SEC Chair Gensler Addresses AI Disclosures by Public Companies, Financial Firms

“AI, Finance, Movies, and the Law” Prepared Remarks before the Yale Law School by SEC Chair Gary Gensler

As AI disclosures by SEC registrants increase, the basics of good securities lawyering still apply. Claims about prospects should have a reasonable basis, and investors should be told that basis. When disclosing material risks about AI—and a company may face multiple risks, including operational, legal, and competitive—investors benefit from disclosures particularized to the company, not from boilerplate language.

Companies should ask themselves some basic questions, such as: “If we are discussing AI in earnings calls or having extensive discussions with the board, is it potentially material?”[26]

These disclosure considerations may require companies to define for investors what they mean when referring to AI. For instance, how and where is it being used in the company? Is it being developed by the issuer or supplied by others?

Investment advisers or broker-dealers also should not mislead the public by saying they are using an AI model when they are not, nor say they are using an AI model in a particular way but not do so. Such AI washing, whether it’s by companies raising money or financial intermediaries, such as investment advisers and broker-dealers, may violate the securities laws.

So, if you are AI washing, as “Professor” Hill sang, “Ya Got Trouble.”

Lyft Issues Massive Correction to 2024 Earnings Margin Outlook

Lyft Inc. issued a massive correction to its outlook for earnings margin in 2024, saying its margin is expected to expand by 50 basis points — not the 500 basis points written into an earnings presentation released earlier on Tuesday.

“This is actually a correction from the press release,” Erin Brewer, Lyft’s chief financial officer, said in a call with analysts. “In my prepared remarks, I referenced 50 basis points of margin expansion.” A spokesperson for the company attributed the correction to a clerical error.

The blowout forecast may have contributed to a surge in Lyft’s shares in after-market trading on Tuesday. The stock jumped as much as 67% on the company’s outlooks before erasing gains during the call with investors. It was up 20% at 5:52 p.m. in New York.

WhatsApp All Over Again: The SEC Brings More Recordkeeping Charges Against Broker-Dealers and Investment Advisers for Off-Channel Communications

It is important to note that in each of these cases, the off-channel communications at issue were conducted on the personal devices of the firm’s employees. In addition to creating recordkeeping and monitoring challenges and related examination risks—as outlined by the SEC in these and prior, similar proceedings—the use of personal devices for firm business raises complicated issues during regulatory investigations when responding to subpoenas and similar requests. These requests, similar to examination requests, are usually drafted quite broadly, and often require the firm to provide requested documents that the firm has the effective ability to obtain, even if the requested document is not in the firm’s immediate possession.

D&O coverage for DEI-related ESG claims

D&O policies also contain exclusions that may limit or preclude coverage for certain types of claims, and other terms and conditions affecting coverage that should be carefully reviewed. Directors and officers concerned about DEI-related exposures should make sure their D&O coverage applies to or contains enhancements protecting against claims arising from employment practices, and that claims for discrimination and harassment are not excluded.

Most D&O policies contain “conduct” exclusions precluding coverage for intentional acts or wrongdoing, which also may come into play for claims alleging violations of DEI initiatives and mandates. Insureds should carefully ensure that any such “conduct” exclusion contains language prohibiting an insurer from avoiding coverage for such “conduct” until there has been a “final adjudication” finding that an insured’s wrongful actions were willful or intentional.

Insured directors and officers also should be mindful that some companies may take action against their own directors for alleged wrongdoing — and this may be excluded by the policy.

Crypto Political Group Fairshake Targets California Democrat Sen. Katie Porter

The U.S. crypto industry’s most prominent campaign-finance organization, Fairshake, is going after Rep. Katie Porter (D-Calif.), spending a part of its war chest to try to derail the progressive lawmaker’s Senate bid.

A new video ad attempts to skewer Porter’s own campaign fundraising and is part of what the group said is a multi-million-dollar effort in California and online. ”

Despite her claims, Porter has taken campaign cash from the big banks, big pharma, and big oil and her super PAC is spending big to mislead Californians about her record,” according to a statement from Fairshake, a political action committee (PAC) supported by crypto firms including Andreessen Horowitz (a16z), ARK Invest, Circle, Ripple and Coinbase (COIN).

Explainer: Did Delaware ‘lock the doors’ to stop companies from leaving, as Musk claims?

Elon Musk has claimed that Delaware, home to much of corporate America, is trying to prevent businesses from heeding his call to leave the state, where a court invalidated his $56 billion Tesla pay package.

Since the Delaware Court of Chancery ruled to rescind Musk’s record pay package on Jan. 31, the Tesla CEO has posted on social media about reincorporating the electric vehicle maker in Texas, where it has its headquarters, and encouraging others to follow.

40% of Lawyers Are Women. 7% Are Black. America’s Workforce in Charts

Almost 96% of all dental hygienists are women. Six out of seven lawyers are white. And the racial and ethnic makeup of paralegals, hairdressers and dietitians closely mirrors that of the overall U.S. workforce.

The Bureau of Labor Statistics each year publishes data looking at the gender and racial composition of hundreds of occupations, offering a snapshot of how workers sort themselves into many of the most important jobs in the country.