsroom/press-releases/2025-23.

[24] SEC Press Release, SEC Policy Director Corey Klemmer to Step Down (Jan. 17, 2025), available at https://www.sec.gov/newsroom/press-releases/2025-24.

[25] SEC Press Release, SEC Announces Departure of Public Affairs Head Scott Schneider (Jan. 17, 2025), available at https://www.sec.gov/newsroom/press-releases/2025-25.

[26] SEC Press Release, SEC Announces Departure of Acting Enforcement Director Sanjay Wadhwa (Jan. 17, 2025), available at https://www.sec.gov/newsroom/press-releases/2025-28.

[27] SEC Press Release, Acting Chairman Mark T. Uyeda Names Acting Senior Staff (Jan. 24, 2025), available at https://www.sec.gov/newsroom/press-releases/2025-31.

[28] SEC Press Release, SEC Charges Broker-Dealer Nationwide Planning and Two Affiliated Investment Advisers with Violating Whistleblower Protection Rule (Sept. 4, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-115.

[29] SEC Press Release, SEC Charges Seven Public Companies with Violations of Whistleblower Protection Rule (Sept. 9, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-118.

[30] SEC Press Release, EC Charges Advisory Firm GQG Partners With Violating Whistleblower Protection Rule (Sept. 26, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-150.

[31] SEC Press Release, SEC Awards More Than $37 Million to a Whistleblower (July 17, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-85.

[32] SEC Press Release, SEC Awards Whistleblower More Than $37 Million (July 29, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-90.

[33] SEC Press Release, SEC Issues Awards Totaling $98 Million to Two Whistleblowers (Aug. 23, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-103.

[34] SEC Press Release, SEC Issues $24 Million Awards to Two Whistleblowers (Aug. 26, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-104.

[35] SEC Press Release, SEC Issues $12 Million Award to Joint Whistleblowers (Oct. 10, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-168.

[36] SEC Press Release, SEC Charges Meta Materials and Former CEOs With Market Manipulation, Fraud and Other Violations (June 25, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-77.

[37] SEC Press Release, SEC Charges U.S. Navy Shipbuilder Austal USA with Accounting Fraud (Aug. 27, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-108.

[38] SEC Press Release, SEC Charges Ideanomics and Three Senior Executives with Accounting and Disclosure Fraud (Aug. 9, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-94.

[39] SEC Press Release, SEC Charges Former Chairman and CEO of Tech Co. Kubient with Fraud and Lying to Auditors (Sep. 16, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-131.

[40] SEC Press Release, UPS to Pay $45 Million Penalty for Improperly Valuing Business Unit (Nov. 22, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-184.

[41] SEC Press Release, SEC Charges Carl Icahn and Icahn Enterprises L.P. for Failing to Disclose Pledges of Company’s Securities as Collateral for Billions in Personal Loans (Aug. 19, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-99.

[42] SEC Press Release, SEC Charges Keurig with Making Inaccurate Statements Regarding Recyclability of K-Cup Beverage Pod (Sept. 10, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-122.

[43] SEC Press Release, SEC Charges Zymergen Inc. With Misleading IPO Investors About Company’s Market Potential and Sales Prospects (Sept. 13, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-129.

[44] SEC Press Release, SEC Charges Independent Director and Ex-CEO of Church & Dwight With Concealing Close Friendship with Company Executive (Sept. 30, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-161.

[45] SEC Press Release, SEC Charges Four Companies With Misleading Cyber Disclosures (Oct. 22, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-174.

[46] SEC Press Release, SEC Charges Kiromic BioPharma and Two Former C-Suite Executives with Misleading Investors about Status of FDA Reviews (Dec. 3, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-189.

[47] SEC Press Release, Becton Dickinson to Pay $175 Million for Misleading Investors About Alaris Infusion Pump (Dec. 16, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-201.

[48] SEC Press Release, SEC Charges Express, Inc. with Failing to Disclose Nearly $1 Million in Perks Provided to Former CEO (Dec. 17, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-203.

[49] SEC Press Release, SEC Charges Former Finance Director at CIRCOR International with Accounting Fraud (Sep. 5, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-116.

[50] SEC Press Release, Audit Firm Prager Metis Settles SEC Charges for Negligence in FTX Audits and for Violating Auditor Independence Requirements (Sep. 17, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-133.

[51] SEC Press Release, SEC Charges Utility Company Entergy Corp. with Internal Accounting Controls Violations (Dec. 20, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-206.

[52] SEC Press Release, SEC Charges Founder of Social Media Company “IRL” with $170 Million Fraud (July 31, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-92.

[53] SEC Press Release, SEC Charges Esmark Inc. and Chairman James Bouchard with Announcing False Tender Offer to Purchase U.S. Steel Corp. (Sept. 6, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-117.

[54] SEC Press Release, SEC Charges Former CEO of Tech Startup SKAEL with $30 Million Fraud (Sept. 24, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-146.

[55] SEC Press Release, SEC Charges Three Former Executives of Pharmacy Startup Medly Health Inc. with Defrauding Investors (Sept. 12, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-128.

[56] SEC Press Release, SEC Files Settled Charges Against Multiple Entities for Failing to Timely File Forms D in Connection With Securities Offerings (Dec. 20, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-210.

[57] SEC Press Release, SEC Charges Andrew Left and Citron Capital for $20 Million Fraud Scheme (July 26, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-89.

[58] SEC Press Release, SEC Charges Advisory Firm Macquarie Investment Management Business Trust with Fraud (Sept. 19, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-140.

[59] SEC Press Release, SEC Charges Advisory Firm La Mancha and its Owner David Kushner with Fraud (Nov. 21, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-183.

[60] SEC Press Release, SEC Charges Morgan Stanley Smith Barney for Policy Deficiencies that Resulted in Failure to Prevent and Detect its Financial Advisors’ Theft of Investor Funds (Dec. 9, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-193.

[61] SEC Press Release, SEC Charges China-based QZ Asset Management Ltd. and its CEO in Pre-IPO Fraud Scheme (Aug. 27, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-109.

[62] SEC Press Release, SEC Charges Advisory Firm Inspire Investing With Misleading Investors Regarding Its Investment Strategy (Sept. 19, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-139

[63] SEC Press Release, SEC Charges Advisory Firm WisdomTree with Failing to Adhere to Its Own Investment Criteria For ESG-Marketed Funds (Oct. 21, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-173.

[64] SEC Press Release, SEC Charges Invesco Advisers for Making Misleading Statements About Supposed Investment Considerations (Nov. 8, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-179.

[65] SEC Press Release, SEC Charges Transfer Agent Equiniti Trust Co. with Failing to Protect Client Funds Against Cyber Intrusions (Aug. 20, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-101.

[66] SEC Press Release, SEC Charges Sound Point Capital Management for Compliance Failures in Handling of Nonpublic Information (Aug. 26. 2024), available at https://www.sec.gov/newsroom/press-releases/2024-106.

[67] SEC Press Release, SEC Charges 11 Institutional Investment Managers with Failing to Report Certain Securities Holdings (Sept. 17, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-135.

[68] SEC Press Release, Twelve Firms to Pay More Than $63 Million Combined to Settle SEC’s Charges for Recordkeeping Failures (Jan. 13, 2025), available at https://www.sec.gov/newsroom/press-releases/2025-6.

[69] SEC Press Release, SEC Charges Six Credit Rating Agencies with Significant Recordkeeping Failures (Sept. 3, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-114.

[70] SEC Press Release, SEC Charges 12 Municipal Advisors With Recordkeeping Violations (Sept. 17, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-132.

[71] SEC Press Release, Advisory Firm Atom Investors, Charged with Recordkeeping Violations, Avoids Civil Penalty Because of Self-Reporting, Substantial Cooperation, and Prompt Remediation (Sept. 23, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-143.

[72] SEC Press Release, SEC Charges Advisory Firm ClearPath with Custody Rule and Liability Disclaimer Violations (Sept. 3, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-113.

[73] SEC Press Release, SEC Charges Crypto-Focused Advisory Firm Galois Capital for Custody Failures (Sept. 3, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-111.

[74] SEC Press Release, SEC Charges Nine Investment Advisers in Ongoing Sweep into Marketing Rule Violations (Sept. 9, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-121.

[75] SEC Press Release, SEC Charges Broker-Dealer First Horizon With Regulation Best Interest Violations (Sept. 18, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-136.

[76] SEC Press Release, JP Morgan Affiliates to Pay $151 Million to Resolve SEC Enforcement Actions (Oct. 31, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-178.

[77] SEC Press Release, TD Securities Charged in Spoofing Scheme (Sept. 30, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-160.

[78] SEC Press Release, SEC Charges Silvergate Capital, Former CEO for Misleading Investors about Compliance Program (July 2, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-82.

[79] SEC Press Release, SEC Charges OTC Link LLC with Failing to File Suspicious Activity Reports (Aug. 12, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-96.

[80] SEC Press Release, SEC Charges Merrill Lynch and Harvest Volatility Management for Ignoring Client Instructions (Sept. 25, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-147.

[81] SEC Press Release, SEC Charges Three Broker-Dealers with Filing Deficient Suspicious Activity Reports (Nov. 22, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-185.

[82] SEC Press Release, available at https://www.sec.gov/newsroom/press-releases/2024-209.

[83] SEC Press Release, Twenty-Six Firms to Pay More Than $390 Million Combined to Settle SEC’s Charges for Widespread Recordkeeping Failures (Aug. 14, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-98.

[84] SEC Press Release, Eleven Firms to Pay More Than $88 Million Combined to Settle SEC’s Charges for Widespread Recordkeeping Failures (Sept. 24, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-144.

[85] SEC Press Release, SEC Files Settled Charges Against Three StraightPath Sales Agents for Unregistered Broker Activity (Sept. 12, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-127.

[86] SEC Press Release, Wells Fargo and LPL Financial Charged for Submitting Deficient Trading Data to SEC (Dec. 20, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-207.

[87] SEC Press Release, Deutsche Bank Subsidiary to Pay $4 Million for Untimely Filing Certain Suspicious Activity Reports (Dec. 20, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-208.

[88] SEC Press Release, SEC Charges Nader Al-Naji with Fraud and Unregistered Offering of Crypto Asset Securities (Jul. 30, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-91.

[89] SEC Press Release, SEC Charges Alleged Crypto Company NovaTech and its Principals and Promoters with $650 Million Fraud (Aug. 12, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-95.

[90] SEC Press Release, SEC Charges Abra with Unregistered Offers and Sales of Crypto Asset Securities (Aug. 26, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-105; Order Granting Parties’ Consent Motion for Final Judgment, SEC v. Plutus Lending, LLC, 1:24-cv-02457-BAH (D.D.C. 2025).

[91] SEC Press Release, eToro Reaches Settlement with SEC and Will Cease Trading Activity in Nearly All Crypto Assets (Sept. 12, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-125.

[92] SEC Press Release, SEC Charges DeFi Platform Rari Capital and its Founders With Misleading Investors and Acting as Unregistered Brokers (Sept. 18, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-138.

[93] SEC Press Release, SEC Charges Crypto Companies TrustToken and TrueCoin With Defrauding Investors Regarding Stablecoin Investment Program (Sept. 24, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-145.

[94] SEC Press Release, SEC Charges Entities Operating Crypto Asset Trading Platform Mango Markets for Unregistered Offers and Sales of the Platform’s “MNGO” Governance Tokens (Sept. 27, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-154.

[95] SEC Press Release, SEC Charges Cumberland DRW for Operating as an Unregistered Dealer in the Crypto Asset Markets (Oct. 10, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-169.

[96] SEC Press Release, SEC Charges Former Public Company Officer and His Sister-In-Law with Insider Trading (Jan. 13, 2025), available at https://www.sec.gov/newsroom/press-releases/2025-4.

[97] SEC Press Release, SEC Charges Former Financial Consultant for Providing Father and Friends Inside Information Regarding Firm’s Client (Sept. 13, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-130.

[98] U.S. Attorney’s Office Press Release, Four Miami Residents Charged with Reaping Over $1 Million From Friends and Family Insider Trading Scheme (Sept. 13, 2024), available at https://www.justice.gov/usao-sdfl/pr/four-miami-residents-charged-reaping-over-1-million-friends-and-family-insider-trading.

[99] SEC Press Release, SEC Charges U.K. Citizen in Hacking and Trading Scheme Involving Five U.S. Public Companies (Sept. 27, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-153.

[100] U.S. Attorney’s Office Press Release, U.K. National Charged with Multimillion-Dollar Hack-to-Trade Fraud Scheme (Sept. 27, 2024), available at https://www.justice.gov/usao-nj/pr/uk-national-charged-multimillion-dollar-hack-trade-fraud-scheme.

[101] SEC Press Release, SEC Levies More Than $3.8 Million in Penalties in Sweep of Late Beneficial Ownership and Insider Transaction Reports (Sept. 25, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-148.

[102] SEC Press Release, SEC Charges Ken Peterman, Former Comtech CEO, with Insider Trading in Advance of Negative Earnings Announcement (Dec. 11, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-195.

The following Gibson Dunn lawyers prepared this update: Mark Schonfeld, David Woodcock, Osman Nawaz, Tina Samanta, Timothy Zimmerman, Lauren Jackson, Michael Ulmer, Monica Woolley, Veronica Altabef, Priya Datta, Ina Kosova, Hayden McGovern, Nicholas Whetstone, Sara Zamani, Lauren Hernandez, Ty Shockley, Nell Tooley, Timoteo L’Esperance, Danilo Risteski, Trey Shomin, and Grace Summers.

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 Securities Enforcement practice group, or the following authors:

Mark K. Schonfeld – Co-Chair, New York (+1 212.351.2433, mschonfeld@gibsondunn.com)
David Woodcock – Co-Chair, Dallas (+1 214.698.3211, dwoodcock@gibsondunn.com)
Osman Nawaz – New York (+1 212.351.3940, onawaz@gibsondunn.com)
Tina Samanta – New York (+1 212.351.2469, tsamanta@gibsondunn.com)
Lauren Cook Jackson – Washington, D.C. (+1 202.955.8293, ljackson@gibsondunn.com)
Timothy M. Zimmerman – Denver (+1 303.298.5721, tzimmerman@gibsondunn.com)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

While the new regulations were issued during the closing days of the Biden Administration, they are the product of a broad interagency process and of policy drivers that will continue to motivate Trump Administration officials. Companies should take steps now to evaluate the impact of the regulations on their plans for AI model training and deployment, and to develop and implement the procedures that will be required to win export licenses or to qualify for licensing exceptions.

On January 13, 2025, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued an interim final rule titled “Framework for Artificial Intelligence Diffusion” (the Framework)[1] that lays the groundwork for expansive new controls targeting frontier Artificial Intelligence (AI) models themselves and the computing power to create them.  The Framework, taken together with recent U.S. Government actions targeting AI, seeks to use the current leading role played by companies based in the U.S. and a select group of allied countries in the design and production of computing power as a point of leverage to force companies, research institutes and other organizations develop AI models inside an ecosystem closely monitored by the United States and the handful of other countries that have agreed to impose similar controls.  In several ways, the Framework bookends a multiyear effort by Commerce officials and their interagency peers to control access to, and impede the indigenous development of, computing power by China, and other countries perceived to pose a threat to U.S. national security and foreign policy interests.

To this end, the Framework, through a multi-part control structure, aims to reduce the risk that “countries of concern” (i.e., countries listed in Country Group D:5, which includes Hong Kong now treated by export regulations as part of China, and Macau) obtain advanced U.S. and allied closed-weight AI models by broadly (i) expanding licensing requirements for the export of advanced integrated circuits (ICs) (ii) imposing controls on frontier AI models, and (iii) closing a significant loophole that previously allowed persons in countries of concern rent access to computing power outside their countries.  At the same time, the Framework creates a three-tiered licensing policy with a more permissive structure allowing exports to and among countries whose export controls are aligned with the U.S., imposing an effective embargo against countries the U.S. perceives as threats, and detailing a conditional policy for countries yet to adopt certain safeguards against the unchecked development of frontier AI models.  Thus, the Framework seeks to strike a balance between the goal of keeping advanced AI capabilities out of the hands of strategic competitors while facilitating the diffusion of AI technology and its benefits within a U.S.-structured AI ecosystem.

BIS uses several familiar tools to fashion the new Framework, including a new foreign direct product rule that could reach AI frontier models globally and a powerful new nationality-based license exception that conditions the powerful authorization it provides on building certain amounts of computing power within the countries whose companies are eligible to use it.  While the Trump Administration has issued an executive order[2] that authorizes the Department of Commerce to postpone the implementation of the Framework, the Framework’s export controls may meet the criteria set in President Trump’s America First Trade Policy memoranda of deploying export controls that help the United States to “maintain, obtain, and enhance” the United States’s “technological edge” and to “identify and eliminate loopholes.”  Because of this, and because the Framework is the product of a broad and sustained interagency efforts focused addressing geopolitical threats that have not changed with the new Administration, we expect that enough of the Framework will be implemented that companies in the AI model development, advanced IC manufacturing and distribution, and data center sectors should plan now for its implementation.

I. Background (Prior Actions)

The Framework in many ways bookends a series of measures aimed at targeting AI development capabilities of China and others.  In 2022, the Biden Administration’s National Security Strategy identified China as “the only competitor with both the intent to reshape the international order and increasingly, the economic, diplomatic, military, and technological power to advance that objective” and specifically identified export controls as a key tool to “ensure strategic competitors cannot exploit foundational American and allied technologies, know-how, or data to undermine American and allied security.” In October 2022, BIS put in play a “chokepoint” strategy to target indigenous Chinese semiconductor development.  It identified, broadly, within the semiconductor ecosystem, four chokepoints where the U.S. and its allies maintained significant technological advantage and crafted export controls around them: (i) ICs, (ii) semiconductor manufacturing equipment (SME), (iii) SME parts and components, and (iv) design and other software for ICs and SME.  A leading rationale for imposing these controls was to address China’s use of AI for military modernization as well as surveillance.  In October 2023, BIS updated the October 2022 controls, again specifically noting China’s use of “advanced computing ICs and supercomputing capacity in the development and deployment of [] AI models to further its goal of surpassing the military capabilities of the United States and its allies.”  Over the course of 2024, BIS clarified the scope of AI and SME controls and, expanded Authorization Validated End User (VEU) to enable data centers to receive VEU authorizations in order to facilitate the responsible diffusion of advanced AI technology.  In November 2024, the Biden Administration issued a National Security Memorandum on AI that called for, among other, ensuring the “safety, security, and trustworthiness of American AI innovation writ large.”  And, as BIS notes in the Supplemental Information to the Framework, the Department of Commerce has engaged in an extensive and ongoing policy process with partners across the U.S. Government to consider strategic, tailored, and effective controls on the diffusion of advanced AI technology to entities and destinations around the world.

II. The Framework: New Controls and Jurisdiction-Based Rules

a. “Chokepoint” Strategy for AI Development

The Framework attempts to control access to three elements critical for AI model training:

1. 1. Advanced ICs: Training advanced AI models requires large clusters of advanced computing ICs capable of handling large quantities of data and models containing large numbers of parameters. The Framework expands current restrictions and imposes a global export  licensing requirement for advanced ICs.
   2. Compute Power: These advanced IC clusters are housed within data centers, which provide processing power to run AI applications, including training and inference applications. The Framework creates multi-year quotas that meter access to computing power in most countries.  It also creates a revamped validated end user (VEU) authorization system for data centers which is premised on nationality of those seeking to procure computing power and data center country location and which conditions VEU authorization both on ensuring that the computing power required to train frontier AI models remains in installed in only a handful of countries and on the adoption of significant physical and cyber security controls.
   3. Model Weights: Model weights are numerical parameters that define the internal logic of an AI model and which are the product of model design and training. The Framework creates a new Export Control Classification Number (ECCN) 4E091 for certain advanced closed-weight AI models and imposes a global licensing requirement for such model weights (subject to license exceptions discussed below).  At present, the controls apply to model weights trained with 10^26 computational operations or more, a threshold which BIS will likely increase through amendments of the regulations over time.

b. Three-Tiered Destination-Based System

The Framework established a three-tier destination-based system that will trigger different controls based on the end user:

Tier 1:

• Tier 1 is comprised of entities located in the United States and allied jurisdictions identified in paragraph (a) of supplement no. 5 of Part 740 (currently, Australia, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Republic of Korea, Spain, Sweden, Taiwan, and the United Kingdom). BIS and interagency drafters of the Framework deem these governments to have “implemented measures to prevent the diversion of advanced technologies” and to have created “ecosystems that will enable and encourage firms to use advanced AI models to advance the common national security and foreign policy interests of the United States and its allies and partners.”[3]

• However, an entity headquartered outside these jurisdictions or whose ultimate parent is headquartered outside these jurisdictions would not be deemed to fall within Tier 1.

• These countries continue to retain almost unrestricted access to controlled ICs and will generally have no restrictions on their access to model weights and compute power.

Tier 3:

• Tier 3 is comprised of entities headquartered in, or whose ultimate parent company is headquartered in, Macau or destinations specified in Country Group D:5 (currently, China (including Hong Kong), Afghanistan, Belarus, Burma, Cambodia, Central African Republic, Democratic Republic of the Congo, Cuba, Cyprus, Eritrea, Haiti, Iran, Iraq, North Korea, Libya, Lebanon, Russia, Somalia, Republic of South Sudan, Republic of the Sudan, Syria, Venezuela, and Zimbabwe).

• The Framework maintains the current restrictions on the supply of advanced ICs to these countries continue to remain in place and adds additional restrictions. For example, model weights cannot be supplied to Tier 3 countries and data centers in Tier 3 countries are not eligible for VEU Authorization (discussed below).

• Security requirements for Tier 2 entities incentivizes Tier 2 countries to not only adopt a posture similar to the U.S. toward Tier 3 countries, but also, in the long run, to align themselves technologically with the U.S. In addition to de facto export controls, this would mean adoption of other elements of the U.S. technological landscape such as security controls, computing and other standards and integration with existing U.S.-origin technologies.

Tier 2:

• Tier 2 encompasses entities not specified in Tier 1 or Tier 3 and includes entities located in most countries in the world.

• The Framework permits the export of AI chips and associated compute power without a license up to a capped amount of Total Processing Performance (TPP). Data center companies in these jurisdictions can apply for a BIS license to access more compute power, subject to satisfying certain security and other requirements.

• Tier 1 entities may export their model weights to Tier 2 destinations, provided that the end user has instituted specified security measures that will reduce the risk of diversion.

• Notably, Tier 2 includes both countries that are otherwise considered close allies of the United States (including countries in NATO and the European Union, Israel and Singapore) and countries that are often treated by U.S. export controls and licensing decisions as posing higher evasion risks. The common thread among Tier 2 countries is the U.S. Government’s belief that their governments have not yet adopted the kinds of export controls on advanced AI chips and access to computing power that the U.S. and other Tier 1 countries have put in place in recent years.

III. The Framework Addresses Certain Evasion Activities to Limit Access to Advanced ICs and Model Weights.

a. Worldwide Licensing Requirements

According to BIS, Chinese companies have circumvented existing restrictions by using “foreign subsidiaries in a range of uncontrolled destinations to buy ICs subject to [Export Administration Regulations (“EAR”)] controls.”  BIS views the risk of evasion through the use of subsidiaries in uncontrolled jurisdictions to be even greater for AI model weights as they can be sent anywhere in the world instantaneously once copied.

The Framework consequently imposes a license requirement to supply (i.e., export, reexport, or transfer (in-country)) controlled ICs and model weights to any end user in any destination.  However, the Framework also provides license exceptions and other mechanisms to enable access to advanced IC to certain end users and designations which pose a comparatively low risk of diversion.  The licensing requirements are thus based on the tier system described above, with permissive conditions for Tier 1 countries.

Critically, the Framework conditions access to computing power on the closing of a loophole that has troubled BIS drafters for the last several years—how to control access by Tier 3 country governments and entities to AI Infrastructure-as-a-Service (IaaS) offered by data centers outside of Tier 3 countries.  Through the imposition of this worldwide licensing requirement, and the Framework’s conditioning of parallel licensing exceptions for those procuring computing power in Tier 1 and Tier 2 countries on not providing AI IaaS to Tier 3 country users, BIS is hoping to close this loophole.[4]

b. The AI Model Weights Foreign Direct Product Rule

Tier 3 entities have increasingly turned to data centers outside the United States and cloud services to remotely access computing power as a result of regulations on advanced ICs introduced in October 2022 and October 2023, along with the financial and logistical challenges of obtaining large clusters of ICs through subsidiaries and other third parties.

Another way in which BIS attempts to limit Tier 3 access to AI IaaS is through its creation of a new foreign direct product (FDP) rule with breathtaking scope.  BIS attempts to address this evasion, through an FDP rule that claims jurisdiction over closed-weight AI models trained anywhere in the world with the use of controlled ICs.  Given that most advanced ICs manufactured globally remain dependent on at least some U.S. software, technology, and on items produced by U.S. software and technology, and that BIS has claimed jurisdiction over these advanced ICs through prior FDP rules, there will be few closed-weight AI models that would not be subject to the new licensing requirements imposed by this FDP rule.

BIS’s use of FDP rules in recent years arguably has far outpaced its ability to enforce its FDP rules outside of the United States, however, and it is unclear whether and how non-U.S. developers of new AI models will become aware of this new jurisdiction claim and whether they will submit to U.S. licensing authority.

IV. The Frameworks Offers Multiple Pathways for Exporting Advanced ICs

Despite BIS’s imposition of global licensing requirements on advanced ICs or closed weight AI models, the Framework offers several exclusions, exceptions, and favorable licensing policies that it argues will facilitate more responsible diffusion of advanced AI technology and benefits to certain end users and jurisdictions.

a. Exclusion for Open Weight Models

BIS “determined that a reasonable proxy for the performance of an AI model is the amount of compute—i.e., the number of computational operations—used to train the model.” Accordingly, the Framework places restrictions on the export of the model weights of the most advanced AI models.

The Framework’s new restrictions on the export of model weights only applies to closed-weight models trained with 10^26 computational operations or more.  The Framework explicitly excludes “open” model weights of any AI model that have been “published” as defined in 15 C.F.R. § 734.7(a) and any closed models that are less powerful than the most powerful open-weight model.

b. License Exceptions

Existing License Exceptions (NAC/ACA)

The Export Administration Regulations (EAR) existing license exceptions for Notified Advanced Computing (NAC) and Advanced Computing Authorized (ACA) will apply to authorize the export of advanced ICs classified under ECCNs 3A090, 4A090, and corresponding .z items (except for 3A090.a items designed or marketed for use in a datacenter).

License Exception Low Processing Performance (LPP)

The Framework creates License Exception LPP to permit exports of advanced computing ICs and corresponding computing power up to a per-entity allocation of 26,900,000 TPP per-calendar year to any individual Tier 2 entity.  This annual TPP limit applies to shipments to any individual Tier 2 entity even if the shipments are made by multiple exporters or reexporters or through more than one intermediate consignee.

License Exception Artificial Intelligence Authorization (AIA)

The Framework created License Exception AIA to permit exports of advanced computing ICs and corresponding computing power to Tier 1 countries.

The license exception also permits exports of otherwise controlled closed AI model weights, without an authorization, by companies headquartered in the United States and allies listed in paragraph (a) of supplement no.  5 and (i) the entities obtaining the items are located outside Macau or destinations specified in Country Group D:5; and (ii) the items will be stored in a facility that complies with the certain security standards that are set forth in supplement no. 10 to part 748.

License Exception Advanced Compute Manufacturing (ACM)

The Framework created License Exception ACM to permit exports of advanced computing ICs to “private sector end users” for the purposes of “development,” “production,” and storage (in a warehouse or other similar facility) of such ICs.  However, the license exception does not cover exports for the purpose of training an AI model or exports to Tier 3 countries.

“Private sector end user” defined as either (1) an individual who is not acting on behalf of any government (other than the U.S. Government), or (2) a commercial firm (including its subsidiary and parent firms, and other subsidiaries of the same parent) that is not wholly owned by, or otherwise controlled by any government (other than the U.S. Government).

Summary of New Licensing Requirements, License Exceptions and Exclusions and Licensing Policy

* Except for 3A090.a items designed or marketed for use in a datacenter.

c. License Review Policy (Tier 1 Presumption of Approval; Tier 2 Per-Country Allocation)

The Framework creates a presumption of approval for exports of advanced ICs and closed-weight AI models to Tier 1 countries.

The Framework provides a favorable license review policy for exports of advanced ICs and corresponding computing power up to a per-country allocation of 790,000,000 TPP for Tier 2 countries for the period from 2025 to 2027.  BIS will review applications for the supply of advanced ICs to Tier 2 countries under a presumption of approval, up to this amount.

d. Revamped VEU Authorizations

In October 2024, BIS introduced a Data Center VEU Authorization to facilitate the supply of advanced ICs to end users in destinations that do not raise national security or foreign policy concerns.  The Framework bifurcates the Data Center VEU Authorization into a Universal VEU (UVEU) Authorization and National VEU (NVEU) Authorization.

The UVEU Authorization is available only to Tier 1 entities, and, subject to certain geographic allocation limits, enables UVEU to deploy data center in Tier 2 destinations.  Specifically, a UVEU cannot transfer or install more than 25% of its total AI computing power—i.e., the AI computing power owned by the entity all its subsidiary and parent entities—to or in locations outside of Tier 1 countries.  U.S. UVEUs are required to maintain at least 50% of their total AI computing power in the United States.  Moreover, UVEUs cannot transfer or install more than 7% of its total AI computing power to or in any single Tier 2 country.  This kind of AI computing power location requirement has no precedent within the EAR, but more broadly tracks policy efforts by the Department of Commerce and interagency partners to induce the world’s leading advanced IC manufacturers to locate more of their production capacity in the United States.

The NVEU Authorization, on the other hand, is available to Tier 2 entities on a per-company, per-country basis (i.e., separate authorizations required for each Tier 2 country, even if undertaken by the same company), subject to quarterly caps.  BIS explains that these allocation caps represent computing power clusters that are approximately 12 months, or one generation, behind the cluster size it believes will be needed to train the most advanced dual-use AI models.  Importantly, the total amount of computing power authorized for exports to NVEUs will not count towards the amount of computing power allocated to a Tier 2 country.

In order to receive NVEU Authorization, a data center operator that owns its advanced computing capacity must apply to BIS and go through an intensive application process that will be subject to interagency review.  The criteria for NVEU approval are extensive and span over two pages of the Federal Register (published at least initially in a smaller font size) and include requirements on data center ownership, physical security, supply chain security, personnel security, and acceptable use criteria that are subject to documentation, auditing and reporting requirements.  Approved applicants for the NVEU Authorization will be listed in the EAR.

V. Conclusion

The Framework is a sweeping and unprecedented attempt to regulate the global diffusion of AI technology, especially to countries that pose national security and foreign policy challenges to the United States.  It reflects the U.S. Government’s recognition of the strategic importance of AI as a transformative and disruptive technology that can have profound implications for military, economic, and social domains.  It also reflects the U.S. Government’s determination to maintain its leadership and competitive edge in AI innovation, while preventing the misuse and exploitation of AI by adversaries and competitors.

The Framework drafters have acknowledged the heavy lifts that stakeholders impacted by these new regulations will be required to make by staggering its implementation dates.  The new worldwide licensing requirements on computing power and on closed-weight AI models, and associated license exceptions will not be implemented until May 15, 2025, and the significant security and other requirements associated with the VEU license exceptions will not be required to be in place until January 15, 2026.  Even if new Commerce officials opt to postpone the implementation of these new regulations by two months under authority of President Trump’s Regulatory Freeze Pending Review Executive Order, the sweeping nature of these new regulations will require many companies and other industry stakeholders to begin taking steps now to reflect new controls and to be in a position to take advantage of the different authorizations the Framework makes available.

The Framework, however, is not without its challenges and uncertainties.  It is likely to face significant critique by at least some types of AI sector stakeholder during the public comment period, which is currently scheduled to close on May 15, 2025.  It is also likely to face technical, and political hurdles, as well as potential backlash and countermeasures from affected countries and entities, as it is implemented.  On a technical level, its efficacy is premised in part on widespread awareness of the new export controls it puts in place, especially by stakeholders located outside of the United States, and it is unclear whether the Trump Administration will expend the resources required to publicize and educate non-U.S. persons on how the regulations will work, including convincing those training AI models outside the United States that their closed-weight AI models may be subject to U.S. licensing controls based on the computing power and infrastructure required to train them.  There are also data center business model and associated contract-related changes that some Tier 2 country stakeholders would be required to make to take advantage of the NVEU and LPP authorizations that will take many months to implement.

The perceived efficacy of the Framework is also challenged by the release of the Chinese company DeepSeek’s r1 open-weight AI model, which DeepSeek released after BIS published the interim final rule establishing the Framework.  In allowing exports of open-weight models without a license, BIS “assess[ed] that the most advanced open-weight models are currently less powerful than the most advanced closed-weight Models.”  However, the availability of powerful open-weight AI models like DeepSeek that approximate the capabilities of the most advanced closed-weight, and the possibility that powerful AI models could be trained with lower levels of compute power, both challenge key assumptions underlying the Framework..

Moreover, implementation of the regulations will also require extensive coordination and cooperation among U.S. allies.  On the intergovernmental level, the BIS and U.S. Government agency partners such as the Department of State will need to act and think multilaterally to continue to enjoy the cooperation of Tier 1 countries and to attract support for a U.S.-lead AI ecosystem in Tier 2 countries, which may be more difficult to do amidst threats and other actions that the Trump Administration may take unilaterally to advance the America First Trade Policy.

[1] Framework for Artificial Intelligence Diffusion, 90 Fed. Reg. 4544 (Jan. 13, 2025) (hereinafter the Framework).

[2] President Donald, J. Trump, Regulatory Freeze Pending Review Executive Order, Jan. 20, 2025 (available at https://www.whitehouse.gov/presidential-actions/2025/01/regulatory-freeze-pending-review/).

[3] Framework at 4548.

[4] For example, the Framework requires Tier 2 compute providers to institute exacting security measures, including new security measures in supplement no.  10 to part 748, to prevent the use of their compute power by Tier 3 entities.

The following Gibson Dunn lawyers prepared this update: Christopher Timura, Dharak Bhavsar, Mason Gauch, Frances Waldmann, David Wolber, and Adam M. Smith.

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

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© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

We are pleased to provide you with Gibson Dunn’s Accounting Firm Quarterly Update for Q4 2024. 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 Begin
• PCAOB Adopts Firm Reporting and Firm and Engagement Metrics Requirements
• Corporate Transparency Act Subject to Multiple Legal Battles
• PCAOB Adopts Rule to Address Filing and Fee Deficiencies
• One of Three Pending PCAOB Constitutional Challenges Dismissed
• U.K. Publishes Guidance on New Failure to Prevent Fraud Offense
• 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.

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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, Timothy Zimmerman, Monica Limeng Woolley, Bryan Clegg, Douglas Colby, 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)

This guidebook offers an overview of the numerous decision points, procedures and vital considerations a company should contemplate before, during and after the IPO process.

Completing an Initial Public Offering (IPO) is a significant milestone for many business owners, executives, directors and stockholders. However, the journey towards going public can be fraught with complexities and unexpected challenges. For companies seeking to raise capital, whether through an IPO or other alternatives, it is critical to understand the road ahead.

The insights in this guidebook are derived from Gibson Dunn’s vast experience representing clients across various sectors in many IPOs over the years. We capitalize on our representation of large and seasoned public companies to implement leading-edge corporate governance and public reporting practices.

The involvement in the IPO process of our unmatched Securities Regulation and Corporate Governance team is core to the IPO process. This enables our IPO teams to anticipate potential problems in drafting the registration statement and to reach key decision-makers at the Securities and Exchange Commission on an expedited basis to seek tailored guidance, waivers, or resolution of challenging comments.

You can download a PDF of Gibson Dunn’s IPO Guidebook (2025 Edition) at the link below.

Read More

The following Gibson Dunn lawyers prepared this update: Andrew Fabens, Hillary Holmes, Stewart McDowell, Harrison Tucker, Peter Wardle, Marie Kwon, Bryan McCutcheon, and Justine Robinson.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding the guidebook or how we may assist in navigating your journey to going public. To learn more, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Capital Markets practice group, or the following practice leaders:

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

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

Our update provides key takeaways from President Trump’s Executive Order and its potential impact on various energy initiatives as well as the M&A and capital markets outlook for energy companies.  

On January 20, 2025, President Donald Trump signed executive order “Unleashing American Energy“ (the Executive Order). This update discusses key takeaways from the Executive Order and the potential impact of the Executive Order on various energy initiatives as well as the M&A and capital markets outlook for energy companies. For a broader discussion of the twenty-six executive orders President Trump signed on January 20, 2025 and the major regulatory and policy issues energy industry experts will be monitoring in the coming days, please refer to Trump 2.0 on Energy: Ten Items to Watch.

1. Overview of the Executive Order

The Executive Order is intended to reverse years of what the new administration characterizes as “burdensome and ideologically motivated regulations” which have impeded the development of America’s abundant energy and natural resources. By implementing new policies and revoking several executive orders from prior administrations, the Executive Order seeks to promote and encourage energy exploration and development by revising the permitting process, revoking or revising regulations, and promoting domestic mining, amongst other changes.

2. Impact on Oil & Gas Leasing and Permitting

The Executive Order lays out policies of the United States which include (a) encouraging energy exploration and production of Federal lands and waters, including on the Outer Continental Shelf, in order to meet the needs of US citizens and solidify the United States as a global energy leader and (b) establishing the United States’ position as the leading producer and processor of non-fuel minerals, thus creating jobs and prosperity at home.

The heads of all federal agencies are ordered to review, revise, or rescind all existing regulations, orders, guidance documents, policies, or other agency actions, that impose an undue burden on the identification, development or use of domestic energy resources, particularly “oil, natural gas, coal, hydropower, biofuels, critical mineral, and nuclear energy resources.” Agency heads are instructed to develop and begin implementing action plans to suspend, revise or rescind any such unduly burdensome agency actions within 30 days of the Executive Order (Feb. 19, 2025).

