Regulatory Forum

The SEC regularly brings insider trading cases under Section 10(b) of the Securities Exchange Act of 1934 against company officers, directors, employees, or other insiders, as well as gatekeepers, such as investment bankers or lawyers involved in merger and acquisition activities, who have access to and misuse material non-public information (MNPI) received in such capacity, in breach of a duty of confidence. The SEC also regularly charges friends, family members, and individual or professional traders who receive tips from such insiders regarding MNPI and use such MNPI to trade on their own behalf or in funds or accounts that they manage. While SEC enforcement priorities appeared to have shifted significantly during Q1 2025, the SEC nevertheless brought a number of insider trading cases during the quarter as usual. We have summarized some of the perpetrators and facts presented by such cases and reminders for clients.

On March 27, 2025, the SEC voted 2-1 to end its defense of rules that were adopted in March 2024 requiring enhancement and standardization of climate-related disclosures. The prior rulemaking was championed by former Chairman Gary Gensler and Democratic Commissioners, who argued it was necessary to provide investors with the information they need to make informed decisions, while Republican Commissioners dissented, arguing the rule was likely to overwhelm investors. While the decision does not directly relate to the pending rules for investment advisers and investment companies that would require enhanced disclosures about ESG investment practices, it does suggest that these are unlikely to move forward under the current Commission.

Launched on January 21 by Acting SEC Chairman Mark T. Uyeda and led by Commissioner Hester Peirce, the Crypto Task Force was established to help the SEC draw clear regulatory lines, provide realistic paths to registration, craft sensible disclosure frameworks, and deploy enforcement resources judiciously. The task force subsequently announced that it would hold a series of roundtable events to discuss key areas of interest in the regulation of crypto assets. The “Spring Sprint Toward Crypto Clarity” series, as it was dubbed, began on March 21 with its inaugural roundtable, “How We Got Here and How We Get Out – Defining Security Status.” The roundtables are open to the public and available live on the SEC's website. Upcoming roundtables will be held as follows:

• April 11, 2025 – Between a Block and a Hard Place: Tailoring Regulation for Crypto Trading
• April 25, 2025 – Know Your Custodian: Key Considerations for Crypto Custody
• May 12, 2025 – Tokenization - Moving Assets Onchain: Where TradFi and DeFi Meet
• June 6, 2025 – DeFi and the American Spirit

FinCEN has issued an interim final rule that removes the requirement for U.S. companies and U.S. persons to report BOI to FinCEN under the CTA. There may be limited scenarios in which a foreign-domiciled fund portfolio company or entity within a foreign fund structure meets the definition of a reporting company and requires reporting of its non-U.S. beneficial owners. The firm should consult with counsel if there are any questions as to whether or not an exemption applies to a given entity.

On March 12, 2025, the SEC Division of Corporation Finance issued a no-action letter to Latham & Watkins in response to a request for interpretive guidance on Rule 506(c) of Regulation D under the Securities Act of 1933, as amended. Rule 506(c) permits the use of general solicitation in Rule 506 offerings if all of the purchasers are accredited investors and if the issuer takes “reasonable steps to verify” the accredited investor status of purchasers. The no-action letter proscribes a process through which an issuer could reasonably conclude that it has taken reasonable steps to verify a purchaser’s accredited status when the purchaser agrees to a certain minimum investment amount that satisfies the asset threshold required under the “accredited investor” definition (i.e., $200,000 for a natural person or $1 million for an entity) and provides written representations regarding such investment. This guidance opens the door for more private fund managers to avail themselves of the Rule 506(c) exemption and more actively fundraise through the use of general solicitation, assuming they have established relevant policies and procedures to rely on the conditions in the no-action letter.

On March 19, 2025, the SEC Division of Investment Management added to its Marketing Rule Frequently Asked Questions (FAQ). The publication includes new guidance related to the presentation of extracted performance and certain portfolio investment characteristics. One of the added responses reverses a position that was previously taken by SEC staff and should result in a more reasonable approach to applying the full and fair disclosure principles that the rule was intended to establish. The updates are summarized below.

Extracted Performance: In this updated FAQ response, the SEC noted that they would not object if an adviser presents extracted performance of one investment or a group of investments from a private fund or portfolio on a gross basis without providing corresponding net performance if the adviser abides by specific guidelines including: (i) clearly identifying gross performance, (ii) including total fund or portfolio gross and net performance, (iii) presenting the information with equal prominence, and (iv) providing the information over a consistent and disclosed time period.

Portfolio Investment Characteristics: In this new FAQ response, the SEC acknowledged that it is unclear whether certain portfolio and investment characteristics (yield, coupon rate, contribution to return, etc.) should be treated as “performance” requiring reporting on a gross and net basis. The SEC confirmed that it would not object to the presentation of one or more gross characteristics of a portfolio or investment without providing a corresponding net characteristic, so long as the adviser follows the same stipulations for extracted performance.