SEC Approves Nasdaq Rule Establishing New $5 Million Market Value ofListed Securities Requirement for Continued Listing
Nasdaq has spent the better part of the last five years narrowing the path for small, thinly traded companies to remain on its markets, and on July 22, 2026, that campaign reached its sharpest point yet. The Securities and Exchange Commission (the “Commission”) approved a proposed rule change filed by The Nasdaq Stock Market LLC (“Nasdaq”), adopting a new continued listing requirement.
Overview
Nasdaq has spent the better part of the last five years narrowing the path for small, thinly traded companies to remain on its markets, and on July 22, 2026, that campaign reached its sharpest point yet. The Securities and Exchange Commission (the “Commission”) approved a proposed rule change filed by The Nasdaq Stock Market LLC (“Nasdaq”), adopting a new continued listing requirement. Under the new rule, companies listed on the Nasdaq Global Select Market, Nasdaq Global Market, and Nasdaq Capital Market must maintain a minimum Market Value of Listed Securities (“MVLS”) of at least $5 million on a continued-listing basis (the “MVLS Requirement”). What sets this rule apart from the usual continued listing framework is not the threshold itself, but the penalty for missing it: a sustained failure to satisfy the MVLS Requirement now results in immediate suspension and delisting, with no cure or compliance period, and an appeal to Nasdaq’s Hearings Panel will not stay the suspension.
For issuers, boards, and investors accustomed to Nasdaq’s more forgiving deficiency framework, with its 180-day grace periods, extensions, and multiple opportunities to regain compliance, this is a meaningfully different regime. Below we walk through how the rule came about, what it actually requires, and what it is likely to mean in practice for companies operating near the threshold.
We urge all of our clients who may be affected by this to proactively talk to us here at Crone about important steps that may be taken to plan for and protect against the outcomes of this major change in the Nasdaq listing landscape. We are standing by to assist.
Why Now: The Road to the MVLS Requirement
The rule did not appear overnight. Nasdaq first floated the proposal in January 2026, and the Commission took the relatively unusual step in April of instituting formal proceedings to decide whether to approve or reject it. Nasdaq revised the proposal in June 2026, primarily to give its Hearings Panel somewhat broader discretion on appeal, and the Commission approved the amended version in July.
The rule’s underlying rationale is straightforward: Nasdaq and the Commission treat a low stock price as a curable problem, since companies can often resolve it quickly through a reverse split. A market value below $5 million is treated differently. Rather than a temporary condition, it is viewed as a structural indicator that the company can no longer sustain a viable trading market. On that view, an extended compliance period would not meaningfully change the outcome; it would simply delay a listing that is, in substance, already unsustainable.
This rule also fits a broader pattern. It is one of several steps Nasdaq has taken in recent years to tighten continued listing standards for small and micro-cap issuers, following a period in which the number of non-compliant issuers rose sharply, from a small handful earlier in the decade to well over a hundred at the peak, and has remained elevated since despite some decline from that high. Viewed in that context, the MVLS Requirement is less an isolated technical fix than the latest, and most severe, step in a sustained effort to move persistently low-value companies off Nasdaq’s markets rather than allow them to remain listed in a non-compliant state.
Key Provisions of the New Rule
New MVLS Threshold
Threshold: Under amended Nasdaq Rules 5450(a)(3) and 5550(a)(6), companies listed on the Nasdaq Global Select Market, Nasdaq Global Market and Nasdaq Capital Market must maintain an MVLS of at least $5 million, calculated as closing bid price multiplied by shares outstanding, aggregated across share classes.
Immediate Suspension and Delisting
No cure period: Under amended Nasdaq Rule 5810(c)(1), a company that fails to maintain the $5 million MVLS threshold for 30 consecutive business days will receive a Staff Delisting Determination, and its securities will be immediately subject to suspension and delisting under amended Nasdaq Rule 5810(c)(3)(C), with no cure or compliance period available.
No Automatic Stay Pending Appeal
Trading pending appeal: Under amended Nasdaq Rule 5815(a)(1)(B), a timely request for Hearings Panel review will not stay the suspension of trading where the deficiency relates to the MVLS Requirement. The company’s securities will generally trade in the over-the-counter (“OTC”) market pending the Hearings Panel’s written decision.
Hearings Panel Exception
Available relief: Under new Nasdaq Rule 5815(c)(1)(I), the Hearings Panel may (a) reverse the delisting decision if it finds the Staff Delisting Determination was issued in error, or (b) grant an exception of up to 180 days from the Staff Delisting Determination for the company to demonstrate that it satisfies all requirements for initial listing, which are generally higher than continued listing standards.
What This Means for the Market
The practical effect will likely show up quickly. Because the 30-business-day countdown has presumably already been running informally for companies that were trading below $5 million when the rule took effect, the first wave of Staff Delisting Determinations under this framework could begin to surface within a matter of months. Companies hovering near the threshold no longer have the luxury of treating a dip below $5 million as a routine deficiency letter to be dealt with later. By the time Nasdaq staff issues a determination, the clock has effectively already run out.
The rule also changes the economics of an appeal. Under the ordinary continued listing framework, a Hearings Panel request buys a company real time and, often, continued trading on Nasdaq while the matter is considered. Here, the securities are expected to move to the OTC market for the duration of any appeal, and the Panel’s authority is narrow. It can find that Staff made an error, or grant extra time to meet Nasdaq’s tougher initial listing standards, but it cannot simply extend the clock on the existing deficiency the way it might for a bid-price or equity problem. For a company that depends on Nasdaq-level liquidity, analyst coverage, or index eligibility to raise capital, even a temporary shift to the OTC market during an appeal can be damaging in its own right, independent of how the appeal is ultimately resolved.
There is also a market-structure dimension worth flagging for clients. The rule is explicitly aimed at the segment of the market most associated with thin trading, low institutional ownership, and susceptibility to manipulation, often smaller, newer, or reverse-merger companies without a natural, deep shareholder base. Pushing that population toward the OTC market more quickly, with less opportunity to fight a determination while remaining listed, will likely accelerate an existing trend of consolidation among Nasdaq’s smallest issuers. At the same time, critics’ concerns are not unreasonable. A company can fall below $5 million in market value for reasons that have nothing to do with fraud, such as a broad market downturn, sector rotation, or a single bad quarter, and this rule does not distinguish between that company and one that is genuinely being propped up or manipulated. The absence of a cure period means the rule will, by design, sometimes catch companies that a more forgiving standard would have let recover.
Practical Takeaways
Monitor proactively, not reactively. Given the immediate and incurable nature of this deficiency, listed companies should track their MVLS (closing bid price multiplied by shares outstanding, aggregated across share classes) on an ongoing basis, rather than waiting for a Nasdaq staff notice, since a sustained MVLS below $5 million for 30 consecutive business days now triggers automatic suspension and delisting with no cure period.
Treat a Hearings Panel appeal as limited protection. The appeal will not stay the suspension, the company’s shares will trade OTC in the interim, and the Panel’s authority is narrow, permitting it only to reverse a determination issued in error or to grant up to 180 days for the company to meet Nasdaq’s more stringent initial listing standards.