The chair of the Council of Environmental Quality (CEQ) is ordered to provide guidance on implementing the National Environmental Policy Act (NEPA) and propose rescinding burdensome NEPA regulations in order to expedite and simplify permitting. Further, the Executive Order directs various federal agencies to eliminate delays within their permitting process. In doing so, the Executive Order intends to streamline the NEPA judicial review process and promote the permitting and construction of critical infrastructure whilst providing greater certainty in the Federal permitting process.

These changes are expected to streamline and promote domestic exploration and production on both onshore and offshore federal oil and gas leases. While challenges from environmental groups are likely, we expect significantly more federal lease sales to be conducted, including in federal lands that had never previously been considered for sale. Environmental review of well and pipeline permit applications will still occur, but the process will likely be overhauled and permit approvals will likely be granted significantly faster in an effort to promote resource development.

3. Pause on Inflation Reduction Act Funding on Various Energy Projects

Pursuant to the Executive Order, all agencies are to immediately pause the disbursement of funds appropriated through the Inflation Reduction Act (Public Law 117-169, IRA) or the Infrastructure Investment and Jobs Act (Public Law 117-58, IIJA). On January 21, 2025, the acting director of the Office of Management and Budget (OMB) issued guidance clarifying that the pause only applies to funds supporting programs, projects or activities that contravene the policies of the Executive Order and that agency heads may disburse funds as they deem necessary after consulting with OMB. Given that the Executive Order indicates a lack of support for solar and wind, while remaining silent on geothermal or carbon capture, utilization, and storage (CCUS), IRA and IIJA funding for geothermal and CCUS projects may not be suspended for long, if at all. However the future of federal funding for solar and wind-related projects is more uncertain.

It is important to note that a pause on federal funding under the IRA is not tantamount to a revocation of tax credits under the IRA. For further discussion on the impact to IRA Tax Credits, please refer to Trump 2.0 on Energy: Ten Items to Watch.

4. Changes to Environmental Analyses and Carbon Monitoring

The Executive Order aims to streamline the permitting process, reduce regulatory burdens, and shift the focus away from certain climate-related metrics. As touched on in Section 2 above, it does so in part by revoking prior Executive Orders related to Environmental regulations under NEPA and directing agencies to make changes related to consideration and calculation of greenhouse gas emissions.

• Revocation of Executive Order 11991: Revokes Executive Order 11991 (Carter, May 24, 1977), which amended Executive Order 11514 (Nixon, March 5, 1970).  Executive Order 11991 tasked CEQ with issuing regulations to federal agencies for implementing the procedural provisions of NEPA, and directed that federal agencies comply with those regulations unless such compliance would be inconsistent with statutory requirements.
• NEPA Implementation: Tasks the Chairman of CEQ with providing guidance to expedite and simplify the permitting process under the NEPA. Agencies are required to prioritize efficiency and certainty in the permitting process, minimizing delays and ambiguity.
• Adherence to Legislated Requirements: Agencies must adhere strictly to legislated requirements for environmental considerations, using robust methodologies and avoiding arbitrary or ideologically motivated methods.
• Disbanding the Interagency Working Group on the Social Cost of Greenhouse Gases (IWG): The IWG is disbanded, and all its guidance, instructions, and documents are withdrawn. This includes the withdrawal of the Technical Support Document on the social cost of carbon, methane, and nitrous oxide.
• Elimination of the Social Cost of Carbon Calculation: The calculation of the social cost of carbon is deemed arbitrary and potentially harmful to the U.S. economy.  The EPA Administrator is directed to issue guidance to address these issues, including the potential elimination of the social cost of carbon calculation from federal permitting or regulatory decisions.
• Review of EPA’s Endangerment Findings: The EPA Administrator, in collaboration with other agencies, is to review the legality and applicability of the EPA’s findings on greenhouse gases under the Clean Air Act.
• Review of Agency Actions:  Agency heads must review existing regulations and actions to identify those that burden domestic energy development, and create and implement plans to suspend, revise, or rescind identified burdensome actions, in collaboration with OMB and the National Economic Council (NEC).
• Revocation of Executive Orders: Revokes a dozen of President Biden’s Executive Orders related to environmental justice, climate change, and the environment.

There are various agency deadlines related to the above NEPA and carbon monitoring changes which will need to be achieved as part of the Executive Order.

• Within 30 days:
  • Agency heads must develop and begin implementing action plans to suspend, revise, or rescind burdensome actions.
  • The Chairman of CEQ must provide guidance on implementing NEPA.
  • Agencies must submit reports identifying instances where enforcement discretion can advance policy goals.
• Within 60 days:
  • The EPA Administrator must issue guidance addressing the inadequacies of the social cost of carbon calculation.

The Executive Order mandates a review and revision of regulations that are seen to burden domestic energy development, which could lead to faster permitting processes and reduced compliance costs for energy companies. CEQ is expected to be stripped of its power to issue binding NEPA regulations for federal agencies. Because most agencies have their own regulations to implement NEPA, this change will not eliminate NEPA reviews. The elimination of the social cost of carbon calculations is intended to lessen the importance of climate change analysis in permitting decisions. Industry should prepare for streamlined regulatory requirements and potential shifts in the rigor required to prepare environmental analyses and environmental impact statements, with agencies tasked with focusing on efficiency and adherence to strict legislative text and these new guidelines. We expect NEPA litigation to increase as environmental groups challenge these executive orders. Energy sector companies should stay informed about changes to ensure compliance and leverage opportunities for expedited project approvals over the coming months as these agencies undergo a potentially major overhaul of NEPA and carbon reporting.

5. Impact on LNG Export Projects

The Executive Order directs the Secretary of Energy to “restart reviews of applications for approvals of liquified natural gas (LNG) export projects,” which, coupled with President Trump reversing the Biden administration’s pause on LNG permits on day one of his second term by rolling back President Biden’s executive order that paused granting LNG export authorizations, suggests an emphasis on increasing LNG exports by the current administration. LNG exports are a key driver for investment in natural gas assets, midstream projects, and CCUS, thus such a change should be positive for investment and dealmaking in these areas. 

For further discussion on the future of LNG under the Trump administration, please refer to Trump 2.0 on Energy: Ten Items to Watch.

6. Impact on Mergers & Acquisitions and Antitrust in the Energy Industry

While the Executive Order promises to reduce administrative hurdles to traditional energy projects, we expect oil and gas companies to operate largely consistently with the approach they have taken in the post-pandemic era, with an emphasis on capital discipline, efficient returns, and consolidation. The Executive Order will likely enhance the value of companies with asset bases that include large portfolios of leases on federal lands or in the Outer Continental Shelf, but from a dealmaking perspective, the administration’s attitude shift toward traditional energy is likely to also be seen in the antitrust review process. With the change in political leadership and an emphasis on encouraging investment in natural resources in the name of energy security, the Federal Trade Commission (FTC) is unlikely to be as hostile to mergers and acquisitions in the energy industry as the previous administration. For example, the FTC conducted large-scale Second Request investigations into a range of industry transactions as part of its antitrust reviews under the Hart-Scott-Rodino (HSR) Act, following requests from Democratic leadership in the Senate for thorough investigations of industry transactions. With that said, the FTC cleared most industry transactions without challenge, despite the costs imposed through extensive investigations. Furthermore, the career FTC staff that has reviewed transactions in the industry for a number of years will likely remain in place, suggesting that changes in the substantive review of industry transactions are likely to be modest. Nonetheless, the potential for fewer Second Requests and quicker HSR approvals would be beneficial to an energy consolidation wave that industry experts suggest has not yet crested.

7. Impact on Energy Industry Capital Raising and Public Company Regulation

The reduction in environmental reporting and carbon monitoring under the Executive Order, in combination with the policy objectives stated in the Executive Order and other directives from the Trump administration, indicate that the outlook for energy capital markets and public company regulation under the second Trump administration is positive. Both going public and operating as a public company should be less time-consuming and costly than it was under the Biden administration. A majority of the U.S. Securities and Exchange Commission (SEC) commissioners (including the nominated chair, former Commissioner Atkins) will be appointed by President Trump and, judging from the first Trump administration, will set an agenda that is supportive of capital raising and focused on reducing the burden of being publicly traded. For example, the climate disclosure rules adopted by the Biden administration’s divided SEC (and stayed pending challenge in federal court) are likely to be repealed, saving energy companies a significant amount of G&A expense and reducing the risk of litigation. As another example, based on experience with the SEC review process under the first Trump administration, we expect the process and waiver requests to be faster and more commercial, further facilitating capital markets transactions. We also can expect rule proposals that are focused on making it easier for private companies to raise capital from a broader investor base. For capital intensive businesses in the energy industry, a relatively fast, predictable process with as little unnecessary expense as possible, is important. As such, we expect the backlog of private energy companies who have been waiting to IPO to seize the opportunity to access the capital markets while the process is easier, being a public company is less costly, and the broader business climate for the industry is supportive. In addition, we expect public energy companies to take advantage of this improved regulatory climate to access the capital markets more often than in recent years. Regardless, investor pressures to live within free cash flow, maintain low leverage and pay dividends to shareholders will continue to impact decision making with respect to equity and debt capital markets transactions.

Despite all this optimism, it remains true that capital markets for the energy industry are only as strong as the capital markets themselves. Other significant events, such as war, pandemic, inflation, labor shortages, or supply cost increases from tariffs, could have an adverse impact on the equity markets or the  energy industry generally.  Similarly, any increases in the deficit and inflation could cause interest rates to rise again, increasing the cost of accessing the debt capital markets. Even so, energy capital markets generally thrive on stability and low volatility and the regulatory environment under the second Trump administration appears to be conducive to this.

The following Gibson Dunn lawyers prepared this update: Rahul Vashi, Hillary Holmes, Harrison Tucker, Adam Whitehouse, and Zain Hassan.

Gibson, Dunn & Crutcher’s lawyers are available to assist in addressing any questions you may have about these developments. To learn more, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Oil & Gas, Energy Regulation & Litigation, Environmental Litigation & Mass Tort, Power & Renewables, Cleantech, Antitrust & Competition, Capital Markets, or Mergers & Acquisitions practice groups:

Oil and Gas:
Michael P. Darden – Houston (+1 346.718.6789, mpdarden@gibsondunn.com)
Rahul D. Vashi – Houston (+1 346.718.6659, rvashi@gibsondunn.com)
Graham Valenta – Houston (+1 346.718.6646, gvalenta@gibsondunn.com)

Energy Regulation and Litigation:
William R. Hollaway – Washington, D.C. (+1 202.955.8592, whollaway@gibsondunn.com)
Tory Lauterbach – Washington, D.C. (+1 202.955.8519, tlauterbach@gibsondunn.com)

Environmental Litigation and Mass Tort:
Stacie B. Fletcher – Washington, D.C. (+1 202.887.3627, sfletcher@gibsondunn.com)
David Fotouhi – Washington, D.C. (+1 202.955.8502, dfotouhi@gibsondunn.com)
Rachel Levick – Washington, D.C. (+1 202.887.3574, rlevick@gibsondunn.com)

Power and Renewables:
Peter J. Hanlon – New York (+1 212.351.2425, phanlon@gibsondunn.com)
Nicholas H. Politan, Jr. – New York (+1 212.351.2616, npolitan@gibsondunn.com)

Cleantech:
John T. Gaffney – New York (+1 212.351.2626, jgaffney@gibsondunn.com)
Daniel S. Alterbaum – New York (+1 212.351.4084, dalterbaum@gibsondunn.com)
Adam Whitehouse – Houston (+1 346.718.6696, awhitehouse@gibsondunn.com)

Antitrust and Competition:
Rachel S. Brass – San Francisco (+1 415.393.8293, rbrass@gibsondunn.com)
Kristen C. Limarzi – Washington, D.C. (+1 202.887.3518, klimarzi@gibsondunn.com)
Cynthia Richman – Washington, D.C. (+1 202.955.8234, crichman@gibsondunn.com)

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

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

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

This update summarizes key amendments to the COPPA Rule and related FTC Commissioner statements, as well as key proposals that the FTC declined to adopt, and it positions these developments in the broader legal landscape related to children’s privacy and safety online.

On January 16, 2025, the Federal Trade Commission (FTC or Commission) voted 5-0 to approve long-awaited updates to the Children’s Online Privacy Protection Rule (COPPA Rule or Rule),[1] which was last updated over a decade ago, in 2013. The FTC had proposed amendments to the COPPA Rule in a Notice of Proposed Rulemaking (NPRM) in January 2024,[2] following a 2019 request for comment[3] on the effectiveness of the 2013 amendments. While the updated COPPA Rule does not include some of the more sweeping amendments proposed, it imposes significant new obligations regarding the collection, use, and disclosure of personal information from children under 13. Many of these updates effectively codify positions that the Commission has taken in COPPA enforcement actions under the prior COPPA Rule.

As described in detail below, key updates to the COPPA Rule include:

• Requiring separate parental consent for data sharing with third parties for targeted ads and other non-integral purposes. Requiring covered operators to obtain separate verifiable parental consent to disclose children’s personal information to third-party companies for targeted advertising or other purposes that are not “integral” to the operator’s websites or online services;
• Requiring data minimization and a data retention policy. Limiting the retention of children’s personal information to only the time reasonably necessary to fulfill the specific purpose for which it was collected, prohibiting the retention of children’s personal information indefinitely, and requiring adoption of a written data retention policy;
• Clarifying definitions of child-directed and mixed audience services. Clarifying which online services may be covered by the Rule by amending the definition of “website or online service directed to children” to include a non-exhaustive exemplary list of evidence the FTC may consider in analyzing audience composition and intended audience, and adding a new, standalone definition of “mixed audience website or online service”;
• Expanding the definition of covered information. Expanding the definition of “personal information” to include biometric identifiers and government-issued identifiers beyond Social Security numbers;
• Expanding parental notice requirements. Clarifying and expanding the scope of disclosures required in direct notices and online privacy notices, including: the identities and categories of any third parties with which the operator shares children’s personal information; how specifically the operator uses persistent identifiers to support its internal operations and what measures are in place to avoid using persistent identifiers for unauthorized purposes; and when an operator collects an audio file of a child’s voice pursuant to the audio file exception, a description of how the operator uses audio files and a disclosure that such files are deleted immediately after responding to the request for which they were collected;
• Enumerating additional methods to obtain verifiable parental consent. Enumerating additional methods that satisfy the requirement to obtain verifiable parental consent before collecting personal information from children or using or disclosing such information, including using a text message coupled with an additional step, such as a confirmatory text message following receipt of consent (the “text plus” method);
• Enhancing data security requirements. Clarifying the reasonable security measures required to protect personal information from children, which include, at a minimum, establishing a written data security program; and
• Increasing oversight and transparency of Safe Harbor programs. Enhancing oversight of, and transparency regarding, Safe Harbor programs, including by requiring that such programs disclose their membership lists and report additional information to the FTC.

Significant proposals the FTC dropped include changes that would have codified requirements for educational technology companies operating in a school environment, and those that would have prohibited the use of push notifications and similar engagement techniques without separate parental consent.

The amended COPPA Rule will become effective 60 days after its publication in the federal register, and covered operators will have until one year after the publication date to comply, except with respect to certain provisions regarding Safe Harbor programs.[4] We note, however, that businesses should continue to monitor updates regarding the publication of the updated Rule, given the possibility for delay or withdrawal under the Trump administration or the new FTC leadership.[5] Although the FTC’s vote approving the final Rule was unanimous, then-incoming Chair Andrew Ferguson issued a strongly worded concurring statement identifying three “serious problems” with the amendments that he ascribed to “the outgoing administration’s irresponsible rush to issue last-minute rules two months after the American people voted to evict them from office,” and calling for “[t]he Commission under President Trump [to] address these issues and fix the mess that the outgoing majority leaves in its wake.”[6]

Despite some uncertainties, companies that knowingly provide services to children under 13 or that have offerings that could be considered attractive to children should revisit their existing compliance strategies to mitigate the substantial risk of liability for non-compliance with the updated COPPA Rule, which include civil penalties up to $53,088 per violation for 2025.[7] Given historical and continued bipartisan consensus that the privacy and safety of children online is a priority in light of developing technologies,[8] we expect rigorous oversight and enforcement by the FTC, including under the new administration.

Gibson Dunn has extensive experience advising and defending multinational companies on COPPA and youth-related strategies, including regulatory investigations and engagement strategies, product counseling, and litigation matters. We stand ready to advise companies on compliance with the updated COPPA Rule, and on federal, state, and international youth privacy and safety laws more broadly.

A. COPPA Background

Congress enacted COPPA in 1998, and the FTC’s COPPA Rule implementing COPPA first went into effect in 2000 and was last amended in 2013.

Importantly, COPPA applies only to online services that are directed to children under 13 or that are collecting, using, or sharing personal information of a user with actual knowledge that a particular user is under 13. More specifically, COPPA applies to (1) “operators of commercial websites and online services” that are “directed to children under 13 that collect, use, or disclose personal information from children”; (2) “operators of general audience websites or online services with actual knowledge that they are collecting, using, or disclosing personal information from children under 13”; and (3) to websites or online services that have actual knowledge that they are collecting personal information directly from users of another website or online service directed to children.”[9] COPPA’s primary goal is to give parents control over their children’s personal information and how that information is collected and processed.[10]

The COPPA Rule imposes several requirements on covered operators of websites and online services, including requirements to provide clear direct notice to parents and to obtain verifiable parental consent before collecting personal information from children or using or disclosing such information.[11] The Rule also confers other rights on parents, including the right to request that covered operators delete their children’s personal information,[12] and it imposes several additional obligations on covered operators, including for example with respect to security measures[13] and data retention.[14]

B. Key Amendments to the COPPA Rule

The following sections detail key amendments to the COPPA Rule.

a. Companies Covered By the COPPA Rule

The amended COPPA Rule “clarifies” the definition of “website or online service directed to children” by adding to the non-exhaustive exemplary list of evidence the FTC may consider in analyzing audience composition and intended audience “consideration of marketing or promotional materials or plans, representations to consumers or to third parties, reviews by users or third parties, and the age of users on similar websites or services.”[15] The latter example may be particularly challenging for companies to address since it relies on extraneous information outside a service’s control (and for the same reason, would not appear to be probative of a company’s intent to direct its service to children).

The amended Rule also includes a new, standalone definition of “mixed audience website or online service,” which the FTC confirmed is not intended to expand the scope of child-directed websites and online services, and does not change which websites or online services are directed to children.[16] The 2013 COPPA amendments and the FTC’s subsequent COPPA FAQ guidance introduced the concept of “mixed audience” websites and online services as a subcategory within the definition of “website or online service directed to children,” but did not define this term.[17] Under the updated Rule, “mixed audience” websites and online services are defined as those directed to children but that do not target children as their primary audience, and that do not collect personal information from any visitor other than to assess whether a visitor is a child.[18] Unlike other child-directed websites and online services, mixed audience websites and online services are permitted to collect information from visitors in a neutral manner in order to determine whether a visitor is a child.[19] Once a mixed audience website or online service determines that a visitor is 13 or over, it may collect personal information from the visitor without obtaining verifiable parental consent. The mixed audience website or online service may not deny access to visitors who are under 13, but may require verifiable parental consent or offer an experience that does not collect their personal information.

b. Expanded Definition of “Personal Information”

As amended, “personal information” under COPPA now explicitly includes (1) biometric identifiers, defined as an “identifier that can be used for the automated or semi-automated recognition of an individual, such as fingerprints; handprints; retina patterns; iris patterns; genetic data, including a DNA sequence; voiceprints; gait patterns; facial templates; or faceprints”; and (2) government-issued identifiers beyond Social Security numbers, including state ID cards, birth certificates, and passport numbers.[20]

c. Direct Notice & Verifiable Parental Consent

Direct Notice. The amended COPPA Rule clarifies and expands what companies must include in their direct notice disclosures to parents prior to collecting from and using their children’s personal information. Specifically, companies should ensure their direct notice disclosures:

• Include information on “how the operator intends to use [a child’s personal] information;”[21]
• Disclose the identity or categories of third parties the company shares personal information with, the purposes for sharing with those third parties, and that a parent can consent to the collection of and use of the child’s information, without consenting to its disclosure;[22] and
• Are provided in every instance in which a company seeks parental consent.[23]

Online Privacy Notice. Companies must also post clear, prominent links to online notices of their information practices regarding children.[24] As with the direct notices, the COPPA Rule amendments expand what must be included in the online notices to include:

• The identities and categories of any third parties to which the operator discloses personal information and the purpose for such disclosure;[25]
• The specific internal operations for which the operator uses persistent identifiers, and the policies or practices the operator has in place to avoid using persistent identifiers for unauthorized purposes;[26]
• When an operator collects an audio file of a child’s voice pursuant to the audio file exception (discussed below), a description of how the operator uses the audio files, and that such files are deleted immediately after responding to the request for which they were collected;[27] and
• The operator’s data retention policies for personal information collected from children.[28]

Verifiable Parental Consent. The amendments enumerate additional methods that satisfy the requirement to obtain verifiable parental consent before collecting personal information from children or using or disclosing a child’s personal information,[29] including:

• Processing any transaction requiring a parent to use a credit card, debit card, or other online payment system, provided that the transaction “provides notification of each discrete transaction to the primary account holder”–not just those transactions which include a monetary fee, as previously required;[30]
• Using a knowledge-based authentication process (i.e., questions of sufficient number and difficulty that a child could not reasonably ascertain the answers);[31]
• Matching an image of a face to a verified photo identification, such as a driver’s license (with the image and photo ID being promptly deleted thereafter);[32] and
• Using a “text plus” method that may be used when an operator does not disclose personal information from children to a third party, where (similar to the “email plus” method already available) subject to certain disclosure and confirmation requirements, a company uses a text message to obtain consent.[33]

The amendments also modify and expand exceptions to the COPPA Rule’s verifiable parental consent requirement. Of particular note is an exception for when a company collects an audio file containing a child’s voice as a replacement for written words, and no other personal information, and uses the audio file only to respond to a child’s specific request such as to execute a search or implement a verbal instruction, and the file is deleted immediately thereafter.[34] This exception is meant to provide flexibility for companies who rely on voice-assist technology.[35] Such a practice must be disclosed in an online notice.[36]

d. Separate Consent for Information Disclosures to Third Parties for Targeted Advertising and Other Non-Integral Purposes

The amended COPPA Rule requires separate parental consent for the disclosure of a child’s personal information to a third party for targeted advertising or other uses, “unless such disclosure is integral to the website or online service” such as disclosures necessary to provide the product or service.[37] Covered operators also cannot condition access to their website or service on obtaining such consent.[38] This amendment, in particular, will have significant implications for online services that may be perceived to be attractive to children that leverage third-party advertising technologies in their services.

e. Data Retention and Deletion

The COPPA Rule includes directives regarding the retention and deletion of personal information from children, including that a covered operator may retain such information “for only as long as is reasonably necessary to fulfill the purpose(s) for which the information was collected.”[39] Notably, the amendments prohibit companies from retaining children’s personal information indefinitely.[40] As discussed below, there is disagreement within the Commission surrounding this requirement, including as to what “indefinitely” means in this context.

The amendments further instruct that companies must establish a written data retention policy that specifies the purposes for which a child’s information is collected, the business need for retaining the information, and the timeframe for deleting it.[41] These policies must now be provided in online notices, as described above.[42]

f. Confidentiality, Security, and Integrity of Personal Information

COPPA requires covered operators to “establish and maintain reasonable procedures to protect the confidentiality, security, and integrity of personal information collected from children,”[43] and the amendments clarify the steps covered operators can take to comply with this “reasonable procedures” standard.

At a minimum, a covered operator’s safeguards must be “appropriate to the sensitivity of the personal information collected from children and the operator’s size, complexity, and nature and scope of activities.”[44] To comply, an operator must, among other requirements, designate employees to manage the program, assess the program at least annually, and implement necessary safeguards based on those assessments.[45] Notably, these requirements generally mirror the requirements contained in Commission orders requiring the implementation of a comprehensive information security program.

Additionally, covered operators that disclose children’s personal information to third parties must “take reasonable steps to determine that such entities are capable of maintaining the confidentiality, security, and integrity of the information” and obtain written assurances from the third parties that they will do so.[46]

g. Safe Harbor Programs

Under the COPPA Rule, the Commission may approve Safe Harbor programs–i.e., self-regulatory guidelines submitted by industry groups which implement the same or greater protections for children as in COPPA. The FTC amended the COPPA Rule to “enhance oversight of, and transparency regarding” these Safe Harbor programs by requiring they conduct annual independent assessments of their members’ compliance, including the members’ data privacy and security practices, disclose their membership lists, and maintain and submit to the FTC records of complaints about, and disciplinary actions against, the program’s members.[47] Existing COPPA Safe Harbor programs must submit proposed modifications within 6 months of the publication of the amended COPPA Rule in the federal register.[48]

C. Key Proposed Changes Not Adopted in Amended COPPA Rule

The amended COPPA Rule does not include certain amendments that the FTC proposed in its January 2024 NPRM, which were the subject of nearly 300 public comments, and which would have imposed significant compliance obligations relating to push notifications or engagement techniques and on educational technology companies.

a. Push Notifications/Engagement Techniques

The COPPA Rule includes an exception to obtaining verifiable parental consent “[w]here the purpose of collecting a child’s and a parent’s online contact information is to respond directly more than once to the child’s specific request, and where such information is not used for any other purpose, disclosed, or combined with any other information collected from the child.”[49] The NPRM’s proposal sought to prohibit companies from using this exception to “encourage or prompt use of a website or online service,” in order to address children’s overuse of online services due to engagement-enhancing techniques such as push notifications, in-game notices, or website pop-ups.[50]

Though the FTC stated it remains “deeply concerned” about push notifications and other techniques designed to prolong a child’s time spent online, the Commission was persuaded by concerns regarding the inconsistency between the proposed language and the COPPA statute, as well as First Amendment concerns regarding the breadth of the restriction, and thus did not amend COPPA to include this proposal.[51]

b. Educational Technology Requirements

The FTC also excluded several requirements proposed in the NPRM that would have been applicable to educational technology (ed tech) companies. The NPRM proposed including new definitions of “school” and “school-authorized education purpose,” as well as new provisions governing the collection of information from children in schools, and codifying the FTC’s existing guidance that allows ed tech companies to obtain consent from schools, rather than parents, to collect personal information from students for educational purposes.[52] The FTC chose not to adopt these proposed amendments “[t]o avoid making amendments to the COPPA Rule that may conflict with potential amendments to [the Department of Education’s Family Education Rights and Privacy Act] regulations.”[53] However, the Commission specifically noted that they “will continue to enforce COPPA in the ed tech context consistent with its existing guidance.”[54]

c. Other Exclusions

The final COPPA Rule also excluded other proposed amendments, including one that would have modified the exception to the parental consent requirement when companies collect persistent identifiers (and no other personal information) to provide support for the internal operations of the website or online service, such as for contextual advertising or personalization.[55] The FTC also declined to expand the definition of personal information to include avatars generated from a child’s image. And the FTC declined to amend the Rule to require companies disclose specifically the types of personal information collected, as well as details on how that personal information in particular is used, agreeing with commenters that “that level of detail could be superfluous.”[56]

D. An Uncertain Future

While the Commission vote approving the final COPPA Rule was unanimous, the future of the Rule remains uncertain. Former-Chair Lina Khan and then-incoming Chair Andrew Ferguson issued separate concurring statements about the Rule, and Commissioners Alvaro Bedoya and Rebecca Slaughter issued a joint concurring statement.

Former-Chair Khan’s concurring statement emphasized that these updates were long-awaited, especially given the dramatic rise in children’s smartphone and social media use since the Rule was last amended.[57] She characterized the updates as “complementing” the FTC’s enforcement efforts, potentially “boost[ing]” enforcement efforts by state attorneys general,[58] and welcoming Congress’ efforts to legislate in this area.[59]

In his concurring statement, Commissioner Ferguson characterized the amendments as “the culmination of a bipartisan effort initiated when President Trump was last in office” and voted to issue the final Rule because the amendments “contain several measures improving data privacy and security protections for children”–but he identified “three major problems” with the amendments.[60] He argued against the requirement that all new third-party data sharing should require a separate consent from parents, and against the prohibition on indefinite retention of data.[61] He also advocated for an exception for collecting children’s information for the limited purpose of age verification.[62] He was blunt in his critique that “these issues are the result of the Biden-Harris FTC’s frantic rush to finalize rules on their way out the door” and foreshadowed an intent to revisit the amendments in stating that “[t]he Commission under President Trump should address these issues and fix the mess that the outgoing majority leaves in its wake.”[63]

In their joint concurring statement, Commissioners Bedoya and Slaughter disagreed with Commissioner Ferguson regarding the prohibition against indefinite data retention, arguing such a requirement is necessary for companies that take the position that it is “reasonably necessary” to keep personal information indefinitely.[64]

E. FTC Enforcement Risks

Notwithstanding disagreement among Commissioners on certain details of the COPPA Rule amendments, companies can expect the FTC to continue to vigorously scrutinize data practices involving children. The FTC historically has focused its enforcement efforts on potential harms to children online, even where business practices are not subject to COPPA, under Section 5 of the FTC Act (Section 5). The FTC has also enforced against companies for violations of both COPPA and Section 5, often resulting in steep monetary penalties.

For example, in 2022, the FTC secured an agreement with Epic Games, Inc. (the creator of the video game Fortnite) to pay a record-breaking $520 million to settle allegations that Epic violated both COPPA and Section 5.[65] More recently, on January 17, 2025, another video game developer agreed to pay $20 million and make various product and other changes to settle FTC allegations that its practices related to loot boxes violated COPPA and Section 5[66]–although notably, Commissioners Ferguson and Holyoak dissented on three of four counts brought under Section 5.[67]

Further, some in Congress continue to push for federal legislation, including the Children and Teens’ Online Privacy Protection Act (COPPA 2.0),[68] which would extend the application of COPPA to youth under 16, ban targeted advertising to minors, and place more responsibility on companies to ensure children’s online safety. Senator Markey, the author of the bill and an author of COPPA, noted in a statement applauding the updated COPPA Rule that “Congress must still pass [COPPA 2.0] to extend these protections to teenagers, block targeted advertising to kids and teens, and give young people an eraser button to delete their personal information.”[69]

F. Additional Youth Privacy and Safety Developments and Enforcement Risks

These federal changes reflect a broader trend toward enhancing privacy and safety protections for children. Various U.S. states and jurisdictions worldwide are also increasingly focused on children and youth, implementing laws and taking actions under existing laws against companies with a substantial youth user base.

a. State Youth Laws and Enforcement

State lawmakers have made clear that protecting children’s online privacy and safety is a top priority, including by amending omnibus state privacy laws to include youth-specific provisions, enacting broader “age-appropriate design” laws applicable to any online service “reasonably likely to be accessed by children,” and enacting social media-specific laws requiring enhanced protections and often parental consent to children under 18 who use social media services. Many of these laws have been challenged successfully on First Amendment and other grounds, but other laws are spawning aggressive enforcement.

Among these state laws are Texas’ Securing Children Online Through Parental Empowerment Act (SCOPE Act), the majority of which came into effect on September 1, 2024,[70] and the California Protecting Our Kids from Social Media Addiction Act, only parts of which are currently set to take effect on March 6, 2025.[71] The Texas SCOPE Act takes a restrictive approach to collection and use of children’s data, while the California law is the first aiming to protect children from social media “addiction.” Both laws are shaping the youth legal landscape, setting templates for other states to follow, but the California law is currently being challenged, and we anticipate continued constitutional challenges asserting that other such laws restrict expressive speech. Even so, regulators are not slowing down their efforts pending these challenges.

For example, in October 2024–just one month after the Texas SCOPE Act came into effect–the Texas Attorney General’s Office announced its first action under the law seeking up to $10,000 per violation.[72] The Texas Attorney General’s Office also recently announced the launch of investigations into over a dozen companies in connection with the SCOPE Act and Texas’ omnibus privacy law that includes youth-specific provisions.[73]

Enforcement authorities also have sought to hold companies liable for alleged online harms to children under general state consumer protection laws prohibiting unfair and deceptive practices, which are not subject to the same constitutional concerns. Additionally, parents and families of children, as well as school districts, have similarly leveraged general consumer protection and other laws to pursue claims against online companies relating to purported youth harms, resulting in extensive multidistrict and class action litigation in this area.

b. Global Focus on Youth Privacy and Safety

Global lawmakers and regulators are also focused on youth privacy and safety online. Omnibus privacy laws outside the U.S. do not accord special treatment to children’s data, but some contain some similar restrictions to COPPA, such as requiring parental consent to process children’s data (e.g., the European Union (EU)’s General Data Protection Regulation) or prohibiting online platforms from targeting ads to children under 18 (e.g., the EU’s Digital Services Act (DSA), a sweeping EU regulation). As in the U.S., there is a similar global trend towards more prescriptive and aggressive laws concerning youth online activity.

For example, under the DSA, in-scope platforms can be fined up to 6% of global annual turnover by the European Commission (EC), which is the primary enforcing authority, for failing to conduct required risk assessments considering the impact of new features and service on harm to minors, among other concerns. The EC has already requested information from, and in some instances launched investigations into several companies in connection with, the collection and use of minors’ data under the DSA.[74] Similarly in the UK, Ofcom has been appointed to enforce the UK Online Safety Act (OSA) and has published drafts for consultation and finalized versions of its mandatory Codes of Practice. In addition, in recent years, many EU privacy regulators have been focused on enforcing against companies whose services can be accessed by children, and the UK Information Commissioner’s Office steadily continues to enforce its Children Code, also known as its Age Appropriate Design Code, which it published in 2020. And in APAC, Australia recently took steps to ban youth under the age of 16 from creating social media accounts–although implementing regulations have yet to be published.[75]

These laws underscore the challenges global companies will face in restructuring their compliance plans within tight timeframes.

The privacy and safety of children online are top concerns for the FTC, other enforcement authorities, lawmakers, and families worldwide. To that end, companies that conduct business online should take care to assess their legal obligations and practical risks under the amended COPPA Rule, as well as under youth-related laws across jurisdictions, given increased regulatory attention to child-directed services and features under an expanding landscape of child-focused regulation.

Again, Gibson Dunn has extensive experience advising multinational companies operating online services on a wide variety of regulatory and law enforcement investigation, enforcement, strategic counseling, litigation, and appellate matters relating to child and teen privacy and safety. We are closely monitoring developments within the youth legal landscape, and we are available to discuss these issues as applied to your particular situation.

[1] Press Release, Fed. Trade Comm’n, FTC Finalizes Changes to Children’s Privacy Rule Limiting Companies’ Ability to Monetize Kids’ Data (Jan. 16, 2025), https://www.ftc.gov/news-events/news/press-releases/2025/01/ftc-finalizes-changes-childrens-privacy-rule-limiting-companies-ability-monetize-kids-data; see also Fed. Trade Comm’n, Children’s Online Privacy Protection Rule, Final Rule Amendments (Jan. 16, 2025), https://www.ftc.gov/system/files/ftc_gov/pdf/coppa_sbp_1.16_0.pdf.

[2] Children’s Online Privacy Protection Rule, 89 Fed. Reg. 2034 (proposed Jan.11, 2024) (to be codified at 16 C.F.R. pt. 312).

[3] Press Release, Fed. Trade Comm’n, FTC Seeks Comments on Children’s Online Privacy Protection Act Rule (July 25, 2019), https://www.ftc.gov/news-events/news/press-releases/2019/07/ftc-seeks-comments-childrens-online-privacy-protection-act-rule.

[4] Children’s Online Privacy Protection Rule, supra note 1, at 1.

[5] On January 20, 2025, President Trump issued an order imposing a regulatory freeze on all executive agencies. See White House, Regulatory Freeze Pending Review (Jan. 20, 2025), https://www.whitehouse.gov/presidential-actions/2025/01/regulatory-freeze-pending-review/. While the extent to which independent agencies like the FTC are subject to the order may be subject to litigation, the presidential memorandum signals skepticism regarding actions taken by such agencies in the final days of the Biden administration. The FTC may choose to take steps consistent with Section 2 of the memorandum, which would involve withdrawal of the final COPPA Rule for review by a Republican majority (which, if re-approved, would then be sent to the federal register for publication). Accordingly, the publication in the federal register and implementation of the COPPA Rule should be monitored, as it could be subject to other actions taken to delay or revoke it, such as through the Congressional Review Act. See 5 U.S.C. §§ 801 et seq.

[6] See Andrew N. Ferguson, Comm’r, Fed. Trade Comm’n, Concurring Statement of Commissioner Andrew N. Ferguson COPPA Rule Amendments Matter Number P195404 (Jan. 16, 2025), https://www.ftc.gov/system/files/ftc_gov/pdf/ferguson-coppa-concurrence-revised.pdf.

[7] See Adjustments to Civil Penalty Amounts, 90 Fed. Reg. 5580 (Jan. 17, 2025) (to be codified at 16 C.F.R. pt. 1). The FTC annually adjusts the civil penalty amount applicable to COPPA violations based on inflation, pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. See Press Release, Fed. Trade Comm’n, FTC Publishes Inflation-Adjusted Civil Penalty Amounts for 2024 (Jan. 11, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/01/ftc-publishes-inflation-adjusted-civil-penalty-amounts-2024?utm_source=govdelivery. Accordingly, civil penalty violation amounts will rise in future years.

[8] See, e.g., S.2073, Kids Online Safety and Privacy Act, 118th Cong. (as passed by Senate, July, 30, 2024).

[9] Fed. Trade Comm’n, Complying with COPPA: Frequently Asked Questions (Jan. 2024), https://www.ftc.gov/business-guidance/resources/complying-coppa-frequently-asked-questions.

[10] Id.

[11] 16 C.F.R. §§ 312.4 – 312.5. All citations to the COPPA Rule are to the COPPA Rule as amended, unless otherwise stated.

[12] Id. at § 312.6.

[13] Id. at § 312.8.

[14] Id. at § 312.10.

[15] Id. at § 312.2.

[16] Children’s Online Privacy Protection Rule, supra note 1, at 9-10.

