California's "New Diversity Reporting Law" Expected to Have Sweeping Consequences

New California law requires diversity reporting for venture capital and private equity firms

On Oct. 8, 2023, California Governor Gavin Newsom signed into law Senate Bill 54, titled Fair Investment Practices by Investment Advisers (the “New Diversity Reporting Law”), which requires “venture capital companies” with sufficient ties to California to collect, and annually report, the demographic information of the “founding team members” at the companies they invested in during the prior year.

The New Diversity Reporting Law has been lauded for being a first-of-its-kind attempt to address the inequitable distribution of funding to women- and minority-owned emerging companies and, since over 5,700 venture capital firms have offices in California and venture capital investment deployed in the State far exceeds such deployment in any other State, it is expected to have sweeping consequences for the venture capital industry in the United States.

However, given the broad scope of the New Diversity Reporting Law, it also applies to investment vehicles that are not traditionally thought of as venture capital companies, including private equity funds, co-investment vehicles, family offices, trusts, etc., in certain circumstances.

Attorney General Barr Could Use Some Help On Delaware Law

The universe regularly provides reminders to remain humble, including reminders that having expertise in one area does not make you an expert in adjacent areas. Former Attorney General Bill Barr recently provided one of those reminders with his opinion column in the Wall Street Journal, titled Delaware Is Trying Hard To Drive Away Corporations.

There are many legal topics where AG Barr has vast knowledge and experience. On those subjects, his opinion should carry weight. His column demonstrates that Delaware law is not one of them.

Binance’s Changpeng Zhao Can’t Return to UAE From US for Now, Judge Says

Binance Holdings Ltd. co-founder Changpeng Zhao can’t return to his home in the United Arab Emirates for now, a federal judge in Seattle ruled.

US District Judge Richard Jones on Monday put on hold a ruling granting the billionaire’s request to return to the UAE following his guilty plea last week to US criminal charges but before his Feb. 23 sentencing. That order will remain in effect until Jones issues a decision on prosecutors’ motion to keep Zhao in the US through his sentencing.

Elon Musk, Mark Cuban Back Case to End SEC’s In-House Judges

Jarkesy, a former Wall Street broker and television commentator, is the new face of a long-running effort to undercut what critics say is an unfair advantage the SEC holds when it tangles with alleged wrongdoers. The SEC uses its in-house system for hundreds of cases a year – even after scaling back in response to a 2018 loss at the Supreme Court.

Backed by Elon Musk and Mark Cuban, Jarkesy contends that defendants in SEC cases have a constitutional right to make their case to a federal jury. A win for Jarkesy would reduce the SEC’s leverage to extract expensive settlements.

“The effect for defendants would be significant,” said Nicolas Morgan, a lawyer with Paul Hastings and former SEC litigator who filed a friend-of-the-court brief for Musk, Cuban and three other business leaders who have clashed with the commission. “Potentially, you would see fewer defendants settle if they know they’re going to be able to plead their case to a jury.”

MLB, Formula 1 Face Fraud Suits for Promoting FTX Cryptocurrency

FTX investors suing the cryptocurrency exchange’s celebrity promoters for allegedly helping to facilitate an $11 billion fraud have some new targets, including Major League Baseball, Formula 1 racing and Mercedes-Benz Group AG’s racing team.

Investors’ lawyers sued MLB – the first major sports league to sign a promotional deal with FTX in 2021 – and the other entities in federal court in Miami Monday, accusing them of “aiding and abetting and/or actively participating in the FTX Group’s massive, multi-billion-dollar global fraud.” At one point, MLB umpires wore FTX patches on their sleeves.

KPMG, Deloitte Ask Staff to Use Burner Phones for HK Visits: FT

Deloitte and KPMG have asked some executives based in the US to avoid using their usual work phones during visits to Hong Kong, the Financial Times reported, citing unidentified people with knowledge of the policies.

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The move comes as China increases its control over Hong Kong, the Asia-Pacific headquarters of many global companies, the FT said.

Allen & Overy Removed From Ransomware Website 1 Day Before ‘Deadline’

Allen & Overy has been removed from the website of ransomware group LockBit, according to a person with knowledge of the situation.

The hacker group, which is one of the most notorious in the world and is viewed as having strong links to Russia, lists organisations that it is holding to ransom on its website on the dark web.

The removal comes the day before the deadline which the hackers had set—November 28—after which they threatened to publish confidential data which A&O confirmed lived on “a small number” of their storage servers.

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A&O has now been taken off this website along with the reference to the November 28 deadline, the person said, although it is unclear what the significance of this is. It could mean the firm has paid a ransom or it could mean negotiations are ongoing, the person added.