Plan ahead of the threshold, not at it. Companies trading in the vicinity of $5 million in market value should consider, well before any deficiency arises, the tools available to build a cushion, such as additional capital raises or strategic transactions, since by the time a Staff Delisting Determination issues, most of the usual remedial runway will already be gone.
If you have any questions, please contact Anand Saha (asaha@cronelawgroup.com), Liang Shih (lshih@cronelawgroup.com), Daisy Dai (DDai@cronelawgroup.com), Hongye (Eve) Mao (hmao@cronelawgroup.com) or your usual Crone contact.
SEC Issues Exemptive Order Shortening Minimum Offering Period for Non-Convertible Debt Tender and Exchange Offers
The SEC has formalized the five-business-day minimum offering period for qualifying non-convertible debt tender and exchange offers. The new exemptive order replaces decades of guidance provided through no-action letters.
Overview
On June 30, 2026, the ’SEC issued an exemptive order (the “Order”) permitting tender or exchange offers for non-convertible debt securities to remain open for a minimum offering period of just five business days, rather than the 20 business days generally required under Exchange Act Rule 14e-1(a). The Order supersedes the ’prior position that had been put forward through no-action relief letters, and thus formalizes and expands the abbreviated offering period into a standing exemptive order.
Background
Tender offers generally must remain open for at least 20 business days under Exchange Act Rule 14e-1(a). Since 1986, the SEC staff has allowed shorter offering periods for non-convertible debt tender offers through a series of no-action letters, most recently a five business day minimum period under a January 2015 no-action letter (the “2015 Letter”). On June 30, 2026, the SEC replaced the 2015 Letter with a formal exemptive order (the “Order”), expanding and codifying this five business day relief for qualifying non-convertible debt tender and exchange offers (a “Five Business Day Tender Offer”).
Conditions for a Five Business Day Tender Offer
To qualify for the shortened five business day minimum offering period, an offer must satisfy the following conditions:
Eligible Offerors and Securities
Offeror: The offer must be made by the issuer of the subject non-convertible debt securities, a direct or indirect wholly owned subsidiary of the issuer, or a parent company that directly or indirectly owns 100% of the issuer'’s capital stock (other than directors'’ qualifying shares).
Eligible securities: The offer may be made for any class or series of non-convertible debt securities, regardless
Consideration and Proration
Consideration: The offer must be made solely for cash and/or "Qualified Debt Securities," meaning non-convertible debt securities that are substantially similar in all material respects (including but not limited to issuer, guarantors, collateral, lien priority, 2 covenants, and other terms) to either the securities subject to the offer or the issuer'’s most recent pari passu issuance, except for maturity, interest payment and record dates, redemption provisions, and interest rate, provided that interest must be payable only in cash.
Pro-ration: If the offer is for less than all outstanding securities of the class or series and is oversubscribed, securities must be accepted for payment on a pro rata basis (disregarding fractions) according to the amount tendered by each holder.
Exchange offers: If Qualified Debt Securities are offered as consideration in an exchange offer, participation must be limited to Qualified Institutional Buyers (pursuant to Rule 144A), non-U.S. persons (pursuant to Regulation S), and/or institutional accredited investors (pursuant to Regulation D).
Restrictions on Timing and Context
No consent solicitation: The offer must not be made in connection with a solicitation of consents to amend the indenture (or similar governing agreement) where the amendment requires the consent of holders of more than a simple majority of the outstanding principal amount of the subject securities.
No default: The offer must not be made while a default or event of default exists under the indenture or any other material credit agreement to which the issuer is a party.
No bankruptcy or restructuring context: The offer must not be made while the issuer is subject to bankruptcy or insolvency proceedings, has commenced a consent solicitation for a “pre-packaged” bankruptcy, or has board-authorized discussions with creditors regarding a consensual restructuring.
No proximity to extraordinary transactions: The offer may not commence within ten business days after the first public announcement or consummation of a change of control or other extraordinary transaction (such as a merger, reorganization, liquidation, or sale of substantially all assets), nor within ten business days after announcement or consummation of a material asset purchase, sale, or transfer requiring pro forma financial information pursuant to Article 11 of Regulation S-X.
No competing or layering offers: The offer must not be made in anticipation of or in response to other tender offers for the issuer'’s securities, nor made concurrently with another tender offer for a different class or series of the issuer'’s securities if the effect would be to add obligors, guarantors, or collateral, or increase lien priority.
Disclosure and Announcement Requirements
Commencement announcement: The offer must be announced by 10:00 a.m. Eastern time on the commencement date via a widely disseminated press release or wire service, including the offeror'’s identity, the securities sought, the consideration offered, the expiration date, proration procedures (if applicable), and a hyperlink to the offer materials; the offeror must also use commercially reasonable efforts to email the announcement to subscribing investors and issue a results press release promptly after consummation.
Changes to amount or consideration: Any increase or decrease in the amount of securities sought (other than an increase of up to 2% of the class or series) or any change in the consideration offered must be publicly announced no later than 9:00 a.m. Eastern time on the third business day before expiration.
Other material changes: Any other material change to the offer'’s terms must be publicly announced no later than 9:00 a.m. Eastern time on the second business day before expiration.
Proration factor: For offers that are for less than all outstanding securities, the offeror must use commercially reasonable efforts to announce the proration factor by 10:00 a.m. Eastern time on the business day following expiration, or as soon as practicable thereafter.
Withdrawal Rights and Payment
Withdrawal rights: Tendered securities must be withdrawable at least until the earlier of the offer'’s expiration or, if extended, the tenth business day after commencement, and at any time after the 60th business day after commencement if the offer has not closed by then.
Payment timing: The offeror must not pay the consideration until promptly after expiration of the offer, consistent with Exchange Act Rule 14e-1(c).
If you have any questions, please contact Anand Saha (asaha@cronelawgroup.com), Liang Shih (lshih@cronelawgroup.com), Daisy Dai (DDai@cronelawgroup.com), Hongye (Eve) Mao (hmao@cronelawgroup.com) or your usual Crone contact.
SEC Proposes Major Overhaul of Capital Markets Access and Public Company Reporting
The SEC has proposed sweeping reforms to expand access to public capital markets and significantly reduce reporting and compliance burdens for public companies.
The SEC has proposed sweeping reforms to expand access to public capital markets and significantly reduce reporting and compliance burdens for public companies.
On May 19, 2026, the Securities and Exchange Commission (“SEC”) proposed significant rule changes that, if adopted, would fundamentally expand access to the public capital markets for a broader range of issuers while significantly reducing the compliance burden for the vast majority of public companies. The proposals address a longstanding concern; the cost and complexity of going and staying public has grown considerably over the decades, causing many companies to seek capital through private markets instead. The SEC is now proposing to extend many benefits previously reserved for only the largest and most established companies to a much broader range of issuers.