[17] 16 C.F.R. § 312.2; Complying with COPPA: Frequently Asked Questions, supra note 10.

[18] Children’s Online Privacy Protection Rule, supra note 1, at 8.

[19] Id. at 9.

[20] 16 C.F.R.§ 312.2. Examples of biometric data include “fingerprints; handprints; retina patterns; iris patterns; genetic data, including a DNA sequence; voiceprints; gait patterns; facial templates; or faceprints.”

[21] Id. at § 312.4(c)(1)(iii).

[22] Id. at § 312.4(c)(1)(iv).

[23] Id. at §§ 312.4(a) – (c)(1).

[24] Id. at § 312.4(d).

[25] Id. at § 312.4(d)(2).

[26] Id. at § 312.4(d)(3).

[27] Id. at § 312.4(d)(4).

[28] Id. at § 312.4(d)(2).

[29] Id. at § 312.5(a)(1).

[30] Id. at § 312.5(b)(2)(ii).

[31] Id. at § 312.5(b)(2)(vi)

[32] Id. at § 312.5(b)(2)(vii).

[33] Id. at § 312.5(b)(2)(ix). See also id. at § 312.2 (modifying the definition of “online contact information” to include a “mobile telephone number” in order to “give [companies] another way to initiate the process of seeking parental consent quickly and effectively.” Children’s Online Privacy Protection Rule, supra note 1, at 16).

[34] 16 C.F.R. § 312.5(c)(9).

[35] See, e.g., 106. Fed. Trade Comm’n, Enforcement Policy Statement Regarding the Applicability of the COPPA Rule to the Collection and Use of Voice Recordings (Oct. 20, 2017), https://www.ftc.gov/system/files/documents/public_statements/1266473/coppa_policy_statement_audiorecordings.pdf.

[36] 16 C.F.R. § 312.5(c)(9).

[37] Id. at § 312.5(a)(2); Children’s Online Privacy Protection Rule, supra note 1, at 106.

[38] 16 C.F.R. § 312.5(a)(2).

[39] Id. at § 312.10.

[40] Id.

[41] Id.

[42] Id.

[43] Id. at § 312.8(a).

[44] Id. at § 312.8(b).

[45] Id. at § 312.8(b)(1)-(3).

[46] Id. at § 312.8(c).

[47] Children’s Online Privacy Protection Rule, supra note 1, at 159. See generally 16 C.F.R. § 312.11.

[48] 16 C.F.R. § 312.11(g).

[49] Id. at § 312.5(c)(4).

[50] Children’s Online Privacy Protection Rule, supra note 1, at 116.

[51] Id. at 118-19. The American Civil Liberties Union argued the proposal was inconsistent with the COPPA statute given the statute states regulations “shall” permit operators to respond “more than once directly to a specific request from a child” when parents are provided notice and an opportunity to opt out. Id. at 117-18.

[52] Id. at 3-4. See also Complying with COPPA: Frequently Asked Questions, supra note 10, Section N.

[53] Children’s Online Privacy Protection Rule, supra note 1, at 4.

[54] Id.

[55] Id. at 56-61.

[56] Id. at 88-89.

[57] Lina M. Khan, Chair, Fed. Trade Comm’n, Statement of Chair Lina M. Khan Regarding the Final Rule Amending the Children’s Online Privacy Protection Rule Commission File No. P195404 (Jan. 16, 2025), https://www.ftc.gov/system/files/ftc_gov/pdf/statement-of-chair-lina-m-khan-re-coppa-amendments-1-16-2025.pdf.

[58] Id. at 1.

[59] Id. at 4.

[60] Andrew N. Ferguson, Comm’r, Fed. Trade Comm’n, Concurring Statement of Commissioner Andrew N. Ferguson COPPA Rule Amendments Matter Number P195404 (Jan. 16, 2025), https://www.ftc.gov/system/files/ftc_gov/pdf/ferguson-coppa-concurrence-revised.pdf.

[61] Id. at 1-3.

[62] Id. at 3.

[63] Id.

[64] Alvaro M. Bedoya, Comm’r, Fed. Trade Comm’n, Statement of Commissioner Alvaro M. Bedoya Joined by Commissioner Rebecca Kelly Slaughter Notice of Final Rulemaking to Update the Children’s Online Privacy Protection Rule (COPPA Rule) (Jan. 16, 2025), https://www.ftc.gov/system/files/ftc_gov/pdf/bedoya-coppa-statement-2025-01-16.pdf.

[65] Press Release, Fed. Trade Comm’n, Fortnite Video Game Maker Epic Games to Pay More Than Half a Billion Dollars over FTC Allegations of Privacy Violations and Unwanted Charges (Dec. 19, 2022), https://www.ftc.gov/news-events/news/press-releases/2022/12/fortnite-video-game-maker-epic-games-pay-more-half-billion-dollars-over-ftc-allegations.

[66] Press Release, Fed. Trade Comm’n, Genshin Impact Game Developer Will be Banned from Selling Lootboxes to Teens Under 16 without Parental Consent, Pay a $20 Million Fine to Settle FTC Charges (Jan. 17, 2025), https://www.ftc.gov/news-events/news/press-releases/2025/01/genshin-impact-game-developer-will-be-banned-selling-lootboxes-teens-under-16-without-parental.

[67] Andrew N. Ferguson, Comm’r, Fed. Trade Comm’n, Statement of Commissioner Andrew N. Ferguson Concurring in Part and Dissenting in Part In the Matter of Cognosphere, LLC, (Jan. 17, 2025), https://www.ftc.gov/system/files/ftc_gov/pdf/ferguson-cognosphere-concurrence.pdf.

[68] In September 2024, the House Energy and Commerce Committee passed COPPA 2.0 by a voice vote. In July 2024, the U.S. Senate passed the Kids Online Safety and Privacy Act, which included COPPA 2.0, by a 91-3 vote. In July 2023, the Senate Commerce, Science, and Transportation Committee unanimously passed COPPA 2.0. See Press Release, Ed Markey, Sen. of Mass., Senator Markey Celebrates FTC’s Update to Children’s Online Privacy Rule, (Jan. 16, 2025), https://www.markey.senate.gov/news/press-releases/senator-markey-celebrates-ftcs-update-to-childrens-online-privacy-rule.

[69] Id.

[70] See Securing Children Online through Parental Empowerment (SCOPE) Act, H.B. 18, 88th Leg., R.S. (2023).

[71] See Protecting Our Kids from Social Media Addiction Act, S.B. 976, 88th Leg. (2024).

[72] See Press Release, Ken Paxton, Att’y Gen. of Tex., Attor­ney Gen­er­al Ken Pax­ton Sues Tik­Tok for Shar­ing Minors’ Per­son­al Data In Vio­la­tion of Texas Parental Con­sent Law (Oct. 3, 2024), https://www.texasattorneygeneral.gov/news/releases/attorney-general-ken-paxton-sues-tiktok-sharing-minors-personal-data-violation-texas-parental.

[73] See Press Release, Ken Paxton, Att’y Gen. of Tex., Attor­ney Gen­er­al Ken Pax­ton Launch­es Inves­ti­ga­tions into Character.AI, Red­dit, Insta­gram, Dis­cord, and Oth­er Com­pa­nies over Children’s Pri­va­cy and Safe­ty Prac­tices as Texas Leads the Nation in Data Pri­va­cy Enforcement (Dec. 12, 2024), https://www.texasattorneygeneral.gov/news/releases/attorney-general-ken-paxton-launches-investigations-characterai-reddit-instagram-discord-and-other.

[74] See Press Release, Eur. Comm’n, Commission opens formal proceedings against Meta under the Digital Services Act related to the protection of minors on Facebook and Instagram (May 15, 2024), (IP/24/2664); see also Press Release, Eur. Comm’n, Commission opens formal proceedings against TikTok under the Digital Services Act (Feb. 18, 2024), (IP/24/926).

[75] Press Release, Austl. eSafety Comm’r, Social Media Age Restrictions (Dec. 20, 2024), https://www.esafety.gov.au/about-us/industry-regulation/social-media-age-restrictions.

The following Gibson Dunn lawyers prepared this update: Ashley Rogers, Ryan T. Bergsieker, Natalie Hausknecht, Vivek Mohan, Lore Leitner, Ashlie Beringer, Svetlana Gans, Alexus Leach, Nick Carey, Samantha Abrams-Widdicombe, Amy Shao, and Jayee Malwankar.

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:

United States:
Ashlie Beringer – Co-Chair, Palo Alto (+1 650.849.5327, aberinger@gibsondunn.com)
Ryan T. Bergsieker – Denver (+1 303.298.5774, rbergsieker@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 – Co-Chair, Washington, D.C. (+1 202.955.8505, jhorvath@gibsondunn.com)
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Rosemarie T. Ring – Co-Chair, 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)
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Debra Wong Yang – Los Angeles (+1 213.229.7472, dwongyang@gibsondunn.com)

Europe:
Ahmed Baladi – Co-Chair, Paris (+33 (0) 1 56 43 13 00, abaladi@gibsondunn.com)
Kai Gesing – Munich (+49 89 189 33-180, kgesing@gibsondunn.com)
Joel Harrison – Co-Chair, London (+44 20 7071 4289, jharrison@gibsondunn.com)
Lore Leitner – London (+44 20 7071 4987, lleitner@gibsondunn.com)
Vera Lukic – Paris (+33 (0) 1 56 43 13 00, vlukic@gibsondunn.com)
Lars Petersen – Frankfurt/Riyadh (+49 69 247 411 525, lpetersen@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)

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

Key Developments

On January 20, President Trump issued an executive order titled “Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government,” which defines “sex” as “an individual’s immutable biological classification as either male or female” and directs federal agencies to “enforce laws governing sex-based rights, protections, opportunities, and accommodations to protect men and women as biologically distinct sexes.” The order also directs federal agencies to ensure that funds awarded via federal grants do not promote “gender ideology,” a term it defines to include “the idea that there is a vast spectrum of genders that are disconnected from one’s sex” and that “replaces the biological category of sex with an ever-shifting concept of self-assessed gender identity.” More information on this executive order can be found in our January 21, 2025 client alert.

Also on January 20, President Trump issued an executive order titled “Ending Radical and Wasteful Government DEI Programs And Preferencing,” which directs the termination of all DEI programs, policies, and activities in the federal government, including for federal contractors and grantees, and directs the termination of “equity-related” grants or contracts. The order also directs agencies to create a list of all federal contractors who have provided DEI trainings to federal employees and federal grant recipients who received grants to “provide or advance DEI, DEIA, or ‘environmental justice’ programs, services, or activities since January 20, 2021.” More information on this executive order can be found in our January 21, 2025 client alert.

On January 21, President Trump issued an executive order titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” The order rescinds several executive actions issued by prior administrations, including Executive Order 11246, which imposed affirmative action obligations on federal contractors in addition to non-discrimination requirements. Federal contracts and grants must now include (1) a clause requiring the recipient to agree that compliance “with applicable Federal anti-discrimination laws” is a “material” term of the contract or grant, and (2) a certification that the contractor or grant recipient “does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.” The order also directs agency heads to submit to the White House within 120 days recommendations for enforcing federal civil-rights laws and encouraging the private sector to end “illegal discrimination and preferences, including DEI.” Agencies must identify “up to nine” large companies or non-profits for “potential civil compliance investigations.” More information on this executive order can be found in our January 22, 2025 client alert.

Also on January 21, President Trump issued an Executive Order titled “Keeping Americans Safe in Aviation.” The order directs the Secretary of Transportation and the Federal Aviation Administrator to “immediately return to non-discriminatory” and “merit-based hiring.” The order rescinds any previous DEI initiatives by the Federal Aviation Administration “in favor of hiring, promoting, and otherwise treating employees on the basis of individual capacity, competence, achievement, and dedication.” The Secretary of Transportation and the Federal Aviation Administrator are instructed to review “past performance and performance standards of all individuals in critical safety positions” and to replace individuals who fall below those standards.

On January 21, President Trump named Commissioner Andrea R. Lucas as Acting Chair of the EEOC. Lucas, previously an attorney at Gibson Dunn, has served as an EEOC Commissioner since 2020. She is the EEOC’s only current Republican appointee. Upon her appointment, Acting Chair Lucas stated, “Consistent with the President’s Executive Orders and priorities, my priorities will include rooting out unlawful DEI-motivated race and sex discrimination; protecting American workers from anti-American national origin discrimination; defending the biological and binary reality of sex and related rights, including women’s rights to single‑sex spaces at work; protecting workers from religious bias and harassment, including antisemitism; and remedying other areas of recent under-enforcement.” In the past three years, Lucas has initiated 38 commissioner charges, more than any other commissioner.

On January 23, Texas Attorney General Ken Paxton and nine other State Attorneys General issued a letter to financial institutions including BlackRock, Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America, and Citigroup, warning that their DEI and ESG commitments could lead to enforcement actions if found to violate legal, contractual, or fiduciary obligations. The Attorneys General stated they would extend to each financial institution “an opportunity to avoid a lengthy enforcement action” by responding to thirty-five questions related to the institutions’ DEI and ESG efforts. The Attorneys General expressed concern that the institutions “appear to have embraced race- and sex-based quotas and to have made business and investment decisions based not on maximizing shareholder and asset value, but in the furtherance of political agendas.”

On January 10, following a four-day bench trial, the U.S. District Court for the Northern District of Texas held that American Airlines violated ERISA by allowing its investment manager, BlackRock, to invest its employees’ 401(k) Plan in environmental, social, and governance (“ESG”) objectives, which the court defined to include companies’ efforts to “promot[e] racial and gender diversity, equity, and inclusion (‘DEI’) programs and hiring practices.” The court made detailed findings of fact about Blackrock’s ESG-related initiatives, American’s corporate ESG goals, and the relationship between the two companies—which the court described as “incestuous,” noting that Blackrock was one of American’s largest investors and had “financed approximately $400 million of American’s corporate debt at a time when American was experiencing financing difficulties.” The court concluded that, due to American’s non-pecuniary interest in ESG and its relationship with BlackRock, the company “failed to loyally investigate BlackRock’s ESG investment activities” and ensure its employees’ 401(k) Plan was invested in a manner that furthered their best financial interests. However, because the court concluded that American acted “according to prevailing industry practices,” it found no violation of the fiduciary duty of prudence occurred. The court requested further briefing on damages and remedies.

Media Coverage and Commentary:

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

• The New York Times, “The Cheat Sheet on Trump’s First Week” (January 25): Sarah Kessler of The New York Times DealBook writes that “President Trump made it clear his attacks on diversity, equity and inclusion programs won’t be restricted to the federal government,” and that “[i]n general, legal experts consider policies that provide opportunities or benefits to a specific group based on race or gender to be vulnerable” to challenge by the new administration. “Executives are anxious to find out which agencies will conduct investigations and enforcement actions, and what they may do to make examples out of target companies,” said Jason Schwartz, the labor and employment co-chair at Gibson Dunn. According to Kessler, the biggest question in boardrooms is which companies will be the first targets. Schwartz said checking the list of “woke companies” on the website of America First Legal, a Trump-aligned group, might be “a good starting place for hints.” 
• ABC News: ABC News anchor Linsey Davis interviews Gibson Dunn’s Jason Schwartz about the impact of President Trump’s executive orders. 
• Bloomberg, “Companies Parse What Makes a DEI Program Illegal Under Trump” (January 23): Clara Hudson, Isabel Gottlieb, and Andrew Ramonas of Bloomberg write that President Trump’s recent executive order targeting DEI “will further galvanize corporate diversity rollbacks” and “accelerate shifts” in how companies address diversity, including by prompting “more businesses to shut down their diversity teams or fold them into other areas of their operations.” Bloomberg reports that these rollbacks had already started, stating that “[w]hile much of corporate America has steadfastly pursued diversity initiatives,” many businesses have altered or eliminated diversity initiatives following “mounting conservative attacks” and the Supreme Court’s SFFA They report that many companies had renamed or rebranded their programs, but that President Trump’s recent order “aims to blunt” that strategy by calling out any diversity program “whether specifically denominated ‘DEI’ or otherwise.” The authors quote Gibson Dunn’s Jason Schwartz, who recommends that companies consider whether they can broaden the eligibility requirements for their DEI initiatives while still meeting program objectives. Schwartz says that corporate “goals remain the same”—to attract “the best talent from the broadest, most robust diverse pipeline.” 
• The Washington Post, “In first days, Trump deals ‘death blow’ to DEI and affirmative action” (January 23): Julian Mark, Taylor Telford, and Susan Svrluga of The Washington Post report on President Trump’s initial actions, which they describe as seeking to “eviscerate the surviving remnants of affirmative action” and put a “hard stop” to DEI initiatives in the federal government. They report on Trump’s actions in his first week in office, which include “order[ing] U.S.-run diversity offices to close and scores of their workers to [be] put on administrative leave,” and “suspend[ing] dozens of contracting programs aimed at minorities and women.” The article quotes the EEOC’s three Democratic members, who said that President Trump’s rescission of the 1965 executive order directing federal contractors to take “affirmative action” measures has removed “a source of protection” for “millions of Americans.” In reference to President Trump’s direction that the Attorney General and agency heads identify “nine potential civil compliance investigations” of large entities, including publicly traded corporations, large nonprofits, and universities with endowments over $1 billion, the article quotes Gibson Dunn’s Jason Schwartz, who describes the order as a direction to “find nine big whales and make examples of them.” The article also quotes Schwartz’s description of a provision in the order that may have been designed to create a basis for False Claims Act liability: “They are handing out sheriff’s badges to private citizens to sue about government contractor DEI programs,” Schwartz said. The article quotes Noah Feldman, a constitutional law professor at Harvard Law School, who says these actions indicate that President Trump is “testing the boundaries” of the Supreme Court’s affirmative action rulings and attempting to extend their reach from educational institutions into the private sector. According to Ricardo Mimbela, an ACLU spokesperson, the ACLU is “analyzing” the executive orders and assessing how to “protect people’s fundamental rights.”
• CBS News, “Group of Attorneys General Urge Walmart to Reconsider Ending DEI Initiatives” (January 14): CBS News’s Christian Olaniran reports on the January 9 letter to Walmart CEO Doug McMillon, sent by thirteen Democratic state attorneys general, expressing “concern regarding Walmart’s recent decision to step away from its commitments to diversity, equity, and inclusion.” The letter highlighted the company’s recent decisions to “phase out supplier diversity programs, close down the Center for Racial Equality, end training for staff, and remove the words ‘diversity’ and ‘DEI’ from company documents and employee titles.” The letter acknowledged that corporations have faced “anti-DEI pressure,” but argued that the “decision to jettison DEI initiatives is not required by law” and that companies with diverse leadership “overperform” compared to those without. Olaniran’s reporting also referenced recent changes in DEI policies at other companies, including McDonald’s and Meta.
• The Washington Post, “Target Becomes Latest Company to Roll Back DEI Programs” (January 24): Hannah Ziegler and Julian Mark of The Washington Post report on Target’s decision to scale back many of its DEI initiatives in the wake of “a tougher legal environment for those programs and new threats from the White House.” In a January 24 press release, the company stated that it intended to make several changes to its policies including, among other things, ending its three-year DEI goals, ceasing to participate in external diversity-focused surveys, ensuring its employee resource groups are open to all; and evolving its supplier diversity efforts. The company stated “[w]e remain focused on driving our business by creating a sense of belonging for our team, guests and communities through a commitment to inclusion.”

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:

• 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 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.
  • Latest update: The docket does not yet reflect that PayPal has been served.
• Do No Harm v. Pfizer, Inc., No. 23-15 (2nd Cir. 2022): On September 15, 2022, Do No Harm filed suit against Pfizer, alleging that Pfizer’s Breakthrough Fellowship Program unlawfully excludes white and Asian-American applicants on the basis of race in violation of federal and state laws. On December 16, 2022, the U.S. District Court for the Southern District of New York dismissed the case after finding Do No Harm lacked standing to seek a preliminary injunction when it “failed to identify a single injured member by name” who could demonstrate that they were willing and able to apply to the fellowship. On March 6, 2024, a panel of the Second Circuit upheld the dismissal. On March 20, 2024, Do No Harm filed a petition for rehearing.
  • Latest update: On January 10, 2025, the Second Circuit reversed the dismissal of Do No Harm’s lawsuit, concluding “that the district court applied the wrong standard in dismissing” Do No Harm’s case for lack of standing because “[t]he burden for establishing standing at the dismissal stage is lower” than that for a preliminary injunction. The Second Circuit remanded the case to the district court to assess standing “applying the standard applicable at the pleading stage.”
• Hierholzer v. Guzman, No. 24-1187 (4th Cir. 2025): In January 2023, Marty Hierholzer alleged that the Small Business Administration (SBA) discriminated on the basis of race when it denied his application to SBA’s 8(a) program. Through the 8(a) program, the SBA provides financial assistance to small businesses owned by “socially and economically disadvantaged individuals.” SBA regulations provide a rebuttable presumption of social disadvantage to members of certain racial groups and an opportunity for members of other groups to establish social disadvantage and 8(a) eligibility. Hierholzer is of Scottish and German descent. The U.S. District Court for the Eastern District of Virginia held that Heirholzer’s claims were moot after a separate district court ruling out of Tennessee enjoined the SBA from using the rebuttable presumption standard. The court also found Hierholzer lacked standing because he did not allege 8(a) eligibility and did not sufficiently plead economic or social disadvantage. Heirholzer appealed to the Fourth Circuit.
  • Latest update: On January 3, 2025, the Fourth Circuit held that the district court erred in treating Hierholzer’s claims as moot because the decision enjoining the SBA’s rebuttable presumption “has not resulted in a final judgment.” However, the Court found Hierholzer lacked standing because, even if the presumption were enjoined, Hierholzer failed to plausibly allege that he could satisfy other race neutral eligibility requirements for the program.

• Brooke Henderson, et al. v. Springfield R-12 School District, et al., No. 23-01374 (8th Cir. 2023): On August 18, 2021, two educators sued a Springfield, Missouri school district alleging that the district’s mandatory equity training violated their First Amendment rights. The educators claimed that the equity training constituted compelled speech, content and viewpoint discrimination, and an unconstitutional condition of employment. The at-issue Fall 2020 equity training included sessions on anti-bias, anti-racism, and white supremacy. On January 12, 2023, the district court granted the defendants’ motion for summary judgment. The plaintiffs appealed the decision to the U.S. Court of Appeals for the Eighth Circuit. Oral argument was held on February 15, 2024. Counsel for the plaintiffs argued that the training compelled educators to engage in political speech, while counsel for the defendants argued that the educators were not compelled because they did not face punishment. On September 13, 2024, a panel of the Eighth Circuit unanimously held that the plaintiffs’ fear of punishment was too speculative to constitute injury under the First Amendment and affirmed the decision below. On November 27, 2024, the Eighth Circuit granted a petition for rehearing en banc.
  • Latestupdate: On January 15, 2025, oral argument was held before the court en banc. Counsel for the plaintiffs argued that the equity training was compelled speech in violation of the First Amendment because silence was not an option—the training required the plaintiffs to take a stand or to face consequences in the form of being labelled unprofessional. Counsel for the defendants argued the plaintiffs would not face punishment if they stayed silent; the point of the training was merely to encourage discussion.

• American Alliance for Equal Rights v. McDonald’s Corporation et al., No. 3:25-cv-00050 (M.D. Tenn. 2025): On January 12, 2025, the American Alliance for Equal Rights (AAER) filed a complaint against McDonald’s and International Scholarship & Tuition Services, Inc. (ISTS), alleging that they operate a college scholarship program that “discriminates against high-schoolers based on their ethnicity,” in violation of § 1981. AAER alleges that the HACER scholarship program, which ISTS administers on McDonald’s behalf, “is open only to Hispanics.” AAER claims that the program “flatly” bars non-Hispanic students from applying “based on their ethnic heritage” and is therefore unlawful. AAER seeks declaratory and injunctive relief barring consideration of race, ethnicity, ancestry, or nationality in consideration of scholarship applications, as well as a preliminary injunction to stop the program from closing the application window for current applicants on February 6, 2025. Gibson Dunn represents McDonald’s in this action.
  • Latest update: McDonald’s deadline for responding to the motion for preliminary injunction is February 3, 2025.

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

• Do No Harm v. Gianforte, No. 6:24-cv-00024-BMM-KLD (D. Mont. 2024): On March 12, 2024, Do No Harm filed a complaint on behalf of “Member A,” a white female dermatologist in Montana, alleging that a Montana law requiring the governor to “take positive action to attain gender balance and proportional representation of minorities resident in Montana to the greatest extent possible” when making appointments to the twelve-member Medical Board violates the Equal Protection Clause. Do No Harm alleges that since ten seats are currently held by six women and four men, Montana law requires that the remaining two seats be filled by men, which would preclude Member A from holding the seat. On May 3, 2024, Governor Gianforte moved to dismiss the complaint for lack of subject matter jurisdiction, arguing that Do No Harm lacks standing because Member A has not applied for or been denied any position. Gianforte also argued that the plaintiff’s pre-enforcement challenge was not ripe because his administration does not interpret the statute as a quota. On May 24, 2024, Do No Harm filed an amended complaint, describing additional Members B, C, and D, who are each “qualified, ready, willing, and able to be appointed” to the board. On June 7, Gianforte moved to dismiss the amended complaint, arguing again that the pseudonymous members lacked standing and that the case still was not ripe because the statute imposed only reporting requirements regarding diversity, so it posed no threat to the new members.
  • Latest update: On January 10, 2025, Magistrate Judge De Soto recommended that the case be dismissed for lack of subject matter jurisdiction. Magistrate Judge De Soto found Do No Harm lacked standing because it did not allege “facts demonstrating that at least one Member is both ‘able and ready’ to apply for a Board seat in the reasonably foreseeable future.” For the same reasons, the Magistrate Judge found the case unripe.
• Do No Harm v. Edwards, No. 5:24-cv-16-JE-MLH (W.D. La. 2024): On January 4, 2024, Do No Harm sued then-Governor Edwards of Louisiana over a 2018 law requiring a certain number of “minority appointee[s]” to be appointed to the State Board of Medical Examiners. Do No Harm brought the challenge under the Equal Protection Clause and requested a permanent injunction against the law. On February 28, 2024, Governor Edwards answered the complaint, denying all allegations including allegations related to Do No Harm’s standing. On December 20, 2024, Governor Jeff Landry—who replaced Governor Edwards—moved to dismiss for lack of subject matter jurisdiction. He contended that, because he signed a declaration indicating that he does not intend to enforce the challenged law, the plaintiff’s claims are moot. Governor Landry also argued that the suit is barred by sovereign immunity.
  • Latest update: On January 10, 2025, Do No Harm filed an opposition to the motion to dismiss, asserting that Governor Landry’s declaration did not moot the case because the statute remains on the books and a “future governor will be bound to enforce the racially discriminatory aspects of [the law] regardless of Governor Landry’s declaration.”
• Simon et al. v. Kay Ivey, et al. 25-cv-00067 (N.D. Al. 2025): On January 14, 2025 three professors and three students within the University of Alabama system and the Alabama NAACP filed a complaint against Alabama Governor Kay Ivey and the University of Alabama Board of Trustees, alleging that Alabama Senate Bill 129, which bans DEI programs at state agencies, local boards of education, and public universities, violates the First and Fourteenth Amendments. The Alabama NAACP alleges that the law “censor[s] dissenting viewpoints” by limiting the teaching of and prohibiting the funding of student groups and school offices associated with “divisive concepts.” SB 129 covers several “divisive topics,” including that race, gender, or identity makes one “inherently superior or inferior,” that moral character is determined by race, color, religion, sex, ethnicity, or national origin, and “that fault, blame, or bias should be assigned to members of a race, color, religion, sex, ethnicity, or national origin, on the basis of race, color, religion, sex, ethnicity.” The plaintiffs allege that SB 129’s limitations constitute viewpoint discrimination in violation of the First Amendment, undercut their right to freedom of association, are void for vagueness, and violate the Equal Protection Clause by intentionally discriminating against Black people, “specifically Black students and Black educators, who are more likely to benefit from discussions on these topics.” Plaintiffs request that the law be declared unconstitutional and both preliminarily and permanently enjoined.
  • Latest update: The docket does not yet reflect that the defendants have been served.
• National Association of Scholars v. Granholm, 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 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.
  • Latest update: The docket does not yet reflect that the defendants have been served.

Legislation Updates:

• On January 23, Congressman Tom Tiffany (R-WI) introduced the Fairness, Anti-Discrimination and Individual Rights Act (H.R. 711), referred to as the “FAIR Act.” If enacted, the bill would prohibit intentional discrimination or preferential treatment on the basis of race, color, or national origin by the federal government or its agents with respect to “[any] Federal contract or subcontract[,] federal employment[,] or any other federally conducted program or activity.” In addition, the bill would prohibit the federal government from encouraging or requiring “preference” on the basis of race, color, or national origin. It defines “preference” to include any advantage such as “a quota, set-aside, numerical goal, timetable, or other numerical objective.” The bill’s prohibitions extend to state and private entities that receive federal aid, including educational institutions that receive federal funding. The bill also calls for an audit of all federal agencies and departments within six months of its enactment to ensure compliance, and it creates a private right of action for individuals who believe they were discriminated against.

The following Gibson Dunn attorneys assisted in preparing this client update: Jason Schwartz, Mylan Denerstein, Blaine Evanson, Molly Senger, Zakiyyah Salim-Williams, Zoë Klein, Cate McCaffrey, Jenna Voronov, Emma Eisendrath, Felicia Reyes, Allonna Nordhavn, Laura Wang, Maya Jeyendran, Kristen Durkan, Ashley Wilson, Lauren Meyer, Kameron Mitchell, Chelsea Clayton, Albert Le, Emma Wexler, Heather Skrabak, and Godard Solomon.

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

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

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

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

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

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

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

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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.

After months of speculation regarding the possible contours of the United States’ international trade policies under a second Trump administration, the President’s unprecedented flurry of initial executive actions was light on actual, immediate changes to U.S. trade policy.

As detailed below, with few exceptions, the actions have essentially set the stage for (and in some cases set up the legal structure for) future moves without yet implementing policy changes.

Five Key Themes

Despite the absence of formal policy changes, taken as a whole, the executive actions (which include policy memoranda, scores of legally binding executive orders (E.O.s), as well as press and formal statements) set out some broad themes that will likely guide President Trump and his administration as he pursues his trade agenda.  While many of these themes were present in his first term (and others echo former presidents, including the early twentieth century’s William McKinley), the actions taken so far indicate that his second term team is more sophisticated, knowledgeable of the federal bureaucracy, and capable of acting on these themes quickly and sustainably than was the team in place during the previous Trump administration.

First, as he indicated during the campaign, President Trump continues to see trade as a “zero sum game,” turning away from decades of broad bipartisan recognition of the benefits to the United States of free trade governed by U.S legislation and trade agreements intended to protect U.S. interests from unfair trade practices.  By focusing on the trade deficit as an irrefutable indication of American weakness (and foreign powers’ strength) and making broad statements to business elite that if they do not develop manufacturing in the United States they will face tariffs and other consequences, the Trump team has indicated little desire to find a middle ground on trade issues.  President Trump’s broader distrust of the multilateral trading system suggests the United States’ block against the World Trade Organization’s Appellate Body – which has been in place since Trump’s first term and has left the WTO essentially rudderless – is unlikely to be resolved in the near future.  Indeed, the President has asked for a review of all existing U.S. trade agreements, including the World Trade Organization Agreement on Government Procurement.

Second, the President will leverage trade for other policy goals far removed from trade.  While U.S. legislation has always made this the case with sanctions and export controls (which have clear national security goals often unrelated to trade), the Trump team has indicated a willingness to threaten countries with trade-related consequences if they do not invest in border security (Canada), increase defense spending (NATO states), comply with his immigration policies (Mexico and Colombia), and to potentially extract other geopolitical concessions (such as those involving Denmark/Greenland and Panama).  While this novel use of trade measures was apparent in his first term, President Trump now seems set to move even more forcefully and broadly in this regard during his second administration.

Third, the President appears to be gearing up for aggressive trade enforcement to make up for what he deems insufficient trade enforcement by the Biden administration.  His use of the pejorative description of “loopholes“ in describing current export controls provisions and his direction to his Executive branch to address such shortcomings indicates a potentially uniquely muscular approach that his trade-related senior staff – including Trade and Manufacturing Senior Counselor Peter Navarro, Commerce Secretary-nominee Howard Ludnick, Treasury Secretary-nominee Scott Bessent, and U.S. Trade Representative-nominee Jamieson Greer – have supported in their public statements and testimony. The President has also indicated that his administration will pursue very aggressive efforts in applying the antidumping and countervailing duty statutes, the most broadly applied U.S. “unfair trade” provisions.

Fourth, and related to aggressive enforcement, in many trade-related statements, the administration has spoken of a goal of expanding how the United States should “encourage” third country compliance with U.S. trade controls (such as export controls and sanctions).  This suggests a return to a key feature of President Trump’s first term – the use of unilateral trade measures directed against allies and competitors alike – and an imminent expansion of the United States’ extraterritorial trade enforcement.  Extraterritorial trade measures have always been both a critical force multiplier in furthering U.S. policy (such as secondary sanctions) while simultaneously being a source of increasing friction between the United States and other countries.  Unlike in the President’s first term, potential target countries have been preparing – in some cases for more than a year – to respond to these efforts and potentially institute retaliatory measures.  However, as in his first term, President Trump appears as yet unconcerned about any reprisals.

Fifth, President Trump appears set on using essentially unchecked executive authorities to pursue most of his trade agenda rather than rely on or wait for legislation.  In his first term President Trump primarily relied on a mix of existing statutory authorities that allowed limited congressional oversight (such as using legislation undergirding U.S. sanctions to quickly impose tariffs) alongside more traditional tools (such as the longstanding Section 301 and 232 trade statutes which require often lengthy investigations prior to the imposition of tariffs).  In this second Trump administration, however, it appears that the administration will rely more heavily on executive tools.  Given the Republican control of Congress, President Trump may not receive significant initial congressional pushback regarding any concerns that he may be overstepping his authority.  However, this approach is highly likely to result in immediate litigation that could result in judicially imposed limitations on these authorities (as aggrieved parties seek redress in the courts) and may well prompt congressional efforts to amend these authorities if the Republicans lose one or both houses of Congress in the 2026 midterm elections.

Top Takeaways from the “Week One” Executive Trade Actions

Please refer to Gibson Dunn’s “Executive Order Tracker” for a complete and current listing of all the E.O.s issued by the Trump White House in the initial days of his second term, as well as Gibson Dunn’s Regulatory Outlook for International Trade Following the 2024 Election which details the firm’s broader post-election assessment of where Trump trade policy might be headed.

The list below contains a short description and categorization of executive trade actions as well as links to more in-depth analyses Gibson Dunn has undertaken on several individual executive actions.

I. Tariffs (and More): Not Yet Announced, But Major Changes Are Likely Given the Broad Trade Review Ordered

Possible U.S. tariffs have been a core issue as a second Trump Presidency loomed.  Despite candidate Trump’s indications that tariffs would be a “day one” event, as of the publication date of this alert there has been no change to U.S. tariffs.  However, we note that this situation could change at any time, and President Trump has continued to threaten potential tariffs against China, the EU, Canada, Mexico, Colombia and others, indicating he may seek to impose (or at least announce) some tariffs as early as February 1, 2025.

Through week one, however, Trump’s main tariff-related measures were contained in his “America First Trade Policy” memorandum issued on January 20, 2025, in which he directed parts of the Executive branch, including the Departments of State, Treasury, Commerce and Defense, the U.S. Trade Representative, and various other offices and agencies, to review numerous aspects of the U.S. trade landscape for economic, national security and others risks, and by April 1, 2025, to report back with any findings and recommendations for remedial action.  The Policy notes that such proposals could include tariffs but also a host of other possible approaches.  Importantly this memorandum contains no legally binding changes to trade policy.

The memorandum is very broad, but key sections of the memorandum require investigations of many trade-related issues, including the following:

• The “causes of our country’s large United States annual trade deficit,” and (ominously) a recommendation of “appropriate measures, such as a global supplemental tariff”;
• Foreign unfair trade practices and currency manipulation;
• All existing U.S. trade agreements (including the United States-Mexico-Canada Agreement (USMCA)), as well as views on opportunities for new bilateral trade agreements;
• A deep dive on various aspects of the economic and trade relationship with China;
• Unlawful migration and fentanyl flows from Canada, Mexico, and the PRC;
• A “full economic and security review of the United States’ industrial and manufacturing base”;
• The U.S. import treatment of steel and aluminum;
• The feasibility of and recommendations for implementing an “External Revenue Service (ERS) to collect tariffs, duties, and other foreign trade-related revenues”; and
• The policies and regulations concerning the application of antidumping and countervailing duty (AD/CVD) laws.

In addition, the memorandum also calls for a wholesale reassessment of other major trade regulatory programs such as U.S. export controls, the rules covering U.S. outbound investment into China, and the recently announced rules regarding imports of “connected vehicles.”

II. Rescissions and Rule Moratorium

President Trump rescinded more than 70 E.O.s issued by previous administrations – including some that had been in place for decades.  He also declared a moratorium, pending further review by his appointees, on the issuance, proposal, or publication of any new regulatory rules.  Finally, he directed agencies to consider postponing for 60 days the effective date for any rules that have been published in the Federal Register or otherwise issued which have not taken effect.

While the freezing of such rules is not unusual for a new administration, the breadth of President Trump’s order (and our assessment that, due to vast policy differences between President Biden and President Trump, many such rules could in fact be radically altered) makes this an impactful (even if on its face technical) legally binding order.  As noted below, several of the rescission orders and rule moratoria have significant trade implications.

III. Broad Review Ordered, but Near-Term Uncertainty in Applicability of Certain U.S. Export Controls

President Trump’s America First Trade Policy memorandum describes trade policy as “a critical component to national security” that will be used to enhance the “industrial and technological advantages” of the United States, defend the United States’s “economic and national security,” and benefit “American workers, manufacturers, farmers, ranchers, entrepreneurs, and businesses.”  As part of this effort, the U.S. Secretaries of State and Commerce, in conjunction with other agency heads, are directed to “review the United States export control system and advise on modifications in light of developments involving strategic adversaries or geopolitical rivals as well as all other relevant national security and global considerations.”

