In a major victory for shareholders, Cohen Milstein has reached a $38 million settlement in the Bayer Securities Litigation, a complex and hard-fought class action brought under the Securities Exchange Act of 1934. 

The settlement, which is currently awaiting court approval, will provide a financial recovery for damaged investors who purchased Bayer American Depositary Receipts (ADRs) between May 23, 2016, and March 19, 2019. 

The settlement follows nearly five years of intensive litigation and reflects the tireless efforts of Cohen Milstein’s team to hold Bayer accountable on behalf of a class of Bayer ADR investors. The firm is proud to have achieved this meaningful recovery in a case marked by challenging legal and factual issues. 

Background and Allegations 

This case, filed on July 15, 2020, in the U.S. District Court for the Northern District of California, stems from Bayer’s high-profile and controversial acquisition of Monsanto. In their Amended Complaint, plaintiffs allege that Bayer, along with its CEO, the chairman of its Supervisory Board, and several other senior executives, made false and misleading statements concerning the company’s due diligence on Monsanto—particularly regarding the risks associated with mass tort litigation alleging that Roundup, Monsanto’s flagship glyphosate-based herbicide, causes non-Hodgkin’s lymphoma. 

A Long and Hard-Fought Case 

This litigation was exceptionally contentious. It began with two full rounds of motion to dismiss briefing. In response to the Amended Complaint, defendants sought to dismiss all claims, challenging the adequacy of plaintiffs’ allegations under the heightened pleading standards of the Private Securities Litigation Reform Act (PSLRA). On October 19, 2021, the Court denied defendants’ motion in part, finding that plaintiffs had stated a claim with respect to Bayer’s statements about its merger due diligence—but dismissed claims relating to alleged misstatements about Roundup’s safety and Bayer’s financial disclosures.  

Plaintiffs then, with the Court’s permission, filed a Second Amended Complaint, and defendants again moved to dismiss. On May 18, 2022, the Court reaffirmed its prior ruling by upholding the sufficiency of the due diligence-related claims. 

Class Certification and Discovery 

The litigation advanced into a vigorously contested class certification and discovery phase. Central to this stage were novel and complex questions about whether plaintiffs’ and the Class’s purchases were essentially foreign transactions outside the scope of U.S. securities laws. To address these issues, plaintiffs issued dozens of subpoenas to financial institutions and market participants, seeking evidence that transactions in Bayer’s ADRs occurred domestically. Plaintiffs also worked closely with Professor Joshua Mitts, PhD, of Columbia Law School, who provided valuable expert analysis and insights into the mechanics and structure of the ADR transactions at issue.  

In May 2023, the Court granted class certification, appointing the lead plaintiffs as class representatives and Cohen Milstein as Class Counsel. Notably, the Court ruled in plaintiffs’ favor on the extraterritoriality issue. Plaintiffs successfully refuted defendants’ arguments that jurisdictional concerns undermined class typicality or predominance, securing a landmark decision affirming the rights of ADR purchasers on the over-the-counter market—and particularly those of sponsored ADRs like Bayer’s.  

Merits discovery was expansive and complex, spanning multiple continents and legal systems. It included international depositions, voluminous document production, and expert analysis from eight experts who addressed far-ranging issues of ADR market mechanics, merger due diligence practices, economic and behavioral incentives under the merger agreement, loss causation, and damages. The process also entailed court resolution of several privilege and evidentiary disputes. Further, plaintiffs were required to initiate proceedings under the Hague Convention to obtain the testimony of Bayer’s former general counsel in Germany—a process that demanded significant coordination with German counsel and judicial oversight from both U.S. and German courts. 

Settlement Process and Outcome 

Settlement discussions began in the second half of 2024, when the parties agreed to engage in private mediation to resolve the case. After a brief pause during which the parties unsuccessfully attempted to resolve the case, litigation and expert discovery resumed. Ultimately, after two full-day mediation sessions held months apart, the parties reached an agreement to settle the case for $38 million in cash.  

This substantial settlement represents a strong outcome for investors, offering a meaningful recovery while avoiding the additional time, risk, and expense associated with continued litigation, trial, and potential appeals. After years of contested motion practice, extensive international discovery, and complex legal challenges—including novel questions about the rights of ADR holders and merger related disclosures—this resolution ensures accountability and provides closure for investors harmed by Bayer’s alleged misleading statements. 

Looking Ahead 

The Bayer settlement brings closure to an important case that addressed critical questions about the adequacy and transparency of disclosures concerning due diligence in high-profile corporate mergers. The litigation also reaffirms that investors who purchase ADRs on the over-the-counter market have enforceable rights under U.S. securities laws. 

As home to 2.2 million legal entities, including two-thirds of all Fortune 500 companies, Delaware earns more than a third of its annual state budget from corporate fees, some $2.2 billion a year.

In that context, it’s unsurprising that high-profile corporate departures would prompt attention among lawmakers. When those same elected officials hurriedly amended the state’s foundational business law to address corporate complaints, however, it was anything but business as usual.

The rush to rewrite portions of Delaware General Corporation Law (DGCL) broke longstanding precedent and undermined a legal feature essential to the state’s historic appeal to businesses—its reliance on the venerable and experienced Delaware Court of Chancery to interpret the DGCL gradually over time. To add drama, Senate Bill 21 (SB21) was written, in part, by the law firm that represented Elon Musk before the Delaware Chancellor who invalidated his $56 million pay package at Tesla, triggering the company’s reincorporation in Texas. Tesla is perhaps the highest-profile company to leave Delaware. The departing companies, primarily majority shareholder-controlled companies, claim that a series of recent decisions in favor of minority shareholders has made Delaware less friendly to business and will encourage more litigation.