Registered Offering Reform
Expanded Shelf Registration Access (Form S-3 Amendments):
The proposed amendments would significantly broaden access to Form S-3, the short-form registration statement that allows eligible issuers to register securities offerings more quickly and cost-effectively than through a full Form S-1 filing. Key changes include:
Amendment to Form S-3 Registrant Requirements
Exchange Act Reporting (One-Year Seasoning, Current, and Timely Requirements):
The proposed amendments would eliminate the current requirement that an issuer must have been an Exchange Act reporting company for at least 12 calendar months before filing a Form S-3. Under the proposed amendments, an issuer would immediately become eligible to use Form S-3 upon having a class of securities registered under section 12(b) or 12(g), or becoming subject to section 15(d), of the Exchange Act — meaning issuers in their first year as public companies could access Form S-3 as soon as they are current and timely in their Exchange Act reporting obligations, which requirement is retained.
Certain Failures to Make Payments and Defaults:
The proposed amendments would remove the current requirement that conditions Form S-3 eligibility on an issuer's satisfaction of certain factors related to payment defaults and failures, meaning that an issuer's history of financial difficulties or defaults would no longer disqualify it from using Form S-3.
Electronic Filings and Interactive Data Files:
The proposed amendments would remove two existing Form S-3 eligibility conditions: (i) General Instruction I.A.7(a), which requires an issuer to have filed all required electronic filings with the Commission; and (ii) General Instruction I.A.7(b), which requires an issuer to have submitted all required Interactive Data Files electronically to the Commission during the preceding 12 calendar months.
Prohibition on Use of Form S-3 by Certain Ineligible Issuers:
Although the proposed amendments would broaden Form S-3 eligibility, certain categories of issuers that pose a greater risk of non-compliance with Federal securities laws would be prohibited from using the form and would instead be required to use Form S-1. Specifically, the following categories of issuers would be prohibited from using Form S-3:
Newly Added: “BSP issuers,” defined as issuers that are, or within the past three years were, a blank check company, a shell company other than a business combination related 2 shell company, or an issuer in an offering of penny stock, with an exception for former Special Purpose Acquisition Companies (“SPACs”) that have successfully completed a de-SPAC transaction and are no longer shell companies at the time of filing;
Existing Restrictions (Carried Over from Rule 405): The remaining prohibited categories are not new and are carried over from the existing “ineligible issuer” definition under Rule 405. Issuers falling into any of the following categories would continue to be barred from using Form S-3: (1) convicted of a felony or misdemeanor; (2) subject to an antifraud-related court or administrative order; (3) subject to a Section 8 refusal or stop order; or (4) facing a pending Section 8A proceeding, in each case within the past three years.
Prohibition on Use of Form S-3 by Certain Other Issuers:
In addition to the ineligible issuer prohibitions above, four additional categories of issuers would be prohibited from using Form S-3 at any time: (i) foreign governments and Foreign Private Issuers (“FPIs”); (ii) asset-backed issuers, who are directed to use Form SF-3; (iii) investment companies; and (iv) Business Development Companies (“BDCs”), with both investment companies and BDCs required to use other forms specifically adopted by the Commission for their respective issuer types.
Successor Registrants:
The proposed amendments would eliminate the current rule that allows a successor registrant to rely on its predecessor's Exchange Act reporting history for Form S-3 eligibility. Going forward, a successor registrant would be treated as a new Exchange Act reporting company and must rely solely on its own reporting history.
Amendment to Form S-3 Transaction Requirements
$75 Million Public Float:
The proposed amendments would eliminate the $75 million minimum public float requirement currently in General Instruction I.B.1 of Form S-3. Under the proposed amendments, any issuer that satisfies the Form S-3 registrant requirements would be eligible to use Form S-3 for any primary or secondary offering of its securities, regardless of the size of its public float.
Elimination of Baby Shelf Rule and Other Transaction Requirements:
The proposed amendments would eliminate all transaction requirements under Form S-3's General Instructions I.B.2 through I.B.6. Most notably, this includes the elimination of the “baby shelf” rule under General Instruction I.B.6, which currently caps smaller issuers' primary offerings at one-third of their public float in any rolling 12-month period. Conforming changes would also be made to other parts of Form S-3 and related rules and forms.
Form S-3 Eligibility of Majority-Owned Subsidiaries:
The proposed amendments would allow majority-owned subsidiaries that are not Exchange Act reporting companies to register Guarantee-Related Offerings on their parent's Form S-3, provided the parent is eligible to use Form S-3 and both are co-registrants on the same registration statement.
At-the-Market (“ATM”) Offerings:
The proposed amendments would expand the pool of issuers eligible to conduct ATM offerings as a result of the broader Form S-3 eligibility expansion. To protect investors, ATM offerings would be limited to securities listed or traded on a qualified “trading market,” defined as a national securities exchange or a Commission-designated market that meets certain minimum standards, such as minimum bid price, public float, and trading volume requirements.
Amendments to Well-Known Seasoned Issuers (“WKSIs”) Eligibility and Enhanced Registration and Communication Benefits:
The proposed amendments would replace the existing WKSI framework with a new three-tier structure that extends enhanced registration and communication benefits to a significantly broader range of issuers. Under the current framework, only issuers with a public float of at least $700 million or at least $1 billion in non-convertible securities issued in primary registered offerings over the prior three years qualify as WKSIs. The proposed amendments would remove these thresholds entirely and replace them with an exchange-listing-based tier structure as follows:
New Issuer Tier Framework:
Tier 1 — Form S-3 Eligible Issuer:
Any domestic issuer that is current and timely in its Exchange Act reporting obligations and is not an “ineligible issuer” under Rule 405. No public float threshold or exchange listing is required.
Tier 2 — Eligible Listed Issuer (“ELI”):
A Tier 1 issuer that additionally has at least one class of common equity securities listed on a national securities exchange. No public float threshold is required.
Tier 3 — Seasoned Eligible Listed Issuer (“SELI”):
A Tier 2 issuer that has additionally been subject to Exchange Act reporting requirements for at least 12 calendar months, representing the highest tier with the most comprehensive benefits.
The table below summarizes the specific benefits available to issuers at each tier:
| Enhanced Registration and Communication | Current Rule | Proposed Rule |
|---|---|---|
| Rule 139 – research report exemption |
|
All Form S-3 eligible issuers |
| Rule 163 – pre-filing offers | WKSIs | ELIs |
| Rule 163A – pre-filing offers for Form S-8 offerings | WKSIs | ELIs |
| Rule 164 – post-filing Free Writing Prospectuses ("FWPs") for Form S-8 offerings | WKSIs | ELIs |
| Rule 413 – ability to register additional classes of securities, or securities of a majority-owned subsidiary | WKSIs | ELIs |
| Rule 430B(a) – ability to omit: (i) information as to whether the offering is a primary offering or an offering on behalf of persons other than the issuer, or a combination thereof, (ii) the plan of distribution for the securities, (iii) a description of the securities registered other than an identification of the name or class of such securities, and (iv) the identification of other issuers | WKSIs | ELIs |
| Rule 430B(b) – for resale registration statements, may omit the identities of selling security holders and amounts of securities to be registered on their behalf |
|
All Form S-3 eligible issuers |
| Rule 433 – prospectus not required to accompany or precede FWPs |
|
All Form S-3 eligible issuers |
| Rule 456(b)/457(r) – "pay-as-you-go" | WKSIs | ELIs |
| Rule 462 – automatic shelf registration | WKSIs | SELIs |
Availability of Enhanced Registration and Communication Benefits to Majority-Owned Subsidiaries:
The proposed amendments would permit majority-owned subsidiaries of ELIs and SELIs to access the Enhanced Registration and Communication Benefits, including automatic shelf registration. A subsidiary that does not independently qualify as an ELI or SELI may still access these benefits based on its parent's status, provided that the subsidiary and parent are co- registrants on the same registration statement and the subsidiary is either registering a Guarantee-Related Offering on Form S-3 or is independently eligible to use Form S-3 and is registering non-convertible securities other than common equity.