What the Trump administration’s effort will ultimately entail is uncertain.  As a core question, it is unclear whether President Trump will continue the prior administration’s aggressive use of export controls to limit the abilities of geopolitical rivals to obtain access to and develop their own ability to manufacture technologies that are core to different emerging technologies such as the training of AI frontier models and quantum computing.

The memorandum specifically requires recommendations to “maintain, obtain, and enhance” the United States’ “technological edge” and to “identify and eliminate loopholes in existing export controls.”  These efforts are likely to focus on emerging technologies that pose a threat to national security, such as advanced semiconductors, quantum computing, connected devices, and other next generation technologies already under review by the Emerging Technology Division of the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and partner agencies.

In its final weeks in office, the Biden administration issued a significant number of export controls-focused regulations imposing wide-ranging restrictions on advanced chips, connected vehicles, artificial intelligence (AI) diffusion, and related emerging technologies.  Though many of these regulations were accompanied by delayed compliance dates, the extensive obligations they impose – including worldwide, quota-metered, licensing requirements on the export of computing power and on the frontier AI models that are trained using this computing power – raised concerns across various industries and prompted questions concerning implementation.

Questions remain as to whether these individual regulations will be amended, repealed, or postponed considering Trump’s rescission of various Biden E.O.s and the issuance of the rule moratorium.

Significantly, despite President Trump’s recission of President Biden’s E.O. 14110 on the “Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence,” and call for review of any actions thereunder, the Biden team’s Framework for Artificial Intelligence Diffusion regulations draw upon multiple additional authorities, including the Export Control Reform Act of 2018.  Consequently, the mere recission of E.O. 14110 is unlikely to singlehandedly spell the end of the proposed AI diffusion controls.

Moreover, the express policy drivers for the AI Diffusion Rule appear aligned with President Trump’s mandate to eliminate his perceived “loopholes” in U.S. export controls that may have enabled geopolitical rivals of the United States to obtain access to the computing power required to train AI models and his mandate to ensure that the United States maintains the technological edge in frontier AI model training.  Indeed, although Trump rescinded E.O. 14110, he also issued his own E.O. calling for several agencies to develop within 180 days a plan to “sustain and enhance America’s global AI dominance.”

What is even less clear, especially given President Trump’s willingness (and perhaps preference) to act unilaterally, is whether the Trump Administration will take steps to maintain the bespoke coalition of countries (core among them the Netherlands, Japan, and South Korea) that the Biden Administration created and which has been used to develop uniform controls on technologies that are foundational to the next generation of developments in frontier AI model training, quantum computing, and synthetic biology.

As the confirmation of President Trump’s political appointees progresses, we will gain a clearer picture of what the administration will prioritize in terms of export controls and related national security risks.  We assess that a focus on addressing emerging technologies that pose national security risks will likely be a throughline from the previous administration.  While President Trump will impose his own stamp on new and pending regulations, many of the geopolitical risks that shaped U.S. national security and technology policy during Trump’s first administration and Biden’s remain the same.

IV. Temporary Reprieve for TikTok

Reversing his hardline stance toward the popular social media company during his first term, President Trump directed the Attorney General not to take any action for 75 days to enforce the Protecting Americans from Foreign Adversary Controlled Applications Act (Pub. L. 118-50, div. H) which effectively banned the app in the United States on January 19, 2025, in order for his administration to confer with relevant stakeholders.  The first Trump administration E.O. banning TikTok was being challenged in U.S. courts at the time it was rescinded by the Biden administration in 2021.

Even so, and indicative of the uncertainty with which some in the business community have greeted some of the president’s pronouncements, despite the reprieve, as of the date of the memorandum, the availability of the TikTok app remains limited.

V. Economic Sanctions

Even as President Trump has stated his desire to use sanctions sparingly (and in one of his initial actions he even cancelled a sanctions program related to the West Bank), some of his initial actions and statements – including his Treasury nominee’s speaking of expanding sanctions on Russia during his confirmation hearings and President Trump’s threatening additional sanctions on Russian president Putin if he did not agree to negotiate an end to his war on Ukraine – suggest a likely continuation of his record-setting use of sanctions during his first term.

a. Potential (Re-)authorization of Sanctions Targeting the International Criminal Court

President Trump rescinded E.O. 14022, which had previously terminated E.O. 13928’s national emergency with respect to the International Criminal Court (ICC) and corresponding authorization of sanctions targeting the ICC’s personnel or persons determined to have provided material support to certain of its operations.  Importantly, no new sanctions were announced.

While it is unclear whether the rescission of E.O. 14022 equates to the reinstatement of E.O. 13928 – given the likely legal necessity that President Trump would have to redeclare the “national emergency” with respect to the Court, which is a prerequisite for such sanctions – additional action is likely necessary to reinstitute such sanctions.  While the absence of a newly promulgated emergency may be the basis for litigation if sanctions were to emerge now, not only could President Trump reissue an emergency with the stroke of a pen, but also the direction of travel against the ICC is clear.  This direction is supported by a Congress that has its own ICC sanctions bill that has passed the House and is awaiting Senate action – and which threatens the use of the very aggressive George W. Bush-era anti-ICC law, “Hague Invasion Act.”  The Trump administration is clearly no friend of the ICC and in the absence of any alteration in the Court’s policies and actions, we fully expect sanctions measures to be imposed against the Court and/or its various components, offices, and personnel.

b. Reinstatement of Cuba’s Designation as a State Sponsor of Terrorism

On January 20, President Trump reinstated Cuba’s designation as a State Sponsor of Terrorism (SST).  The Biden administration had rescinded Cuba’s designation as an SST less than a week earlier, pursuant to a Vatican-brokered agreement with the Cuban government.  Given the first Trump administration’s hawkish economic policy with respect to Cuba (the United States designated Cuba as an SST in the final days of the first Trump administration, on January 12, 2021), the reinstating of Cuba’s SST designation was broadly anticipated.

This action, coupled with the appointment of Senator Marco Rubio as Secretary of State, also presages further restrictive measures targeting Cuba.  As of this writing, the Treasury Department, Office of Foreign Assets Control’s (OFAC’s) May 2024 amendments to the Cuban Assets Control Regulations remain in effect (as do many aspects of President Obama’s broader easing of Cuba-related sanctions from his second term).  The new Trump administration may seek to roll back these and other accommodations toward Cuba.  This includes President Biden’s suspension of Title III of the Helms-Burton Act, which provides for private rights of action against parties deemed to be trafficking in formerly-U.S.- person owned property in Cuba that was nationalized under Castro.  During his first term, President Trump had revoked the suspension of that title, which had been in place under every administration since the act was passed in 1996 and led to a spate of lawsuits.  President Biden’s suspension meant that no new cases could be filed under Title III.  This is likely to change under the new administration.

Additionally, the Cuba Restricted List, initially implemented during the first Trump administration through National Security Presidential Memorandum 5 and later revoked by President Biden shortly before leaving office, may soon be reinstated.

c. Call for Addition of Drug Cartels to Terrorism Sanctions Lists

On January 20, President Trump signed an Executive Order paving the way for the designation of certain international cartels as Foreign Terrorist Organizations (FTO) and Specially Designated Global Terrorists (SDGT).  The order does not create any new blocked persons.  Rather, it directs the Secretary of State to “take all appropriate action” to identify cartels and other organizations described in the order within 14 days.  The order further directs the Attorney General and Secretary of Homeland Security to make “operational preparations” to implement any related invocations of the Alien Enemies Act, which is a controversial wartime power of the president to restrain and remove nonnaturalized persons within the United States who are “natives, citizens, denizens, or subjects of” a hostile nation.  Whether a president could use such powers during peacetime is virtually certain to raise judicial challenge.

The United States currently maintains the Counter Narcotics Trafficking Sanctions Program and regularly designates cartels, their members, and affiliates under various related authorities.  Indeed, all the largest cartels thought most likely to be the focus of this order are already sanctioned under these (and/or other) sanctions authorities maintained by OFAC.  Designating cartels and their affiliates as SDGTs would not alter their sanctioned status.

Adding the FTO designation would impose certain additional risks.  Specifically, designation as an FTO (1) renders representatives and members of the FTO, if they are not a U.S. citizen or U.S. national, inadmissible to the United States; (2) exposes persons subject to U.S. jurisdiction to criminal liability for knowingly providing “material support or resources” to the FTO; and (3) provides for certain private rights of action.  This E.O., therefore, is indicative of the President’s desire to use sanctions as a tool in furtherance of his immigration policy and in support of his border-related national emergency.  Some have already indicated that an FTO designation could implicate U.S. business interests in Mexico due to how integrated some of the cartels are into that country’s formal economy.

d. Potential Redesignation of Ansarallah as an FTO

On January 22, President Trump also issued an Executive Order that will put in motion the process to re-designate Ansarallah (also known as the Houthis) as an FTO by March 8, 2025.  Under the order, an FTO designation would take place at any point within a 15-day period (February 22 to March 8) that is set to follow a 30-day information-gathering period (January 23 to February 21).  Following Ansarallah’s designation as an FTO, the order further directs the Secretary of State and the Administrator of USAID to terminate any projects, grants, or contracts they identify as having involved entities that either made payments to Ansarallah and its affiliates or that “criticized international efforts to counter Ansar Allah while failing to document Ansar Allah’s abuses sufficiently.”

As noted in Gibson Dunn’s 2023 Year-End Sanctions and Export Controls Update, the Biden administration had previously designated Ansarallah as an SDGT—and de-listed the group as an FTO – principally due to concerns about the impact of the designation on humanitarian projects in Yemen.  Like the potential upcoming FTO designation, Ansarallah’s designation as an SDGT came with a 30-day delay.  However, unlike in the case of Ansarallah’s SDGT designation, OFAC has not yet issued general licenses or guidance that might provide NGOs comfort to continue providing lawful humanitarian assistance to the Yemeni people that may involve Ansarallah.  Given that an FTO designation carries more onerous restrictions than the SDGT designation, including possible criminal liability for parties that provide “material support” to such a group, there is a substantial risk that designating the Houthis as an FTO may once again deter humanitarian organizations from providing critical aid to the country.

VI. Pause of Foreign Aid

President Trump issued an Executive Order establishing a 90-day pause in U.S. foreign assistance pending “assessment of programmatic efficiencies and consistency with United State foreign policy.”  The policy applies to new obligations and disbursements of development assistance funds to foreign countries and implementing NGOs, international organizations, and contractors.  While it includes important carve outs for emergency food provisioning, the E.O. authorizes the Department of State, in consultation with the Office of Management and Budget (OMB), to issue guidelines for department and agency heads to review their respective foreign aid programs.

Practically, the pause is designed principally to review existing foreign aid programs (which does not necessarily imply their elimination and/or wind-down).  Still, the purpose of the policy freeze outlined in section 1 of the E.O. strongly suggests a shift toward a reconsidering of, and potentially an elimination or limiting of, certain foreign aid programs.  The U.S. government currently maintains foreign aid programs related to over 200 countries, valued in total at USD $68 billion, a substantial part of which is allocated to Ukraine.

VII. Possible Expansion of Outbound Investment Regime

The America First Trade Policy memorandum also calls for a review of the recently implemented program regulating outbound U.S. investments involving Chinese persons operating in certain high-tech sectors and activities effective as of January 2, 2025.  Specifically, the memorandum calls for a review of E.O. 14105, which provided the basis for the program as well as the final implementing rule.  Our previous client alert provided a detailed overview of this new regulatory regime.

Likely responding to congressional interest in legislation expanding the types of industries subject to the program’s control (and in line with the President’s clear preference to take control of the policy narrative by undertaking executive actions rather than being subjected to congressional mandates), the America First Trade Policy memorandum mandates the Department of the Treasury to assess whether the current controls in the outbound investment regulations are sufficient to address national security interests, and to make recommendations for any further modification by April 1, 2025.

The new outbound investment regime has already created significant compliance challenges as companies and financial institutions grapple with ways to implement and adjust policies, procedures, and corporate agreements to comply with the new rules and account for shifting legal and commercial risk profiles and appetites.  It is likely these compliance concerns will multiply post-April 2025.

The Gibson Dunn team is closely following these developments and will be publishing more analysis as the situation develops.  In the meantime, Gibson Dunn lawyers stand ready to answer any questions as companies and organizations navigate the new policy environment.

The following Gibson Dunn lawyers prepared this update: Adam M. Smith, Ronald Kirk, Donald Harrison, David Wolber, Christopher T. Timura, Stephenie Gosnell Handler, Samantha Sewall, Audi Syarief, Chris Mullen, Lindsay Wardlaw, Mason Gauch, Zach Kosbie, Karsten Ball, Hui Fang, and Soo-Min Chae.

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

United States:
Ronald Kirk – Co-Chair, Dallas (+1 214.698.3295, rkirk@gibsondunn.com)
Adam M. Smith – Co-Chair, Washington, D.C. (+1 202.887.3547, asmith@gibsondunn.com)
Stephenie Gosnell Handler – Washington, D.C. (+1 202.955.8510, shandler@gibsondunn.com)
Donald Harrison – Washington, D.C. (+1 202.955.8560, dharrison@gibsondunn.com)
Christopher T. Timura – Washington, D.C. (+1 202.887.3690, ctimura@gibsondunn.com)
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)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

Gibson Dunn is available to help clients understand what these and other expected policy changes will mean for them and how to navigate the shifting regulatory environment.

Within hours of his return to the Oval Office, President Donald Trump issued a flurry of executive actions to change how the federal workforce operates during his administration.

First, President Trump issued an executive order, “Restoring Accountability to Policy-Influencing Positions Within the Federal Workforce,” that aims to increase the effective oversight and streamline the removal and replacement of certain federal employees who hold “positions of a confidential, policy-determining, policy-making, or policy-advocating character.”  Generally, non-exempt civil service employees have procedural tools available to challenge and appeal their removal.  Monday’s order reinstates President Trump’s October 2020 executive order that sought to exempt certain federal employees from those civil service protections by designating them under “Schedule F,” a new classification for agency personnel in policy-making positions.  Former President Joe Biden rescinded the 2020 “Schedule F” executive order shortly after taking office.  And in April 2024, the Office of Personnel Management published a final rule explaining, among other things, that career civil servant protections are not lost by an involuntary move from a competitive service to excepted service position.  The April 2024 rule also interpreted the phrases indicating excepted service positions—i.e., “confidential, policy-determining, policy-making, or policy-advocating”—as applying only to noncareer political appointees, not “career employees.”  Departing from the prior administration’s approach, Monday’s order instructs the Director of the Office of Personnel Management to “amend the Civil Service Regulations to rescind all changes made by the final rule of April 9, 2024.”

Monday’s order also amends the 2020 reclassification order in several ways—most noticeably, the order now refers to the newly excepted class of employees as “Schedule Policy/Career” rather than “Schedule F.”  Despite this change in terminology, the substance remains largely the same.  Monday’s order targets “cases of career Federal employees resisting and undermining the policies and directives of their executive leadership.”  By excepting Schedule Policy/Career employees from those protections, Monday’s order seeks to make employees in “policy-influencing positions” directly “accountable to the President.”

It is currently unclear which federal positions will fall under the new classification.  The new order requires the Director of the Office of Personnel Management to “promptly recommend to the President which positions should be placed in Schedule Policy/Career,” and updates on that front should be available shortly.

The new order has already been challenged in court.  This week, the National Treasury Employees Union challenged the order in the United States District Court for the District of Columbia.   The suit claims that, in issuing the order, the President exceeded his statutory authority to prescribe rules for competitive service positions, infringed upon federal employees’ procedural due process rights, and violated the Administrative Procedure Act.

Second, President Trump issued an executive order seeking to reform the federal hiring process.  The order, “Reforming the Federal Hiring Process and Restoring Merit to Government Service,” directs the Assistant to the President for Domestic Policy within the next 120 days to “develop and send to agency heads a Federal Hiring Plan that brings to the Federal workforce only highly skilled Americans dedicated to the furtherance of American ideals, values, and interests.”  In developing that Federal Hiring Plan, the Assistant to the President for Domestic Policy must consult with the Director of the Office of Management and Budget, the Director of the Office of Personnel Management, and the Administrator of the Department of Government Efficiency.  Among other directives, the Federal Hiring Plan must: “prevent the hiring of individuals based on their race, sex, or religion, and prevent the hiring of individuals who are unwilling to defend the Constitution or to faithfully serve the Executive Branch”; “integrate modern technology to support the recruitment and selection process”; and “decrease government-wide time-to-hire to under 80 days.”

Notably, the executive order requires the Federal Hiring Plan to “include specific agency plans to improve the allocation of Senior Executive Service positions” in various agencies.  Senior Executive Service (SES) employees serve just below presidential appointees within federal agencies.  There are a limited number of SES positions in the federal government, and the executive order seeks to evaluate how the allocation of those positions “will best facilitate democratic leadership, as required by law, within each agency.”

Third, President Trump issued a memorandum focused on “Restoring Accountability for Career Senior Executives.”  The memorandum begins by emphasizing that the “President’s power to remove subordinates is a core part of the Executive power” and “because SES officials wield significant governmental authority, they must serve at the pleasure of the President.”  The memorandum directs, among other things, the Director of the Office of Personnel Management, in coordination with the Director of the Office of Management and Budget, “to issue SES Performance Plans that agencies must adopt.”  And consistent with the executive order described above, the memorandum directs “[e]ach agency head,” to the extent permitted by the relevant statute, to “reassign agency SES members to ensure their knowledge, skills, abilities, and mission assignments are optimally aligned to implement [the administration’s] agenda.”  Reports indicate that some agencies started reassigning senior career officials this week.

The memorandum also significantly changes Executive Resources Boards and Performance Review Boards within agencies.  Under 5 U.S.C. § 3393(b), agencies must establish Executive Resources Boards to conduct merit-based hiring for career SES officials.  And under 5 C.F.R. § 430.311, agencies must establish Performance Review Boards “to make recommendations to the appointing authority on the performance of its senior executives.”  President Trump’s memorandum directs “[e]ach agency head” to “terminate its existing Executive Resources Board (ERB), institute a new or interim ERB, and assign senior noncareer officials to chair and serve on the board as a majority alongside career members.”  Similarly, the memorandum directs “[e]ach agency head” to “terminate its existing Performance Review Board membership and re-constitute membership with individuals committed to full enforcement of SES performance evaluations that promote and assure an SES of the highest caliber.”

Fourth, President Trump issued a memorandum establishing a hiring freeze on federal civilian employees.  The freeze excludes “positions related to immigration enforcement, national security, or public safety.”  And the “the Director of the Office of Personnel Management (OPM) may grant exemptions from this freeze where those exemptions are otherwise necessary.”  No such exemption applied to law students who expected to begin working for the Department of Justice later this year.  Citing the federal hiring freeze, the Department of Justice recently rescinded the employment offers of students hired under the Attorney General’s Honors Program.

Within 90 days, “the Director of the Office of Management and Budget (OMB), in consultation with the Director of OPM and the Administrator of the United States DOGE Service (USDS),” must submit “a plan to reduce the size of the Federal Government’s workforce through efficiency improvements and attrition.”  The freeze will expire for most departments once OMB submits its plan.  However, the freeze will “remain in effect for the IRS until the Secretary of the Treasury, in consultation with the Director of OMB and the Administrator of USDS, determines that it is in the national interest to lift the freeze.”

Notably, the memorandum explains that “[c]ontracting outside the Federal Government to circumvent the intent of this memorandum is prohibited.”

Fifth, President Trump issued a memorandum directing federal departments and agencies “to terminate remote work arrangements and require employees to return to work in-person at their respective duty stations on a full-time basis.”  The memorandum explains that “department and agency heads shall make exemptions they deem necessary.”  And the memorandum recognizes that the directive to return to work in-person must be “implemented consistent with applicable law.”

Finally, President Trump issued an executive order “Establishing and Implementing the President’s ‘Department of Government Efficiency’“ also known as “DOGE.”  The executive order renames the United States Digital Service, which had previously provided consultation services to federal agencies on information technology, to the United States DOGE Service.  DOGE will be part of the Executive Office of the President, unlike its predecessor which was housed in the Office of Management and Budget.  As contemplated in some of the executive actions described above, DOGE will assist the administration in evaluating federal workforce issues and “modernizing Federal technology and software to maximize governmental efficiency and productivity.”  The order requires each executive agency to establish a “DOGE Team of at least four employees, which may include Special Government Employees, hired or assigned within thirty days of the date of this Order.”  DOGE Teams—typically comprised of “one DOGE Team Lead, one engineer, one human resources specialist, and one attorney”—will assist agency heads in increasing government efficiency.  In the past week, several lawsuits have been filed challenging the lawfulness of DOGE.

Gibson Dunn continues to monitor developments in this area.  Government contractors, federal grant recipients, and other private sector employers should consider reviewing their programs and contacts with federal employees to ensure compliance with evolving legal requirements.  Gibson Dunn is available to help clients understand what these and other expected policy changes will mean for them and how to comply with new requirements.

The following Gibson Dunn lawyers prepared this update: Michael Bopp, Stuart Delery, Matt Gregory, Andrew Kilberg, Tory Lauterbach, Andrew Barron, and Ariana Sañudo.

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 leader or member of the firm’s Public Policy, Administrative Law & Regulatory, Energy Regulation & Litigation, Labor & Employment, or Government Contracts practice groups, or the following in Washington, D.C.:

Michael D. Bopp – Co-Chair, Public Policy 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)

Matt Gregory – Partner, Administrative Law & Regulatory Practice Group,
(+1 202.887.3635, mgregory@gibsondunn.com)

Andrew G.I. Kilberg – Partner, Administrative Law & Regulatory Practice Group,
(+1 202.887.3759, akilberg@gibsondunn.com)

Tory Lauterbach – Partner, Energy Regulation & Litigation Practice Group,
(+1 202.955.8519, tlauterbach@gibsondunn.com)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

Gibson Dunn understands that the flurry of executive orders and other announcements from the White House during President Trump’s opening days is difficult to follow. To assist, we have taken on the assignment of cataloging and digesting each order as it is announced.

The Executive Order Tracker includes the executive orders and other significant announcements made by the Trump Administration to date. The list includes a summary of each order and announcement as well as information on the agencies involved and subject matters covered. It also includes links to more in-depth analyses Gibson Dunn has prepared on a number of the executive orders.

The Tracker will be updated promptly upon the issuance of new announcements and orders.

If you have questions about any of the executive orders, please do not hesitate to reach out to the Gibson Dunn lawyer with whom you usually work or the team below.

Please click on the link below to view Gibson Dunn’s complete Executive Order Tracker:

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The following Gibson Dunn lawyers assisted in preparing this update: Michael Bopp, Amanda Neely, Aaron Gyde, Maya Jeyendran, and Tate Rosenblatt.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the Executive Orders.  Please contact the Gibson Dunn lawyer with whom you usually work, any leader or member of the firm’s Public Policy, Administrative Law & Regulatory, or Energy Regulation & Litigation practice groups, or the following in Washington, D.C.:

Michael D. Bopp – Co-Chair, Public Policy 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)

Andrew G.I. Kilberg – Partner, Administrative Law & Regulatory Practice Group,
(+1 202.887.3759, akilberg@gibsondunn.com)

Tory Lauterbach – Partner, Energy Regulation & Litigation Practice Group,
(+1 202.955.8519, tlauterbach@gibsondunn.com)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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 announced that Commissioner Caroline D. Pham was unanimously elected as CFTC Acting Chairman and SEC Acting Chairman Uyeda announced the formation of a crypto task force.

New Developments

• Acting Chairman Pham Announces CFTC Leadership Changes. On January 22, Acting Chairman Pham announced the following CFTC leadership changes: Acting Chief of Staff: Harry Jung; Acting General Counsel: Meghan Tente; Acting Director of the Office of Public Affairs: Taylor Foy; Acting Director of the Office of Legislative and Intergovernmental Affairs: Nicholas Elliot; Acting Director of the Division of Market Oversight: Amanda Olear; Acting Director of the Division of Clearing and Risk: Richard Haynes; Acting Director of the Market Participants Division: Tom Smith; Acting Director of the Division of Enforcement: Brian Young; Acting Director of the Office of International Affairs: Mauricio Melara. [NEW]
• SEC Acting Chairman Uyeda Announces Formation of New Crypto Task Force. On January 21, SEC Acting Chairman Uyeda launched a crypto task force that, according to the SEC, is dedicated to developing a comprehensive and clear regulatory framework for crypto assets. Commissioner Hester Peirce will lead the task force. Richard Gabbert, Senior Advisor to the Acting Chairman, and Taylor Asher, Senior Policy Advisor to the Acting Chairman, will serve as the task force’s Chief of Staff and Chief Policy Advisor, respectively. The SEC said that the task force will collaborate with SEC staff and the public to set the SEC on a sensible regulatory path that respects the bounds of the law and that the task force’s focus will be to help the SEC draw clear regulatory lines, provide realistic paths to registration, craft sensible disclosure frameworks, and deploy enforcement resources judiciously. The Sec indicated that the task force will operate within the statutory framework provided by Congress, coordinate the provision of technical assistance to Congress as it makes changes to that framework, and coordinate with federal departments and agencies, including the CFTC, and state and international counterparts. [NEW]
• CFTC Names Caroline D. Pham Acting Chairman. On January 20, the CFTC announced the members of the Commission have unanimously elected Commissioner Caroline D. Pham as Acting Chairman, effective January 20, 2025. Acting Chairman Pham was nominated to be a CFTC Commissioner on January 12, 2022 and unanimously confirmed by the U.S. Senate on March 28, 2022, for a term beginning on April 14, 2022 and expiring on April 13, 2027. She succeeds Rostin Behnam, who served as Chairman since January 4, 2022 and will remain a Commissioner until his departure on February 7, 2025. On January 21, Acting Chairman Pham made the following statement: “I’m humbled and grateful to be entrusted by President Trump to lead the CFTC as we approach a significant milestone in our history with tremendous opportunities ahead. For the past half century, the CFTC has proudly served our mission to promote market integrity and liquidity in the commodity derivatives markets that are critical to the real economy and global trade—ensuring American growers, producers, merchants and other commercial end-users can mitigate risks to their business and support strong U.S. economic growth. As the CFTC celebrates our 50th anniversary, we must also refocus and change direction with new leadership to fulfill our statutory mandate to promote responsible innovation and fair competition in our markets that have continually evolved over the decades. It’s time for the CFTC to get back to the basics. I’m honored to work alongside our dedicated CFTC staff, and I thank former Chairman Behnam and my fellow Commissioners for their service.” [NEW]
• CFTC and the Bank of England Comment on Report on Initial Margin Transparency and Responsiveness in Centrally Cleared Markets. On January 15, the Basel Committee on Banking Supervision (“BCBS”), the Bank for International Settlements’ Committee on Payments and Market Infrastructures (“CPMI”) and the International Organization of Securities Commissions (“IOSCO”) published the final report Transparency and responsiveness of initial margin in centrally cleared markets – review and policy proposals and the accompanying cover note Consultation feedback and updated proposals. This report is the culmination of work undertaken by BCBS, CPMI, and IOSCO, co-chaired by the Bank of England and the Commodity Futures Trading Commission.
• CFTC Announces Review of Nadex Sports Contract Submissions. On January 14, the CFTC notified the North American Derivatives Exchange, Inc. (“Nadex”) d/b/a Crypto.com it will initiate a review of the two sports contracts that were self-certified and submitted to the CFTC on Dec. 19, 2024. As described in the submissions, the contracts are cash-settled, binary contracts. The CFTC determined the contracts may involve an activity enumerated in CFTC Regulation 40.11(a) and section 5c(c)(5)(C) of the Commodity Exchange Act. As required under CFTC Regulation 40.11(c)(1), the CFTC has requested that Nadex suspend any listing and trading of the two sports contracts during the review period.
• CFTC Announces Departure of Clearing and Risk Director Clark Hutchison. On January 15, the CFTC announced Division of Clearing and Risk Director Clark Hutchison will depart the agency Jan. 15. Mr. Hutchison has served as director since July 2019.
• CFTC Staff Issues Advisory Regarding the Compliance Date for Certain DCO Reporting Requirements. On January 10, the CFTC’s Division of Clearing and Risk (“DCR”) announced it issued a staff advisory regarding the compliance date for certain daily reporting requirements for registered derivatives clearing organizations (“DCOs”). The requirements were amended in August 2023. The compliance date for the amended requirements is February 10, 2025. According to the advisory, DCR will not expect any DCO to comply with the amended requirements until December 1, 2025, so long as the DCO continues to comply with the previous version of the requirements.
• CFTC Announces Departure of Enforcement Director Ian McGinley. On January 10, the CFTC announced that Division of Enforcement Director Ian McGinley will depart the agency on January 17, 2025. Mr. McGinley has served as Director of Enforcement since February 2023.
• Chairman Rostin Behnam Announces Departure from CFTC. On January 7, Chairman Rostin Behnam announced that he will be stepping down from his position as Chairman on January 20 and that his final day at the CFTC will be Friday, February 7.

New Developments Outside the U.S.

• New Governance Structure for Transition to T+1 Settlement Cycle Kicks Off. On January 22, the European Securities and Markets Authority (“ESMA”), the EU’s financial markets regulator and supervisor, the European Commission (“EC”) and the European Central bank (“ECB”) launched a new governance structure to support the transition to the T+1 settlement cycle in the European Union. Following ESMA’s report with recommendations on the shortening of the settlement cycle, the new governance structure has been designed to oversee and manage the operational, regulatory and technological aspects of this transition. Given the high level of interconnectedness within the EU capital market, a coordinated approach across the EU, involving authorities, market participants, financial market infrastructures and investors, is desirable. ESMA said that the key elements of the new governance model include an Industry Committee, composed of senior leaders and representatives from market players, several technical workstreams, operating under the Industry Committee, focusing on the technological operational adaptations needed in the areas concerned by the transition to T+1 (i.e. trading, matching, clearing, settlement, securities financing, funding and FX, asset management, corporate events, settlement efficiency), and two more general workstreams that will review the scope and the legal and regulatory aspects of these adaptations, and a Coordination Committee, chaired by ESMA and with representation from the EC, the ECB, ESMA and the chair of the Industry Committee, intended to ensure coordination between the authorities and the industry, advising on challenges that may arise during the transition. Additionally, ESMA said that the Commission is currently considering the merits of a legislative change mandating a potential transition to a shorter settlement cycle. [NEW]
• ESMA and the EC Publish Guidance on Non-MiCA Compliant ARTs and EMTs (Stablecoins). On January 17, ESMA published a statement reinforcing the position related to the offer of ARTs and EMTs (also known as stablecoins) in the EU under Market in Crypto Assets regulation (MiCA). The statement provides guidance on how and under which timeline CASPs are expected to comply with the requirements of Titles III and IV of MiCA, as clarified in the EC Q&A. In particular, National Competent Authorities are expected to ensure compliance by crypto assets services providers (“CASPs”) regarding non-compliant ARTs or EMTs as soon as possible, and no later than the end of Q1 2025. ESMA indicated that the statement is intended to facilitate coordinated actions at the national level and avoid potential disruptions. The EC has also delivered a Q&A, intended to provide guidance on the obligations contained in titles III and IV of MiCA and how these obligations should apply to CASPs. The Q&A clarifies that certain crypto-asset services may constitute an offer to the public or an admission to trading in the EU and should therefore comply with titles III and IV of MiCA. [NEW]
• The EBA and ESMA Analyze Recent Developments in Crypto-Assets. On January 16, ESMA and the European Banking Authority (“EBA”) published a Joint Report on recent developments in crypto-assets, analyzing decentralized finance (“DeFi”) and crypto lending, borrowing and staking. This publication is the EBA and ESMA’s contribution to the European Commission’s report to the European Parliament and Council under Article 142 of the Markets in Crypto-Assets Regulation. EBA and ESMA find that DeFi remains a niche phenomenon, with value locked in DeFi protocols representing 4% of all crypto-asset market value at the global level. The report also sets out that EU adoption of DeFi, while above the global average, is lower than other developed economies (e.g. the US, South Korea).
• BCBS, CPMI and IOSCO Publish Reports on Margin in Cleared and Non-cleared Markets. On January 15, BCBS, CPMI and IOSCO published three final reports on initial and variation margin in centrally cleared and non-centrally cleared markets. The three reports reflect feedback received further to the publication of consultation reports last year. BCBS, CPMI and IOSCO published the final report on transparency and responsiveness of initial margin in centrally cleared markets, setting out 10 final policy proposals relevant to central counterparties (“CCPs”) and clearing members. ISDA and the Institute of International Finance (IIF) submitted a joint response during the consultation. CPMI and IOSCO published the final report on streamlining variation margin in centrally cleared markets, setting out eight examples of effective practices for CCPs’ variation margin processes. ISDA and the IIF submitted a joint response during the consultation. BCBS and IOSCO published the final report on streamlining variation margin processes and initial margin responsiveness of margin models in non-centrally cleared markets, setting out eight recommendations. ISDA and the IIF submitted a joint response during the consultation. In relation to the BCBS, CPMI and IOSCO report on initial margin transparency and responsiveness in centrally cleared markets, the Bank of England and the CFTC have also published a joint statement expressing support for the findings and policy proposals. [NEW]
• EU Funds Continue to Reduce Costs. On January 14, ESMA published its seventh market report on the costs and performance of EU retail investment products, showing a decline in the costs of investing in key financial products. This report aims at facilitating increased participation of retail investors in capital markets by providing consistent EU-wide information on cost and performance of retail investment products.

New Industry-Led Developments

• ISDA Publishes Equity Definitions VE, Version 2.0. On January 21, ISDA published version 2.0 of the ISDA Equity Derivatives Definitions (Versionable Edition) on the MyLibrary platform. This publication includes, among other updates, provisions that can be used for documenting transactions with time-weighted average price or volume-weighted average price features, futures price valuation in respect of share transactions and benchmark provisions in respect of an index. [NEW]
• ISDA and GFXD Respond to FCA on Future of SI Regime. On January 10, ISDA and the Global Foreign Exchange Division (“GFXD”) of the Global Financial Markets Association (“GFMA”) responded to questions from the UK Financial Conduct Authority (“FCA”) on the future of the systematic internalizer (“SI”) regime. In the response, ISDA and GFXD support the proposal that firms are no longer required to identify themselves as SIs for derivatives trading and provide input on the consequences of this requirement falling away. ISDA and GFXD do not believe there will be any impact for reporting, best execution or on market structure.

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

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

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

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

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

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

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

Adam Lapidus  – New York (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)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

Recently proposed regulations provide that, for taxable years beginning after December 31, 2026, the definition of “covered employees” will be expanded to include a company’s next five highest compensated employees for each taxable year in addition to those employees that already fall into such definition, regardless of whether they are officers of the company.

Last amended in 2017, Section 162(m) of the Internal Revenue Code generally prohibits publicly held corporations from taking income tax deductions for annual compensation in excess of $1 million paid to the company’s “covered employees.”  Currently, “covered employees” include a company’s principal executive officer, principal financial officer, and three other most highly compensated executive officers determined based on total compensation required to be disclosed pursuant to Item 402 of Regulation S-K (thus, typically, the company’s “named executive officers” as disclosed in the company’s Form 10-K or annual proxy statement for the year). If a person is designated as a “covered employee” after December 31, 2016, the person remains a “covered employee” in perpetuity.

On January 14, 2025, the Internal Revenue Service and Treasury Department issued proposed regulations to implement statutory changes to Section 162(m) enacted by the American Rescue Plan Act of 2021. In implementing these changes, the proposed regulations provide that, for taxable years beginning after December 31, 2026, the definition of “covered employees” will be expanded to include the next five highest compensated employees for each taxable year, regardless of whether they are officers of the company. These additional highly compensated employees may change from year to year and will not remain “covered employees” in perpetuity.

• The proposed regulations clarify a few points in determining who qualifies as one of the next five highest compensated employees who make up these additional “covered employees.” Specifically, companies will need to consider all of their common law employees and officers, as well as employees and officers of any member of the company’s affiliated group. Employees for this purpose also include employees of related management entities or professional employer organizations who perform substantially all of their services during the taxable year for the publicly held corporation or members of its affiliated group.
• In ranking employees to determine who is the most highly compensated, companies must look at compensation that would be deductible in that tax year but for the application of Section 162(m). As a result, compensation that may be granted in 2025 or 2026 but that is includible in income and deductible by the company in 2027 will be counted for purposes of determining who is an additional “covered employee” for the 2027 tax year. This may have an immediate impact on companies’ annual compensation planning and how they account for tax for financial statement purposes.
• The five highest compensated employees for a given taxable year may include individuals who were already among the company’s covered employees by virtue of previously being a named executive officer for a prior taxable year.

The proposed regulations include several examples that provide guidance with respect to application of these changes.

In anticipation of the changes to Section 162(m), companies may wish to review their employee population (including employees of their affiliated group) and begin to track compensation to determine how these changes may affect the company’s group of “covered employees” for purposes of Section 162(m).  Special attention should be given to particularly large cash or equity awards that may vest or become payable in or after 2027.

The following Gibson Dunn lawyers assisted in preparing this update: Sean Feller, Krista Hanvey, Kate Napalkova, and Alli Balick.

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

Sean C. Feller – Los Angeles (+1 310.551.8746, sfeller@gibsondunn.com)
Krista Hanvey – Dallas (+1 214.698.3425, khanvey@gibsondunn.com)
Kate Napalkova – New York (+1 212.351.4048, enapalkova@gibsondunn.com)
Alli Balick – Los Angeles (+1 213.229.7685, abalick@gibsondunn.com)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

The U.S. Supreme Court has stayed a recent district court order that preliminarily enjoined enforcement of the Corporate Transparency Act (CTA).  While a separate district court ruling staying the effectiveness of the CTA’s beneficial ownership interest reporting rule (Reporting Rule) nationwide remains in effect, that stay could soon be lifted to conform with the Supreme Court’s decision. This means that the Reporting Rule could soon become enforceable once again while the Fifth Circuit and other courts evaluate its constitutionality.  In the meantime, FinCEN has acknowledged that the Reporting Rule currently remains unenforceable notwithstanding the Supreme Court’s decision.