Gov. Matt Meyer signed SB21 into law March 25 after it sailed through both houses of the state legislature with bipartisan approval despite a vigorous campaign by shareholder advocates, institutional investors, academics, consumer groups, and plaintiffs’ attorneys to stop its passage. The new law narrows the DGCL’s definition of a “controlling stockholder,” makes it easier to avoid shareholder examination of potentially conflicted transactions, and makes it harder to show that directors are beholden to controlling stockholders or management.

These changes significantly weaken minority shareholders’ ability to challenge mergers, acquisitions, and other corporate deals they believe unduly benefit controlling stockholders, like Musk and Meta’s Mark Zuckerberg, who exercise effective control over corporate votes due to the sheer size of their holdings, coupled with dual class voting structures that give their shares more weight.

The day after news broke that Meta was considering its own “DExit,” Gov. Meyer held a meeting with legislators and lawyers who represented Meta, Tesla, and others in Delaware court to discuss the “corporate franchise”—a discussion that led to SB21, which Gov. Meyer called a “course correction” that would balance power between stockholders and corporate boards. By having a group of corporate lawyers and legislators draft SB21 behind the scenes, lawmakers bypassed Delaware’s normal process for amending the DGCL, which involves recommendation by the Council of the Corporate Law Section of the Delaware Bar Association. The departure from precedent, perhaps as much as the contents of the law itself, raises concerns that Delaware’s corporate law has become politicized in a way that may undermine stability, rather than backers’ state goal of promoting it.

In the conversation that follows, Cohen Milstein Partner Molly J. Bowen discusses the implications of SB21’s passage for institutional investors with the Shareholder Advocate’s Richard Lorant.

Richard Lorant: If you followed the coverage over SB21 closely and accepted the arguments of investor groups and plaintiffs’ law firms, you’d be forgiven for thinking passage of this bill signals the end of the world as we know it in terms of shareholder rights in Delaware. Now that it has become law, how important are the changes and how much will they weaken shareholder oversight of companies?

Molly Bowen: It’s essential to separate the question of how SB21 came to be, from how it changes the DGCL. The reason SB21 is so significant is because it represented a major departure from the usual process by which Delaware law is made, which traditionally has allowed the Delaware judiciary, the national experts in corporate law, to slowly elaborate the law—to decide what it means and to respond to changing dynamics in the stock market and corporate governance. For decades, this process of corporate law developing through judicial review process has fostered stability and predictability and is an important part of what makes the state attractive to so many corporations and shareholders.

In the case of SB21, the legislature, responding to advocacy from some large corporations, made a very quick intervention to overturn decades of Delaware Supreme Court and Chancery Court precedent, principally related to controlling shareholder transactions. Academics have identified dozens of cases that they believe will no longer be good law after SB21.

So, the way this all happened has been extremely unsettling in terms of our expectations going forward for the development of the law in Delaware. It remains to be seen whether there will be new interventions like this from the legislature every time there is a major judicial opinion or trend that is not favored by the major corporations headquartered in Delaware. The process piece, in other words, is a big deal.

In terms of the impact of the law itself, remember that SB21 largely focuses on the rules governing corporate transactions—mergers, acquisitions, going-private deals, things like that. In that area, it has dramatically scaled back the checks on corporate transactions and the safeguards in place to prevent undue influence from a controlling shareholder. That is very significant for investors because those are deals that change the future of the company for better or worse. So, giving more deference to a board that is not independent and making these huge decisions is concerning.

But SB21 did not touch a major area of the law that is important to our firm and many of the funds that we work with, which is the whole area of corporate law devoted to directors’ fiduciary duties of care, loyalty, and oversight and their obligation to ensure that their company follows the law and doesn’t do things that bring disrepute to the company. Consequently, the bulk of shareholder derivative litigation that our firm has been involved in over the past decade—cases like Nikola, Alphabet, FirstEnergy, and Abbott—the major issues in those cases are unaffected by SB21.

SB21 did impose some limited restrictions on investors’ rights to access a company’s books and records, which are obviously important building blocks when you investigate cases. But candidly, the reality is that process has always been somewhat limited. And one of the ways in which our firm, I think, has really distinguished itself is in the strength of our investigations: our ability to develop cases by speaking to former employees, working with experts, doing intense factual research beyond the corporate books and records. So, we’ll continue to do that and build impactful cases regardless of what happens with Delaware law.

Richard: Returning to the process, the way the legislature acted, you’re saying there’s a risk that Delaware will effectively abandon the evolutionary approach that has served the state so well and have the legislature step in every time Delaware-based corporations feel the pendulum has swung too far in favor of shareholders.

Molly: Yes, absolutely. I don’t think it’s controversial to say that that is what happened in this case. There are documents showing meetings between the governor and large corporations that had left or threatened to leave Delaware, which led directly to this legislation being written and proposed. In that context, it’s fair to ask whether this process will repeat itself or was this event so cataclysmic that the legislature will take a step back. Another late-breaking twist is that shareholders have recently filed a case attacking SB21’s constitutionality. Obviously, that will take time to resolve while the law remains in effect which adds another layer of uncertainty to the state of Delaware corporate law.

Richard: Is it true that while the forces behind SB21 were driven by a perceived need to stop corporations from de-incorporating and cutting into the $2 billion a year the state collects in franchise fees, the law’s fast-tracked passage could conceivably have the opposite effect?

Molly: Yes, that is a possible consequence. The publicly stated motivation behind SB21 was to keep corporations in Delaware, to preserve Delaware as the leading state for incorporation, and to protect the franchise as the economic driver of the state. But because SB21 deviated from a time-honored process for making law and how far it went to favor controlling stockholders, it may lead some corporations to look elsewhere for a stable legal home.