Elimination of WKSI Category of Issuer for Domestic Issuers:
The proposed amendments would retain the WKSI definition in Rule 405 but amend it to clarify that only FPIs could qualify as WKSIs, which would continue to qualify under the existing criteria.
Form S-1 Amendments — Incorporation by Reference
Form S-1 is the default registration statement available to any domestic issuer not eligible for another form and, unlike Form S-3, is subject to SEC staff review and does not permit shelf or delayed primary offerings. Currently, Form S-1 permits issuers to backward incorporate previously filed Exchange Act reports by reference only if the issuer has filed a Form 10-K for its most recently completed fiscal year, and permits forward incorporation, automatic updating of the registration statement via future Exchange Act filings, only for Smaller Reporting Companies (“SRCs”). The proposed amendments would make the following key changes:
Elimination of the Form 10-K Requirement for Backward Incorporation:
The proposed amendments would eliminate the requirement that an issuer must have filed a Form 10-K for its most recently completed fiscal year before being eligible to incorporate previously filed Exchange Act reports by reference. This change would particularly benefit issuers in their first year of Exchange Act reporting who have not yet filed an annual report.
Extension of Forward Incorporation by Reference:
The proposed amendments would expand forward incorporation by reference, which allows automatic updating of the registration statement via future Exchange Act filings, to all eligible Form S-1 issuers, not just SRCs. The SEC describes the current limitation as “anomalous,” as it forces larger issuers to file costly post-effective amendments and prospectus supplement updates.
Other Changes:
The proposed amendments would also (i) prohibit BSP issuers from using incorporation by reference; (ii) amend disclosure requirements for material changes, annual financial statements, and periodic report incorporation to align with the elimination of the Form 10-K filing condition; and (iii) no longer allow FPIs to use Form S-1.
Form S-1 Amendment — FPIs, Investment Companies, and BDCs:
The proposed amendments would amend Form S-1 to explicitly prohibit three categories of issuers from using the form: (i) FPIs, who may instead file on Form F-1; (ii) investment companies; and (iii) BDCs, with both investment companies and BDCs required to use other forms specifically adopted by the Commission for their respective issuer types.
Preemption of State Securities Law Registration and Qualification
The proposed amendments would add a new definition of “qualified purchaser” to Rule 146 under Section 18(b)(3) of the Securities Act, which would preempt state securities law registration and qualification requirements for all registered offerings. Under this definition, any person to whom securities are offered or sold pursuant to a registered offering would be deemed a “qualified purchaser,” making such securities “covered securities” and therefore exempt from state-level registration and qualification requirements. Notably, states would retain their authority to investigate and bring enforcement actions for fraud, as well as to require notice filings for fee purposes.
Other Rule Amendments
Delaying Amendments:
The proposed amendments would revise Rule 473 so that registration statements would automatically be deemed delayed unless the issuer includes a legend on the facing page stating that effectiveness will follow section 8(a) of the Securities Act, eliminating the current requirement to file a separate delaying amendment. Issuers who want effectiveness on the twentieth day after filing must affirmatively include this legend on the registration statement's facing page.
Elimination of Certain Conditions Relating to Age of Financial Statements:
The proposed amendments would eliminate the income-related conditions in Rules 3-01(c)(2) and (3) and 8-08(b)(2) and (3) of Regulation S-X. As a result, SRCs and non-reporting companies would have 90 days after fiscal year end to provide audited annual financial statements regardless of timing of a registration or proxy statement, and non-SRC Exchange Act reporting companies that have filed all required reports would need to provide audited financial statements in a registration statement no later than their Form 10-K due date based on filer status.
Enhancement of Emerging Growth Company (“EGC”) Accommodations and Simplification of Filer Status for Reporting Companies
New Two-Tier Filer Status Framework
The SEC's second proposal would overhaul the existing public company reporting framework by replacing the current five-category filer system (large accelerated filers, accelerated filers, non-accelerated filers, SRCs, and emerging growth companies) with two straightforward categories: Large Accelerated Filer (“LAF”) and Non-Accelerated Filer (“NAF”). The accelerated filer and SRC categories would be eliminated entirely, with NAF becoming the default status for all Exchange Act reporting companies until they qualify as an LAF. The two categories are defined as follows:
LAF:
The proposed amendments would significantly tighten the LAF definition in three key respects: (i) raise the public float threshold from $700 million to $2 billion; (ii) require the threshold to be met for two consecutive fiscal years using a 10-trading-day average stock price, rather than a single day's closing price; and (iii) extend the seasoning requirement from 12 to 60 consecutive calendar months of Exchange Act reporting. LAFs would retain their current filing deadlines of 60 days after fiscal year end for Form 10-K and 40 days after quarter end for Form 10-Q.
NAF:
Any issuer that does not qualify as an LAF would be classified as a NAF, the default status for all Exchange Act reporting companies. Every registrant would begin as a NAF at IPO and remain so for at least five years, with filing deadlines of 90 days after fiscal year end for Form 10-K and 45 days after quarter end for Form 10-Q.
Extended Disclosure Accommodations for NAFs
Internal Control over Financial Reporting (“ICFR”) and the Auditor Attestation Requirement:
NAFs would be exempt from the ICFR auditor attestation requirement under Sarbanes-Oxley Section 404(b). NAFs would still be required to comply with Section 404(a) (management's own assessment of ICFR) and obtain a financial statement audit, but would not be required to obtain a separate auditor attestation. Management’s assessment and report on ICFR effectiveness would still be required of all NAFs.