Entities that believe they may be subject to the CTA and its associated Reporting Rule should closely monitor these issues, and consult with their CTA advisors as necessary, to understand their obligations now that the Reporting Rule may soon become effective again.  Entities may be required to file Beneficial Ownership Information reports on short notice.

For additional background information, please refer to our Client Alerts issued on December 5, December 9, December 16, December 24, and December 27, 2024.

On December 3, Judge Mazzant of the U.S. District Court for the Eastern District of Texas ruled that the CTA was likely unconstitutional.[1]  The court issued a nationwide preliminary injunction against enforcement of the CTA and postponed the effective date of the Reporting Rule that set filing deadlines for compliance.  The government appealed and briefly obtained a stay of the district court’s order from a Fifth Circuit motions panel, but the Fifth Circuit merits panel that will hear the government’s appeal in March reinstated the district court’s order, making the CTA unenforceable once again.

The government then filed an emergency application in the Supreme Court asking the Court to stay the district court’s order in full—in other words, to put on hold the district court’s nationwide preliminary injunction against CTA enforcement and its postponement of the Reporting Rule’s effective date.[2]

On January 23, 2025, the Supreme Court granted the government’s application in full, staying the district court’s order “pending the disposition of the appeal in the United States Court of Appeals for the Fifth Circuit and disposition of [any] petition for a writ of certiorari.”[3]  The Court’s decision was 8–1.  While the Court did not provide a written opinion, Justice Gorsuch filed a concurrence noting that he would take the case now to decide the propriety of “universal” injunctions.  Justice Jackson dissented, noting her view that the government had not shown that the Court’s intervention was necessary at this time, without expressing any view on the merits.

What the Latest Order Means for Entities Subject to the CTA

Now that the Supreme Court has stayed the district court’s order, the CTA will be enforceable while the case is appealed to the Fifth Circuit (and, potentially, to the Supreme Court).  The government’s reply brief in the Supreme Court indicated that if the Supreme Court stayed the district court’s order, FinCEN “would again briefly extend the [reporting] deadline in light of the injunction’s having been in effect,” similar to how FinCEN responded after the Fifth Circuit’s motions panel briefly reinstated the CTA in December.[4]  Companies should monitor FinCEN’s announcements closely for additional guidance now that the Supreme Court has granted the stay.

Notably, the Supreme Court’s order operates to stay only the order issued by the Northern District of Texas in the Texas Top Cop Shop case, No. 4:24–cv–478 (E.D. Tex.).[5]  All other lower court orders remain in effect, for now.  Importantly, on January 7, a different district court in Texas enjoined enforcement of the CTA as applied to the plaintiffs in that case and stayed the effective date of the Reporting Rule universally.[6]  The order in that case, Smith v. U.S. Department of the Treasury, remains in effect.  So for now, the Reporting Rule technically remains stayed.  But given the Supreme Court’s recent order staying the Top Cop Shop order, the government could obtain a similar stay of the district court’s order in Smith if the government requests that relief (or if the district court stays its order unilaterally) in light of the Supreme Court’s decision.  On January 24, FinCEN posted an update recognizing that a “separate nationwide order issued by a different federal judge” in the Smith case remains in effect, and noting that “[r]eporting companies also are not subject to liability if they fail to file this information while the Smith order remains in force.”[7]

In the meantime, it remains to be seen whether the government will take a new position on the CTA under the new Trump Administration.  Although the Department of Justice typically defends the constitutionality of statutes enacted by Congress, it is possible the new Administration will change positions and decline to enforce the CTA or take further steps to defend it.

Entities that believe they may be subject to the CTA and its associated Reporting Rule should closely monitor these issues, and consult with their CTA advisors as necessary, to understand their obligations now that the Reporting Rule may soon become effective again.  Entities may be required to file Beneficial Ownership Information reports on short notice.

[1]  Texas Top Cop Shop, Inc. et al. v. Garland et al., No. 4:24-CV-478, Dkt. 30 (E.D. Tex. Dec. 3, 2024).

[2] Application, Henry v. Top Cop Shop, Inc., No. 24A653 (U.S. Supreme Court Dec. 31, 2024).

[3] Order, Henry v. Top Cop Shop, Inc., No. 24A653 (U.S. Supreme Court Jan. 23, 2025).

[4] Reply at 15, Henry v. Top Cop Shop, Inc., No. 24A653 (U.S. Supreme Court Jan. 13, 2025).

[5] See Order, Henry v. Top Cop Shop, Inc., supra (“The December 5, 2024 amended order of the United States District Court for the Eastern District of Texas, case No. 4:24–cv–478, is stayed”).

[6] Smith v. U.S. Dep’t of Treasury, No. 6:24-cv-00336-JDK, Dkt. 30 at 33–34 (E.D. Tex. Jan. 7, 2025).

[7] https://fincen.gov/boi (Jan. 24, 2025).

The following Gibson Dunn lawyers assisted in preparing this update: Kevin Bettsteller, Stephanie Brooker, Matt Gregory, Justin Newman, Dave Ware, Shannon Errico, Sam Raymond, and Connor Mui.

Gibson Dunn has deep experience with issues relating to the Bank Secrecy Act, the Corporate Transparency Act, other AML and sanctions laws and regulations, and challenges to Congressional statutes and administrative regulations.

For assistance navigating white collar or regulatory enforcement issues, please contact the authors, the Gibson Dunn lawyer with whom you usually work, or any leader or member of the firm’s Anti-Money Laundering, Administrative Law & Regulatory, Investment Funds, Real Estate, or White Collar Defense & Investigations practice groups.

Please also feel free to contact any of the following practice group leaders and members and key CTA contacts:

Anti-Money Laundering:
Stephanie Brooker – Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)
M. Kendall Day – Washington, D.C. (+1 202.955.8220, kday@gibsondunn.com)
David Ware – Washington, D.C. (+1 202-887-3652, dware@gibsondunn.com)
Ella Capone – Washington, D.C. (+1 202.887.3511, ecapone@gibsondunn.com)
Sam Raymond – New York (+1 212.351.2499, sraymond@gibsondunn.com)

Administrative Law and Regulatory:
Stuart F. Delery – Washington, D.C. (+1 202.955.8515, sdelery@gibsondunn.com)
Eugene Scalia – Washington, D.C. (+1 202.955.8673, dforrester@gibsondunn.com)
Helgi C. Walker – Washington, D.C. (+1 202.887.3599, hwalker@gibsondunn.com)
Matt Gregory – Washington, D.C. (+1 202.887.3635, mgregory@gibsondunn.com)

Investment Funds:
Kevin Bettsteller – Los Angeles (+1 310.552.8566, kbettsteller@gibsondunn.com)
Shannon Errico – New York (+1 212.351.2448, serrico@gibsondunn.com)
Greg Merz – Washington, D.C. (+1 202.887.3637, gmerz@gibsondunn.com)

Real Estate:
Eric M. Feuerstein – New York (+1 212.351.2323, efeuerstein@gibsondunn.com)
Jesse Sharf – Los Angeles (+1 310.552.8512, jsharf@gibsondunn.com)
Lesley V. Davis – Orange County (+1 949.451.3848, ldavis@gibsondunn.com)
Anna Korbakis – Orange County (+1 949.451.3808, akorbakis@gibsondunn.com)

White Collar Defense and Investigations:
Stephanie Brooker – Washington, D.C. (+1 202.887.3502, sbrooker@gibsondunn.com)
Winston Y. Chan – San Francisco (+1 415.393.8362, wchan@gibsondunn.com)
Nicola T. Hanna – Los Angeles (+1 213.229.7269, nhanna@gibsondunn.com)
F. Joseph Warin – Washington, D.C. (+1 202.887.3609, fwarin@gibsondunn.com)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

With President Trump signing twenty-six executive orders (“EOs”) on day one of his second term, several focusing squarely on the domestic energy sector and many more focusing on areas such as the environment and trade that will significantly impact domestic energy production, the U.S. energy industry is busy untangling what the second Trump presidency will mean for it.

From tariffs to tax credits and beyond, much could change for energy companies in the near future.  Here are ten regulatory and policy issues energy industry experts will be monitoring in the early days of President Trump’s second administration.

1.     DOE Grants and Loans

The energy industry will be watching to see to what extent the Trump administration will continue to fund clean energy programs through Department of Energy (DOE) grant or loan programs after President Trump issued an EO calling on the federal government to “immediately pause the disbursement of funds appropriated” through the Inflation Reduction Act (IRA) and the Bipartisan Infrastructure Law  (BIL) on day one of his second term.  The BIL and the IRA allocated billions to these programs, and the Biden administration awarded approximately 99% of the funds available for fiscal year 2024 or earlier, 90% of which has been legally obligated to awardees under contractual commitments, which would presumably make those amounts harder to refuse to disburse.  Significant funds still remain available under those statutes for future fiscal years, although it is unclear how the Trump administration ultimately will decide to administer the awarding of those funds, if at all.  Areas that have received significant grant and loan awards from the DOE that could be affected by executive action rolling back DOE funding include battery storage, biofuels, hydrogen, advanced nuclear, carbon management technologies (such as carbon sequestration), advanced technology vehicles (including electric vehicles), grid modernization, solar, wind, and critical minerals.

Republican legislators have indicated that the loan programs may be targeted for cost-cutting measures, and President Trump has stated that he will “rescind all unspent funds” from the IRA.  However, Chris Wright, President Trump’s nominee for Secretary of the DOE, has experience working with DOE resources from his involvement  with a company developing a small modular reactor project at the Idaho National Lab.  Although Wright acknowledged in his confirmation hearing the need to address issues raised in a recent investigator general DOE loan program report, which suggested pausing DOE loan issuances until the Loan Program Office can ensure that contracting officers and their representatives are complying with conflict of interest regulations and enforcing conflict of interest contractual obligations, he emphasized during his confirmation hearing the importance of DOE investments in accelerating the development of new energy technologies to address climate change.

However, based on President Trump’s statements that he believes the Impoundment Control Act is unconstitutional and an EO that he issued directing all agencies to pause disbursement of appropriated funds made available through the IRA and BIL, current and would-be grant and loan awardees and recipients will be watching to see if the Trump administration takes further steps to halt already-awarded or obligated funding, modify funding conditions for already-awarded DOE grants and loans, or restart funding disbursements under new or revised regulatory standards.  As our firm’s previous exploration of the proposed Department of Government Efficiency (DOGE) explained, any such moves will face significant legal challenges, including arguments that President Trump cannot bar the DOE from spending previously allocated money unless Congress repeals the Impoundment Control Act.

2.     Regulatory Streamlining of Permitting Processes

All regions of the U.S. face challenges from insufficient energy infrastructure due to aging energy delivery systems, growing electricity demand, and changing energy sourcing and market dynamics.  These challenges exist both for electricity transmission and pipeline modernization and expansion initiatives.  Efforts to modernize this infrastructure currently face significant federal, state, and local permitting hurdles, where for example the federal environmental reviews for electricity transmission take on average 4.3 years to complete.  Attempts to modernize and expand pipeline infrastructure face similar hurdles that are magnified by issues related to evaluation of and plans to address greenhouse gas emissions.  President Trump took action to reduce permitting timelines during his previous term and stated that he would again streamline permitting processes, and the energy industry will certainly be watching to see whether he fulfills this pledge.

Like President Trump, the Republican Party generally supports permitting reform, as do President Trump’s nominees for the DOE, Department of the Interior, and Environmental Protection Agency (EPA).  For example, Chris Wright, the nominee for Secretary of Energy, stated that he is “a hundred percent committed to growing our electricity grid and our energy production and removing those barriers that are standing in the way” of that goal.  Similarly, Doug Burgum, the nominee for Secretary of the Interior and President Trump’s planned “Energy Czar,” stated that “it takes too long in our country” to build transmission lines and pipelines and emphasized the need for efficient energy transportation networks.  Likewise, Lee Zeldin, the nominee for EPA Administrator, highlighted permitting reform as one of his priorities and stated that he “would look forward to doing [his] part to make sure that the EPA is not holding up any opportunities to be able to pursue sound applications” for infrastructure.

Given the widespread support among the Republican Party and Trump administration for permitting reform, as well as the bipartisan support for reform, the energy industry will be watching to see if the administration crafts rules to ease the federal permitting process not only for pipelines but also for electric transmission lines and if the administration is able to pressure Congress into passing permitting reform legislation.

3.     IRA Tax Credits

President Trump did not announce any changes to IRA tax credits on his first day in office, but has criticized electric vehicle and offshore wind tax credits in the past.  (The IRA made certain credits wholly or partially refundable (so-called direct payments), but the appropriation for these refunds was not made through the Inflation Reduction Act and so these refunds would apparently fall outside the scope of President Trump’s executive order pausing disbursement of IRA funds.)  Bipartisan support for IRA tax credits, combined with estimates that red states have received more than half of announced clean energy projects supported by the IRA, may lead to IRA tax credits being left largely undisturbed by President Trump and legislators.  Some of the richer IRA credits may also provide significant subsidies to the biogas and fossil fuel industries, such as the hydrogen production credit, the sustainable aviation fuel credit, and the technology-neutral investment and production tax credits.  It is notable that in August of 2024 eighteen Republican legislators wrote House Majority Leader Mike Johnson to encourage him to ensure that IRA tax credits are protected from any legislation to repeal other portions of the IRA.  Additionally, a senior tax policy advisor in the Senate stated publicly in May of 2024 that full repeal of IRA tax incentives was unlikely no matter the outcome of the 2024 general election.  However, because several critical provisions in the signature tax legislation of President Trump’s first term (the Tax Cuts and Jobs Act, or TCJA) either have begun to sunset or are scheduled to sunset at the end of this year, tax reform is expected to be a major Congressional priority in 2025.  Simply extending the TCJA would itself cost trillions; as a result, the coming debates may place many tax issues up for discussion.  Nonetheless, because IRA tax credits are core to the economic feasibility of many planned energy projects, energy industry stakeholders will be watching carefully to see if the U.S. Congress or the Trump administration takes any steps to limit the availability of IRA tax credits.

4.     Nuclear

The energy industry will be watching to see how President Trump will support the development of domestic nuclear facilities and whether such support will include significant financial backing to bolster nuclear project development, including small modular nuclear reactors and more conventional large nuclear facilities, because nuclear facilities traditionally have much longer lead times and greater front-end capital requirements for completion of permitting and construction as compared to other energy generation projects, such as natural gas and solar.  The U.S., the world’s largest producer of nuclear energy, relies on nuclear energy for about one-fifth of its electricity.  As a source of baseload energy, nuclear energy compliments other carbon-free energy sources and could help the grid maintain reliability and lower carbon emissions.  However, the U.S. nuclear fleet is aging, with an average reactor age of about 42 years.

Republicans generally view nuclear power favorably.  Additionally, one of President Trump’s January 20 EOs also specifically directed heads of agencies to identify actions that impose an undue burden on the development of nuclear energy resources.  However, while President Trump seems to support small nuclear reactors, he has expressed hesitancy towards large nuclear plants due to permitting obstacles and overspending.  Moreover, permitting reform alone may not be enough to facilitate new nuclear development, where the biggest challenge often is a dearth of financing to  provide funding through the development phase to get nuclear plants to market.  Observers thus will be watching to see if and how the Trump administration and allies in Congress will take further steps to champion funding opportunities for development and deployment of new nuclear power plants.

President Trump’s nominees to lead the DOE and EPA have made pro-nuclear statements.  Chris Wright, who is nominated for Secretary of Energy and served with the board of  a small modular reactor company, said that he “absolutely” thinks that there is an “enabling role DOE can play to help launch nuclear energy” and that nuclear “should be a huge part of America’s future energy source,” but that “that won’t happen without action within the legislature of the [U.S.], with action from the [DOE] and our incoming administration.” Similarly, Lee Zeldin, nominated for EPA Administrator, stated during his confirmation hearing that he agrees that nuclear power should be part of the energy mix.

Given the Republican Party’s and Trump administration’s stated support for nuclear energy and bipartisan support recently expressed for government action to facilitate data center expansion, which could be supported through development of additional nuclear baseload power, the energy industry will be watching to see whether the Trump administration or Congress crafts policies to support nuclear energy, including permitting reform and funding to support development and deployment of new nuclear plants.

5.     Climate & Emissions

On the first day of his second term, President Trump rolled back many of President Biden’s climate-related EOs.  President Trump also issued new EOs impacting U.S. climate policies, including withdrawing from the Paris Agreement, replacing environmental impact statements that prevented oil and gas leasing in Alaska, and directing federal agencies to pause disbursement of funds appropriated through the IRA and BIL, revise their environmental analyses, and review existing agency actions that burden domestic energy resource development.

Some of President Trump’s nominees have taken nuanced approaches to climate change in their confirmation hearings, with both his nominee for Secretary of Energy, Chris Wright, and nominee for Secretary of the Interior, Doug Burgum, acknowledging that climate change is real and, in the case of Mr. Wright, worth addressing through technological innovation.  However, both nominees were supportive of using fossil fuels as part of the approach to climate change.  Mr. Wright also stated that natural gas has been the “biggest driver of reducing America’s greenhouse gas emissions” and Mr. Burgum stated that there is technology to “eliminate harmful emissions” from fossil fuels, suggesting that both nominees are bullish on the future of fossil fuels.  While climate-related diplomacy appears poised to mirror approaches from President Trump’s first term, assuming Mr. Wright and Mr. Burgum are confirmed, industry observers will be watching them and other new energy officials for indications regarding how the new administration will approach domestically-driven climate initiatives.

6.     Data Centers & Load Growth

As of the date of publication of this alert, President Trump has not yet released any EOs substantively addressing data centers.  However, on the first day of his second term, President Trump did issue an EO rolling back one of President Biden’s EOs on the use of artificial intelligence (AI) that addressed AI safety and a second EO requiring agency heads to review any actions taken pursuant to that EO.  Despite this rollback, President Trump has acknowledged the importance and energy needs of AI, stating that the U.S. must “more than double up” for its energy capacity for its AI capabilities to remain globally competitive and suggesting that he will prioritize measures that would support the speedy development of energy for AI.  On January 23, 2025, President Trump vocalized support for co-locating data centers and power generation facilities via “behind-the-meter” off-grid arrangements and stated he would work to fast-track regulatory approvals to get generation of all fuel types built to serve data centers.  President Trump’s nominees have also emphasized the importance of AI and the electricity needed to support it.  Chris Wright, nominated for Secretary of Energy, stated that building a new AI industry in the U.S. will require more energy.  Likewise, Doug Burgum, nominated for Secretary of the Interior, similarly underscored the importance of electricity for AI and the need to reform electricity facility permitting processes in order to develop enough energy for the AI industry.  President Trump also championed news from several large tech companies announcing $500 billion in investments in AI infrastructure, including data centers.

Both Presidents Trump and Biden have recognized the importance of supporting the development of AI and data centers and the energy facilities that support them.  The growth of data centers and support for AI infrastructure could prove a consensus issue that presents opportunities for collaboration across the aisle within Congress and with state leaders.  Over the coming months, energy industry observers will be watching for additional changes President Trump makes to previous AI-related EOs as well as new executive, agency, and legislative actions meant to encourage the development of AI and data centers and the electric facilities that support them.

7.     Offshore and Onshore Energy Development

On the first day of his second term, President Trump signed an EO stating that it is the policy of the U.S. “to encourage energy exploration and production on Federal lands and waters, including on the Outer Continental Shelf, in order to meet the needs of our citizens and solidify the [U.S.] as a global energy leader long into the future,” but did not set specific policy priorities or directives in the offshore energy arena.  On the same day, President Trump signed an EO that withdrew all areas of the outer continental shelf from wind energy leasing and directed agency leaders to pause the issuance of new or renewal permits, approvals, leases, rights of way, and loans pending completion of a comprehensive review of federal wind permitting and leasing practices.  Although that EO stated that nothing in it affected the rights of the existing leases in those withdrawn areas, it also directed agencies to conduct reviews of the necessity of “terminating or amending any existing wind energy lease, identifying any legal bases for such removal, and submit a report with recommendations to the President.”  Although the withdrawal of lease areas in that EO focused on offshore leasing, the leasing and permitting pause applies to both offshore and onshore leases.

This EO did not come as a surprise, given that President Trump recently expressed negative views of offshore wind, that President Trump has listed “end[ing] leasing to massive wind farms” as one of his presidential priorities, and that Doug Burgum, President Trump’s nominee for Secretary of the Interior, committed to working quickly to issue leases for oil and gas production but would not commit to continuing leases for offshore wind projects that are already underway.  However, what remains to be seen is what concrete action the Trump administration may take to support offshore drilling and production, whether the Trump administration will attempt to terminate or modify existing wind energy leases based on the recommendations of his agencies, and whether the Trump administration is successful in taking such actions, both of which are likely targets of legal challenges.

President Trump’s views on offshore wind contrast with his bullish views on oil and gas.  Trump has consistently expressed a desire to increase oil drilling on public lands, offer tax breaks to oil, gas, and coal producers, and expedite the approval of natural gas pipelines, all of which are consistent with his statement in his 2025 inaugural address that, “We will drill, baby, drill.”  To that end, President Trump declared a “national energy emergency” in a day one EO focused primarily on supporting the production of fossil fuels.  That order declared that “the United States’ insufficient energy production, transportation, refining, and generation constitutes an unusual and extraordinary threat to our Nation’s economy, national security, and foreign policy” and ordered energy-related agency heads to focus on the “identification, leasing, siting, production, transportation, refining, and generation of domestic energy resources.”  Notably, the EO declaring a national energy emergency excludes wind and solar power from its definition of “energy,”  again signaling a shift in focus toward fossil fuels and nuclear energy.

The Trump administration has also set its focus on resources located in Alaska’s protected federal lands.  President Trump’s EO titled “Unleashing Alaska’s Extraordinary Resource Potential,” which garnered support from Alaska Gov. Mike Dunleavy, calls for modifications to the federal government offices and policies that oversee Alaska’s resource development industry. The order revokes President Biden’s actions that halted oil and gas exploration in the Arctic National Wildlife Refuge.  President Trump previously led a move to allow oil and gas exploration in the refuge during his first term, only for it to be reversed by President Biden. The Alaska-focused EO could open up to 28 million acres of federal Alaska lands to oil and gas development, but it remains to be seen how the industry will react and the extent of development that will result.

Notwithstanding the political interest in development of oil and gas reserves in Alaska, the oil and gas industry will be the ultimate testing ground for these new policies.  Alaska’s North Slope is located far from Asian and lower 48 state markets for the sale of oil and gas. The refuge also has no current infrastructure, like pipelines, to transport oil and gas.  Several major oil companies have exited Alaska and the number of well-funded major companies likely to bid in federal lease sales has reduced.  Energy market watchers thus will be monitoring activities in Alaska to see whether and how energy companies are moving to take advantage of new resource development opportunities.

8.     Liquefied Natural Gas

President Trump reversed the Biden administration’s pause on liquefied natural gas (LNG) permits on day one of his second term by rolling back President Biden’s EO that paused granting LNG export authorizations and issuing an EO directing the Secretary of Energy to “restart reviews of applications for approvals of liquified natural gas export projects,” which the Acting Secretary did the following day.  Further supporting LNG, President Trump also issued another EO (as discussed above) stating that the policy of the U.S. is to “prioritize the development of Alaska’s [LNG] potential” and directing various agencies to revoke or revise regulations from the Biden administration that are inconsistent with this new policy.

President Trump expressed support for LNG on the campaign trail, highlighting his ability to secure environmental approvals for previously stalled LNG plants.  Likewise, President Trump’s nominees have also emphasized the importance of LNG.  President Trump’s pick for the Secretary of Energy, a former executive of a fracking service company, Chris Wright, noted in his opening statement that the U.S. must “expand energy production including commercial nuclear and liquefied natural gas” to compete globally and expressed his support for the development of an LNG export terminal on the Pennsylvania coast near Philadelphia.  Doug Burgum, nominated for Secretary of the Interior, also noted the importance of LNG exports allowing Germany to reopen their base load power plants after the Russo-Ukrainian War began.

Given the pro-LNG statements by President Trump and his nominees, the energy industry will be watching for further executive and agency actions that may attempt to dismantle President Biden’s LNG-related policies and that seek to support the development of additional LNG facilities.

9.     Tariffs and Retaliatory Taxes

President Trump stated in his inaugural address that the U.S. would “tariff and tax foreign countries to enrich [U.S.] citizens.”  He also issued an EO the same day calling on agencies to establish “an External Revenue Service (ERS) to collect tariffs, duties, and other foreign trade-related revenues.”  Prior to his inauguration, President Trump stated that, in addition to the tariffs he planned to put on China, he would be putting “very serious tariffs” on Mexico and Canada, two of the United States’ other largest trading partners, but he has not put those tariffs into place at the time of the publication of this alert.

With respect to retaliatory taxes, President Trump announced a study of (and a request for protective options to address) foreign countries’ current or proposed taxes that are extraterritorial or disproportionately affect American companies, likely aimed at the novel taxes contemplated by the OECD’s framework for reducing tax base erosion and profit shifting by multinational enterprises.  In another executive order, President Trump raised the possibility of applying Section 891 of the Internal Revenue Code (which can double the U.S. tax rate with respect to foreign countries that themselves impose discriminatory or extraterritorial taxes on U.S. persons).

Many predict that tariffs like the ones President Trump has proposed will increase the cost of goods around the world, including the U.S.  Tariffs are especially likely to impact the U.S. energy industry, which relies on other countries for raw materials needed for energy infrastructure, such as China for lithium batteries.  Additionally, countries may retaliate: some countries that have been threatened with U.S. tariffs, such as Canada, have already threatened to cut energy supply to the U.S. if President Trump imposes tariffs on them.  As a result, energy industry observers will be watching for which countries and what goods may become subject to any tariffs that President Trump imposes and what impact that may have on energy markets and energy equipment manufacturing.

10.     Hydrogen Energy

Hydrogen energy, which has benefited significantly from recent DOE actions establishing “hydrogen hubs” for project development and DOE grant and loan opportunities under the Biden administration, is likely to continue to develop as an emerging source of domestic energy, although the federal funding for it is closely tied to DOE programs and laws that President Trump has strongly criticized.  It would be reasonable to expect the Trump administration to have a friendlier approach to blue hydrogen sourced from hydrocarbons than the Biden administration did, but because the DOE’s hydrogen hub and other hydrogen funding initiatives were established under the IRA and BIL umbrellas (see discussion above), some hydrogen funding and development opportunities could be pared back alongside funding for other technologies.  What is clear is that the January 20, 2025, EO halting the disbursement of IRA and BIL funds does not distinguish between funding streams for different technologies.  Thus, hydrogen is, at least as of now, equally impacted by that EO as any other technology that received recent funding commitments from DOE.

President Trump’s campaign focused on supporting domestic energy production, and he has already issued EOs meant to support the energy industry and improve the speed of permitting for energy-related projects, which may extend to hydrogen, although President Trump has rarely addressed the hydrogen energy industry in particular.  Although President Trump has made largely negative comments about hydrogen cars, that is only one very small subset of the hydrogen energy industry at large.  President Trump’s nominees also have not said much on the record regarding hydrogen energy.  When Chris Wright, nominee for the Secretary of Energy, was asked whether he and the Trump administration would “ensure that federal support for hydrogen development does not disadvantage blue hydrogen projects,” he stated that it was “too early” for him to discuss the “trade-offs between different technologies.”  Although there is reason to think that hydrogen energy may find support from the Trump administration and its officials, it is too early to say what form that support might take or how it might depart from the Biden administration’s approach to encouraging the same technology.

Mechanisms for Change

President Trump has a number of avenues available to him to change the rules and policies developed during the Biden administration, including the EOs that he issued on the first day of his second term; urging Congress to repeal legislation, create new legislation, or utilize the Congressional Review Act; and other methods which are discussed in a client alert previously published by Gibson Dunn.

Gibson Dunn attorneys are available to discuss how President Trump’s policies may affect the energy industry and how to navigate the presidential transition.  If you have any questions, please reach out to your attorney contacts at Gibson Dunn or one of the authors of this article.

The following Gibson Dunn lawyers prepared this update: Tory Lauterbach, William R. Hollaway, Ph.D., Matt Donnelly, Janine Durand, and Jess Rollinson.

Gibson Dunn lawyers are available to assist in addressing any questions you may have about these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Energy Regulation & Litigation, Tax, Cleantech, Oil and Gas, or Power and Renewables practice groups, or the following members of the firm’s Energy/Tax Credits team:

Energy Regulation and Litigation:
William R. Hollaway – Washington, D.C. (+1 202.955.8592, whollaway@gibsondunn.com)
Tory Lauterbach – Washington, D.C. (+1 202.955.8519, tlauterbach@gibsondunn.com)

Tax:
Michael Q. Cannon – Dallas (+1 214.698.3232, mcannon@gibsondunn.com)
Matt Donnelly – Washington, D.C. (+1 202.887.3567, mjdonnelly@gibsondunn.com)
Eric B. Sloan – New York/Washington, D.C. (+1 212.351.2340, esloan@gibsondunn.com)

Cleantech:
John T. Gaffney – New York (+1 212.351.2626, jgaffney@gibsondunn.com)
Daniel S. Alterbaum – New York (+1 212.351.4084, dalterbaum@gibsondunn.com)
Adam Whitehouse – Houston (+1 346.718.6696, awhitehouse@gibsondunn.com)

Oil and Gas:
Michael P. Darden – Houston (+1 346.718.6789, mpdarden@gibsondunn.com)
Rahul D. Vashi – Houston (+1 346.718.6659, rvashi@gibsondunn.com)

Power and Renewables:
Peter J. Hanlon – New York (+1 212.351.2425, phanlon@gibsondunn.com)
Nicholas H. Politan, Jr. – New York (+1 212.351.2616, npolitan@gibsondunn.com)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

Gibson Dunn understands that the flurry of executive orders and other announcements from the White House during President Trump’s opening days is difficult to follow. To assist, we have taken on the assignment of cataloging and digesting each order as it is announced.

Below, you will find a searchable and filterable list that includes the executive orders and other significant announcements made to date. The list provides a summary of each order and announcement, along with information on the agencies involved and the subject matters covered. It also includes links to in-depth analyses Gibson Dunn has undertaken on a number of the executive orders. The list will be updated promptly upon the issuance of new announcements and orders. If you have any questions about any of the executive orders, please do not hesitate to reach out.

For additional insights, please visit our resource center, Presidential Transition: Legal Perspectives and Industry Trends.

Last year witnessed significant developments in False Claims Act enforcement, including a record-breaking number of new FCA cases.  In this update, we cover recent developments in FCA jurisprudence, summarize significant enforcement activity, and analyze the most notable legislative, policy, and caselaw developments from the second half of calendar year 2024, picking up where our mid-year 2024 update left off.

Last year, the Department of Justice (DOJ) and qui tam relators smashed 2023’s all-time record for the number of newly filed False Claims Act (FCA) cases.  While monetary recoveries from FCA cases in 2024 remained largely in line with trends over the last decade, 2024’s figure was still the highest in three years, coming in just shy of $3 billion.  As in previous years, the lion’s share of this figure (approximately $2.2 billion) came from qui tam suits filed by private relators where DOJ subsequently intervened.

Another noteworthy 2024 development threatens to derail this enforcement train.  In September 2024, a Florida federal court ruled the FCA’s qui tam provisions unconstitutional under the Appointments Clause.  Ordinarily, that decision, in United States ex rel. Zafirov v. Florida Medical Associates, LLC, would seem unlikely to survive the Eleventh Circuit’s scrutiny, given the other cases previously holding that qui tam suits are constitutional.  But Zafirov tracks statements by three Supreme Court Justices last year that they had questions about the constitutionality of the qui tam provision.  Regardless of the outcome of that case, the robust pace of current enforcement efforts—both DOJ- and relator-led—is likely to continue for the foreseeable future.  In this update, we cover both the Zafirov decision and other recent developments in FCA jurisprudence, and consider their implications for companies facing FCA matters that have progressed to litigation.

Last year’s record statistics also serve as a reminder that, while DOJ’s FCA enforcement priorities can shift after a presidential administration transition, it takes far more than a change in the political climate to slow FCA enforcement.  In this update, we share our insights on how the second Trump Administration DOJ may distinguish its FCA enforcement efforts from those of the Biden Administration (and the first Trump Administration).  And we also assess how relator-led cases are likely to continue to expand potential enforcement theories, forcing DOJ to crystallize its enforcement priorities via its intervention decisions.

This update also summarizes significant enforcement activity and analyzes the most notable legislative, policy, and caselaw developments from the second half of calendar year 2024, picking up where our last update left off.  You can find all of Gibson Dunn’s publications regarding the FCA on our website, including a detailed discussion of how the FCA operates, industry-specific presentations, and practical guidance for companies seeking to navigate FCA enforcement.

I. FCA ENFORCEMENT ACTIVITY

A. NEW FCA ACTIVITY

In 2024, FCA enforcement reached staggering new heights—higher, even, than the then-record-setting number of new FCA cases in 2023.  The government and qui tam relators filed 1,402 new cases in 2024, representing an additional 190 additional cases (a jump of about 16%) beyond 2023’s previous record total of 1,212 total new cases.

Of these new cases, relators initiated a record 979 qui tam actions in FY 2024—a 37% increase over the prior year, and a number far in excess of the prior record of 757 actions brought in 2013.  The 979 new qui tam cases exceed the total number of FCA actions (both qui tam and non-qui tam) brought in all years except 2023.

The government, meanwhile, initiated 423 FCA matters in FY 2024.  This is the second-highest number since 1986 (surpassed only by last year’s total of 505) and reflects DOJ’s continued investment in identifying leads for FCA enforcement without the assistance of relators.

For companies trying to anticipate developments in FCA enforcement under the second Trump Administration, FY 2024’s record number of new FCA actions highlights an important reality:  regardless of the extent to which overall enforcement priorities evolve in the next four years, the sheer number of pending FCA cases will inevitably shape enforcement dynamics in the near term while these cases wend their way through the investigative and judicial processes.  Further, DOJ’s intervention decisions in qui tam cases filed during the prior administration will go a long way toward revealing enforcement priorities going forward.

Number of FCA New Matters, Including Qui Tam Actions

Source: DOJ “Fraud Statistics – Overview” (Jan. 15, 2025).

B. TOTAL RECOVERY AMOUNTS

In FY 2024, settlements and judgments under the FCA resulted in over $2.9 billion in recoveries, a figure just slightly above last year’s recovery of $2.7 billion.  FY 2024’s total is broadly in line with yearly totals dating back to 2017, suggesting that 2021’s all-time record of $5.7 billion may be an outlier.

Notably, the government’s already sizeable recoveries in FY 2024 do not include two large settlements DOJ announced after the close of its 2024 fiscal year.  In mid-October 2024, DOJ announced a $425 million settlement with a pharmaceutical company and a $428 million settlement with a defense contractor; the latter, according to DOJ, is the second largest government procurement-related recovery in FCA history.  Together, these two settlements already bring FY 2025’s running total to over $850 million, suggesting that FY 2025 could surpass FY 2024 and mark the fourth straight year of increasing recoveries.

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

Source: DOJ “Fraud Statistics – Overview” (Jan. 15, 2025).

C. FCA RECOVERIES BY INDUSTRY

In keeping with prior years, most recoveries under the FCA in 2024 came from the health care sector, which saw approximately $1.7 billion in settlements and judgments.  That figure represents a slight decrease from last year—and is in fact the lowest amount since 2009.

On the other hand, settlements and judgments in DOJ’s “Other” category (i.e., non-health care, non-defense) tripled from $370 million in FY 2023 to approximately $1.15 billion in FY 2024.  Major recoveries in this area included a $38.2 million settlement agreement with a city government regarding its receipt of federal Department of Housing and Urban Development grant funds.

FCA Recoveries by Industry

Source: DOJ “Fraud Statistics – Health and Human Services”; “Fraud Statistics – Department of Defense”; “Fraud Statistics – Other (Non-HHS and Non-DoD)” (Jan. 15, 2025).