But before we get ahead of ourselves, where do they reincorporate? Texas is making huge investments in business courts to woo companies. Same with Nevada. It remains to be seen whether there is a somewhat more balanced jurisdiction that emerges to provide a new option or if any company will want to go there, but the landscape for that kind of analysis has certainly changed because of SB21.

Finally, with Delaware now revealing the influence politics can have in the development of corporate law, investors may be more supportive of companies that want to reincorporate elsewhere. Indeed, the head of the International Corporate Governance Network said weakened protections for minority shareholders could “undermine the attractiveness of Delaware incorporated companies for investors.”

Richard: That seems like as good a place as any to stop. Thanks, Molly.

Molly: You’re welcome.

If you are an employee who participates in an Employee Stock Ownership Plan (ESOP), you have certain rights designed to protect your interests and ensure the plan’s fiduciaries live up to their obligations. These rights include access to essential information and the ability to take legal action if necessary. This article describes the key rights you have but is not an exhaustive list. For more information or assistance, please use the Contact Us box below.

1. Right to Receive Information. Your ESOP plan sponsor is required to provide a Summary Plan Description, which summarizes the rules of the ESOP, including how and when you can receive your benefits and who to contact for questions. Each year, you are also entitled to receive a Summary Annual Report, which details the plan’s activities and assets. Additionally, you should receive an annual Account Statement showing the number of shares you hold, their current value, and your vested status. Finally, you have a right to view or request a copy of the formal plan document, which provides a comprehensive explanation of how the ESOP operates.
2. Vesting Rights. When you start participating in an ESOP, you receive stock, but you might not fully own that stock right away. Instead, you “vest” in the stock over time, depending on the terms of the plan. Note that if you leave the company before you are fully vested, you may lose some or all of the stock in your account. If your ESOP has a graduated vesting schedule, you will typically earn the right to 20% of your stock each year after two years of service and become fully vested after 6 years. Or, if your ESOP uses “cliff vesting,” you typically become fully vested after three years of service.
3. Right to Receive Your Shares. The rules for cashing out your ESOP shares are described in your Summary Plan Description and plan document. Typically, you can access your shares if you meet a specific vesting requirement and experience a qualifying event such as termination, retirement, or disability. Your plan sponsor must explain how you can receive your benefit and any tax implications.
4. ESOP Voting Rights. Depending on your plan, you may have the right to vote on important company matters, such as mergers, sale of assets, and Board elections. These voting rights are exercised by an ESOP trustee, who is a fiduciary responsible for acting in the best interest of the ESOP’s participants.
5. Right to File a Claim. If you believe your rights under the ESOP are being violated or if you have an issue related to the plan, you have the right to file a claim. This can include concerns about receiving your ESOP benefit, the amount of your benefit, access to documents, or other violations of plan rules. Make sure to follow the claims process detailed in your ESOP documents. If your claim is denied, you also have a right to appeal that decision.
6. Right to Take Legal Action. Participants are protected under the Employee Retirement Income Security Act (ERISA), which offers legal safeguards for enforcing plan rights. Under ERISA, individuals managing the plan must act in the best interests of participants, ensuring loyalty, care, and prudence. ESOP participants can go to court to protect their accounts and the ESOP if they believe the plan’s fiduciaries are not fulfilling their duties properly.

In summary, ERISA provides you with rights to ensure transparency, fairness, and accountability in the management of your ESOP.  If you believe your rights are being violated or have concerns that your ESOP is not being managed properly, please use the Contact Us box below.

CFTC staff defines “materiality” in evaluating whether self-reported violations will qualify as referrals to the CFTC’s Division of Enforcement

On April 17, 2025, the U.S. Commodity Futures Trading Commission (CFTC) issued an informational advisory (the advisory) that focuses on the definition and standard of materiality that the CFTC’s operating divisions must use to determine whether self-reported violations will qualify as referrals to the CFTC’s Division of Enforcement (the DOE).

The advisory follows the February 2025 guidance, which addressed self-reporting, cooperation and remediation, and identified factors to be considered when imposing penalties for registrants and registered entities that self-report or co-operate.  

According to the advisory, the CFTC’s Market Participants Division, Division of Clearing and Risk, and Division of Market Oversight (the Operating Divisions), will refer a matter to the DoE only if it involves a “material” violation; a violation that causes harm to clients, counterparties, or market participants; undermines market integrity; or results in significant financial loss. In connection with supervision and non-compliance issues, matters will not be referred to the DoE unless the issue is material.

Staff urged registrants and registered entities that self-report to exercise judgment and report directly to the DoE in cases involving “fraud, manipulation, or abuse.”

To determine materiality, the CFTC said it would apply a reasonableness standard based on the size, the activity, and complexity of the registrant or registered entity. In addition, material violations would be defined as:

• “especially egregious or prolonged systematic deficiencies” in a compliance or supervisory system;

• “knowing or willful misconduct by management,” including efforts to conceal violations; or

• lack of “substantial progress” of a remediation plan for an unreasonably long period.

Why is this Important to Whistleblowers?

Individuals and/or Insiders who report that CFTC registrants or registered entities engaged in non-compliant and/or harmful or fraudulent business practices in violation of the Commodity Exchange Act (the CEA) should be aware of the CFTC’s new materiality guidance. The newly clarified materiality standard asserted in the advisory will apply to whistleblower claims. Whistleblower claims filed with CFTC’s Whistleblower Office must ensure that material evidence in the claim aligns with the definition of materiality stated in the advisory.    

How do I report misconduct or fraud to the CFTC?