Extension of SRC and EGC Accommodations to All NAFs:
All NAFs would receive the scaled disclosure accommodations currently available only to SRCs and EGCs, making separate reliance on Jumpstart Our Business Startups Act EGC provisions unnecessary for most companies. Key accommodations include:
SRC Accommodations Extended to All NAFs:
Two (not three) years of audited financials, Management’s Discussion and Analysis, and compensation tables; three (not five) named executive officers
Exemption from: risk factors, stock performance graph (except for NAFs that are investment companies), supplementary financial information, pay ratio disclosure, pay versus performance disclosure, market risk disclosures, Compensation Discussion and Analysis, certain compensation tables, related party policies, compensation committee reports, compensation committee interlocks and insider participation disclosure, and resource extraction disclosures
Scaled financials under Article 8 of Regulation S-X, provided that investment companies would not be permitted to rely on Article 8; BDCs and face-amount 7 certificate companies would receive equivalent relief under new Rule 3-19, including the ability to provide two rather than three years of statements of operations and cash flows
All registrants must disclose unresolved SEC staff comments on Forms 10-K/20-F received 180 or more days before fiscal year end
EGC Accommodations Extended to All NAFs:
Exemption from pay-versus-performance disclosure
Exemption from say-on-pay votes, frequency of say-on-pay votes, and golden parachute compensation disclosure in M&A transactions
Option to defer compliance with new or revised Financial Accounting Standards Board (“FASB”) accounting standards until the date that a private company is required to comply with such standards, for up to five years after initial registration with the SEC; this accommodation is currently available only to EGCs and would now be extended as a time-limited on-ramp benefit to all newly public companies; this election is irrevocable, meaning NAFs electing not to use this accommodation may not revisit the election in future filings
Confidentiality provisions under Securities Act Section 6(e)(2) for draft registration statements would remain available only to statutory EGCs.
Small Non-Accelerated Filer (“SNF”) — New Subcategory
The proposed amendments would create a new subcategory of NAFs — the SNF — defined as a NAF with total assets of $35 million or less as of the end of each of its two most recent second fiscal quarters. SNFs would receive extended filing deadlines of 120 days (instead of 90) after fiscal year end for Form 10-K and 50 days (instead of 45) after quarter end for Form 10-Q.
Transition Period
The SEC proposes new transition rules governing how existing registrants determine their filer status under the updated LAF/NAF/SNF framework. All registrants must complete this reassessment before the new rules take effect, with a deadline of the end of the fiscal year in which the rules become effective. Importantly, registrants must treat this as a clean-slate evaluation, as prior filer status is irrelevant and the new definitions apply in full. Registrants that miss the deadline will be automatically placed into their former status (LAF for prior LAFs, NAF for all others), with the additional consequence that any automatically designated NAF will be ineligible for SNF status regardless of its total assets. For those that complete the assessment on time, the benefits are immediate: newly qualified NAFs may apply scaled disclosure accommodations starting with their very next SEC filing, while SNFs may take advantage of extended filing deadlines beginning with their next Form 10-Q or 10-K.
Application to Other Filer Types
Asset-backed issuers and FPIs electing to use Form 20-F or Form 40-F would be excluded from the LAF/NAF/SNF framework and would continue under their existing reporting regimes.
Updated Small Entity Definitions
The proposed amendments would raise the total asset threshold for “small entity” status under the Regulatory Flexibility Act from $5 million to $35 million, harmonizing the definitions under the Securities Act and Exchange Act.
If you have any questions, please contact Anand Saha (asaha@cronelawgroup.com), Liang Shih (lshih@cronelawgroup.com), Daisy Dai (DDai@cronelawgroup.com), Hongye (Eve) Mao (hmao@cronelawgroup.com) or your usual Crone contact.
SEC Approves Nasdaq’s Heightened Initial Listing Standards for China-Based Companies
The SEC has approved new Nasdaq rules imposing more stringent listing thresholds and eligibility requirements for companies with substantial ties to China. The changes are expected to materially impact IPOs, uplistings, and direct listing strategies going forward.
On May 14, 2026, the Securities and Exchange Commission (“SEC”) issued a release granting accelerated approval to a Nasdaq proposed rule change that adopts stricter initial listing criteria for companies operating in China. The new rules will take effect 30 days after the date of the SEC’s approval order.
Below is a summary of the key provisions and practical implications.
The New Listing Requirements
1. Initial Public Offerings (IPOs)
A China-based company listing on Nasdaq through an IPO must conduct a firm commitment offering in the United States to public holders that result in gross proceeds to the company of at least $25 million.
2. Business Combinations
A China-based company listing in connection with a business combination must have a minimum Market Value of Unrestricted Publicly Held Shares of at least $25 million following the transaction.
3. Direct Listings
A China-based company will not be permitted to list on the Nasdaq Global Market or Nasdaq Capital Market through a direct listing. A direct listing will be available only if the company satisfies the applicable requirements for the Nasdaq Global Select Market.
4. Transfers from OTC Markets or Other Exchanges
A China-based company transferring from the OTC market or another national securities exchange must have traded on the market for at least one year and must have a Market Value of Unrestricted Publicly Held Shares of at least $25 million before becoming eligible to list on Nasdaq.
Who Is Covered: Identifying China-Based Companies
Under new Nasdaq Listing Rule 5210(l), the heightened listing standards apply to any company that is headquartered or incorporated in China (including the Hong Kong Special Administrative Region and the Macau Special Administrative Region), or whose business is principally administered in one of those jurisdictions. Nasdaq will determine where a company is principally administered based on a holistic analysis of seven factors:
whether the company’s books and records are located in China;
whether at least 50% of the company’s assets are located in China;
whether at least 50% of the company’s revenues are derived from China;
whether at least 50% of the company’s directors are citizens of, or reside in, China;
whether at least 50% of the company’s officers are citizens of, or reside in, China;
whether at least 50% of the company’s employees are based in China; and
whether the company is controlled by, or under common control with, persons or entities that are citizens of, reside in, or whose business is headquartered, incorporated, or principally administered in China.
Specifically, Nasdaq stated that no single factor will automatically determine whether a company is covered. Rather, Nasdaq will evaluate the factors holistically based on the company’s overall facts and circumstances.
Practical Implications
The approval of these new rules represents a significant tightening of the U.S. listing landscape for China-based issuers. China-based companies considering a Nasdaq listing should evaluate the new requirements at the outset of the planning process. For smaller China-based issuers, the new rules may significantly narrow the path to Nasdaq. Companies that previously contemplated smaller-cap IPOs may now need to raise a substantially larger amount, consider alternative listing venues (e.g., NYSE American or OTC Markets), or pursue additional private financing before seeking a Nasdaq listing.
If you have any questions, please contact Anand Saha (asaha@cronelawgroup.com), Liang Shih (lshih@cronelawgroup.com), Hongye (Eve) Mao (hmao@cronelawgroup.com), Daisy Dai (DDai@cronelawgroup.com) or your usual Crone contact.
SEC Proposes Optional Semiannual Reporting for Public Companies
The SEC proposed rule and form amendments that would give public companies the option to file semiannual reports on new Form 10-S in lieu of quarterly reports on Form 10-Q to meet their interim reporting obligations under the federal securities laws.
Overview
On May 5, 2026, the Securities and Exchange Commission ("SEC") proposed rule and form amendments that would give public companies the option of filing semiannual reports in lieu of quarterly reports to meet their interim reporting obligations under the federal securities laws. Currently, public companies subject to Exchange Act Section 13(a) or 15(d) are required to file quarterly reports on Form 10-Q.