II. NOTEWORTHY DOJ ENFORCEMENT ACTIVITY DURING THE SECOND HALF OF 2024

A. HEALTH CARE AND LIFE SCIENCES INDUSTRIES

1. On July 1, two home health agencies and their parent entity agreed to pay approximately $4.5 million to resolve allegations that they provided illegal kickbacks to providers in exchange for Medicare referrals, in violation of the Anti-Kickback Statute (AKS) and the FCA. The government claimed that the agencies provided kickbacks in the form of lease payments, wellness health services, sports tickets, and meals.  DOJ awarded the agencies an unspecified amount of credit for self-disclosure and cooperation with the government’s investigation, including in the form of assistance in determining the government’s alleged losses.[1]
2. On July 10, a pharmacy chain and three subsidiaries agreed to settle claims that they violated the FCA by improperly reporting rebates received by drug manufacturers as service fees to the Centers for Medicare and Medicaid Services (CMS). As part of the settlement, the pharmacy and one of its subsidiaries will pay $101 million to the federal government.  Further, the pharmacy’s other two subsidiaries will grant the United States an allowed, unsubordinated, general unsecured claim of $20 million in the pharmacy’s bankruptcy case in the District of New Jersey.  The settlements resolved a qui tam suit brought by a former employee.[2]
3. On July 10, a health care provider and twelve affiliated skilled nursing facilities agreed to pay $21.3 million to resolve allegations that they submitted false claims for rehabilitation therapy services. The government alleged that the provider created a quota system that incentivized employees to bill Medicare for therapy services that were “unreasonable, unnecessary, unskilled, or that simply did not occur as billed.”  The government further alleged that the provider submitted false claims to Medicaid by using an inflated reimbursement rate that relied on data inaccurately reflecting the type and degree of care needed by the patients.  The settlement resolved a qui tam lawsuit brought by two former employees of the company.  In connection with the settlement, the provider entered into a five-year corporate integrity agreement (CIA) with the Department of Health and Human Services Office of Inspector General (HHS-OIG) that requires an independent review organization to assess annually the medical necessity and appropriateness of therapy services billed to Medicare.[3]
4. On July 11, a pharmacy chain and 10 subsidiaries agreed to settle allegations that they violated the FCA by knowingly dispensing unlawful prescriptions for opioids. According to the government, the prescriptions lacked a legitimate medical purpose, were not issued in the usual course of professional practice, were not for a medically accepted indication, or were medically unnecessary or otherwise invalid.  As part of the settlement, the government will be paid $7.5 million and have an allowed, unsubordinated, general unsecured claim of $401.8 million in the pharmacy’s bankruptcy case in the District of New Jersey.  The settlement resolves claims brought in a qui tam suit by former pharmacy employees.  In conjunction with the settlement, the pharmacy chain entered into a Memorandum of Agreement (MOA) with the Drug Enforcement Administration (DEA), which includes employee training requirements and imposes certain recording-keeping obligations on the pharmacy for five years.  The pharmacy chain also entered into a CIA with HHS-OIG that requires an independent review organization to determine whether prescription drugs are properly prescribed, dispensed, and billed.[4]
5. On July 12, a provider of biopharmaceutical research services agreed to pay $5.38 million to settle allegations that it violated the FCA and the AKS. The government alleged that the company paid commissions to independent marketers in exchange for recommending the company’s services, and then submitted reimbursement claims for those services to Medicare and Medicaid.  The government also alleged that the company continued to pay commissions to independent marketers even after learning that such payments violated the AKS.  The settlement resolved a qui tam suit brought by two co-founders of a former independent marketer for the company.  The company separately agreed to pay $147,851 to individual states for reimbursement claims paid by state Medicaid programs.[5]
6. On July 18, a hospice center and its affiliates agreed to pay more than $19.4 million to resolve FCA claims premised on the alleged knowing submission of false claims for hospice services for patients who were not terminally ill or were otherwise ineligible for hospice care. The settlement also resolved nine qui tam lawsuits brought by current and former employees.[6]
7. On July 18, a kidney dialysis provider agreed to pay over $34.4 million to resolve allegations that it improperly induced referrals to a former subsidiary that provided pharmacy services to dialysis patients. The government also alleged that the provider paid purported kickbacks to physicians to induce referrals to the company’s dialysis centers.  This settlement resolved a qui tam suit brought by a former Chief Operating Officer of the provider.[7]
8. On August 1, a Florida county agreed to pay $3.5 million to settle FCA allegations of fraudulent billing by the county’s Emergency Medical Service department. Specifically, the government alleged that over a seven-year period, the county billed federal health care programs for emergency medicine and transportation services performed by technicians who lacked appropriate certifications.  The settlement also resolves a qui tam suit brought by the medical director of the county’s Emergency Medical Service.[8]
9. On August 12, a Texas medical group and its founder and CEO agreed to pay a total of $8.9 million to settle allegations that they submitted false claims to Medicare by offering and providing illegal remuneration to physicians to induce referrals to their surgical centers, in violation of the AKS. The settlement resolves claims brought in a qui tam suit by a radiologist.[9]
10. On August 20, a home health care and hospice provider and its subsidiaries agreed to pay approximately $3.8 million to resolve claims that the provider knowingly submitted false Medicare claims for patients who were ineligible for home health care or hospice benefits, for services that were unreasonable or not medically necessary, for services performed by untrained staff, or for services that were never performed. The settlement also resolved two additional qui tam suits brought by a former travel nurse, former managers, and former directors.[10]
11. On August 26, a Missouri-based company specializing in durable medical equipment agreed to pay $13.5 million to resolve allegations that the company violated the FCA when it knowingly submitted claims based on patient evaluations that were unlawfully authored, completed, or signed by company employees rather than qualified medical professionals. The settlement agreement resolves three qui tam suits brought by employees or former employees.  In agreeing to the settlement amount, the government considered the company’s self-disclosure of several overpayments and its cooperation with the government’s investigation.[11]
12. On August 27, a Montana health care system agreed to pay $10.8 million to resolve allegations that it submitted false claims related to services performed by an oncologist. Over a five-year period, the health care system allegedly submitted false claims for the oncologist’s services that it knew or should have known were coded at a higher level than what was performed or did not meet requirements to constitute separate identifiable services.  Additionally, the government alleged that the oncologist’s salary was inconsistent with fair market value because it was calculated in reliance on the alleged false documentation and certifications regarding the oncologist’s services.  The health care system received an unspecified amount of credit for undertaking an internal investigation, voluntarily self-disclosing the doctor’s misconduct, significantly cooperating with the government (including by providing documents it was not legally required to produce and making relevant individuals available for interviews), and enhancing its corporate compliance program.  The settlement agreement specifies that $9,988,970.15 of the settlement is restitution, amounting to just under a 1.1x multiplier if the restitution amount specified in the resolution is treated as a proxy for single damages.[12]
13. On September 4, a generic pharmaceutical manufacturer agreed to pay $25 million to settle allegations under the FCA that it conspired to fix the price of a generic drug. According to the government, the company violated the AKS by making and receiving payments in connection with arrangements with other pharmaceutical manufacturers on price, supply, and customer allocation.  The company previously entered into a $30 million deferred prosecution agreement with DOJ to resolve criminal antitrust charges stemming from the same conduct.  DOJ’s press release makes clear that the FCA settlement amount “is in addition to the criminal penalty paid by the company,” meaning the government did not offset one amount against the other.[13]
14. On September 13, a major U.S. pharmacy retailer and its parent holding company agreed to pay $106.8 million to resolve allegations that the pharmacy violated the FCA and related state statutes by billing government health care programs for prescriptions that were never dispensed to patients. The government alleged that over an eleven-year period, the pharmacy restocked and resold prescriptions to beneficiaries that had initially been filled for other beneficiaries who failed to pick up the prescriptions.  The pharmacy obtained a very favorable settlement, including credit for self-disclosure of certain conduct, cooperation, and remediation of its electronic pharmacy management system, as well as credit for $66 million that it had already refunded to the government.[14]
15. On September 16, a surgery center and its affiliates agreed to pay approximately $12.76 million to resolve alleged FCA violations stemming from improper financial relationships between the surgery center and two physician groups. The government alleged that the surgery center made improper financial contributions to the physician groups in violation of the FCA, AKS, and Stark Law, by funding athletic trainers’ salaries in exchange for referrals by the trainers to the center.  As part of the settlement, approximately $12.76 million will be paid to the federal government, and South Dakota, Iowa, and Nebraska will collectively receive approximately $1.37 million.  The government acknowledged that the surgery center took significant steps entitling it to credit for cooperating with the government.[15]
16. On September 18, a provider agreed to pay $60 million to resolve allegations that it made payments to third-party insurance agents in return for referrals of Medicare Advantage beneficiaries, in violation of the AKS and the FCA. The government claimed that the provider’s conduct caused the submission of false claims to Medicare Advantage organizations and in turn to the federal government.  The settlement resolves a qui tam lawsuit.[16]
17. On September 26, a health care company that owns and operates inpatient behavioral-health facilities in multiple states agreed to pay $19.85 million to resolve allegations that it submitted false claims to government health care programs.  According to the government, the company submitted claims for unreasonable and medically unnecessary behavioral health services, including improperly admitting and failing to discharge patients who either never required or no longer needed inpatient care.  Further, the government alleged the company knowingly failed in its training, supervision, and scheduling of staff, resulting in significant harm to patients, and failed to meet regulatory obligations for developing plans for assessments, treatment, and discharge and to provide required patient therapy.  The federal government will receive around $16.66 million of the recovery, while Florida, Georgia, Michigan, and Nevada will collectively receive $3.18 million.  The settlement resolves qui tam suits brought by former employees of the health care company.[17]
18. On September 30, two Brooklyn-based licensed home-care service agencies agreed to pay $3.9 million to the United States and $5.85 million to New York State to resolve allegations that the companies used Medicaid payments to pay the wages and benefits of its home health aides, violating the federal FCA and New York State’s FCA by claiming that they paid the minimum wages required under New York state law.[18]
19. On September 30, a behavioral health organization in Massachusetts agreed to pay at least $5.5 million and up to $6.5 million to resolve allegations that it violated the federal FCA and the Massachusetts False Claims Act. The settlement resolved allegations that the company provided free sober housing to substance use recovery patients enrolled in Medicare and Medicaid to induce these patients to participate in its program, in violation of the federal and Massachusetts Anti-Kickback Statutes.  The allegations underlying the settlement agreement stemmed from a qui tam suit brought by the president of a company with whom the behavioral health organization contracted for patient housing.[19]
20. On October 2, a toxicology laboratory agreed to pay $27 million to resolve claims that it billed federal health care programs for medically unnecessary urine tests and provided physicians with free items in exchange for testing referrals. The United States will receive $18.2 million of the settlement amount.  The remainder will be paid to affected states, including Maryland, Illinois, Minnesota, Virginia, Georgia, and Colorado.  This settlement resolves a qui tam suit.[20]  As part of the settlement, the laboratory entered a five-year CIA with HHS-OIG that mandates engagement of an independent review organization to ensure that claims submitted to Medicaid or Medicare for reimbursement are properly coded, submitted, and reimbursed, and that the items and services involved are medically necessary.  The CIA also mandates the appointment of a compliance officer with prescribed oversight responsibilities, and the creation of an anonymous whistleblower program for reporting potential violations.[21]
21. On October 3, a Medicaid call center operator agreed to pay $11.36 million to resolve allegations that it violated the FCA by fraudulently reporting call center performance metrics. The Company faced up to $26 million in FCA liability due to the conduct of two employees who, from 2018 to 2023, allegedly submitted fabricated call center performance metrics and adjusted invoices to the South Carolina Department of Health and Human Services.  In entering into the settlement, the government took into consideration the call center operator’s voluntary disclosure and remedial action.[22]
22. On October 4, a medical center agreed to pay $14.2 million to settle FCA allegations that it violated Medicare regulations and the Stark Law, which prohibits physician self-referrals. The government alleged that the medical center submitted claims for Medicare reimbursement that did not include a “PN” modifier indicating that the services were provided at a non-excepted off-campus outpatient facility.  Further, according to the government, the medical center maintained agreements that created financial relationships between the hospital and physician-owners who referred Medicare beneficiaries to the hospital in violation of the Stark Law.  The medical center self-reported the alleged conduct to DOJ.  As part of its disclosure, the medical center provided an independent third-party expert’s analysis of the financial impact of the omitted “PN” modifiers and disclosed the existence of its various agreements related to physical referrals.  The settlement agreement credits the medical center for its voluntary self-disclosure and subsequent cooperation with investigators.  Of the total settlement amount, $9.46 million (approximately 66%) constituted restitution.[23]
23. On October 10, a generic pharmaceutical manufacturer agreed to pay $25 million to settle allegations under the FCA that the company conspired to fix prices and allocate markets for two generic drugs. This settlement constituted one part of a larger resolution with the company totaling $450 million.  The government specifically alleged that the company violated the AKS by making and receiving payments in connection with arrangements with other pharmaceutical manufacturers on price, supply, and customer allocation.  The company previously entered into a deferred prosecution agreement with DOJ to resolve criminal antitrust charges stemming from the same conduct.  This was the second FCA resolution in as many months in which the Eastern District of Pennsylvania U.S. Attorney’s Office settled on an antitrust-related theory.  As part of the broader $450 million settlement, the company agreed to pay $425 million to resolve allegations that it paid kickbacks via two co-pay assistance foundations in violation of the AKS and the FCA.[24]
24. On November 1, a supplier of compound prescription ingredients agreed to pay $21.75 million to resolve allegations that it violated the FCA by falsely inflating its Average Wholesale Prices (AWPs) for certain ingredients used to fill prescriptions reimbursed by the TRICARE program. The government alleged “spreads” of hundreds (and in one case, thousands) of dollars as between reported AWP and the price at which the supplier bought and sold the ingredients.  The government claimed that the supplier used these spreads to induce pharmacy customers to purchase the ingredients from the supplier given the profit potential that the spreads created for the pharmacies.  This settlement resolves the qui tam suit underlying the settlement.[25]
25. On November 1, a pharmaceutical manufacturer and its CEO agreed to pay $47 million to resolve allegations that they caused the submission of false claims to federal health care programs, in violation of the FCA, by offering kickbacks. The government alleged that the manufacturer distributed breath test kits to health care providers to give to patients and then paid a laboratory to analyze and report the results to the manufacturer, which results the manufacturer then allegedly disseminated to its sales force.  The federal portion of the recovery amounts to approximately $43.6 million, while the remainder constitutes a recovery for state Medicaid programs.  The allegations resolved by the settlement agreement were, in part, originally raised in a qui tam suit brought by former employees of the manufacturer.[26]  In connection with the settlement, the manufacturer and its CEO entered into a CIA with HHS-OIG, which requires the establishment of a compliance program, the engagement of an independent review organization, and the development and implementation of a centralized annual risk assessment and internal review process.[27]
26. On November 7, a Kentucky-based laboratory agreed to pay $6.5 million to resolve allegations that it submitted false claims for payment to Medicare for urine drug testing and for its proprietary test for chronic pain. The government alleged that the laboratory submitted multiple claims for the testing for the same patient, on the same date of service, using the same urine sample.  The settlement agreement further states that the laboratory submitted claims for testing for chronic pain for patients without any individualized determination of medical necessity by the ordering provider.[28]  In connection with the settlement, the company also entered into a five-year CIA with HHS-OIG.  The CIA requires that the company engage an independent review organization to ensure that claims submitted to Medicaid for reimbursement are properly coded, submitted, and reimbursed, and that the items and services involved are medically necessary.  The CIA also mandates the appointment of a compliance officer with prescribed oversight responsibilities, and the creation of an anonymous whistleblower program for reporting potential violations.[29]
27. On November 12, a hospital network agreed to pay $23 million to resolve allegations that it falsely coded certain evaluation and management claims submitted to federal Medicare and TRICARE programs. Specifically, the government alleged that the hospital network automatically used a certain code every time a provider checked a patient’s set of vital signs more times than the total number of hours the patient was in the emergency room.  The government alleged that the automatic use of this code did not appropriately reflect the utilization of hospital resources and therefore violated Medicare billing requirements.  The settlement resolved a qui tam suit.[30]
28. On November 21, a California hospital agreed to pay $10.25 million to resolve FCA allegations of a kickback and self-referral scheme to increase hospital admissions. The hospital allegedly paid a bonus to physicians based on the number of patients they admitted, and then submitted knowingly false claims to Medicare and Medi-Cal (California’s Medicaid program) for medically unnecessary hospital admissions.  The settlement agreement also resolved allegations that the hospital knowingly admitted patients when it knew inpatient care was not medically necessary and submitted claims that included false diagnosis codes.  Under the settlement, the hospital paid approximately $9.5 million to the federal government, of which nearly $4.8 million was restitution; and approximately $730,000 to the State of California.  The settlement resolved a qui tam suit.[31]  In connection with the settlement, the hospital entered into a five-year CIA with HHS-OIG that requires the implementation of a risk assessment and internal review process and an annual review by an independent review organization to assess the necessity and appropriateness of Medicare claim submissions and systems to track arrangements with referral sources.[32]
29. On December 11, a management consulting firm agreed to pay over $323 million to settle allegations under the FCA for allegedly providing advice to a pharmaceutical company that caused the submission of false and fraudulent claims to federal health care programs for medically unnecessary prescriptions of opioids, as well as allegedly failing to disclose to the U.S. Food and Drug Administration (FDA) conflicts of interest arising from the firm’s concurrent work for the pharmaceutical company and the FDA. Alongside the civil settlement, the management consulting firm entered into a five-year CIA with HHS-OIG focused on risk assessment and quality control.  This is the first CIA that the HHS-OIG has entered into with a management consulting firm.  The firm also entered into a parallel criminal resolution.[33]
30. On December 20, a health insurance provider and its affiliate agreed to pay $98 million to settle an FCA case related to Medicare Part C.  Under Medicare Part C, CMS reimburses health insurance providers for certain plans based partly on the “risk score” of the beneficiaries, which in turn is based on demographic and diagnosis information. The government alleged that the provider in this case had created a wholly owned subsidiary to retrospectively search medical records and query physicians for information to support additional diagnoses that would increase beneficiaries’ risk scores for purposes of Medicare Part C reimbursement.  The beneficiaries’ medical records allegedly did not support the additional diagnoses or higher risk scores.  Under the settlement agreement, the provider will make guaranteed payments of $34.5 million and contingent payments of up to $63.5 million based on its ability to pay.  In connection with the settlement, the provider entered into a five-year Corporate Integrity Agreement with HHS-OIG.  The CIA requires that the provider hire an independent review organization to review annually a sample of the provider’s patients’ medical records as well as associated internal controls to ensure appropriate risk adjustment payments.  The settlement resolves a qui tam suit brought by a former employee of another insurance provider.[34]
31. On December 20, sixteen cardiology practices agreed to pay a total of nearly $17.8 million to resolve claims that they overbilled Medicare for diagnostic radiopharmaceuticals used for cancer detection and treatment. The government alleged that over a period of at least a year and for some providers, more than ten years, the cardiology practices overinflated the acquisition costs of radiopharmaceuticals based on their actual costs, in contravention of Medicare Part B guidance.  The settlements ranged in value from $50,000 for one of the practices to $6.75 million for another of the practices.  These settlements resolve qui tam  The qui tam suits stemmed from data mining practices that originally identified hundreds of defendants.[35]  One of the cardiology practices entered into a CIA with HHS-OIG, which requires the engagement of an independent review agency to review the practice’s fee-for service Medicare claims to confirm medical necessity, appropriate documentation, and proper coding.[36]
32. On December 20, a pharmacy agreed to pay approximately $8.2 million to resolve allegations that it violated the FCA by billing for COVID-19 tests that were not actually provided to Medicare beneficiaries. The investigation arose out of a demonstration project CMS conducted whereby Medicare Part B providers could secure reimbursement for up to eight over-the-counter COVID-19 tests per Medicare Part B beneficiary.  The government claimed that the pharmacy billed for tests without shipping the tests to beneficiaries.[37]
33. On December 23, a regional health insurance provider agreed to pay $15.23 million to resolve allegations that it provided gift cards to administrative service providers to induce the referral and enrollment of Medicare beneficiaries into the insurer’s Medicare Advantage plan, in violation of the AKS and the FCA. The settlement agreement was accompanied by a CIA with HHS-OIG, which required that the insurer to institute a compliance program and put in place processes to avoid marketing arrangements that violate AKS and engage an independent organization to annually review these procedures.[38]
34. On December 23, a regional grocery store chain headquartered in Virginia agreed to pay approximately $8 million to resolve allegations that store pharmacies dispensed controlled substances, including opioids, that were medically unnecessary, lacked a legitimate medical purpose or medically accepted indication, and/or were not dispensed pursuant to valid prescriptions. The civil settlement includes the resolution of claims brought under the qui tam of the FCA.[39]
35. On December 26, a California-based medical center and laboratory, along with the physician-owner and an executive, agreed to pay $15 million to resolve allegations that they submitted false claims to Medicare and Medi-Cal by paying kickbacks to Medicare and Medi-Cal beneficiaries and third-party clinics for patient referrals and referring those same patients to the lab, in violation of the Stark Law, AKS, and FCA. The allegations underlying the settlement agreement stemmed from a qui tam suit brought by four former employees and managers of the medical center and lab.[40]

B. GOVERNMENT CONTRACTING AND PROCUREMENT

1. On July 31, a biotech company agreed to pay $5 million to settle allegations under the FCA that its subsidiary fraudulently overcharged federal agencies for scientific and technical laboratory supplies. The government specifically alleged that the subsidiary violated “Most Favored Customer Pricing” provisions and other pricing terms in contracts with the Department of Defense, Department of Veterans Affairs (VA), and National Institutes of Health.  The company acquired the subsidiary in 2017; however, the subsidiary’s conduct covered by the agreement allegedly occurred between 2008 and 2017.  The settlement resolved a qui tam suit brought by a former company employee.[41]
2. On October 16, a defense contractor agreed to pay $428 million to settle allegations that the company violated the FCA by knowingly failing to provide truthful certified cost and pricing data during negotiations on numerous government contracts, in violation of the Truth in Negotiations Act. The company received credit in the settlement for its cooperation and remediation efforts. The company also entered into a parallel $147 million criminal resolution with DOJ.[42]
3. On November 5, a federal government contractor for protective security guard services agreed to pay $52 million to settle allegations that the company violated the FCA by knowingly causing entities that it controlled to fraudulently obtain U.S. Department of Homeland Security set-aside contracts reserved for small businesses. The settlement further resolved allegations that the arrangements with the purported small businesses violated the Anti-Kickback Act, which prohibits kickbacks in exchange for favorable treatment in connection with government procurement efforts.  The allegations underlying the settlement agreement stemmed from a qui tam suit brought by the CEO and President of another government contractor.[43]
4. On November 19, two technology companies agreed to pay $2.3 million and $2.05 million, respectively, to resolve FCA allegations premised on a scheme to submit non-competitive contract bids. DOJ alleged that one company gave the other company advantageous pricing to sell products to the Army, and then the first company submitted its own direct bids to create the illusion of competition.  The allegations against one of the companies were the subject of a qui tam suit.[44]
5. On December 19, an international development contractor agreed to pay approximately $3.1 million to resolve allegations that it submitted fraudulent claims for payment to the U.S. Agency for International Development (USAID). Specifically, the government claimed that the contractor billed USAID for charges fraudulently submitted to the contractor by its own subcontractor, without the contractor detecting the issue.  DOJ credited the company for taking “a number of significant steps” in the course of the investigation.[45]
6. On December 31, an information technology and professional services contractor headquartered in Newport News, Virginia, agreed to pay $2.63 million to resolve claims under the FCA that it misrepresented to the General Services Administration that it was eligible for certain small business set-aside contracts. The government alleged that the company attempted to qualify for the set-asides (which had eligibility criteria based on average revenue) by novating a contract to another company and then misrepresenting that the two companies were unrelated.  The government alleged that the companies were in fact linked because, among other reasons, the owners of each company were married, and the two companies shared executives.[46]

C. CUSTOMS, FINANCIAL INDUSTRY, AND MISCELLANEOUS FEDERAL FUNDING

1. On August 7, a Texas-based company agreed to pay $2.05 million—of which $1.02 million is restitution—to resolve allegations that the company improperly obtained Post 9/11 GI Bill funding through its operation of vocational schools. The government alleged that the company enrolled VA-supported veterans in courses where more than 85% of the students had at least some of their costs paid by the school or the VA; this allegedly violated the 85/15 rule, which was meant to ensure that veterans were enrolled in quality courses by weeding out those programs which depend on federal funds to remain afloat.[47]
2. On August 8, two Wisconsin-based companies and their two principals agreed to pay a total of $10.2 million to settle allegations that they failed to pay millions in customs duties on goods imported from China. The government alleged that for five years, the companies engaged in an undervaluation scheme by providing falsified invoices to their customs broker (with the actual prices of imported goods typically reduced by 70%), who then unknowingly submitted these false invoices to customs officials.  The settlement resolves a related qui tam suit brought by a former employee.  DOJ’s announcement of the resolution explains that $4.2 million of the total settlement amount was paid to U.S. Customs and Border Protection before the DOJ settlement; this may help explain why the relator’s share was quite low compared to the full $10.2 million.[48]
3. On August 9, a women’s apparel company agreed to pay $7.6 million to resolve allegations that it underpaid customs duties over a seven-year period by falsely representing to customs officials the true value of its apparel imports. Specifically, the government alleged that the company failed to include the value of certain fabric and garment trims in the value of the imports, failed to report discrepancies it discovered on customs forms, and made additional errors in classifying textiles and providing port of entry codes.  The government noted the apparel company’s voluntary and timely disclosure of relevant evidence and the company’s efforts to prevent future issues through training and compliance measures.  The settlement resolves a qui tam suit.[49]
4. On August 26, a California city agreed to pay $38.2 million to resolve allegations that it knowingly misrepresented its compliance with certain federal housing development grant requirements by failing to follow federal accessibility laws when building and rehabilitating affordable multifamily properties and failing to make its affordable multifamily housing program accessible to people with disabilities. The allegations underlying the settlement agreement stemmed from a qui tam suit brought by a city resident.[50]
5. On September 18, a Missouri-based former mortgage lender agreed to pay $2.4 million to resolve allegations that it violated the FCA and the Financial Institutions Reform, Recovery, and Enforcement Act by knowingly underwriting Home Equity Conversion Mortgages (HECM) insured by the Department of Housing and Urban Development’s Federal Housing Administration (FHA) that did not meet program eligibility requirements. The FHA offers the HECM as a reverse mortgage program specifically for senior homeowners aged 62 and older.  The government alleged that the mortgage lender knowingly violated underwriting requirements by allowing inexperienced temporary staff to underwrite FHA-insured loans; the government also asserted that the lender submitted loans for FHA insurance with underwriter signatures that were falsified or affixed before all the documentation the underwriter should have reviewed was complete.[51]

D. PAYCHECK PROTECTION PROGRAM (PPP) RESOLUTIONS

After entering into a large PPP-related settlement in May 2024 (as covered in our Mid-Year 2024 FCA Update), DOJ secured a number of smaller settlements resolving FCA allegations related to PPP eligibility criteria in the second half of 2024.

1. On July 17, a GPS manufacturer agreed to pay $2.6 million to settle FCA allegations that it made false certifications regarding its ties to the People’s Republic of China, rendering it in fact ineligible for the PPP loan it received and later had forgiven.[52]
2. On August 8, a New Jersey non-profit health system agreed to pay $3.15 million to settle FCA claims that it was affiliated with a larger health care system and thus was ineligible for a PPP loan.[53]
3. On August 8, a California-based company operating a network of dental offices in Southern California, along with its founders and former owners, agreed to pay $6.3 million to resolve FCA allegations that they misrepresented their affiliations—and, thus, the network’s size—when applying for PPP loans.[54]
4. On September 17, a Florida-based consulting company specializing in travel and tourism agreed to pay approximately $2.28 million to settle FCA claims that it obtained a PPP loan without filing a required registration statement under the Foreign Agents Registration Act (FARA).[55]
5. On October 22, a California agricultural association and its chief executive officer agreed to pay approximately $5.66 million to resolve FCA allegations that the association was not eligible for the PPP loan that it obtained because the association was government owned.[56]
6. On December 13, a Wisconsin-based subsidiary of a Swiss machinery cutting and software company agreed to pay $2.3 million to resolve FCA allegations that the company’s affiliation with its Swiss parent made it too large—in terms of employee headcount—to obtain a PPP loan.[57]

III. LEGISLATIVE AND POLICY DEVELOPMENTS

A. FEDERAL POLICY AND LEGISLATIVE DEVELOPMENTS

1. Issues to Watch During the New Administration

Combating fraud on the government fisc has historically had bipartisan appeal.  Typically, when the White House changes hands between political parties, the pace of FCA enforcement may change at the margins but rarely changes by an order of magnitude.  What often does change is the relative balance of enforcement priorities within the FCA sphere—the policy agenda that is set by appointed officials and that forms the framework in which career DOJ attorneys perform the day-to-day work of investigating and litigating cases.  More often than not, companies trying to discern a new administration’s enforcement agenda in early days are left to rely on the pronouncements of newly appointed officials.

Given President Trump’s status as the only modern U.S. president to serve non-consecutive terms, however, FCA developments during his first term provide a natural starting place for highlighting areas to watch over the next four years.  Chief among these are cybersecurity, sub-regulatory guidance, and voluntary dismissal of qui tam cases.

In October 2021, DOJ announced the Civil Cyber-Fraud Initiative, which has since been a key focus of FCA actions pursued for the last four years.[58]  The Initiative was emblematic of the Biden Administration’s emphasis on cybersecurity issues as part of its broader National Cybersecurity Strategy.  Under the Initiative, DOJ pursued FCA recoveries from companies for alleged fraudulent noncompliance with cybersecurity requirements, entering into a number of settlements and filing its first lawsuit against a federal contractor under the Initiative this past August.  At this juncture, it is not entirely clear whether the Trump Administration will continue with the Initiative or otherwise focus on cybersecurity cases.  However, cybersecurity tends to be a bi-partisan issue, with major developments in this area occurring in each of the last three administrations, including President Trump’s first term.  Relators also are likely to continue filing qui tam complaints in this area, automatically triggering investigations of their allegations.  Moreover, given recent high-profile cybersecurity attacks against U.S. interests—including President Trump’s presidential campaign[59] and at least one major federal contractor[60]—there is a good chance that cybersecurity enforcement will continue to be an area of focus.

On the other hand, premising FCA liability on sub-regulatory guidance may lose favor under the new Trump Administration, if the past is any guide.  It was under the first Trump Administration that DOJ issued the Brand Memo, which stated that agency “[g]uidance documents” without notice-and-comment rulemaking could not “create binding requirements that do not already exist by statute or regulation.”[61]  DOJ guidance later that same year stated that DOJ “should not treat a party’s noncompliance with a guidance document as itself a violation of applicable statutes or regulations.”[62]

Early in the Biden Administration, this policy was reversed—with then-Attorney General Merrick Garland stating that guidance “may be entitled to deference or otherwise carry persuasive weight with respect to the meaning of the applicable legal requirements” in a particular case.[63]  Given the second Trump Administration’s apparent focus on decreasing the reach of the administrative state, we expect that DOJ will again explore ways of limiting the use of sub-regulatory guidance to impose legal requirements on which FCA liability can be predicated.

Despite this shift, however, this administration is likely to use the FCA—as past administrations have—to enforce aspects of its policy agenda.  In a notable early sign of this, President Trump’s January 21, 2025 Executive Order rescinding affirmative action obligations for federal government contractors requires that federal contracts and grants include a clause requiring contractors to agree that compliance “with applicable Federal anti-discrimination laws” is a term “material to the government’s payment decisions” for purposes of the FCA.[64]

It remains an open question whether DOJ under the second Trump Administration will place as much relative emphasis on voluntary dismissal of qui tam cases as DOJ did during Trump’s first term (after the release of the Granston Memo).[65]  After the Granston Memo, voluntary dismissals spiked for the remainder of President Trump’s first term but immediately declined again when President Biden took office.

In outcome-oriented terms, one way to view voluntary dismissal under 31 U.S.C. § 3730(c)(2)(A) is as a business-friendly step that prioritizes the government’s view of a qui tam case’s prospects over the views of an incentivized relator.  Voluntary dismissal by DOJ also could provide an answer to the concern expressed by Justices Thomas, Kavanaugh, and Barrett regarding the constitutionality of allowing unappointed relators to prosecute FCA cases in the government’s name.  Indeed, voluntary dismissal permits DOJ to police unscrupulous relators and avoid a perception that it is letting itself be weaponized by private citizens.  By the same token, voluntary dismissal also can help ensure that DOJ resources are appropriately conserved for the cases that most merit the government’s involvement—including cases without qui tam relators at all.  Time will tell whether DOJ under the second Trump Administration uses its voluntary dismissal authority more frequently than has been the case over the last four years.  But even that data point, by itself, is likely to be a poor predictor of DOJ’s overall level of aggressiveness when it comes to pursuing FCA cases, and more an indicator of how much stock it places in the available alternatives for doing so.

2. Anticipated Nominee to Head DOJ’s Civil Division

President Trump is expected to nominate Brett Shumate to serve as the Assistant Attorney General for the Civil Division.  Shumate served as the Deputy Assistant Attorney General for the Civil Division’s Federal Programs Branch during the first Trump Administration.  As the branch of the Civil Division that focuses “primarily o[n] defending suits that challenge actions of Government agencies and officers in which the plaintiffs seek injunctive or declaratory relief,” Federal Programs was a focal point of DOJ activity in the first Trump Administration.  The appointment of a former Federal Program DAAG to run the entire Civil Division suggests that the administration is anticipating having to again devote significant resources to defending government actions in response to challenges.

3. Continued Emphasis on Cooperation and Remediation

The second half of 2024 witnessed a notable increase in the number of settlements that state that DOJ had credited settling parties for voluntary self-disclosures, remediation efforts, and/or cooperation with the government’s investigation.  These factors are all relevant under the DOJ’s Guidelines for Taking Disclosure, Cooperation, and Remediation into Account in False Claims Act Matters.[66]  Notably, while the frequency with which DOJ called out the fact of cooperation credit increased, details of exactly what steps earned the credit—and, critically, how much credit relative to the government’s claimed losses—remained few and far between.

In some instances, DOJ specified that it awarded “full credit” under its guidelines for voluntary disclosure in FCA cases.  For instance, when a Northern Virginia hospital system agreed to pay $2.37 million to settle FCA allegations that it submitted claims for reimbursement to Medicaid that included documentation regarding sterilization and hysterectomy procedures that had been improperly modified, DOJ stated that the hospital system received “full credit” for disclosing the misconduct after undertaking an internal investigation, as well as for cooperating and taking “remedial actions.”[67]

DOJ policy caps cooperation credit so that the government does not receive “less than full compensation for the losses caused by the defendant’s misconduct (including the government’s damages, lost interest, costs of investigation, and relator share).”[68]  In practice, that means a damages multiple above 1x—but how much above depends on the facts and circumstances.  Without more details of the government’s claimed losses, the precise calculations and considerations are difficult to determine from the outside.  It remains to be seen whether DOJ will introduce more transparency regarding its cooperation credit calculations into settlement agreements, of the sort that has become routine in criminal resolutions such as deferred prosecution agreements.

4. Administrative False Claims Act

In the final weeks of his term, President Biden signed into law a bill that authorized—with little fanfare—the Administrative False Claims Act (AFCA).  The provisions establishing the AFCA were buried within defense spending legislation,[69] after attempts by Senator Chuck Grassley to pass the AFCA as a stand-alone bill failed in 2023 due to lack of House support.[70]  The AFCA expands and replaces the Program Fraud Civil Remedies Act of 1986 (PFCRA), which provided an administrative remedy for false claims and statements with liability of less than $150,000.[71]  As an administrative tool, the PFCRA allowed agencies to pursue small claims before an Administrative Law Judge (ALJ)—proceedings which lack the usual safeguards available to defendants charged in federal court, including the right to a trial by jury.  The AFCA now authorizes agencies to challenge claims valued at up to $1 million before an ALJ and extends to false statements made even in the absence of a claim for payment.  Agencies can seek civil penalties of up to $5,000 per claim, in addition to damages of up to twice the value of the claim.  This significantly increases agencies’ ability to pursue and settle false claims allegations outside the federal judicial process.

The constitutionality of the AFCA may prove open to challenge.  Last year, in SEC v. Jarkesy, the SEC attempted to impose civil penalties against an investment advisor for violating antifraud provisions in the federal securities laws.[72]  The SEC elected to pursue an administrative remedy and adjudicate the matter before one of its ALJs, rather than in federal court where Jarkesy could have demanded a jury trial.[73]  On appeal, the Supreme Court held that this violated the Seventh Amendment because the SEC’s claim against Jarkesy was “legal in nature,” which triggered the Seventh Amendment’s guarantee of a right to trial by jury.[74]  Notably, the Supreme Court justified its decision, in part, by reasoning that the civil penalties sought were plainly punitive and therefore were the sort of common law remedy that could only be enforced in a court of law.[75]  The SEC argued that the “public rights exception” should apply, which allows Congress to assign matters for decision to an agency when the issue historically could have been determined without judicial involvement.[76]  But the Supreme Court disagreed, finding that the securities fraud action resembled a traditional legal claim modeled on common law fraud, which must be adjudicated by an Article III court.[77]

Although this ruling was limited to securities fraud, the similarities between the action brought in Jarkesy and those authorized under the AFCA cannot be ignored.  Insofar as the AFCA is derivative of the FCA, it draws on common-law fraud and imposes remedies that are punitive in nature.[78]  It remains to be seen whether defendants in AFCA actions are able to challenge the statute’s constitutionality using Jarkesy as a jumping-off point.

5. HHS-OIG Skilled Nursing Facilities and Nursing Facilities Compliance Program Guidance

One year after HHS-OIG’s release of its General Compliance Program Guidance, on November 20, 2024, HHS-OIG issued new industry segment-specific compliance program guidance for Skilled Nursing Facilities and Nursing Facilities (“Nursing Facility Guidance”).[79]  The Nursing Facility Guidance has not been supplemented since 2008.  In this iteration, HHS-OIG offers a deep dive on several compliance issues that could open nursing facilities to potential FCA liability.  For example, the guidance cautions that sub-standard quality of care resulting from a lack of patient activities, staffing shortages, and poor medication management could lead to FCA violations.

This emphasis on quality of care as a vehicle for FCA enforcement actions underscores that regulators continue to take a more expansive view of what might qualify as an FCA violation under a “worthless services” theory—that is, the idea that the government receives nothing of value if it pays for services that are falsely represented as meeting relevant certification requirements.  The Nursing Facility Guidance also details how AKS violations, referral relationships, more nuanced errors in Medicare and Medicaid billing, and data submission to managed plans can lead to the submission of false claims, signaling that the agency may continue to pursue aggressive FCA theories in these areas moving forward.

B. STATE LEGISLATIVE DEVELOPMENTS

There were no major developments with respect to state FCA legislation in the second half of 2024.  HHS-OIG provides an incentive for states to enact false claims statutes in keeping with the federal FCA.  If HHS OIG approves a state’s FCA, the state receives an increase of 10 percentage points in its share of any recoveries in cases involving Medicaid.  The lists of “approved” state false claims statutes remains at 23 following the approval of Connecticut’s statute in February 2024; six states remain on the “not approved” list.[80]  The other 21 states have either not enacted a state analogue or have not submitted their statutes for approval.

IV. CASE LAW DEVELOPMENTS

A. Federal District Court Holds That the Qui Tam Provisions Violate Article II of the Constitution

In September 2024, the Middle District of Florida held that the FCA’s qui tam provisions are unconstitutional because they violate the Appointments Clause.  United States ex rel. Zafirov v. Fla. Med. Assocs., LLC, 2024 WL 4349242, at *1, *4 (M.D. Fla. Sept. 30, 2024).  The issue arose from a qui tam suit filed by Clarissa Zafirov, who sued her employer and other defendants for violating the FCA by allegedly misrepresenting patients’ medical conditions to Medicare.  Id. at *3.  The government declined to intervene, and Zafirov continued litigating the action for five years.  Id. at *4.  Defendants moved for judgment on the pleadings, arguing that the FCA’s qui tam provisions violate Article II’s Appointments Clause, Take Care Clause, and Vesting Clause.  Id.  As to the Appointments Clause, defendants contended that the qui tam provisions violated the Appointments Clause because a relator is an improperly appointed officer of the United States.  Id.