If you suspect misconduct or fraud, contact an attorney, such as a member of Cohen Milstein’s Whistleblower practice. Our experienced attorneys in this field can counsel you on the Whistleblower process and help you navigate CFTC’s Whistleblower Office’s process and required evidence. Cohen Milstein’s Whistleblower practice attorneys will guide you, step by step, in completing and filing the CFTC’s Tip, Complaint or Referral form (Form TCR).

Whistleblower Protection & Confidentially

The CFTC’s Whistleblower Program and the whistleblower attorneys at Cohen Milstein are committed to protecting the identity of whistleblowers and prohibiting retaliatory behavior by the registrant or CFTC registered entity. The integrity and success of whistleblower programs relies on the courage of individuals and/or insiders to come forward voluntarily and free of intimidation to report fraud or misconduct.

Does the CFTC offer a whistleblower award for reporting fraud or misconduct?

Yes. If your information leads to a successful CFTC enforcement action resulting in more than $1 million in monetary sanctions, you may receive an award ranging from 10-30% of monetary sanctions collected.

Where do I find more information about reporting fraud and becoming a whistleblower?

The CFTC’s Whistleblower Office provides comprehensive guidelines on reporting fraud and the whistleblower process.

You can also contact a member of Cohen Milstein’s Whistleblower practice for a confidential and free-of-charge consultation. 

About the Author

Christina McGlosson, special counsel in Cohen Milstein’s Whistleblower practice, focuses exclusively on Dodd-Frank Whistleblower representation. She is the former acting director of the Whistleblower Office in the Division of Enforcement at the U.S. Commodity Futures Trading Commission. She was also a senior attorney in the SEC’s Division of Enforcement, where she assisted in drafting the SEC rules to implement the whistleblower provisions of Dodd-Frank and create the SEC’s Office of the Whistleblower. She served as Senior Counsel to the Director of the Division of Enforcement at the SEC and Senior Counsel to its Chief Economist.

Christina represents whistleblowers in the presentation and prosecution of claims of fraud or misconduct before the SEC, CFTC, FinCen, as part of the U.S. Treasury, the Department of Justice, and other government agencies.

For decades, artificial intelligence (AI) was the stuff of science fiction. Today, it is fueling one of the biggest investment booms in history. In 2024 alone, venture capitalists poured over $209 billion into AI startups—a 30% jump from the previous year. Major tech acquisitions, led by Cisco’s $28 billion acquisition of Splunk, focused on expanding AI capabilities, while biotech companies invested $5.6 billion in AI-powered innovation, including a $1 billion deal between Novartis and Generate:Biomedicines. Even the U.S. government is betting big on AI, with the recently announced $500 billion Stargate initiative involving Oracle, OpenAI, SoftBank, and MGX.

But not all the news has been good. In late January, Chinese AI platform DeepSeek sent shockwaves through the market, first by disrupting U.S. chipmakers with its vastly faster and cheaper AI modeling, then by promptly falling victim to a massive cyberattack. The episode raised concerns that some companies may be concealing vulnerabilities or inflating their AI potential, echoing the dot-com bubble of the 1990s.

In this article, we explore the key risks in the AI gold rush, investor expectations for transparency into AI capabilities, and steps corporate boards can take to minimize AI litigation risk.

A Brave New World

AI is not just a passing trend—it’s an intrinsic technology that can be woven into every facet of business operations, from optimizing supply chains and financial modeling to revolutionizing drug discovery. For instance, biotech startup Absci uses generative AI to design entirely new antibodies, accelerating drug development in ways previously thought impossible. With AI’s broad applicability and transformative potential, corporate directors should be mindful of how it will evolve and whether they are appropriately navigating the risks inherent in exploiting this technology. For example, observers say the rush to monetize AI has outpaced regulatory frameworks and risk mitigation efforts. Some industry leaders and experts fear that AI’s rapid evolution could outstrip companies’ ability to control it, creating unforeseen risks both for boards and humankind more broadly.

Potential AI Risks:  Just Fool’s Gold for Nerds?

Without meaningful oversight, the AI gold rush might simply lead corporations and their investors to a pot of fool’s gold. Indeed, despite its promise, AI raises several risks corporate boards must navigate.

One major concern is “AI washing” where companies exaggerate or misrepresent their AI capabilities to suggest they have a competitive edge. Similar to “greenwashing,” where companies falsely tout environmental achievements, AI washing can mislead investors and inflate a company’s valuation. In the race to demonstrate supremacy over AI applications, companies may overstate their AI capabilities to the market.

Communication risks also pose a challenge. Generative AI systems, like ChatGPT, are prone to “hallucinations,” producing incorrect, biased, or entirely fabricated information due to input errors. These AI-generated inaccuracies could expose companies to litigation, including fraud, defamation, and consumer protection claims. Legal scholars caution that as businesses increasingly rely on AI for customer service, marketing, and decision-making, the risk of hallucinations could escalate.

Third-party risks are another significant issue. Many businesses rely on external AI-powered tools and APIs, such as PayPal’s API for online payments or GitHub Copilot for software development. These services require companies to upload sensitive and proprietary data onto supposedly secure platforms. However, recent data breaches at OpenAI and DeepSeek highlight vulnerabilities that prompt hackers to target AI-driven systems. The MOVEit data breach involving Progress Software, which relies heavily on AI, is another example of this growing threat. Beyond security concerns, companies that fail to properly vet AI vendors may also introduce unintentional bias into human resources platforms and other enterprise-wide systems, leading to reputational damage and potential legal consequences.

Internal risks are also a pressing concern. As AI becomes more deeply integrated into business operations, a systemwide failure of a critical AI technology could have far-reaching consequences. Last year’s CrowdStrike outage—though not AI-related—disrupted global travel, healthcare systems, stock markets, and banking services, underscoring the dangers of over-reliance on complex and not fully understood technologies. New AI systems could pose significant system-wide risks that require heightened board attention and oversight.