The proposed amendments, if adopted, would allow these public companies to elect to file semiannual reports on new Form 10-S instead of quarterly reports on Form 10-Q. As a result, companies that elect to file semiannual reports would file one semiannual report and one annual report for each fiscal year in lieu of three quarterly reports and one annual report. The flexibility provided under the proposed amendments would enable public companies to choose the interim reporting frequency that would best serve the company and its investors.
Key Provisions of the Proposal
New Form 10-S
The proposed amendments would allow public companies to elect to file semiannual reports on a new Form 10-S instead of quarterly reports on Form 10-Q. Companies that elect to file semiannual reports would file one semiannual report and one annual report for each fiscal year, in lieu of the current three quarterly reports and one annual report.
Filing Deadlines
The filing deadline for semiannual reports on Form 10-S would be 40 or 45 days, depending on the company’s filer status, after the end of the first semiannual period of the fiscal year.
Amendments to Regulation S-X
The proposal would also amend Regulation S-X, which governs the financial statement requirements for periodic reports, registration statements, and proxy statements, to reflect the new semiannual reporting option and simplify the existing financial statement requirements.
Voluntary Election
The proposed semiannual reporting option is voluntary. Companies may choose to continue filing quarterly reports on Form 10-Q if they prefer. The proposal is designed to provide regulatory flexibility, enabling public companies to choose the interim reporting frequency that would best serve the company and its investors.
Next Steps
The proposing release will be published on SEC.gov and in the Federal Register. The public comment period will remain open until 60 days after the date of publication of the proposing release in the Federal Register.
If you have any questions, please contact Anand Saha (asaha@cronelawgroup.com), Liang Shih (lshih@cronelawgroup.com), Hongye (Eve) Mao (hmao@cronelawgroup.com), Daisy Dai (DDai@cronelawgroup.com) or your usual Crone contact.
Forum Selection After Redomestication: Key Lessons from the 2026 Tesla Derivative Litigation Decision
The Delaware Court of Chancery in In re Tesla, Inc. Derivative Litig. enforced a later-adopted Texas exclusive forum bylaw, dismissing actions filed in Delaware prior to redomestication. The Court ruled that filing in Delaware does not fix venue permanently, holding instead that subsequent stockholder-approved bylaw changes control. This reinforces that redomestication-related governance can shift litigation strategy, even for pre-existing claims.
Executive Summary
A recent Delaware Court of Chancery decision shows how much a company’s forum selection rules can matter when it moves from one state to another. In 2024, Tesla decided to change its state of incorporation from Delaware to Texas. Such a change is known as a “redomestication”. As part of that move, Tesla proposed a bylaw amendment providing that derivative lawsuits – lawsuits brought by stockholders on a company’s behalf – must be filed in Texas. After the proposal but before its adoption and the completion of the redomestication, certain Tesla stockholders filed derivative lawsuits against the company in Delaware. The stockholders likely rushed to action based on the belief that Delaware would be a more favorable jurisdiction for their claims than Texas. The Delaware Court of Chancery was asked to decide whether those cases could remain in Delaware. In a significant decision issued on April 13, 2026, the court held that Tesla’s Texas forum bylaw was enforceable on these facts and dismissed the Delaware actions.
The court emphasized in its decision that Tesla had publicly disclosed the proposed Texas forum shift before the lawsuits were filed, that stockholders approved the redomestication and Texas bylaw days later, and that the bylaw became effective before defendants appeared and before meaningful litigation occurred. The court rejected the argument that Delaware venue was fixed permanently at the moment of filing and instead held that the operative Texas bylaw controlled under these facts. It also held that enforcing the Texas forum bylaw did not violate Delaware General Corporation Law (DGCL) Section 266(e), did not impermissibly change the substantive law governing pre-conversion claims, and was not unreasonable or unjust merely because Texas may be viewed as a less favorable forum for stockholder plaintiffs.
The decision reinforces three important themes for companies and boards: first, exclusive forum bylaws remain presumptively valid and generally enforceable; second, later-adopted forum bylaws may be enforced against already-filed derivative litigation in the right factual setting; and third, stockholder-approved governance changes connected to a redomestication can materially affect litigation strategy even for claims arising from pre-conversion conduct.
Background
Tesla publicly announced on April 17, 2024 that it would seek stockholder approval to convert from a Delaware corporation to a Texas corporation and, as part of that redomestication, adopt new bylaws making Texas the exclusive forum for derivative actions brought on behalf of the company.
At the time of that announcement, Tesla’s existing bylaws designated Delaware courts as the exclusive forum for derivative claims, and one plaintiff had also entered into an NDA in connection with a DGCL Section 220 demand that contemplated commencing derivative litigation exclusively in the Delaware Court of Chancery.
After Tesla announced the proposed redomestication and Texas forum bylaw, stockholders filed three derivative actions in the Delaware Court of Chancery on May 24, June 10, and June 13, 2024, asserting fiduciary duty and oversight claims against Elon Musk and Tesla directors.
Later on June 13, 2024, Tesla stockholders approved the redomestication and the Texas forum bylaw by a vote of 63% of Tesla’s outstanding shares. The defendants did not appear until after that vote, and the court emphasized that the Texas forum bylaw was already in effect by the time defendants appeared and before any meaningful litigation activity had occurred in Delaware.
This sequence created what the court effectively treated as a “race to the courthouse” fact pattern: plaintiffs filed after the Texas forum shift had been publicly proposed but before it became operative, while the company completed the stockholder-approved governance change only days later.
Key Takeaways
For business executives, the practical lesson is that forum strategy should be part of governance strategy—not an afterthought. If a company is evaluating redomestication, charter amendments, or bylaw updates, litigation planning should be built into the process from the beginning.
• Forum bylaws can be outcome-determinative. Review forum provisions proactively. Even in the face of redomestication, exclusive forum clauses can influence where pre-conversion fiduciary and derivative claims are heard and may create meaningful procedural advantages.
• The filing date does not always preserve a particular forum. The court reaffirmed that, under Delaware law, forum selection bylaws may apply to claims arising from conduct predating the bylaw’s adoption. The court rejected the plaintiffs’ position that venue had to be determined solely as of the filing date and held that the later-operative Texas bylaw could control.
• Procedural posture matters. Tesla benefited from (1) having publicly announced the proposed bylaw before suit was filed, (2) having it shortly thereafter become operative via stockholder vote, and (3) from invoking the venue defense before meaningful litigation took place.
• Coordinate governance documents. Companies should check bylaws, charters, stockholder communications, and ancillary agreements for inconsistent forum language that could complicate enforcement. The court addressed a plaintiff’s NDA argument and held that the NDA did not bind Tesla to Delaware. Rather, it imposed an obligation on the plaintiff and his counsel for Tesla’s benefit, which Tesla remained free to waive. However, the plaintiff’s argument highlights how inconsistent provision drafting can still invite litigation.
• Do not assume forum equals governing law. The court held that DGCL Section 266(e), which governs the continuity of liabilities and obligations of an entity converting out of Delaware, did not bar enforcement because the bylaw regulated forum, not substantive choice of law. The opinion recognized that Delaware law could still govern the merits of pre-redomestication fiduciary claims even if those claims must be filed in Texas.
