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Injunction is Back ON; CTA is OFF Again!!

In the “you can’t make this up” category, the Fifth Circuit Court of Appeals has just issued an order VACATING its stay of the injunction applicable to the enforcement of filing requirements under the Corporate Transparency Act.  You can read the order right here Texas Top Cop Shop v Garland 24-40792 (5th Circuit; Stay Vacated).

In other words, the original order enjoining the enforcement of FINCEN’s filing requirements is back on, pending a review of the merits!!

The appeal is now scheduled for oral argument in March (2025).

For reference see:  Injunction is ON; CTA is OFF

and then see:  Injunction is OFF; CTA is Back ON

Now read this post Injunction is Back ON; CTA is OFF Again!!

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CTA Update

Following up on our recent posting concerning the CTA (see CTA On Hold in the US, But . . .   posted on December 9, 2024).

Earlier today (December 23, 2024), the United States Court of Appeals for the Fifth Circuit Order (24-40792) issued its order in response to the emergency appeal by the US government, concerning the nationwide injunction preventing the enforcement of filing requirements under the Corporate Transparency Act (CTA).

In short, the 5th Circuit Court held that since the government met its burden under Nken v. Holder, 556 U.S. 418 (2009), the government’s motion for a temporary stay of the district court’s order and injunction pending appeal was granted. In plain English, the order lifts the injunction imposed by the District Court.

Given the timing of this ruling, FINCEN issued an ALERT updating its Beneficial Ownership Information Reporting deadlines and providing some extensions:

  • The due date for pre-existing companies has been shifted from January 1st to January 13th;
  • For companies that had an initial filing due date while the injunction was in place, their initial filing deadline is now also January 13th;
  • For any company formed while the injunction was in place, FINCEN has allowed an additional 21 days to make their initial filing (i.e., the filing due day changes from 90 days to 111 days); and
  • For any company formed on or after January 1, 2025, the initial filing date will remain as 30 days from notice of formation.

While the 5th Circuit Court’s order lifts the injunction that was previously in effect, this doesn’t decide the matter on its merits and a full hearing and decision is still on the way.  Stay tuned.

 

 

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CTA On Hold in the US, But . . .

Spoiler Alert: Federal Court Enjoined Implementation and Enforcement!

Additional Spoiler Alert: NY LLC Transparency Act Unaffected (so far)!

The US Federal Corporate Transparency Act (CTA) * was enacted into law in January of 2021, in an effort to bolster the ability of law enforcement and intelligence agencies, as well as financial institutions to be better able to identify and prevent the use of empty shell holding companies to disguise the movement of illicit funds (e.g., money laundering, financing terrorism, drug trafficking, etc.). The CTA requires certain business entities to report and file beneficial ownership information with the Financial Crimes Enforcement Network (FinCEN).

New York State has enacted a similar statute, which was amended on March 1, 2024. The New York LLC Transparency Act (NYLTA) was originally enacted on December 22, 2023, and amended by Chapter Amendment on March 1, 2024 [New York Limited Liability Company Law, Sections 1106-1108, effective January 1, 2026], requires limited liability companies (LLCs) that are or have been formed under New York law or are or wish to be qualified and authorized to do business in the State of New York to provide information to the New York Department of State disclosing the LLCs beneficial owners.  While there are certain exemptions and exclusions under both the Federal and New York State laws, there are some other key differences. The NYLTA:

Becomes effective January 1, 2026, not 2025 as the Federal law provides, and any LLC formed in or qualified to do business in New York after January 1, 2026, has 30 days from formation (or qualification) to file.  If your LLC was formed or qualified to do business in NYS before January 1, 2026, you will have until January 1, 2027, to make your initial filings.
Applies only to LLCs, not any other types of businesses, such as corporations, limited partnerships or statutory trusts.
On December 3, 2024, a federal district court in the Eastern District of Texas, Sherman Division, issued an order granting a nationwide preliminary injunction: (1) enjoining enforcement of the CTA, as well as the implementation of the reporting requirements applicable to beneficial ownership information;  and (2) staying all deadlines required to comply with the statute’s reporting requirements.  You can read the amended order granting the injunction here: Texas Top Cop Shop, Inc., et al. v. Merrick Garland, Attorney General of the United States (E.D. Tex., No. 4:24-cv-00478). The Department of Justice, on behalf of the Department of the Treasury, is appealing the ruling, but in the meantime FinCEN must comply with the order while it is still in effect.