Legal risks are another growing concern, particularly in healthcare and insurance, where AI-driven claim denials face increasing scrutiny. Over time, AI models can develop self-reinforcing behaviors that, while initially legal, may evolve into unlawful discrimination. This underscores a key principle of AI governance: companies cannot simply deploy AI and assume it will operate fairly and legally without continuous monitoring.

Stepping Into the Void: Investors’ Role in Holding Companies Accountable for Accurate AI Discussions

Investors are already actively pursuing AI-related securities class action and shareholder derivative litigation. Early signs suggest that AI-washing is currently taking center stage in these lawsuits. According to NERA, 2024 saw 13 AI-washing-related cases, more than double the number in 2023.

One of the most notable AI-washing securities class actions filed to date is a recently certified case against Zillow (Nasdaq: Z) and its derivative lawsuit counterpart. Both cases allege that Zillow overstated the forecasting capabilities of its proprietary AI-driven pricing model used in its now‑defunct Zillow Offers program.

Other recent AI-related securities class actions include:

• Oddity Tech (Nasdaq: ODD): The Israeli beauty and wellness platform allegedly misrepresented its proprietary AI technology’s ability to target customer needs and drive sales before its IPO. The “AI” turned out to be little more than a basic questionnaire.
• Innodata (Nasdaq: INOD): The company claimed to have a proprietary AI system, but in reality much of the work was done by thousands of low-wage offshore workers.
• Elastic NV (NYSE: ESTC): Investors allege that this company repeatedly overstated the stability of its sales operations. The lawsuit claims Elastic will likely fail to meet its previously issued FY 2025 revenue guidance.

The rise of AI-washing litigation suggests investors are already pushing back on misinformation and misrepresentations about companies’ AI capabilities. The AI gold rush bears striking similarities to past market bubbles, from the dot-com era to the SPAC frenzy—where exaggerated claims led to market corrections and waves of investor lawsuits. If companies continue to overpromise and underdeliver on their claims of having a competitive advantage with AI, they could face a similar reckoning.

What’s a Director to Do? Adopting AI Safeguards to Protect Shareholder Value

Corporate boards should take notice of the legal landscape and potential for liability requires a recognition not only of the power of AI, but also the urgency of establishing oversight over AI risk management. Institutional investors will insist on corporate accountability for transparency around AI capabilities, responsible AI deployment, and mechanisms to manage emerging risks.

Despite the increasing integration of AI in business operations, in many cases companies’ AI governance remains alarmingly weak. A 2024 Deloitte Global survey of nearly 500 board members and C-suite executives across 57 countries found that only 14% of boards discuss AI at every meeting, while 45% have yet to include AI on their agendas. Additionally, while 94% of businesses are increasing AI spending, within the last two years only 6% of companies had policies in place for the responsible use of AI, and merely 5% of executives report having implemented any AI governance framework.

To strengthen AI oversight, investors will expect directors to take several key steps. Corporate boards should establish dedicated AI governance committees to assess risks, oversee AI development and implementation, and ensure regulatory compliance. Given the growing use of AI across industries— 72% of organizations worldwide have integrated AI into at least one business function, and 21% have fully embedded AI into their operations—it would be prudent for all or some combination of the company’s Chief Technology Officer, Chief Legal Officer, Chief Risk Officer, and Audit Committee to discuss AI governance at least annually, and perhaps quarterly. Directors should engage third parties to identify risks, vulnerabilities and ethical concerns. Finally, Boards should also enhance AI literacy to ensure directors fully understand the technologies they are tasked with overseeing.

This article was published in The CLS Blue Sky Blog.

Every April, National Fair Housing Month marks the anniversary of the signing into law of the Fair Housing Act of 1968 (FHA). The legislation was passed in response to the civil rights movement and the assassination of Martin Luther King, Jr., and it aimed to eliminate discrimination in housing, ensuring that all people have access to safe and affordable homes, regardless of race, color, religion, sex, national origin, familial status, or disability.

In 2025, Fair Housing Month remains as important as ever. While progress has been made in fighting housing discrimination, the work to ensure equal housing opportunities for all continues.

1.  What Does Housing Discrimination Look Like?

Despite decades of effort to address housing inequality, discrimination is still rampant in many areas. Studies from organizations like the National Fair Housing Alliance show that people of color, individuals with disabilities, and those from marginalized communities face significantly higher barriers when it comes to accessing housing.

Housing discrimination can take many forms, including:

• Redlining: When banks and insurance companies deny services or investments to certain neighborhoods, often based on race, color, religion, sex, national origin, familial status, or disability (“protected characteristics”).

• Steering: When real estate agents guide homebuyers or renters towards or away from certain neighborhoods based on their protected characteristics.

• Unfair eviction practices: When landlords or property managers use discriminatory tactics to evict tenants, particularly those from marginalized communities.

• Discriminatory lending: When banks or mortgage lenders deny loans or offer unfavorable terms to borrowers based on an applicant’s protected characteristics.

2. Fair Housing Includes Access to Affordable Housing & Vouchers

The lack of affordable housing across the nation has reached crisis level. With the cost of living and job insecurity on the rise, particularly in urban areas, many individuals and families are struggling to find housing they can afford.

This housing crisis disproportionately affects communities of color, thereby limiting access to good schools and more diverse cultural experiences and perpetuating racial segregation.

According to the National Low Income Housing Coalition (NLIHC), 70% of all extremely low income families spend more than half their income on rent while only 1 in 4 extremely low income families who need assistance receive it.