Conclusion
The Tesla decision is an important marker in the continuing evolution of corporate forum selection, redomestication strategy, and interstate competition for corporate domicile and litigation. The Court of Chancery made clear that, on the right facts, a stockholder-approved forum bylaw adopted in connection with a move out of Delaware can displace pending Delaware derivative litigation and require those claims to be refiled in the new chosen forum. This ruling also signals that jurisdictional strategy is now an increasingly important part of entity management and transaction planning, particularly for companies evaluating whether Delaware remains their preferred long-term corporate home.
Nasdaq Raises Initial Listing Requirements for SPACs
Nasdaq has raised initial listing requirements for SPACs, increasing thresholds for market value, public float, shareholders, and market makers. Effective April 2026, the changes push SPACs to be larger, more liquid, and more broadly held at the time of listing.
On April 22, 2026, the Securities and Exchange Commission (SEC) published a notice of filing and immediate effectiveness of a proposed rule change by Nasdaq to increase the initial listing requirements for special purpose acquisition companies (SPACs). The amendment establishes more rigorous financial and liquidity thresholds for SPACs seeking to list on Nasdaq Capital Market and Nasdaq Global Market.
Historically, SPACs predominantly listed on the Nasdaq Capital Market due to its lower fees and lower initial distribution requirements. More recently, certain SPACs have sought to list on the Nasdaq Global Market. Additionally, the SEC’s 2021 staff statement on accounting treatment for SPAC warrants has led some SPACs to adopt different accounting practices, resulting in insufficient equity to qualify for initial listing on the Nasdaq Capital Market under prior standards.
Below are the rule changes proposed by Nasdaq:
Nasdaq Global Market
Nasdaq proposes to increase the minimum Market Value of Listed Securities required for SPACs listing on the Nasdaq Global Market from $75 million to $100 million.
Nasdaq Capital Market
The new rules for SPACs listing on Nasdaq Capital Market include:
• Increase the minimum Market Value of Listed Securities from $50 million to $75 million;
• Increase the minimum Market Value of Unrestricted Publicly Held Shares from $15 million to $20 million;
• Increase minimum shareholders from 300 round lot holders to 400 round lot holders; and
• Increase registered and active Market Makers from 3 to 4.
The proposed rule change became immediately effective upon filing with the SEC on April 15, 2026 and will be operative 30 days thereafter. SPACs that complete their listing within the 30-day transition period may continue to qualify under the prior rules. The SEC retains the authority to temporarily suspend the rule change within 60 days of the filing date if the SEC determines that such action is necessary or appropriate in the public interest or for the protection of investors.
If you have any questions, please contact Anand Saha (asaha@cronelawgroup.com), Liang Shih (lshih@cronelawgroup.com), Hongye (Eve) Mao (hmao@cronelawgroup.com) or your usual Crone contact.
The Heppner Ruling and the Fragility of AI Privilege
The meteoric rise of generative artificial intelligence (Gen AI) has exposed a systemic vulnerability in the corporate legal shield. As a "question of first impression," the decision in United States v. Heppner (2026) is the first to explicitly deny privilege to AI-generated documents. Its significance lies in the clear signal that the mere involvement of a client and a legal topic does not invoke the protections of the law.
The meteoric rise of generative artificial intelligence (Gen AI) has exposed a systemic vulnerability in the corporate legal shield. As a "question of first impression," the decision in United States v. Heppner (2026) is the first to explicitly deny privilege to AI-generated documents. Its significance lies in the clear signal that the mere involvement of a client and a legal topic does not invoke the protections of the law.
Heppner illustrates that, in a new era of digital discovery, the efficiency of AI-assisted research offers no refuge from the rigorous requirements of legal privilege. The core tension lies in the judiciary’s "technology-neutral" stance. Courts are not carving out "AI exceptions" to established protections; rather, they are applying centuries-old principles to modern prompts.
Case Background: United States v. Heppner
The matter arose in the Southern District of New York (SDNY) following a grand jury subpoena issued to Bradley Heppner, an executive under investigation for financial misconduct. In preparing his defense strategy, Heppner utilized Anthropic’s Claude chatbot to synthesize legal arguments and research defensive positions. Heppner acted on his own initiative, feeding the AI information he had learned from his defense counsel to generate reports which he then transmitted back to his attorneys. When the FBI executed a search warrant at Heppner’s residence, they seized electronic devices containing these memorialized exchanges.
Why Privilege Failed: The Three-Part Test
In denying the defendant’s claims, Judge Rakoff applied settled, technology-neutral principles rather than creating an AI-specific exception. The court’s analysis demonstrates that when an executive communicates with a consumer grade third-party AI platform, they have the same expectation of privacy as if speaking to a third party in the public square.
The Absence of a Fiduciary Relationship. The attorney-client privilege is predicated upon a "trusting human relationship" involving a licensed professional who owes fiduciary duties to the client and is subject to professional discipline. An AI platform, regardless of its sophistication, is not an attorney. The court held that the discussion of legal issues between two non-attorneys (the user and the AI platform) is fundamentally unprotected.
The Waiver of Confidentiality. Confidentiality was destroyed at the outset by the terms of service governing the platform. Anthropic’s consumer privacy policy explicitly stated that user inputs could be retained for model training and disclosed to "governmental regulatory authorities." By agreeing to these terms, Heppner surrendered any reasonable expectation of privacy, rendering the communications discoverable.
The Purpose of the Communication. The court found that the communications were not made for the purpose of obtaining legal advice from a qualified source. Because Claude expressly disclaims providing legal advice or recommendations —a fact the government confirmed by prompting the AI platform itself — the user cannot claim they were seeking professional counsel from the software.
Furthermore, the work product doctrine failed to attach because the documents did not reflect the "mental processes" of an attorney. Under Second Circuit precedent, protection is reserved for materials prepared by or at the behest of counsel. Because Heppner acted of his own volition without attorney direction, the AI was not an extension of the lawyer’s mind, and the resulting research remained unprotected.
The Enterprise Distinction and the Kovel Doctrine
There is a material legal gulf between consumer-grade chatbots and enterprise-grade AI deployments. Under the Kovel doctrine, United States v. Kovel, 296 F.2d 918 (2d Cir. 1961), privilege may extend to third-party agents (like translators or accountants) who assist counsel in rendering legal advice. While Heppner was a loss for the defendant, the ruling suggests that enterprise tools—properly structured under attorney supervision and bound by robust confidentiality agreements—may still qualify for protection.
However, a dangerous "wrinkle" exists: if a person inputs pre-existing privileged advice from their lawyer into an AI platform that retains and/or discloses consumer input, that act may constitute a waiver of the privilege over the original communication from the lawyer. This could allow the government to subpoena the attorney’s underlying notes and files that were "fed" into the AI platform.