The Appointments Clause creates two different paths for appointment—one for “principal officers” and the other for “inferior officers.”  Id. at *5.  The appointment of inferior officers can be vested “in the President alone, in the Courts of Law, or in the Heads of Departments,” while principal officers that must be confirmed by the Senate.  Id. (quotation omitted).  An individual is considered an “officer of the United States” if she “exercis[es] significant authority pursuant to the laws of the United States,” and “occup[ies] a continuing position established by law.”  Id. at *6 (quotations omitted).

In Zafirov, the court determined that FCA relators exercise “significant authority” because they possess civil enforcement authority on behalf of the United States through their “power to initiate an enforcement action in the name of the United States to vindicate a public right.”  Id. (quotation omitted).  The Court emphasized relators’ power to litigate appeals in FCA cases that can create binding precedent on the government.  Id. at *7.  As the Court noted, relators have the ability to initiate an action and litigate it in a way that binds the federal government while choosing “which defendants to sue,” “which theories to raise, which motions to file, and which evidence to obtain.”  Id. at 11.  The Court pointed to these as relators’ “powers.”  Id. at 11.  Lastly, the Court found that relators receive emoluments because they may receive a portion of the proceeds if their claims are successful.  Id.

The court evaluated whether Article II included an exception for FCA relators to hold executive powers without complying with the process outlined in the Appointments Clause, but concluded that no such exception existed.  Id. at *18.  Because Zafirov was not appointed through the process outlined in the Appointments Clause, the court concluded that her lawsuit must be dismissed because “in Appointments Clause cases, invalidation is the remedy, which follows directly from the government actor’s lack of authority to take the challenged action in the first place.”  Id. at 19 (internal quotation marks omitted).  The United States promptly noticed an appeal to the Eleventh Circuit, where the case remains pending.

The Zafirov case has garnered much attention, not least of all for its apparent attempt to advance similar arguments that appeared in Justice Thomas’s dissenting opinion in United States ex rel. Polansky v. Executive Health Resources, Inc., 143 S. Ct. 1720 (2023).  Those arguments were notable when they were published, both for their content and because they had not previously appeared in the majority opinions Justice Thomas has written on FCA issues in recent years (including Escobar, in which DOJ had declined to intervene).  The arguments also gained support from Justices Kavanaugh and Barrett, who stated in a concurrence that the arguments were “substantial” and “should [be] consider[ed] . . . in an appropriate case.”  Id. at 1737.  (We covered the Polansky decision in more detail in Gibson Dunn’s 2023 Mid-Year False Claims Act Update.)

Those statements by Justices Thomas, Kavanaugh, and Barrett could mean that the Supreme Court will address the constitutionality of the qui tam provisions sooner than might otherwise be expected.  On the other hand, a Supreme Court opinion on the constitutionality of the FCA’s qui tam provisions would arguably be the most significant decision by the Court on an FCA issue in the statute’s modern history, and other FCA issues that are highly consequential have taken years to find their way to the Court.  (It took over two decades, for example, for the implied false certification theory to journey from a one-off Court of Federal Claims decision about the false “withholding of . . . information critical to the decision to pay” to the Supreme Court’s seminal decision on materiality in Escobar in 2016.  See Ab-Tech Constr., Inc. v. United States, 31 Fed. Cl. 429 (1994).)

Regardless of the time horizon, we are likely to see continued momentum in efforts by qui tam relators to pursue cases—a reality foreshadowed by the record number of qui tam cases initiated in FY 2024, after the Polansky opinions were published.  And defendants attempting to persuade courts to be skeptical of the qui tam provisions’ constitutionality will have to contend with longstanding precedents at the circuit level which hold that the provisions do not violate the Appointments Clause.  See, e.g., Riley v. St. Luke’s Episcopal Hosp., 252 F.3d 749, 757 (5th Cir. 2001) (upholding the provisions on the grounds that relators do not meet “the constitutional definition of an ‘officer,’” which “encompasses, at a minimum, a continuing and formalized relationship of employment with the United States Government”); United States ex rel. Taxpayers Against Fraud v. Gen. Elec. Co., 41 F.3d 1032, 1041 (6th Cir. 1994) (similar).

B. The Second Circuit Adopts the “One-Purpose” Test for Pleading AKS Violations

In December 2024, the Second Circuit issued an opinion in United States ex rel. Camburn v. Novartis Pharms. Corp. that adopted the “at-least-one-purpose” rule for pleading the inducement element of an AKS-based FCA case.  According to the Second Circuit, “a plaintiff adequately pleads an [AKS] violation when she states with the requisite particularity that at least one purpose of the alleged scheme was to induce fraudulent conduct.”  124 F.4th 129, 133 (2d Cir. 2024).

In Camburn, a former sales representative brought a qui tam lawsuit against the company alleging that it used speaker programs for its multiple sclerosis drug, Gilenya, as a vehicle to improperly remunerate physicians.  Id. at 134.  He alleged that Novartis orchestrated “sham” speaker events and engaged in other improper activities, all to incentivize physicians to improperly prescribe Gilenya.  Id. at 135.  The government declined to intervene.  Id.

Camburn’s initial complaint was dismissed for failing to plead fraud with particularity under Rule 9(b).  Id.  Over successive amendments, Camburn incorporated testimony from 21 confidential witnesses spanning 21 states, supplementing his claims with additional factual allegations.  Id.  Nevertheless, the district court dismissed his Third Amended Complaint with prejudice, concluding that Camburn failed to adequately allege the existence of an AKS violation as a predicate for FCA liability.  Id.  Specifically, the court found that Camburn’s allegations lacked the requisite detail to support an inference that the company’s conduct was intended to induce fraudulent claims.  Id.

The Second Circuit, however, partially reversed, concluding that Camburn’s specific allegations related to three categories of factual allegations—including dates, locations, and individuals involved—gave rise to a strong inference that one purpose of the conduct was to induce fraudulent claims, which was all that was needed to allege an AKS violation.  Id. at 136-40.  The court expressly rejected the notion that an FCA relator needs to allege “a cause-and-effect relationship (a quid pro quo) between the payments and the physicians’ prescribing habits” to plead an AKS violation.  Id. at 137.  With this ruling, the Second Circuit joined the First, Third, Fourth, Fifth, Seventh, Ninth, and Tenth Circuits in applying the “one-purpose” rule to the AKS.  See Guilfoile v. Shields, 913 F.3d 178 (1st Cir. 2019); United States v. Greber, 760 F.2d 68  (3d Cir. 1985); United States v. Mallory, 988 F.3d 730  (4th Cir. 2021); United States v. Davis, 132 F.3d 1092  (5th Cir. 1998); United States v. Borrasi, 639 F.3d 774  (7th Cir. 2011); United States v. Kats, 871 F.2d 105  (9th Cir. 1989); United States v. McClatchey, 217 F.3d 823  (10th Cir. 2000).

Importantly, the question of what it means for false claims to “result[] from a violation” of the AKS, 42 U.S.C. § 1320a-7b(g) was not before the court.  It remains to be seen whether the Second Circuit will adopt the stricter “but-for” causation standard advanced by the Sixth and Eighth Circuits, or the Third Circuit’s looser standard under which only some causal connection between kickback and false claim is required.

C. The Fifth Circuit Denies Relator a Share of Settlement Proceeds After Settlement with the Government

In a July opinion, the Fifth Circuit addressed whether a relator is entitled to a share of FCA settlement proceeds when the settlement does not resolve any of the claims brought by the relator.  United States ex rel. Conyers, 108 F.4th 351 (5th Cir. 2024).  The court concluded that a relator is entitled only to a share of the proceeds from the settlement of the specific claims they initiated, not from settlement of additional claims introduced by the government.  Id. at 359.

The case originated when Bud Conyers filed a qui tam lawsuit alleging that a military contractor had violated the FCA. Id. at 353-54. The government intervened in the suit and added its own claims against the contractor that were focused on the alleged conduct of three employees and thus were distinct from Conyers’s original allegations. Id. at 354-55.

The parties eventually settled, with the contractor agreeing to pay approximately $13.7 million to resolve the government’s claims related to the three individuals, and with the agreement expressly reserving all other claims.  Id. at 355.  Conyers’ estate (the relator by then had passed away) sought a share of the settlement proceeds, arguing entitlement under the FCA.  Id.  The district court awarded Conyers’s estate approximately $1.1 million, finding some factual overlap between Conyers’s allegations and the government’s settled claims.  Id.

On appeal, however, the Fifth Circuit reversed this decision, holding that under 31 U.S.C. § 3730(d)(1), a relator’s right to a share of the settlement proceeds is limited to the settlement of the specific claims that the relator brought.  Id. at 356-61.  The court stated that allowing relators to recover from settlements of claims they did not initiate would be inconsistent with the text of the FCA, which frames the relator’s share in a settlement scenario in terms of “claim[s].”  Id. at 359.  The court also invoked caselaw in the “alternate remedy” context which has held that that provision of the FCA only permits a relator to recover to the extent their claims “overlap[]” with the government’s claims.  Id. at 358.  The court further relied on the FCA’s purpose and structure as reflected in the reduction in a relator’s share that automatically comes with DOJ intervention, reasoning that it would run contrary to that framework to increase a relator’s share when the government opts not to pursue the claims the relator brings.  Id. at 358-59.

Notably, the Fifth Circuit declined to decide whether Conyers would have been entitled to a share of the settlement proceeds if his claims had “factually overlapped” with those of the government, holding that the district court erred in determining there was sufficient overlap to merit that outcome even under such a standard.  Id. at 359-60.  At the core of the reversal decision was the fact that the three individuals whose conduct formed the basis of the settlement had never been mentioned in Conyers’s complaint.  Id. at 359.  Given that, one potential implication of the Conyers decision is an increased focus by relators on naming as many individuals as possible when making initial allegations, to maximize the chances that whatever claims-in-intervention the government may later bring bear a substantial enough relationship to the relator’s claims to justify the awarding of a relator’s share.

D. The Ninth Circuit Overrules Its Own Precedents on the First-to-File Bar, Holding the Bar Is Not Jurisdictional

The FCA’s first-to-file bar prevents anyone but the government from “interven[ing in] or bringing a related action based on the facts underlying [a] pending [FCA] action.”  31 U.S.C. § 3730(b)(5).  In Stein v. Kaiser Found. Health Plan, Inc., the Ninth Circuit overturned its own precedents and held that the FCA’s first-to-file rule is not jurisdictional.  115 F.4th 1244, 1247 (9th Cir. 2024).

The district court had dismissed the case under the first-to-file bar because of its relation to already-pending actions against the same or other related entities.  Id. at 1245.  On appeal, a three-judge panel upheld the decision, but the full Ninth Circuit reversed after an en banc rehearing.  Id.  Citing recent Supreme Court decisions, the court ruled that a statutory bar is jurisdictional only if Congress explicitly says so.  Id. at 1246 (citing Santos-Zacaria v. Garland, 598 U.S. 411, 416 (2023) (quoting Boechler, P.C. v. Comm’r, 596 U.S. 199, 203 (2022))).  Because Section 3730(b)(5) does not use the term “jurisdiction” or include any other textual clue that points to jurisdiction, the court held that the FCA’s first-to-file rule is not jurisdictional.  Id.

In so ruling, the Ninth Circuit joined five other circuits which had previously held that the FCA’s first-to-file rule is not jurisdictional.  See United States ex rel. Bryant v. Cmty. Health Sys., Inc., 24 F.4th 1024, 1036 (6th Cir. 2022); In re Plavix Mktg., Sales Pracs. & Prods. Liab. Litig. (No. II), 974 F.3d 228, 232 (3d Cir. 2020); United States v. Millenium Lab’ys, Inc., 923 F.3d 240, 248-51 (1st Cir. 2019); United States ex rel. Hayes v. Allstate Ins. Co., 853 F.3d 80, 85-86 (2d Cir. 2017) (per curiam); United States ex rel. Heath v. AT&T, Inc., 791 F.3d 112, 119-21 (D.C. Cir. 2015).

The decision in Stein has at least three procedural implications.  First, FCA defendants in the Ninth Circuit seeking to dismiss an FCA complaint based on the first-to-file rule can no longer make a Fed. R. Civ. P. 12(b)(1) motion to dismiss for lack of subject-matter jurisdiction, under which plaintiffs bear the burden of persuasion on the question of jurisdiction.  Instead, defendants are left to rely on a Fed. R. Civ. P. 12(b)(6) motion to dismiss, which requires the moving party to show that the first-to-file bar requires dismissal of the FCA action.  Second, before Stein, as an issue of subject-matter jurisdiction, a first-to-file challenge could be raised any time, and even sua sponte by the court.  After Stein, defendants must raise the first-to-file challenge before the close of trial or risk waiving the defense altogether.  Third, because the first-to-file rule is no longer considered jurisdictional after Stein, plaintiffs may have more flexibility to amend their complaints in response to a first-to-file pleading defense.

E. The Ninth Circuit Clarifies the Applicable Framework for FCA Retaliation Claims

The FCA prohibits retaliation against employees who report potential FCA violations.  See 31 U.S.C. § 3730(h)(1).  To prove retaliation under the FCA, an employee must have been engaging in protected conduct, the employer must have known that the employee was engaging in protected conduct, and the employer must have discriminated against the employee because of the protected conduct.  In Mooney v. Fife, the Ninth Circuit (1) ruled that the McDonnell Douglas burden-shifting framework applies to FCA retaliation claims, and (2) clarified the “protected conduct” and “notice” requirements of a prima facie FCA retaliation claim.  118 F.4th 1081, 1090 (9th Cir. 2024).

The plaintiff in Mooney filed an FCA retaliation claim, alleging he was fired for reporting billing irregularities to his superiors, and claiming his employer used the confidentiality clause in his employment contract as a pretext for his termination.  Id. at 1088.  The district court rejected these claims and granted summary judgement for the defendant.  Id.  It concluded that the plaintiff’s reporting of irregularities could not have put his employer on notice of potentially protected conduct because the plaintiff’s job consisted of helping his employer ensure compliance with the law in the first instance.  Id.

The Ninth Circuit reversed, concluding that the plaintiff had satisfied the three elements of a prima facie FCA retaliation claim, and noting that there were genuine issues of material fact as to plaintiff’s alleged pretextual firing.  Id. at 1096-98.  The Ninth Circuit joined a cohort of circuit courts that apply the McDonnell Douglas burden-shifting framework to FCA retaliation claims.  Under this framework, once the employee has established a prima facie case of FCA retaliation, the burden shifts to the employer to produce a legitimate, non-retaliatory reason for the employee’s termination.  Mooney, 118 F.4th at 1089.  If the employer produces such a reason, the burden shifts back to the employee to show that the employer’s reason was pretextual.  For purposes of pretext, it is irrelevant whether the employer’s proffered reason was objectively false; the only requirement is that the employer honestly believed the reasons for its actions, even if those reasons are foolish or trivial or even baseless.  Id. at 1097 (citing Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1063 (9th Cir. 2002)).

The Ninth Circuit also clarified the “protected conduct” and “notice” elements of an FCA retaliation claim.  Regarding the “protected conduct” element, the Ninth Circuit stated that the applicable test, which contains both a subjective and an objective component, “does not set a high bar.”  Mooney, 118 F.4th at 1092.  The court narrowed the requirements applicable to both components.  For the subjective component, the court noted that “the employee need not know for certain that the employer has committed fraud,” while for the objective component, the court noted that the only requirement is that “a reasonable employee in the same or similar circumstances might believe, that the employer is possibly committing fraud against the government.”  Mooney, 118 F.4th at 1092 (citing Moore, 275 F.3d at 845).  The Ninth Circuit also held that Hopper’s “investigating” requirement does not apply when the plaintiff alleges that he was discharged because of other efforts to stop one or more FCA violations.  Id. at 1091.  As to the “notice” requirement, the court refused to adopt a heightened pleading standard for employees with compliance duties. Id. at 1096.  The Ninth Circuit reasoned that if compliance employees “were to have no protection from retaliation” under the FCA, “then fear of that retaliation could intimidate and discourage employees in such positions from trying to stop fraudulent billing practices.”  Id.  Instead, the court held that the “notice” element of an FCA retaliation claim only requires the employer to be aware of an employee’s efforts to stop one or more FCA violations.  Id. (citing 31 U.S.C. § 3730(h)(1)).

F. The Third and Eleventh Circuits Apply the Public Disclosure Bar

1. The Third Circuit Finds the Bar Satisfied by Information in CMS’s Physician Payments Database

In United States ex rel. Stebbins v. Maraposa Surgical, Inc., 2024 WL 4947274, (3d Cir. Dec. 3, 2024), the Third Circuit Court of Appeals affirmed a district court’s dismissal of a qui tam action based on the public disclosure bar.  In that case, a relator alleged that a medical office in Pennsylvania had violated the FCA by submitting reimbursement claims for arteriograms (medical imaging of arteries to identify and assess blockages) performed in its office.  The relator claimed that because arteriograms could only be performed by a state licensed ambulatory surgery center, which the medical office was not, the medical office had fraudulently submitted reimbursements for its services.

After the medical center moved to dismiss the relator’s claims under Fed. R. Civ. P. 12(b)(6), the district court granted the motion.  The relator appealed, and the Third Circuit affirmed, reasoning that because (1) the medical office’s reimbursement requests were publicly available on CMS’s payment database, (2) the medical office was not listed on the state’s online database of licensed ambulatory surgery centers, and (3) the state published the regulations on which the relator based his claims, the “essential elements” of the relator’s claims were “previously disclosed in publicly available databases.”  Id. at *3.  Because the relator was not a “original source of the information,” the Third Circuit determined that “anyone could [have] file[d] the same suit,” and, thus, the public disclosure bar applied.  Id. at *2-3.

This case stands as another notable example of a court eschewing a narrow reading of the three relevant source categories listed in the public disclosure bar’s statutory language, in favor of an approach that broadly views information in public internet sources as disclosures sufficient to trigger the bar.  The decision also avoids creating perverse incentives for providers to not report physician remuneration to CMS (if they feared that qui tam relators could use that public information to bring AKS allegations).

2. The Eleventh Circuit Rejects Relator’s Argument that His Legal Experience Made Him an “Original Source” Sufficient to Overcome the Public Disclosure Bar

In August, the Eleventh Circuit affirmed a district court’s dismissal of a qui tam action on the ground that the relator’s claims were barred by the FCA’s public disclosure provision.  United States ex rel. Jacobs v. JP Morgan Chase Bank, N.A., 113 F.4th 1294 (11th Cir. 2024).  There, the relator, a foreclosure attorney, alleged that JP Morgan Chase had violated the FCA by forging mortgage loan promissory notes and submitting false reimbursement claims to government-sponsored entities for loan servicing costs.  JP Morgan Chase moved to dismiss the relator’s amended complaint, which the district court granted, concluding that the public disclosure bar precluded the relator’s claims.

The relator appealed, and the Eleventh Circuit affirmed.  The Eleventh Circuit concluded that the public disclosure provision barred the relator’s suit because there were three online blogs that (1) were published before the relator initiated this suit, (2) met the FCA’s definition of “news media” because the blogs were “publicly available websites . . . intended to disseminate information,” and (3) contained substantially similar information to the relator’s claims.  Id. at 1301-02.  In reaching this determination, the Eleventh Circuit rejected the relator’s argument that his “experience from law practice” was enough to qualify him as an independent source of information.  Id. at 1303.  Because the relator did not provide any independent information to corroborate his claims, the Eleventh Circuit affirmed the dismissal of the qui tam action under the public disclosure bar.

V. CONCLUSION

We will monitor these developments, along with other FCA legislative activity, settlements, and jurisprudence throughout the year and report back in our 2025 False Claims Act Mid-Year Update.

[1] Press Release, U.S. Dep’t of Justice, Home Health Providers to Pay $4.5M to Resolve Alleged False Claims Act Liability for Providing Kickbacks to Assisted Living Facilities and Doctors (July 1, 2024), https://www.justice.gov/opa/pr/home-health-providers-pay-45m-resolve-alleged-false-claims-act-liability-providing-kickbacks.

[2] See Press Release, U.S. Atty’s Office for the Northern Dist. of Ohio, Rite Aid Corporation and Elixir Insurance Company Agree to Pay $101M to Resolve Allegations of Falsely Reporting Rebates (July 10, 2024), https://www.justice.gov/usao-ndoh/pr/rite-aid-corporation-and-elixir-insurance-company-agree-pay-101m-resolve-allegations.

[3] See Press Release, U.S. Atty’s Office for the Northern Dist. of N.Y., The Grand Health Care System and Twelve Affiliated Skilled Nursing Facilities to Pay $21.3 Million for Allegedly Providing and Billing for Fraudulent Rehabilitation Therapy Services (July 10, 2024), https://www.justice.gov/usao-ndny/pr/grand-health-care-system-and-twelve-affiliated-skilled-nursing-facilities-pay-213.

[4] See Press Release, U.S. Atty’s Office for the Northern Dist. of Ohio, Rite Aid Corporation and Affiliates Agree to Settle False Claims Act and Controlled Substance Act Allegations Related to Opioid Dispensing (July 11, 2024), https://www.justice.gov/usao-ndoh/pr/rite-aid-corporation-and-affiliates-agree-settle-false-claims-act-and-controlled; See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Rite Aid Corporation and Affiliates Agree to Settle False Claims Act and Controlled Substance Act Allegations Related to Opioid Dispensing (July 10, 2024),

https://www.justice.gov/opa/pr/rite-aid-corporation-and-affiliates-agree-settle-false-claims-act-and-controlled-substance.

[5] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Cal., Admera Health Agrees to Pay over $5 Million to Settle False Claims Act Allegations of Kickbacks to Third Party Marketers (July 24, 2024), https://www.justice.gov/usao-edca/pr/admera-health-agrees-pay-over-5-million-settle-false-claims-act-allegations-kickbacks.

See Press Release, U.S. Atty’s Office for the Western Dist. of Ky., Kindred and Related Entities Agree to Pay $19.428M to Settle Federal and State False Claims Act Lawsuits Alleging Ineligible Claims for Hospice Patients (July 18, 2024), https://www.justice.gov/usao-wdky/pr/kindred-and-related-entities-agree-pay-19428m-settle-federal-and-state-false-claims.

[7] See Press Release, U.S. Atty’s Office for the Dist. of Colo., DaVita to Pay Over $34M to Resolve Allegations of Illegal Kickbacks (July 18, 2024), https://www.justice.gov/usao-co/pr/davita-pay-over-34m-resolve-allegations-illegal-kickbacks.

[8] See Press Release, U.S. Atty’s Office for the Northern Dist. of Fl., Escambia County Pays $3.5 Million To Settle FCA Lawsuit (Aug. 1, 2024), https://www.justice.gov/usao-ndfl/pr/escambia-county-pays-35-million-settle-fca-lawsuit.

[9] See Press Release, U.S. Atty’s Office for the Southern Dist. Of Tex., NIRP and founder to pay nearly $9M to resolve alleged kickback referral violations (Aug. 20, 2024), https://www.justice.gov/usao-sdtx/pr/nirp-and-founder-pay-nearly-9m-resolve-alleged-kickback-referral-violations.

[10] See Press Release, U.S. Atty’s Office for the Western Dist. of Ky., Nationwide Home Healthcare and Hospice Provider to Pay $3.85M to Resolve False Claims Act Allegations (Aug. 20, 2024), https://www.justice.gov/opa/pr/nationwide-home-healthcare-and-hospice-provider-pay-385m-resolve-false-claims-act.

[11] See Press Release, United Seating and Mobility, LLC, D/B/A Numotion, Agrees to Pay $13,500,000 to Resolve Alleged False Claims for Custom Wheelchairs (Aug. 26, 2024), https://www.justice.gov/usao-az/pr/united-seating-and-mobility-llc-dba-numotion-agrees-pay-13500000-resolve-alleged-false.

[12] See Press Release, U.S. Atty’s Office for Dist. of Mo., U.S. Attorney Jesse Laslovich announces $10.8 million civil settlement with St. Peter’s Health over False Claims Act misconduct (Aug. 27, 2024), https://www.justice.gov/usao-mt/pr/us-attorney-jesse-laslovich-announces-108-million-civil-settlement-st-peters-health-over.

[13] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Pa., Pharmaceutical Company Pays $25 Million to Resolve Alleged False Claims Act Liability for Price-Fixing of Generic Drug (Sept. 4, 2024), https://www.justice.gov/usao-edpa/pr/pharmaceutical-company-pays-25-million-resolve-alleged-false-claims-act-liability.

[14] See Press Release, U.S. Atty’s Office for the Middle Dist. of Fl., Walgreens Agrees to Pay $106.8M to Resolve Allegations It Billed the Government for Prescriptions Never Dispensed (Sept. 13, 2024), https://www.justice.gov/usao-mdfl/pr/walgreens-agrees-pay-1068m-resolve-allegations-it-billed-government-prescriptions.

[15] See Press Release, U.S. Atty’s Office for the Dist. of S. Dakota, Surgical Hospital Agrees to Pay More Than $12.7M to Resolve Alleged False Claims Act Violations (Sept. 16, 2024), https://www.justice.gov/usao-sd/pr/south-dakota-surgical-hospital-agrees-pay-more-127m-resolve-alleged-false-claims-act.

[16] Press Release, U.S. Dep’t of Justice, Oak Street Health Agrees to Pay $60M to Resolve Alleged False Claims Act Liability for Paying Kickbacks to Insurance Agents in Medicare Advantage Patient Recruitment Scheme (Sept. 18, 2024), https://www.justice.gov/opa/pr/oak-street-health-agrees-pay-60m-resolve-alleged-false-claims-act-liability-paying-kickbacks.

[17] See Press Release, U.S. Atty’s Office for the Middle Dist. of Fl., Acadia Healthcare Company Inc. to Pay $19.85M to Settle Allegations Relating to Medically Unnecessary Inpatient Behavioral Health Services (Sept. 26, 2024), https://www.justice.gov/usao-mdfl/pr/acadia-healthcare-company-inc-pay-1985m-settle-allegations-relating-medically

[18] See Press Release, U.S. Atty’s Office for the East. Dist. of New York, Brooklyn-Based Home Health Care Agencies Settle Fraud Claims for $9.75 Million and Agree to Pay $7.5 Million in Wages and Benefits to Underpaid Aides (Sept. 30, 2024), https://www.justice.gov/usao-edny/pr/brooklyn-based-home-health-care-agencies-settle-fraud-claims-975-million-and-agree-pay.

[19] See Press Release, U.S. Atty’s Office for the Dist. of Mass., Brookline Hospital to Pay Up To $6.5 Million to Resolve False Claims Act Liability Concerning Kickback Allegations (Oct. 1, 2024), https://www.justice.gov/usao-ma/pr/brookline-hospital-pay-65-million-resolve-false-claims-act-liability-concerning-kickback.

[20] See Press Release, U.S. Atty’s Office for the Dist. of Colo., Precision Toxicology Agrees to Pay $27M to Resolve Allegations of Unnecessary Drug Testing and Illegal Remuneration to Physicians (Oct. 2, 2024), https://www.justice.gov/opa/pr/precision-toxicology-agrees-pay-27m-resolve-allegations-unnecessary-drug-testing-and-illegal.

[21] See Corporate Integrity Agreement Between the Office of Inspector General of The Department of Health and Human Services And Precision Toxicology, LLC D/B/A Precision Diagnostics, HHS-OIG (Oct. 22 2024), https://oig.hhs.gov/documents/cias/10036/Precision_Toxicology_LLC_DBA_Precision_Diagnostics_08222024.pdf.

[22] See Press Release, U.S. Atty’s Office for the Dist. of S.C., Operator of South Carolina Medicaid Call Center Agrees to Pay $11.3 Million to Resolve False Claims Act Liability; Two Former Employees Plead Guilty to Wire Fraud (Oct. 3, 2024), https://www.justice.gov/usao-sc/pr/operator-south-carolina-medicaid-call-center-agrees-pay-113-million-resolve-false-claims.

[23] See Press Release, U.S. Atty’s Office for the Northern Dist. of Tex, North Texas Medical Center Pays $14.2 Million to Resolve Potential False Claims Act Liability for Self-Reported Violations of Medicare Regs, Stark Law (Nov. 4, 2024), https://www.justice.gov/usao-ndtx/pr/north-texas-medical-center-pays-142-million-resolve-potential-false-claims-act.

[24] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Pa., Generic Pharmaceutical Company Pays $25 Million to Resolve False Claims Act Liability for Price-Fixing of Generic Drugs (Oct. 10, 2024), https://www.justice.gov/usao-edpa/pr/generic-pharmaceutical-company-pays-25-million-resolve-false-claims-act-liability; See Press Release, U.S. Atty’s Office for the Dist. of Mass., Teva Pharmaceuticals Agrees to Pay $425 Million to Resolve Kickback Allegations (Oct. 10, 2024), https://www.justice.gov/usao-ma/pr/teva-pharmaceuticals-agrees-pay-425-million-resolve-kickback-allegations.

[25] Press Release, U.S. Dep’t of Justice, Compound Ingredient Supplier Medisca Inc., to Pay $21.75M to Resolve Allegations of False and Inflated Average Wholesale Prices for Ingredients Used in Compounded Prescriptions (Nov. 1, 2024), https://www.justice.gov/opa/pr/compound-ingredient-supplier-medisca-inc-pay-2175m-resolve-allegations-false-and-inflated.

[26] See Press Release, U.S. Atty’s Office for the Dist. of Mass., QOL Medical and Its CEO Agree To Pay $47 Million for Allegedly Paying Kickbacks To Induce Claims for QOL’s Drug Sucraid (Nov. 15, 2024), https://www.justice.gov/usao-ma/pr/qol-medical-and-its-ceo-agree-pay-47-million-allegedly-paying-kickbacks-induce-claims.

[27] See Corporate Integrity Agreement Between the Office of Inspector General of The Department of Health and Human Services And QOl Medical, LLC, and Frederick E. Cooper, HHS-OIG (Nov. 1, 2024),

https://oig.hhs.gov/documents/cias/10135/QOL_Medical_LLC_and_Frederick_E_Cooper_11012024.pdf.

[28] See Press Release, U.S. Atty’s Office for the Dist. of Mass., Ethos Laboratories Agrees to Pay $6.5 Million to Resolve Allegations of Fraudulent Billing (Nov. 8, 2024), https://www.justice.gov/usao-ma/pr/ethos-laboratories-agrees-pay-65-million-resolve-allegations-fraudulent-billing.

[29] See Corporate Integrity Agreement Between the Office of Inspector General of The Department of Health and Human Services And Ethnos Holding Corp., D/B/A Ethos Laboratories, HHS-OIG (Nov. 1, 2024),

https://oig.hhs.gov/fraud/cia/agreements/Ethos_Holding_Corp_DBA_Ethos_Laboratories_11012024.pdf.

[30] See Press Release, U.S. Atty’s Office for the Dist. of Colo., UCHealth Agrees to Pay $23M to Resolve Allegations of Fraudulent Billing for Emergency Department Visits (Nov. 12, 2024), https://www.justice.gov/usao-co/pr/uchealth-agrees-pay-23m-resolve-allegations-fraudulent-billing-emergency-department.

[31] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Cal., Oroville Hospital to Pay $10.25 Million to Resolve Allegations of Kickbacks and False Billing (Dec. 12, 2024), https://www.justice.gov/usao-edca/pr/oroville-hospital-pay-1025-million-resolve-allegations-kickbacks-and-false-billing.

[32] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, California Hospital to Pay $10.25M to Resolve False Claims Allegations (Dec. 12, 2024),

https://www.justice.gov/opa/pr/california-hospital-pay-1025m-resolve-false-claims-allegations.

[33] See Press Release, U.S. Atty’s Office for the Dist. of Mass., Justice Department Announces Resolution of Criminal and Civil Investigations into McKinsey & Company’s Work with Purdue Pharma L.P.; Former McKinsey Senior Partner Charged with Obstruction of Justice (Dec. 13, 2024), https://www.justice.gov/usao-ma/pr/justice-department-announces-resolution-criminal-and-civil-investigations-mckinsey.

[34] See Press Release, U.S. Atty’s Office for the Western Dist. of N.Y., Medicare Advantage provider Independent Health to Pay up to $98m to Settle False Claims Act Suit (Dec. 20, 2024), https://www.justice.gov/usao-wdny/pr/medicare-advantage-provider-independent-health-pay-98m-settle-false-claims-act-suit.

[35] See Press Release, U.S. Atty’s Office for the Western Dist. of Ky., Sixteen Cardiology Practices to Pay a Total of $17.7M to Resolve False Claims Act Allegations Concerning Inflated Medicare Reimbursements (Dec. 20, 2024), https://www.justice.gov/usao-wdky/pr/sixteen-cardiology-practices-pay-total-177m-resolve-false-claims-act-allegations-0; Relator’s Complaint Under the False Claims Act, Walia et al. v. Michael et al., 1:18-cv-00510 (D.D.C. Mar. 5, 2018), ECF No. 1.

[36] See Integrity Agreement Between the Office of Inspector General of the Department Of Health and Human Services and Heart Clinic of Paris, P.A. and Dr. Arjumand Hashmi, HHS-OIG (Dec. 20, 2024), /https://oig.hhs.gov/documents/cias/10155/Heart_Clinic_of_Paris_PA_and_Dr_Arjumand_Hashmi_12202024.pdf.

[37] Press Release, U.S. Dep’t of Justice, Rapid Health Agrees to Pay $8.2M for Allegedly Billing Medicare for Over-the-Counter COVID-19 Tests That Were Not Provided to Beneficiaries (Dec. 20, 2024), https://www.justice.gov/opa/pr/rapid-health-agrees-pay-82m-allegedly-billing-medicare-over-counter-covid-19-tests-were-not

[38] See https://shorturl.at/yJsgI.

[39] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Tenn., Food City Agrees To Pay Over $8 Million To Settle False Claims Act Allegations Related To Opioid Dispensing (Dec. 23, 2024), https://www.justice.gov/usao-edtn/pr/food-city-agrees-pay-over-8-million-settle-false-claims-act-allegations-related-opioid.

[40] See Press Release, Southern California-Based Clinics, Laboratory, and Owners to Pay $15 Million to Settle Allegations of False Claims Arising from Kickbacks and Self-Referrals (Dec. 26, 2024), https://www.justice.gov/usao-cdca/pr/southern-california-based-clinics-laboratory-and-owners-pay-15-million-false-claims.

[41] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Pa., Avantor, Inc. Agrees to Pay $5.325 Million to Resolve Allegations of False Claims for Overcharging Federal Agencies and Allegations of DEA Violations and Lack of Compliance as to Listed Chemicals (July 31, 2024), https://www.justice.gov/usao-edpa/pr/avantor-inc-agrees-pay-5325-million-resolve-allegations-false-claims-overcharging.

[42] See Press Release, U.S. Atty’s Office for the Dist. of Mass., Raytheon Agrees to Pay Over $950 Million in Connection with Defective Pricing, Foreign Bribery and Export Control Schemes (Oct. 16, 2024), https://www.justice.gov/usao-ma/pr/raytheon-agrees-pay-over-950-million-connection-defective-pricing-foreign-bribery-and.

[43] See Press Release, U.S. Atty’s Office for the Dist. of Md., Paragon Systems Agrees to Pay $52M to Resolve False Claims Act Allegations Concerning Fraudulently Obtained Small Business Contracts and Kickbacks (Nov. 12, 2024), https://www.justice.gov/usao-md/pr/paragon-systems-agrees-pay-52m-resolve-false-claims-act-allegations-concerning.

[44] Press Release, U.S. Dep’t of Justice, Dell and Iron Bow Agree to Pay $4.3M to Resolve False Claims Act Allegations Relating to Submitting Non-Competitive Bids to the Army (Nov. 19, 2024), https://www.justice.gov/opa/pr/dell-and-iron-bow-agree-pay-43m-resolve-false-claims-act-allegations-relating-submitting-non.

[45] Press Release, U.S. Dep’t of Justice, Chemonics International Inc. to Pay $3.1M to Resolve Allegations of Fraudulent Billing Under Global Health Supply Chain Contract (Dec. 19, 2024), https://www.justice.gov/opa/pr/chemonics-international-inc-pay-31m-resolve-allegations-fraudulent-billing-under-global.

[46] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Ill., Virginia contractor to pay over $2.6M to settle allegations of falsely obtaining small business contracts (Jan. 7, 2025), https://www.justice.gov/usao-edva/pr/virginia-contractor-pay-over-26m-settle-allegations-falsely-obtaining-small-business.

[47] See Press Release, U.S. Department of Justice Office of Public Affairs, Five Point Enterprises Agrees to Pay the United States Over $2M for Submitting False Claims to VA for Post-9/11 GI Bill Education Benefits (Aug. 8, 2024), https://www.justice.gov/opa/pr/five-point-enterprises-agrees-pay-united-states-over-2m-submitting-false-claims-va-post-911.

[48] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Wisc., Two Brookfield, Wisconsin-Based Companies and Their Owners Pay Over $10 Million to Resolve Allegations that They Evaded Customs Duties, (August 8, 2024), https://www.justice.gov/usao-edwi/pr/two-brookfield-wisconsin-based-companies-and-their-owners-pay-over-10-million-resolve.

[49] See Press Release, U.S. Atty’s Office for the Southern Dist. of Fl., U.S. Attorney Lapointe Announces $7.6 Million Settlement of Civil False Claims Act Lawsuit Against Womenswear Company for Underpaying Customs Duties on Imported Women’s Apparel (Aug. 9, 2024), https://www.justice.gov/usao-sdfl/pr/us-attorney-lapointe-announces-76-million-settlement-civil-false-claims-act-lawsuit.