NLIHC, in partnership with the National Women’s Law Center, also found that 74% of households that use federal rental assistance programs, including Housing Choice Vouchers, are headed by women. In 2023, federal housing assistance lifted the incomes of 364,000 Black, non-Hispanic women, 333,000 Latinas, 930,000 Asian women out of poverty.

Fair Housing Month serves as a reminder of the importance of the Housing Choice Voucher Program, administered by the U.S. Department of Housing and Urban Development (HUD), which provides rental assistance to eligible families and individuals.

What Do Housing Vouchers Cover?

Housing vouchers, such as those provided through HUD, typically cover a portion of a tenant’s rent, based on income and family size, as well as market rates. The tenant is responsible for paying the difference between the voucher amount and the total rent.

• Landlord’s Obligations: Landlords who accept housing vouchers must comply with local housing quality standards. They are responsible for maintaining the property and ensuring it meets safety and health standards. They also must work with the local authority to submit payment requests and report any issues.

• Local Housing Authority’s Obligations: Local housing authorities administer voucher programs locally, providing families in need with housing assistance, and helping facilitate the lease and payments to the landlord or property manager. They also work to ensure landlords and property managers comply with federal and state fair housing and voucher guidelines.

In some jurisdictions, it is also unlawful for housing providers to discriminate based on “source-of-income,” such as the use of a housing voucher.  See a list of the states and localities where such discrimination is unlawful.

Unfortunately, even in those jurisdictions with statutes protecting against “source-of-income” discrimination, voucher discrimination by some landlords, property management companies, and real estate agents persist, necessitating investigations by local housing authorities and often litigation.  

3. Fair Housing Means the Right to Safe, Habitable Living Conditions

Another objective of Fair Housing Month is to remind the public about the scope of their rights. In addition to access to housing, everyone has the right to a safe, healthy, and secure living environment. A place to call home. For adults and children, this is a crucial right and essential for maintaining dignity and quality of life.

What Does Safe, Habitable Living Conditions Mean?

“Safe, habitable living conditions” refers to an environment or space where individuals can live without the risk of harm to their health, safety, or well-being. It encompasses several key factors that ensure a place is suitable for long-term living.

The National Low Income Housing Coalition’s State and Local Innovation recently published the Code Enforcement and Habitability Standards Toolkit, which provides a comprehensive overview on habitability standards, laws, and policies.

4. Fair Housing Resources States and local communities play an important role in enforcing fair housing laws. For instance, these laws are enforced by state human rights commissions, local housing authorities, and fair housing organizations. These entities ensure compliance with the FHA and state-specific laws that prohibit discrimination based on race, color, religion, sex, disability, familial status, or national origin, along with other protected characteristics like “source of income” (use of a housing voucher) in certain jurisdictions.

The start of a new year often brings change and fresh opportunities, and the world of public pensions is no exception.

For some pension plans, the new year may signal the appointment of new trustees to their boards. It’s essential for new trustees to educate themselves, particularly when it comes to the fiduciary responsibilities that form the foundation of everything they do. Even the most well-intentioned trustees must take care to fully understand their obligations as fiduciaries to prevent inadvertent errors that could potentially leave them in violation of their fiduciary duty. As we welcome these individuals to their important roles, we would like to take the opportunity to address some frequently asked questions, drawn from many years of experience in trustee training.

I am a new trustee on the board of a police and firefighters’ pension system elected by the police members. I owe a fiduciary duty to my constituents—the police members—to always act in their best interests. Correct?

Not exactly. Trustees owe a fiduciary duty to all the members of a public pension plan—not just the membership group from which they were elected. This duty of loyalty is central to every statement of fiduciary duty.

The duty of loyalty means that a trustee wears only one “hat.” The courts have determined that a trustee may not, at the same time he or she is serving as a fiduciary for all members, wear a second hat as a representative of the entity that appointed him or her. This can be hard, as constituents may expect their elected “representative” on the board to take care of their needs. But as the courts have consistently held and the U.S. Supreme Court has reiterated, the duty to the trust beneficiaries must overcome any loyalty to the interests of the party or parties that appointed the trustee.

But as a governor’s appointee to a state pension board, shouldn’t I be primarily concerned with the taxpayers? After all, taxpayer money flows into the fund from the state, which is the employer.

Trustees of public retirement systems are not fiduciaries for appointing authorities, employers who pay into the systems, unions, constituencies from which they are elected, taxpayers, or the public. Rather, as noted, the duty of loyalty provides that trustees always act in the best interests solely of the members and beneficiaries.

The duty of loyalty is closely related to and informed by the exclusive benefit rule, which provides that trustees shall administer their pension systems for the sole and exclusive benefit of the members and participants. The pension plan’s assets are held in a trust, and once contributions are made to that trust—whether by employees who are members of the plan or by states or municipalities who continue as employers—those contributions become part of the trust.

Moreover, public pension plans are generally considered “qualified” retirement plans under the Internal Revenue Code, which allows for tax advantages such as tax-deferred contributions and earnings growth for employees participating in the plan. The Internal Revenue Code specifies that no part of the corpus or income from the trust may be used for purposes other than for the exclusive benefit of the employees or their beneficiaries. Any violation of this “exclusive benefit rule” could put the tax qualification of the plan at risk.

As a fiduciary, I feel that “the buck stops with me.” Isn’t it my job to make decisions—not the job of the staff or outside experts?

The role of the board is certainly as the final decision-maker, but the answer to the question posed is a little more complex. The importance of governance is critical, since research indicates a strong positive correlation between good governance and a performance premium. The role of the board is one of oversight. As noted by the National Association of State Retirement Administrators, boards are established to oversee the operations of the system, to ensure that the system is fulfilling its statutory responsibilities related to retirement system functions. The board is also charged with establishing the policies of the system and with strategic planning. Staff, on the other hand, has responsibility for the day-to-day operation of the system, as well as the implementation of the policies and strategic plan set by the board. Consultants provide the outside expertise that enables both the board and staff to better fulfill their respective responsibilities.