Consumer vs. Enterprise AI Protection
| Feature | Consumer AI (Heppner Context) | Enterprise AI (Counsel-Directed) |
|---|---|---|
| Data Training | Inputs used to train models by default. | Explicit contractual "no-training" provisions. |
| Confidentiality | Broad disclosure rights to authorities. | Signed Data Processing Agreements and strict confidentiality. |
| Supervision | Client-led; independent initiative. | Directed and controlled by legal counsel. |
| Work Product Basis | Unprotected independent research. | Attorney mental impressions. |
| Fiduciary Status | Expressly disclaimed. | Structured as a Kovel agent of counsel. |
Practical Guidance: Dos and Don’ts for the AI Era
To mitigate the risks of "discovery exposure," organizations must treat AI integration with the same rigor as any other high-stakes legal workflow.
WHAT CLIENTS SHOULD DO:
Utilize Enterprise Accounts: Exclusively use enterprise-tier accounts governed by signed Data Processing Agreements with "no-training" covenants.
Ensure Attorney Direction: All AI-assisted research must be explicitly directed by counsel to support work product claims and reflect the attorney's mental impressions.
Implement Upjohn-Style Notices: Deploy internal notices stating the AI is for company business, that the company (not the individual) holds the privilege, and that employees must not use it for personal matters.
Strict Retention Policies: Implement automated retention schedules that discard AI chats after a short period (e.g., 21 days) unless a litigation hold is in place, reducing the "discovery surface area."
WHAT CLIENTS MUST AVOID:
Consumer-Grade AI Platforms: Forbid the use of free or "Pro" consumer accounts for any sensitive matter. These tools are the primary target for government discovery.
Inputting Privileged Information: Never "test" or "analyze" pre-existing attorney advice in an AI tool unless that tool has been vetted for confidentiality and the process is directed by counsel.
The "Privilege Gap": Be aware that separately represented executives and employees cannot use company-provisioned AI platforms for their personal defense; the company holds the privilege, leaving the executive’s personal defense documents exposed.
Independent Research: Do not allow non-lawyers to perform unsupervised legal analysis using AI, as this creates a permanent, discoverable record of the company's "mental impressions" without the shield of privilege.
The Bottom Line
The Heppner ruling, although not the last ruling of its kind, is a definitive warning that the legal landscape has shifted. While Gen AI is not fundamentally incompatible with privilege, its protection depends entirely on how the use is structured, supervised, and documented. Clients who treat AI as a private confidant and do not apply rigor to its use risk not only the discovery of their research but the total waiver of their legal privilege.
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¹ Upjohn Co. v. United States, 449 U.S. 383 (1981).
SEC publishes order with exemptions from Section 16(a) reporting with respect to certain Foreign Private Issuers
As discussed in our January 2026 memo, beginning in March 2026, directors and officers of “Foreign Private Issuers” (FPIs) will be required to make public EDGAR filings pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) of Forms 3, 4 and 5. These forms cover beneficial ownership of, and transactions in, SEC-registered equity securities.
As discussed in our January 2026 memo, beginning in March 2026, directors and officers of “Foreign Private Issuers” (FPIs) will be required to make public EDGAR filings pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) of Forms 3, 4 and 5. These forms cover beneficial ownership of, and transactions in, SEC-registered equity securities.
On March 5, 2026, the SEC issued an order providing conditional relief from these insider reporting requirements for directors and officers of FPIs incorporated or organized in the jurisdictions listed below, being jurisdictions that the SEC has deemed as having substantially similar insider reporting requirements to those provided in Section 16(a) of the Exchange Act. The jurisdictions are:
• Canada,
• Chile,
• the European Economic Area,
• the Republic of Korea,
• Switzerland, and
• the United Kingdom.
The SEC’s conditional relief is subject to two further conditions:
1. the director or officer must report under an applicable qualifying regulation in the FPI’s jurisdiction of incorporation or organization; and
2. the reports must be made publicly available in English within two business days of public posting.
While it is possible that the SEC may include additional jurisdictions in future exemptive relief, as of now for directors and officers of FPIs incorporated in any jurisdiction not listed above with SEC-registered equity securities, the requirement to make Section 16(a) filings will apply from March 18, 2026. The Crone team is standing by to assist with this.
If you have any questions, please contact Anand Saha (asaha@cronelawgroup.com), Liang Shih(lshih@cronelawgroup.com) or your usual Crone contact.
Foreign Private Issuers will be required to make Section 16(a) reports on share ownership and insider transactions
Beginning in March 2026, directors and officers of “Foreign Private Issuers” (FPIs) will be required to make public EDGAR filings pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) of Forms 3, 4 and 5. These forms cover beneficial ownership of, and transactions in, SEC-registered equity securities.
Beginning in March 2026, directors and officers of “Foreign Private Issuers” (FPIs) will be required to make public EDGAR filings pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) of Forms 3, 4 and 5. These forms cover beneficial ownership of, and transactions in, SEC-registered equity securities. Previously, directors and officers of FPIs were exempt from these filing requirements. The change comes pursuant to The Holding Foreign Insiders Accountable Act that was passed into law in December 2025.
What is going to be required for FPIs?
Section 16(a) requires directors and officers of companies with SEC‑registered equity securities to disclose the following maters on Forms 3, 4 or 5, as applicable:
Initial ownership (Form 3)
Form 3 is required when an individual becomes a “corporate insider,” which in practical terms means been appointed as an officer or director. Form 3 requires identification of the insider, issuer information (name/ticker symbol), type of security, number of shares owned, and whether ownership is direct or indirect.
Change in ownership (Form 4)
Form 4 is required when an insider’s beneficial ownership changes. This would include sales, purchases or equity grants.
Annual filing to cover transactions not reported (Form 5)
Form 5 is generally due no later than 45 days after the issuer’s fiscal year ends and is only required from an insider when at least one transaction, because of an exemption or failure to earlier report, was not reported during the year.
When will these filings be required?
Directors and officers of FPIs will be required to follow the same timing requirements for filing Forms 3, 4 and 5 as directors and officers of U.S. domestic issuers:
at the time any such security is registered on a national securities exchange or by the effective date of a registration statement filed pursuant to Section12(g) of the Exchange Act;
subsequently, within 10 days after any other individual becomes director or officer of the issuer; and
for a change in ownership, before the end of the second business day following the day of execution of the relevant transaction.
What differences will remain for FPIs as compared to U.S. domestic issuers?
There are three key differences to note:
Beneficial owners of more than 10% of an FPI’s registered voting equity securities will not be required to file Section 16 reports, unlike domestic issuers
Directors and officers of FPIs remain exempt from the requirements contained in Section16(b) of the Exchange Act covering “short swing” liability
The SEC will have the discretion to exempt FPIs from the Section 16(a) requirements if the SEC determines that the laws of a foreign jurisdiction apply “substantially similar requirements” to those provided pursuant to the 1934 Act. However, “substantially similar” is not defined or explained in the Act, and it remains to be seen what approach the SEC will take to this and which jurisdictions may qualify.
If you have any questions, please contact Anand Saha (asaha@cronelawgroup.com), Liang Shih (lshih@cronelawgroup.com) or your usual Crone Law Group contact.