[50] See Press Release, U.S. Atty’s Office for the Central Dist. of Ca., City of Los Angeles Agrees to Pay $38.2 Million to Resolve False Claims Act Suit for Alleged Misuse of HUD Grant Funds (Aug. 26, 2024), https://www.justice.gov/usao-cdca/pr/city-los-angeles-agrees-pay-382-million-resolve-false-claims-act-suit-alleged-misuse.

[51] See Press Release, U.S. Atty’s Office for the Dist. of D.C., James B. Nutter & Company to Pay $2.4M for Allegedly Causing False Claims for Federal Mortgage Insurance (Sept. 23, 2024), https://www.justice.gov/usao-dc/pr/james-b-nutter-company-pay-24m-allegedly-causing-false-claims-federal-mortgage-insurance.

[52] https://www.justice.gov/opa/pr/gps-manufacturer-agrees-pay-26m-settle-false-claims-act-allegations-relating-improper.

[53] See Press Release, U.S. Atty’s Office for the Dist. of N.J., Atlantic County Health System Settles Matter Alleging It Received Improper Paycheck Protection Program Loan (Aug. 14, 2024), https://www.justice.gov/usao-nj/pr/atlantic-county-health-system-settles-matter-alleging-it-received-improper-paycheck.

[54] See Press Release, Brentwood-Based Dental Offices Company and Former Owners Pay $6.3 Million to Resolve False Claims Act Allegations Related to COVID Relief (Aug. 8, 2024), https://www.justice.gov/usao-cdca/pr/brentwood-based-dental-offices-company-and-former-owners-pay-63-million-resolve-false.

[55] See Press Release, U.S. Atty’s Office for the Middle Dist. of Fl., Travel Tourism Company Pays More Than $2 Million To Resolve Civil Claims Regarding Funds Obtained Under The Paycheck Protection Program (Sept. 17, 2024), https://www.justice.gov/usao-mdfl/pr/travel-tourism-company-pays-2-2-million-resolve-civil-claims-regarding-funds-obtained.

[56] See Press Release, U.S. Atty’s Office for the Southern Dist. of Ca., Del Mar Fairgrounds Agrees to Pay $5.6 Million to Settle Allegations Over Pandemic-Related Loan (Oct. 22, 2024), https://www.justice.gov/usao-sdca/pr/del-mar-fairgrounds-agrees-pay-56-million-settle-allegations-over-pandemic-related.

[57] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Wisc., Oak Creek company to pay over $2.3 million to resolve allegations it submitted false claims to obtain a Paycheck Protection Program Loan (Dec. 13, 2024), https://www.justice.gov/usao-edwi/pr/oak-creek-company-pay-over-23-million-resolve-allegations-it-submitted-false-claims.

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

[59] See Press Release, U.S. Dep’t of Justice, Three IRGC Cyber Actors Indicted for ‘Hack-and-Leak’ Operation Designed to Influence the 2024 U.S. Presidential Election (Sept. 27, 2024), https://www.justice.gov/opa/pr/three-irgc-cyber-actors-indicted-hack-and-leak-operation-designed-influence-2024-us.

[60] See Jonathan Greig, Major USAID contractor Chemonics says 263,000 affected by 2023 data breach, The Record (Dec. 5, 2024), https://therecord.media/chemonics-data-breach-usaid-contractor.

[61] U.S. Dep’t of Justice, Memorandum from Rachel Brand, Associate Attorney General (Nov. 16,

2017), https://www.justice.gov/opa/press-release/file/1012271/download.

[62] U.S. Dep’t of Justice, Justice Manual § 1-20.100 (Dec. 2018), https://web.archive.org/web/20190327044939/https://www.justice.gov/jm/1-20000-limitation-use-guidance-documents-litigation.

[63] See U.S. Dep’t of Justice, Memorandum from Merrick Garland, Attorney General (July 1, 2021), https://www.justice.gov/opa/file/1557606/dl?inline=.

[64] https://www.whitehouse.gov/presidential-actions/2025/01/ending-illegal-discrimination-and-restoring-merit-based-opportunity/.

[65] See U.S. Dep’t of Justice, Memorandum from Michael D. Granston, Director, Commercial

Litigation Branch, Fraud Section (Jan. 10, 2018),

https://drive.google.com/file/d/1PjNaQyopCs_KDWy8RL0QPAEIPTnv31ph/view.

[66] U.S. Dep’t of Justice, Justice Manual § 4-4.112 (Apr. 2018), https://www.justice.gov/jm/jm-4-4000-commercial-litigation.

[67] See Press Release, U.S. Atty’s Office for the Eastern Dist. of Va., Virginia hospital system agrees to $2.37M False Claims settlement (Nov. 15, 2024), https://www.justice.gov/usao-edva/pr/virginia-hospital-system-agrees-237m-false-claims-settlement.

[68] Id.

[69] H.R. 5009, 118th Cong. § 5203 (2024) (enacted) (to be codified at 31 U.S.C. §§ 3801–12) (hereinafter AFCA).

[70] Administrative False Claims Act of 2023, S.R. 659, 118th Cong. (2023).

[71] AFCA § 5203(c).

[72] SEC v. Jarkesy, 603 U.S. 109 (2024).

[73] Id. at 109.

[74]  Id. at 122–23.

[75] Id. at 123–25.

[76] Id. at 127.

[77] Id. at 134.

[78] See Universal Health Servs. v. United States ex rel. Escobar, 579 U.S. 176 (2016).

[79] See Office of Inspector General., U.S. Dep’t of Health & Hum. Servs., Nursing Facility Industry Segment-Specific Compliance Program Guidance (Nov. 2024) (hereinafter NF-ISPG), https://oig.hhs.gov/documents/compliance/10038/nursing-facility-icpg.pdf.

[80] State False Claims Act Reviews, Office of Inspector General, U.S. Dept’s of Health & Hum. Servs., https://oig.hhs.gov/fraud/state-false-claims-act-reviews/ (last visited Jan. 21, 2025).

The following Gibson Dunn lawyers prepared this update: Jonathan Phillips, Winston Chan, John Partridge, James Zelenay, Jake Shields, Michael Dziuban, Chumma Tum, Katie King, Alyse Ullery, Samantha Hay, Cordelia Achen, Jackson Akselrad, Francesca Broggini, Hayley Lawrence, Wynne Leahy, Allonna Nordhavn, Molly O’Neil*, Kyla Osburn, Danilo Risteski, Katie Rubanka, Heather Skrabak, Nell Tooley, John Turquet Bravard, Erin Wall, and Sara Zamani.

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

Washington, D.C.
Jonathan M. Phillips – Co-Chair (+1 202.887.3546, jphillips@gibsondunn.com)
Stuart F. Delery (+1 202.955.8515,sdelery@gibsondunn.com)
F. Joseph Warin (+1 202.887.3609, fwarin@gibsondunn.com)
Jake M. Shields (+1 202.955.8201, jmshields@gibsondunn.com)
Gustav W. Eyler (+1 202.955.8610, geyler@gibsondunn.com)
Lindsay M. Paulin (+1 202.887.3701, lpaulin@gibsondunn.com)
Geoffrey M. Sigler (+1 202.887.3752, gsigler@gibsondunn.com)
Joseph D. West (+1 202.955.8658, jwest@gibsondunn.com)

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

New York
Reed Brodsky (+1 212.351.5334, rbrodsky@gibsondunn.com)
Mylan Denerstein (+1 212.351.3850, mdenerstein@gibsondunn.com)

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

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

Los Angeles
James L. Zelenay Jr. (+1 213.229.7449, jzelenay@gibsondunn.com)
Nicola T. Hanna (+1 213.229.7269, nhanna@gibsondunn.com)
Jeremy S. Smith (+1 213.229.7973, jssmith@gibsondunn.com)
Deborah L. Stein (+1 213.229.7164, dstein@gibsondunn.com)
Dhananjay S. Manthripragada (+1 213.229.7366, dmanthripragada@gibsondunn.com)

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

*Molly O’Neil, an associate in the Palo Alto office, is not admitted to practice law.

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

The final rule marks a significant transition in the regulatory oversight of the carbon capture and sequestration industry within West Virginia.

On January 17, 2025, the United States Environmental Protection Agency (EPA) signed a final rule giving the State of West Virginia primary enforcement authority (or “primacy”) over Class VI underground injection wells, which are used by the carbon capture and sequestration (CCS) industry to permanently sequester captured carbon in underground geological formations, within the state.[1]  The approval process for the state of West Viginia lasted less than a year; West Virginia submitted its application for Class VI primacy on May 1, 2024 and received approval from the EPA just eight months later. [2]  This marks a significant transition in the regulatory oversight of the CCS industry within the state of West Virginia, as the primary regulatory body for the CCS industry in the state shifts from the EPA to the West Virginia Department of Environmental Protection (WVDEP).[3]  Granting primacy over Class VI wells to the WVDEP empowers the state to manage its own CCS projects and leverage state-level expertise to speed the permitting process.[4]  This will likely lead to accelerated growth of the CCS industry within the state of West Virginia.  West Virginia now joins Louisiana, North Dakota and Wyoming among states with Class VI primacy.

Class VI Wells, Primacy and Federal Incentives

Class VI underground injection wells are specifically designed for the permanent geological sequestration of carbon dioxide, playing a crucial role in CCS technologies aimed at mitigating climate change.[5]  Geological sequestration involves injecting captured carbon dioxide into underground rock formations, such as in deep saline formations, at depths and pressures high enough to keep the carbon dioxide in a supercritical fluid phase, which allows more carbon dioxide to be sequestered and is less likely to lead to the carbon dioxide escaping into the atmosphere or migrating into other underground formations.[6] Class VI wells are distinct from other injection wells in that they are exclusively dedicated to long-term storage of carbon dioxide that is either captured directly from the ambient atmosphere (in direct air capture CCS projects) or from industrial emissions or other anthropogenic sources (in point source CCS projects).

Federal income tax credits are available for the capture and utilization or sequestration of qualified carbon oxides (see our previous alert here). Significantly greater credits are awarded for “secure” geological sequestration of carbon oxides, and Class VI wells generally satisfy IRS and Treasury requirements for such secure sequestration. The Inflation Reduction Act of 2022 (IRA) further enhanced the economic benefit of these credits by making it easier to monetize them, extending the benefit of new direct payment (see our previous client alert here) and transferability (see our previous client alert here) rules to these credits. Qualifying point-source CCS projects may also unlock other federal income tax credits made available under the IRA, such as the new hydrogen production credit (see our previous client alert here) and the technology-neutral investment tax credit and production tax credits (see our previous client alert here).  Additional federal funding for CCS projects was also made available under the Infrastructure Investment and Jobs Act.[7]

Class VI wells are subject to stringent regulations under the Safe Drinking Water Act’s Underground Injection Control (UIC) program.  Under the Act, the EPA is responsible for developing UIC requirements for injection wells of all classes that are intended to protect underground sources of drinking water, among other objectives.  Any state, territory, or tribe can obtain primary enforcement authority over a given class of injection wells by adopting injection well requirements that are at least as stringent as the EPA’s requirements and subsequently applying to the EPA for primary enforcement authority over that class of injection well.[8]  If the EPA approves the primacy application, the state, territory, or tribe will then implement and manage the permitting and compliance processes for the applicable class of injection well. However, if a state, territory, or tribe does not adopt its own injection well requirements or apply for enforcement authority over a given class of wells, then the EPA will remain responsible for implementing and enforcing the UIC requirements for that class of wells

Permitting Backlog at the EPA Driving Interest in Class VI Primacy

Many states have been granted primacy by the EPA over multiple classes of injection wells, particularly Class II injection wells, which can be utilized for CCS projects utilizing captured carbon for enhanced oil recovery projects.[9] However, prior to West Virginia, only three other states (North Dakota, Wyoming and Louisana) had successfully applied for primacy over Class VI wells.  As a result, the EPA retains oversight over nearly all Class VI well permit applications in the US.

The EPA’s process for granting a Class VI well permit is rigorous and requires applicants to provide extensive (and expensive) data and modeling to show that the Class VI well will protect drinking water and prevent the escape or migration of carbon dioxide.[10]  Although the EPA currently estimates that the Class VI permitting process for new permits will take about 24 months from start to finish, some Class VI permits have been awaiting approval from the EPA since 2021.[11]

The EPA has also issued very few Class VI permits, leading to a backlog of pending permit applications. As of January 3, 2025, the EPA has only issued eight active Class VI permits, four were approved on December 30, 2024, for projects in California.[12] While, as of April 2024, North Dakota and Wyoming have granted eleven permits since receiving primacy over Class VI wells from the EPA.[13] Additionally, the EPA is nearing final approval for one CCS project in Texas covering three wells. [14]  However, as of January 3, 2025, there were 57 permit applications covering 163 wells at some point in the EPA’s permitting process, and most applications are not close to approval, as shown in the attached CHART. (As of 1/3/2025. Source: The United States Environmental Protection Agency.)

Currently, there are two CCS projects, covering three wells, under review in West Virginia.  Now that the state of West Virginia has obtained primacy over Class VI wells, all pending permits before the EPA will be transferred to the WVDEP for review, and the WVDEP will have oversight of all future Class VI well applications in the state of West Virginia.  Many CCS industry participants have welcomed the switch to the review process under the WVDEP, which is expected to be more efficient and to take a shorter period of time than the EPA’s process.  This belief is supported by the Class VI permit process in North Dakota, which has produced eight Class VI permits since North Dakota obtained Class VI primacy in 2018 (compared to the twelve (including inactive permits issued) Class VI well permits issued by the EPA nationwide since the UIC program was implemented in 2010).[15]

Class VI Requirements Adopted by West Virginia

After facing public comment and EPA scrutiny, West Virginia’s application was revised to address concerns over adequate staffing, environmental justice, and protecting drinking water, groundwater, and surface water. On August 17^th, 2023, the EPA released guidance on addressing environmental justice in Class VI permitting and encouraged states seeking primacy to incorporate this guidance. WVDEP incorporated that guidance in their application for primacy and specifically addressed the following five themes: identifying communities impacted by environmental justice concerns using a tool developed by the EPA, implementing a public participation process, conducting assessments for projects in communities impacted by environmental justice concerns, ensuring the transparency of the permitting process, and minimizing adverse effects to drinking water sources. Additionally, under WVDEP’s program, well owners or operators are required to conduct an environmental justice review as part of the permitting process. The EPA required West Virginia to demonstrate in their plan the adequacy of their staff in technical areas such as site characterization, well construction, and risk analysis.[16]

Furthermore, the EPA found that WVDEP’s program complies with the necessary federal statutes, including 40 CFR Parts 124, 144, 145, and 146.

The WVDEP program differs from the federal minimum requirements in the following ways:

• The federal regulations allow UIC permit terms of up to ten years, WVDEP permits are for a duration of five years.
• WVDEP’s program requires new Class I wells which inject hazardous waste to comply with location standards similar to those in the Hazardous Waste Management Act.
• Due to West Virginia regulations, the program prohibits injection of hazardous waste into Class IV wells.[17]

Additional States Seeking Class VI Primacy

West Virginia is the fourth state to receive primacy over Class VI wells, joining North Dakota (2018), Wyoming (2020), and Louisiana (2023, see our previous client alert here).[18] Primacy applications from Texas, submitted by the Railroad Commission of Texas on December 19, 2022, and Arizona, submitted by the Arizona Department of Environmental Quality on February 16, 2024, are under review by the EPA.[19] While Texas and Arizona are likely next in line to receive primacy, timing is unpredictable. West Virginia received primacy less than a year after submitting its application, while Texas is still awaiting primacy more than two years after submitting its application.[20] Despite the unpredictable timing, successful applications by the first four states have prompted a recent increase in the number of states seeking Class VI primacy, with Mississippi, Oklahoma, Utah, Alabama, Colorado, and Alaska all in various stages of pre-application activity.[21]

States seeking Class VI primacy should pay close attention to West Virginia’s application for guidance on how to approach the primacy application process, especially since West Virginia received approval for its primacy application significantly faster than most other applicant states.

Impacts of the New Administration

The new Trump Administration immediately issued certain Executive Orders that could impact the primacy application process and the CCS industry in general.  One of President Trump’s Executive Orders, titled “Ending Radical and Wasteful Government DEI Programs and Preferencing” terminates certain environmental justice programs, which have been a required component of applications for primacy over Class VI wells. Another Executive Order issued by President Trump, titled “Unleashing American Energy,” pauses the disbursement of funds appropriated under the Inflation Reduction Act pending further review by certain federal agencies.  It is not clear at this time what impact these and other Executive Orders will have on the CCS industry or the Class VI primacy process, but Gibson Dunn is actively monitoring these developments.

[1] View here.

[2] View here.

[3] Id.

[4] https://carbonherald.com/west-virginia-gets-green-light-to-permit-class-vi-well-projects/.

[5] Class VI – Wells used for Geologic Sequestration of Carbon Dioxide | US EPA

[6] Sequestration of Supercritical CO2 in Deep Sedimentary Geological Formations”, Negative Emissions Technologies and Reliable Sequestration: A Consensus Study Report of The National Academies of Sciences, Engineering, and Medicine, pg. 320.

[7] FECM Infrastructure Factsheet.pdf (energy.gov).

[8] Primary Enforcement Authority for the Underground Injection Control Program | US EPA.

[9] The Underground Injection Control program consists of six classes of injection wells. Each well class is based on the type and depth of the injection activity, and the potential for that injection activity to result in endangerment of an underground source of drinking water (USDW). Class I wells are used to inject hazardous and non-hazardous wastes into deep, isolated rock formations. Class II wells are used exclusively to inject fluids associated with oil and natural gas production. Class III wells are used to inject fluids to dissolve and extract minerals. Class IV wells are shallow wells used to inject hazardous or radioactive wastes into or above a geologic formation that contains a USDW. Class V wells are used to inject non-hazardous fluids underground. Class VI wells are wells used for injection of carbon dioxide into underground subsurface rock formations for long-term storage, or geologic sequestration.

[10] https://www.epa.gov/uic/class-vi-wells-used-geologic-sequestration-carbon-dioxide#ClassVI_PermittingProcess

[11] View here.

[12] Id.; https://www.globalccsinstitute.com/news-media/latest-news/californias-first-class-vi-well-permits-approved-by-u-s-epa/.

[13] View here.

[14] View here.

[15] View here ; https://www.globalccsinstitute.com/news-media/latest-news/californias-first-class-vi-well-permits-approved-by-u-s-epa/; View here.

[16] View the proposed final rule here.

[17] View WVDEP’s Program Description here.

[18] Capito Announces West Virginia’s Approval to Permit Class VI Well Carbon Capture Projects – Majority News – U.S. Senate Committee on Environment and Public Works.

[19] CO2 Storage (texas.gov); Proposed Arizona Underground Injection Control Primacy Program | US EPA

[20] Federal Register: West Virginia Underground Injection Control (UIC) Program; Class VI Primacy.

[21] EPA Proposes Granting West Virginia Primacy for Class VI Wells | Environment, Land & Resources (globalelr.com).

The following Gibson Dunn lawyers prepared this update: Michael P. Darden, Rahul D. Vashi, Michael Q. Cannon, Matt Donnelly, Graham Valenta, Muriel Hague, Jason Ferrari, and Caroline Simms.

Gibson, Dunn & Crutcher’s lawyers are available to assist in addressing any questions you may have about these developments. To learn more, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Oil and Gas, Tax, Environmental Litigation and Mass Tort, Cleantech, Energy Regulation and Litigation, or Power and Renewables practice groups:

Oil and Gas:
Michael P. Darden – Houston (+1 346.718.6789, mpdarden@gibsondunn.com)
Rahul D. Vashi – Houston (+1 346.718.6659, rvashi@gibsondunn.com)
Graham Valenta – Houston (+1 346.718.6646, gvalenta@gibsondunn.com)

Tax:
Michael Q. Cannon – Dallas (+1 214.698.3232, mcannon@gibsondunn.com)
Matt Donnelly – Washington, D.C. (+1 202.887.3567, mjdonnelly@gibsondunn.com)

Environmental Litigation and Mass Tort:
Stacie B. Fletcher – Washington, D.C. (+1 202.887.3627, sfletcher@gibsondunn.com)
David Fotouhi – Washington, D.C. (+1 202.955.8502, dfotouhi@gibsondunn.com)
Rachel Levick – Washington, D.C. (+1 202.887.3574, rlevick@gibsondunn.com)

Cleantech:
John T. Gaffney – New York (+1 212.351.2626, jgaffney@gibsondunn.com)
Daniel S. Alterbaum – New York (+1 212.351.4084, dalterbaum@gibsondunn.com)
Adam Whitehouse – Houston (+1 346.718.6696, awhitehouse@gibsondunn.com)

Energy Regulation and Litigation:
William R. Hollaway – Washington, D.C. (+1 202.955.8592, whollaway@gibsondunn.com)
Tory Lauterbach – Washington, D.C. (+1 202.955.8519, tlauterbach@gibsondunn.com)

Power and Renewables:
Peter J. Hanlon – New York (+1 212.351.2425, phanlon@gibsondunn.com)
Nicholas H. Politan, Jr. – New York (+1 212.351.2616, npolitan@gibsondunn.com)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

Gibson Dunn has deep expertise related to controlled substances laws, with partners across practice groups having served in leading enforcement and regulatory government roles. We are available to help clients understand the new proposed rule and consider how to respond to it.

On January 17, 2025, the Drug Enforcement Administration (DEA) announced a new proposed rule that would provide limited pathways for telemedicine prescriptions of certain controlled substances, marking a shift away from the broad flexibilities granted during the COVID-19 public health emergency.  The proposed rule comes nearly two years after the DEA first proposed a new telemedicine regime.  The proposed rule would establish a special registration pathway for telemedicine prescribing and impose additional restrictions and requirements on telemedicine practitioners.  The rule is likely to be of significant concern to prescribers, patients, and healthcare systems.  Comments to the proposed rule, which are essential to any potential challenge to an eventual final rule, currently must be submitted to the DEA by March 18, 2025.  However, President Trump announced a regulatory freeze shortly after taking office, and it is unclear how the freeze will impact the timing of the proposed rule or whether it moves forward.  Unless DEA promulgates a new rule, a temporary COVID-era rule remains in effect until the end of 2025.[1]

Statutory Background.  The Ryan Haight Online Pharmacy Consumer Protection Act of 2008, 21 U.S.C. § 801 et seq., generally prohibits the “delivery, distribution, or dispensing of a controlled substance” via telemedicine without a valid prescription.[2]  The Act requires healthcare providers in most instances to conduct an in-person examination of a patient before issuing a controlled substance prescription via telemedicine.  The Act also directed the Drug Enforcement Administration (DEA) to promulgate regulations allowing certain providers to issue telemedicine-based prescriptions if they obtained “special registrations.”[3]  But DEA ignored that mandate for over sixteen years, including even after Congress again instructed DEA to promulgate a rule allowing special registrations in the SUPPORT Act of 2018, 21 U.S.C.§ 301 et seq.

Pandemic Flexibilities and the Proposed Rule.  In response to the COVID-19 public-health crisis in March 2020, DEA granted temporary exceptions to the Ryan Haight Act and its implementing regulations to facilitate access to telemedical care.[4]  Those exceptions authorized providers to prescribe Schedules II–V controlled substances via telemedicine for the duration of the declared public-health emergency, even without an initial in-person visit.[5]  The exceptions also allowed the interstate provision of telemedicine services, regardless of the prescribing practitioner’s state of registration.[6]

In March 2023, DEA, jointly with the Department of Health and Human Services (HHS), published a proposed rule to regulate telemedicine prescriptions after the public health emergency expired.[7]  The rule would have permanently allowed practitioners to prescribe certain drugs by telemedicine, but it also would have imposed more restrictive limitations, conditions, and requirements than the flexibilities in effect during the public health emergency.[8]  For example, the proposed rule would have limited telemedicine prescriptions without an in-person examination to 30-day supplies of drugs and would have imposed onerous recordkeeping and other administrative requirements on providers.[9]  DEA and HHS received more than 38,000 predominantly negative public comments on the proposed rule within the first 30 days after its publication.[10]  In light of this public response, DEA and HHS delayed promulgating a final rule and issued three temporary rules extending the COVID-19-era policies.[11]

The New Proposed Rule.  On January 17, 2025, DEA issued a new notice of proposed rulemaking to fulfill its obligations under the Ryan Haight Act.[12]  The proposed rule would establish a three-part “Special Registration” framework, under which registered providers could prescribe controlled substances through telemedicine without first conducting an in-person examination.  It also proposes to impose new recordkeeping, disclosures, and prescription-labeling requirements on telemedicine practitioners.

The proposed three-part Special Registration framework would operate as follows:

• (1) Telemedicine Prescribing Registration. Qualifying clinician practitioners could prescribe Schedule III – V controlled substances via telemedicine.[13]  “Physicians and board-certified mid-level practitioners” would be eligible for this registration category if they could “demonstrate that they have a legitimate need” for a special registration, e., they “anticipate that they will be treating patients for whom” requiring in-person examinations prior to prescribing Schedule III – V controlled substances could “impose significant burdens on bona fide practitioner-patient relationships.”[14] Practitioners “may” qualify if they treat patients that face “significant challenges” to attending an in-person examination, such as those who live in severe weather conditions or remote areas or have communicable diseases.[15]  The proposed rule includes special registration provisions for Schedule III – V drugs approved by the Food and Drug Administration to treat opioid use disorder (OUD) (currently only buprenorphine), which would allow special registered clinicians to prescribe an initial six-month supply without an in-person appointment.[16]

• (2) Advanced Telemedicine Prescribing Registration. Qualifying clinician practitioners could prescribe Schedule II controlled substances via telemedicine, in addition to Schedules III – V, if they “demonstrate that they have a legitimate need” for a special registration and that they are engaged in the treatment of “particularly vulnerable patient populations,” a term that the proposed rule does not define.[17]  Only certain specialists, such as psychiatrists, hospice or palliative care physicians, physicians at long term care facilities, pediatricians, or neurologists, or board-certified mid-level practitioners, may qualify for an Advanced Telemedicine Prescribing Registration.[18]  These special registrations would be reserved for the “most compelling use cases” to ensure that Schedule II prescribing through telemedicine is used only when necessary.[19]

• (3) Telemedicine Platform Registration. “Covered online telemedicine platforms” (essentially online pharmacies) could dispense Schedules II – V controlled substances via telemedicine if they have a “legitimate need.”[20]  They must attest that they “anticipate providing necessary services” to introduce or facilitate connections between patients and clinician practitioners via telemedicine for diagnosing and prescribing those substances; are compliant with state and federal regulations; can provide oversight over clinician practitioners’ prescribing practices; and can take measures to “prioritize patient safety and prevent diversion, abuse, or misuse of controlled substances.”[21]

In conjunction with the new special registration provisions, the proposed rule would impose many new administrative burdens on registrants.  Clinician and platform special registrants, for instance, would need to apply for an ancillary State Telemedicine Registration for every state in which they intend to issue telemedicine prescriptions for controlled substances to patients.[22]  Applicants also would need to fill out a Form 224, pay $888 per special registration, and renew their status every three years.[23]  Clinician special registrants would need to establish and maintain patient and telemedicine prescription records at a designated “special registered location,” which would serve as DEA’s point of contact for telemedicine inquiries.[24]  They would also need to maintain certain telemedicine encounter records for a minimum of two years from the date of each telemedicine encounter.[25]  And, for each special-registration prescription clinicians issue, providers would need to run a Prescription Drug Monitoring Program check and list their special registration numbers on the prescription.[26]

Why It Matters.  Healthcare providers may have serious concerns about the proposed rule’s impact, if finalized, on their ability to provide quality care to patients, compared to pandemic-era flexibilities:

• The Special Registration framework’s “legitimate need” requirement would significantly limit existing access to telemedicine prescriptions.
• The proposed rule would make it especially difficult for patients to receive Schedule II controlled substance prescriptions through telemedicine.
• The proposed rule would require clinicians to keep the “average number” of prescriptions they issue for Schedule II drugs through their special registration authorization at “less than 50 percent of the total number of Schedule II prescriptions” they issue in a calendar month, through telemedicine or otherwise.[27] This would reduce providers’ ability to treat first-time patients via telemedicine in emergent situations.

The proposed rule inflicts onerous new recordkeeping requirements, as discussed above.

• The proposed rule also would impose significant geographic restrictions on telemedicine prescriptions by requiring special registrants to apply for a separate State Telemedicine Registration for each state in which they seek to prescribe prescriptions to patients.
• Online telemedicine platforms would be required to maintain records, including of patients’ identities and providers’ medical credentials.
• Pharmacies would be required to submit monthly reports to DEA that contain aggregate data for special-registration prescriptions.

Providers should analyze the proposed rule’s potential effect on their operations and consider submitting comments to DEA.  Submission of comments is critical to ensuring that the DEA is able to consider relevant viewpoints in preparing any final rule and to preparing for any potential challenge to a final rule.

[1] See Third Temporary Extension of COVID-19 Telemedicine Flexibilities for Prescription of Controlled Medications, 89 Fed. Reg. 91,253, https://tinyurl.com/y93su2bt.

[2] Id. § 309, 122 Stat. 4820, 4820 (21 U.S.C. § 829(e)); https://www.congress.gov/bill/110th-congress/house-bill/6353.

[3] 21 U.S.C. § 831(h).

[4] DEA, Dear Registrant (Mar. 25, 2020), https://tinyurl.com/vxv2xwae; DEA, Dear Registration (Mar. 31, 2020), https://tinyurl.com/475wr3n9.

[5] Id.

[6] DEA, Dear Registrant (Mar. 25, 2020), https://tinyurl.com/vxv2xwae.

[7] Telemedicine Prescribing of Controlled Substances When the Practitioner and the Patient Have Not Had a Prior In-Person Medical Evaluation, 88 Fed. Reg. 12,875 (Mar. 1, 2023) (to be codified at 21 CFR pts. 1300, 1304, 1306).

[8] See generally id.

[9] Id. at 12,882.

[10] Temporary Extension of COVID-19 Telemedicine Flexibilities for Prescription of Controlled Medications, 88 Fed. Reg. 30,037, 30,037 (May 10, 2023) (codified at 21 CFR pt. 1307) (effective through November 11, 2024).

[11] See Temporary Extension of COVID-19 Telemedicine Flexibilities for Prescription of Controlled Medications, 88 Fed. Reg. 30037 (November 19, 2024) (codified at 42 CFR pt. 1307) (effective through December 31, 2025).

[12] Special Registrations for Telemedicine and Limited State Telemedicine Registrations, 90 Fed. Reg. 6541 (Jan. 17, 2025) (to be codified at 21 CFR pts. 1300, 1301, 1304, 1306).

[13] Id. at 6549.

[14] Id.

[15] Id.

[16] Id. at 6555.  Separately, DEA and HHS announced a final rule that allows patients to receive an initial six-month supply of buprenorphine, the only Schedule III-V narcotic drug FDA has approved to treat opioid-use disorder, following a phone or video call with a healthcare provider.  After the initial six-month supply, practitioners can prescribe buprenorphine via other forms of telemedicine or an in-person visit.

[17] Id.

[18] Id. at 6549–50.

[19] Id. at 6549.

[20] Id. at 6550.

[21] Id.

[22] Id. at 6550–52.

[23] For platform special registrants, the fee is $888 per special registration and for each state in which a State Telemedicine Registration is sought.  Clinician special registrants must only pay the $888 special registration fee and $50 for each state in which they seek a State Telemedicine Registration. Id.

[24] Id. at 6552.

[25] Id. at 6558.

[26] Id. at 6554, 6557.

[27] Id. at 6556.

The following Gibson Dunn lawyers assisted in preparing this update: Gus Eyler, Jonathan Bond, Katlin McKelvie, Josh Zuckerman, and Audrey Payne.

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 FDA and Health Care or Administrative Law and Regulatory practice groups, or the following practice leaders and authors:

Gustav W. Eyler – Washington, D.C. (+1 202.955.8610, geyler@gibsondunn.com)
Jonathan C. Bond – Washington, D.C. (+1 202.887.3704, jbond@gibsondunn.com)
Katlin McKelvie – Washington, D.C. (+1 202.955.8526, kmckelvie@gibsondunn.com)
John D. W. Partridge – Denver (+1 303.298.5931, jpartridge@gibsondunn.com)
Jonathan M. Phillips – Washington, D.C. (+1 202.887.3546, jphillips@gibsondunn.com)

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

On January 10, 2025, the Federal Trade Commission announced its annual update of thresholds for pre-merger notifications of certain M&A transactions under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act).[1]

Pursuant to the statute, the HSR Act’s jurisdictional thresholds are updated annually to account for changes in the gross national product.  The new thresholds will take effect on February 21, 2025, 30 days after publication in the Federal Register, which happened earlier today, and apply to transactions that close on or after that date.[2]

The size-of-transaction threshold for reporting proposed mergers and acquisitions under Section 7A of the Clayton Act will increase by $6.9 million, from $119.5 million in 2024 to $126.4 million for 2025.

.

The HSR filing fees have been revised pursuant to the 2023 Consolidated Appropriations Act.  The new filing fees, which will also take effect on February 21, 2025, will be:

.

The 2025 thresholds triggering prohibitions on certain interlocking directorates on corporate boards of directors are $51,380,000 for Section 8(a)(l) (size of corporation) and $5,138,000 for Section 8(a)(2)(A) (competitive sales).  The Section 8 thresholds take effect today, January 22, 2025.

[1] FTC Announces 2025 Update of Size of Transaction Thresholds for Premerger Notification Filings, Press Releases, FTC (Jan. 10, 2025), https://www.ftc.gov/news-events/news/press-releases/2025/01/ftc-announces-2025-update-size-transaction-thresholds-premerger-notification-filings

[2] Revised Jurisdictional Thresholds for Section 7A of the Clayton Act, 90 Fed. Reg. 7697, 7697–98 (Jan. 22, 2025), https://www.federalregister.gov/documents/2025/01/22/2025-01518/revised-jurisdictional-thresholds-for-section-7a-of-the-clayton-act

The following Gibson Dunn lawyers prepared this update: Rachel Brass, Kristen Limarzi, Stephen Weissman, Andrew Cline, and Tristan Locke.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the new HSR size of transaction thresholds, or HSR and antitrust/competition regulations and rulemaking more generally. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any leader or member of the firm’s Antitrust and Competition, Mergers and Acquisitions, or Private Equity practice groups:

Antitrust and Competition:
Rachel S. Brass – San Francisco (+1 415.393.8293, rbrass@gibsondunn.com)
Jamie E. France – Washington, D.C. (+1 202.955.8218, jfrance@gibsondunn.com)
Sophia A. Hansell – Washington, D.C. (+1 202.887.3625, shansell@gibsondunn.com)
Kristen C. Limarzi – Washington, D.C. (+1 202.887.3518, klimarzi@gibsondunn.com)
Joshua Lipton – Washington, D.C. (+1 202.955.8226, jlipton@gibsondunn.com)
Michael J. Perry – Washinton, D.C. (+1 202.887.3558, mjperry@gibsondunn.com)
Cynthia Richman – Washington, D.C. (+1 202.955.8234, crichman@gibsondunn.com)
Stephen Weissman – Washington, D.C. (+1 202.955.8678, sweissman@gibsondunn.com)

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

© 2025 Gibson, Dunn & Crutcher LLP.  All rights reserved.  For contact and other information, please visit us at www.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.

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

On January 21, 2025, President Trump rescinded Executive Order 11246, which had imposed affirmative action obligations on federal contractors in addition to non-discrimination requirements.  E.O. 11246—adopted in 1965 by President Lyndon Johnson—was enforced by the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP).  Contractors may continue to comply with the prior requirements for up to 90 days.  The Order directs the OFCCP to “immediately cease” “[h]olding Federal contractors and subcontractors responsible for taking “affirmative action.”  The Order will presumably have the effect of terminating ongoing and future compliance investigations based upon the now-rescinded E.O. 11246, although the status of those proceedings is not addressed directly.

In place of the prior affirmative action requirements, federal contracts and grants now will be required to include a clause requiring the contractor or grant recipient to agree that compliance “with applicable Federal anti-discrimination laws” is a term “material to the government’s payment decisions” for purposes of the False Claims Act, 31 U.S.C. § 3729 et seq., as well as certify that that the contractor or grant recipient “does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.”  This requirement does not appear to impose any substantive obligation beyond those contained in federal statutes such as Title VII and the Americans with Disabilities Act.  These additions appear calculated to strengthen the ability of the government—and of individual whistleblowers, or “relators”— to use the False Claims Act to enforce non-discrimination requirements. President Trump’s executive order does not indicate that OFCCP will have a role in enforcing the new non-discrimination clause.

President Trump also directed agency heads within 120 days to submit to the White House proposed “strategic enforcement plan[s]” “containing recommendations for enforcing Federal civil-rights laws and taking other appropriate measures to encourage the private sector to end illegal discrimination and preferences, including DEI.”  Agency submissions are instructed to include, among other things, “up to nine” large companies or non-profits for “potential civil compliance investigations,” as well as “[l]itigation that would be potentially appropriate for Federal lawsuits, intervention, or statements of interest.”

President Trump also directed the Attorney General and Education Secretary to issue joint guidance “regarding the measures and practices required to comply with Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, 600 U.S. 181 (2023).”

Gibson Dunn continues to monitor developments in this area.  Government contractors, federal grant recipients, and other private sector employers should consider reviewing their diversity programs and training to ensure compliance with evolving legal requirements.  Our DEI Task Force is available to help clients understand what these and other expected policy changes will mean for them and how to comply with new requirements.

The following Gibson Dunn lawyers assisted in preparing this update: Jason Schwartz, Katherine Smith, Mylan Denerstein, Dhananjay Manthripragada, Lindsay Paulin, Zakiyyah Salim-Williams, Zoë Klein, Cate McCaffrey, Kelley Pettus, and McKenzie Deutsch.

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

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

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

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

Dhananjay S. Manthripragada – Partner & Co-Chair, Government Contracts Group
Los Angeles/Washington, D.C. (+1 213.229.7366, dmanthripragada@gibsondunn.com)