Fiduciary law provides that a trustee has a duty to personally perform the responsibilities of a trustee except as a prudent person might delegate those responsibilities to others. In deciding whether, to whom, and in what manner to delegate fiduciary authority, and in monitoring those to whom they have delegated responsibility, trustees owe a duty to the beneficiaries to exercise fiduciary discretion and to act as a prudent person of comparable skill would act in similar circumstances (duties of prudence and care).

The law recognizes that a trustee cannot personally perform every function and does not possess all required expertise. Thus, trustees are authorized to delegate; delegation is, in fact, a critical part of a proper exercise of fiduciary duty. The decisions to appoint and monitor delegates are fiduciary functions: the trustee has a duty to properly select delegates and to monitor them. 

Remember that fiduciaries are judged by the decision-making process they follow. Do you as a trustee have sufficient information from experts, both staff and independent outside experts? Does your board engage in a rigorous decision-making process in a manner consistent with procedural prudence? The process undertaken should be documented to demonstrate prudence in decision-making. And finally, fiduciaries have an ongoing duty to monitor decisions to make sure those decisions remain prudent. 

The U.S. District Court for the District of Colorado has granted class certification in a lawsuit brought by the El Paso Firemen & Policemen’s Pension Fund, the San Antonio Fire & Police Pension Fund, and the Indiana Public Retirement System (Plaintiffs).

The securities fraud suit names InnovAge Holding Corp., several of its executives and board members, two private equity firms that allegedly controlled the company, and 11 underwriters who facilitated the company’s initial public offering in March 2021 (IPO) as Defendants. This decision by Judge William J. Martínez marks an important milestone in the case.

Background

InnovAge, a healthcare provider specializing in senior care through the federal Program of All-Inclusive Care for the Elderly (PACE), went public in the spring of 2021. Plaintiffs allege that the push to go public was driven by two private equity firms—Apax Partners and Welsh, Carson, Anderson & Stowe—who owned controlling stakes in InnovAge and had been instrumental in the InnovAge’s controversial decision to convert from a nonprofit to a for-profit company in the years prior to the IPO.

Plaintiffs allege that InnovAge made false and misleading statements regarding the company’s regulatory compliance, the quality of its care model, and the viability of its growth strategy. The claims focus heavily on InnovAge’s compliance with regulatory standards, a critical requirement in the highly regulated PACE industry. Plaintiffs assert that the company misrepresented its adherence to these standards, concealing issues later revealed by government audits. According to the lawsuit, these audits uncovered significant compliance violations, including woefully understaffed care centers, that ultimately resulted in sanctions that hindered InnovAge’s ability to accept new participants, negatively impacting its stock value.

Class Certification Decision

In its decision certifying Plaintiffs’ proposed shareholder class, the Court rejected Defendants’ two arguments opposing class certification.

First, the Court found that Plaintiffs satisfied the predominance requirement for class certification, rejecting Defendants’ argument that Plaintiffs did not comply with the Supreme Court’s decision in Comcast Corp. v. Behrend, which held that antitrust plaintiffs had failed to provide a damages methodology that aligned with their theory of liability. Defendants argued that Plaintiffs’ damages model failed to disentangle the effects of actionable misrepresentations from other factors affecting InnovAge’s stock price. Plaintiffs responded that Defendants were attempting to stretch the logic of Comcast beyond the specific, limited context in which it was originally applied. Judge Martínez sided with Plaintiffs, citing well-established precedent that Plaintiffs’ proposed “out-of-pocket” event study methodology is widely accepted in securities fraud cases. Judge Martínez also reasoned that, even if there were any shortcomings in the damages model, they would affect all class members uniformly and thus would not preclude class certification. The Court ultimately found that common issues, including the alleged misrepresentations and their impact on InnovAge’s stock price, predominated over any individual questions.

The “Comcast argument” Defendants raised is one that plaintiffs in securities class actions regularly encounter at the class certification stage, despite its being routinely rejected by courts. Just two months ago, attorneys at Cohen Milstein overcame a nearly identical argument when a district court in South Carolina granted a motion for class certification against Deloitte. This argument has become so common that, in briefing motions for class certification, Cohen Milstein attorneys have begun filing a list of district court opinions rejecting Comcast arguments, which they did here, listing 90 such instances.

Judge Martínez also found that Plaintiffs satisfied the requirement under Rule 23 of the Federal Rules of Civil Procedure that named plaintiffs in class actions are “adequate” representatives. In doing so, Judge Martinez noted that Plaintiffs were “sophisticated institutional investors who manage billions in assets,” who had “thus far capably demonstrated their understanding of this action by testifying as to the occurrence of key events; the cause of their alleged losses; and the causes and effects of Defendants’ alleged conduct.” (internal citations omitted).

Implications & Next Steps

Class certification is a key step in securities litigation and enables the Plaintiffs to serve as representatives of the class of InnovAge investors. Being certified to proceed as a class, rather than on an individual basis, increases bargaining power in the litigation and streamlines discovery and motions practice.

The story of InnovAge—that is, the story of a non-profit healthcare company converted into a publicly traded, for-profit corporation controlled by private equity firms—is emblematic of a broader trend of private equity firms’ involvement in the healthcare industry. As this lawsuit illustrates, that involvement often comes with a pursuit of cost-cutting and profit maximizing that can have serious repercussions not only for patients, but ultimately for other investors backing the healthcare companies.

Discovery in the matter is under way.

For further details, refer to the Court’s official order dated January 9, 2025.

With some federal appointees publicly tasked with overhauling or even eliminating the departments they’re tapped to lead, President Trump’s choice of Securities and Exchange Commission veteran and Washington insider Paul S. Atkins to head the agency seems to harken to a more conventional time.

Mr. Atkins is an unarguably experienced pick with a history of service to the agency, acting as an SEC Commissioner under Presidents George W. Bush and Obama and a high-level staffer for SEC Chairs Arthur Levitt and Richard Breeden before that. That makes him likely to be a more evolutionary Chair than a revolutionary one, according to Cohen Milstein partner Daniel S. Sommers.

“In contrast to some of the President-elect’s nominees for other agencies, I think it unlikely that Mr. Atkins will have the dismantling of the SEC as his mission,” Mr. Sommers said. “So, to the extent that U.S. politics is cyclical, there may still be a sufficient infrastructure at the SEC to resume pro-investor activity when Democratic control returns to the White House.”

As an SEC Commissioner from 2002 to 2008, Mr. Atkins largely followed the standard recent playbook for Republican appointees—backing measures to expand access to capital markets over increased regulation and expressing doubts about the value of holding public companies responsible when their executives break the law.

Mr. Sommers said Mr. Atkins’ tenure as an SEC Commissioner provides strong evidence as to how he will approach the SEC’s enforcement function if confirmed by the Senate. “We should expect that Mr. Atkins will strongly favor enforcement actions against individuals rather than corporations, and will look at all potential enforcement actions with heightened skepticism,” he said.

“While those approaches may not be ideal for institutional investors, I take at least some limited comfort from his history of working at the SEC and what appears to be his appreciation of the SEC’s importance as an institution,” Mr. Sommers said.

After leaving the SEC, Mr. Atkins founded DC-based political consulting firm Patomak Global Partners, advising financial industry and cryptocurrency clients about markets and regulatory issues. In 2016, he was a member of President Trump’s first-term transition team, advising the incoming administration on financial policies and appointments.

Since returning to the private sector, Mr. Atkins has expressed views in line with policies currently popular among Republican lawmakers and diametrically opposed to positions favored by his predecessor, Gary Gensler, who resigned on January 20. Under former Chair Gensler, the SEC filed lawsuits against large crypto-related companies, including digital exchanges Coinbase and Kraken, and enacted rules requiring climate-risk disclosures in public company filings.

Mr. Atkins, meanwhile, is an outspoken advocate for facilitating the growth of cryptocurrencies, sitting on the board of advisors of the Digital Chamber of Commerce, a blockchain trade association. Last year, he criticized “activist” investing, denouncing in a Newsweek article Department of Labor rules changes that he said “would encourage” asset managers to include environmental, social, and governance considerations in their investment decisions.

President Trump, who as recently as 2021 said cryptocurrencies looked like a “disaster waiting to happen” and that bitcoin “just seems like a scam,” did an about-face on digital currencies during this year’s election campaign. In a Truth Social post announcing his pick, President Trump said Mr. Atkins “recognizes that digital assets & other innovations are crucial to Making America Greater than Ever Before.”

In his post, President Trump also called Mr. Atkins “a proven leader for common sense regulations” who “believes in the promise of robust, innovative capital markets that are responsive to the needs of Investors, & that provide capital to make our Economy the best in the World.”

Whatever agenda he sets as Chair, Mr. Atkins will almost certainly face some daunting challenges to retain experienced staff if the new administration makes good on its public promises to “drain the swamp” by greatly reducing the size of the federal workforce.

In his first days in office, President Trump signed an executive order reclassifying federal employees involved in policy to make those employees easier to fire. The president of the American Federation of Government Employees, Everett Kelly, said the new order could eliminate civil service protections for “hundreds of thousands of federal jobs,” making those employees “answerable to the will of one man.”

In addition, President Trump issued an executive order creating a new Department of Government Efficiency (DOGE) within the Executive Office. In an opinion article published by The Wall Street Journal following the election, DOGE Chair Elon Musk wrote that the projected “drastic reduction in federal regulations” would justify “mass head-count reductions” across the federal government. These reductions, he wrote, could be achieved through “large-scale firings” and “voluntary terminations” induced by measures such as relocating federal employees outside Washington and ending remote work.

As if to underscore the changing of the guard, the SEC issued a flurry of enforcement actions in the waning days of the Biden administration, including one against Mr. Musk. The SEC suit accused Mr. Musk of violating federal securities laws by failing to timely disclose his acquisition of more than 5% of Twitter’s outstanding shares prior to his 2022 acquisition of the social media platform, now named X. The maneuver allowed Mr. Musk to underpay for his purchase by at least $150 million, the SEC alleged. It’s unclear if the SEC will continue to pursue the lawsuit under Chair Atkins.

In the past two weeks, the U.S. Supreme Court dismissed as “improvidently granted” — an order colloquially called a DIG — two securities class actions, Nvidia Corp. v. Investors, and Facebook Inc. v. Amalgamated Bank. DIGs are rare and are issued only when the Supreme Court realizes it shouldn’t have taken a case at the outset.

Dismissing two securities cases in such close succession, both of which presented significant risks to investor protections, is not only a procedural anomaly — it’s a necessary course correction.

The petitioners’ questions presented in both the Facebook and Nvidia cases were flawed — mischaracterizing existing law, purported circuit splits, the facts of the cases and the lower courts’ decisions.

The Supreme Court’s decisions to dismiss these cases maintain securities law pleading standards, preventing them from being unfairly tilted in favor of corporate defendants. The stakes in both cases were immense: The petitioners — Nvidia and Meta — in both cases sought rulings that would have significantly weakened securities laws and undermined investors’ ability to hold corporations accountable for fraud.