Although this means that until the litigation is resolved or the injunction is lifted, companies otherwise required to file will not be subject to any liability if they fail to do so. That said, any company that wants to voluntarily file their beneficial ownership information reports may do so.

IMPORTANT NOTE: Although the NYLTA doesn’t come into effect until January of 2026, the Federal injunction does not appear to affect the NY Statute.

With thanks to James (“Jamie”) Ballard for keeping me up to date.

Stay tuned!

* (Public Law 116-283, Title LXIV of the National Defense Authorization Act for Fiscal Year 2021 (Division F) and is part of the Anti-Money Laundering Act of 2020 (AML Act). The substantive provisions of the CTA can be found in Sections 6401, 6402 and 6403 (this latter section adds § 5336 to Title 31 of the United States Code establishing the Beneficial Ownership Information Reporting Requirements).

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Amazon – U.S. CPSC Imposes Responsibility

In an order published this past Monday (July 29, 2024), the U.S. Consumer Product Safety Commission determined that, as it relates to products that are part of the “Fulfilled by Amazon” program, Amazon.com is a “distributor” within the meaning of the Consumer Product Safety Act. The “Fulfilled by Amazon” program includes over 400,000 products!

As a consequence of that determination, the CPSC held Amazon.com is legally responsible for safety and recall notices and required to take remedial action when products are found not to be non-compliant with US safety standards and requirements or are defective.

While Amazon.com argued it is not responsible for products sold by third-parties and is simply a logistics provider, the Commission disagreed and noted Amazon.com receives the products at its distribution centers, stores them and eventually delivers them to customers – activities the Commission believes demonstrate sufficient control to put Amazon.com squarely within the meaning of a ‘distributor’ as defined in the CPSA.

While Amazon.com plans to appeal the Commission’s order, the order requires Amazon.com to develop and submit plans to notify consumers of hazardous products (Section 15(c) of the CPSA), to “take remedial actions under Section 15(d) of the CPSA to incentivize the removal of these hazardous products from consumers’ homes,” and discontinue distribution of defective or non-compliant products.

A spokesperson for Amazon noted that when notified by the Commission years ago about certain third-party products with potential safety issues, Amazon.com promptly notified customers, advising them to stop using them and issued credits or refunds.

The order issued this past Monday, stems from an appeal of a decision of an administrative law judge.  You can read the entire order of the CPSC here: In the Matter of Amazon.com Inc. CPSC Docket No. 21-2.

 

 

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US 5th Circuit Court of Appeals Issues Emergency Stay Blocking New COVID-19 Rules

Last Thursday (4 November 2021) we reported on the U.S. DOL’s announcement of new employer COVID-19 vaccine mandates (see US Department of Labor Announces Emergency COVID-19 Employer Requirements .

Yesterday (6 November 2021), a three judge panel of the United States Court of Appeals for the Fifth Circuit, granted an emergency stay prohibiting enforcement of the rules for now, saying they raise “grave statutory and constitutional issues.”   The order, temporarily blocks implementation of the new rules and the Court ordered the U.S. Government to file papers by Monday afternoon in an effort to ensure swift consideration of the request to issue an injunction against the vaccine mandate and corresponding testing requirements under the new rules.

Click here to read the 5th Circuit Court of Appeals Emergency Stay Order (November 6, 2021).

Stay tuned!

 

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SEC Adds Chinese Government Interference to Required Risk Reporting

Debbie Klis, a Rimon partner based in Washington, DC, has published a post on the Rimon IM Report noting that just yesterday (26 July 2021) a senior SEC official advised that Chinese companies listed on stock exchanges in the United States, must disclose the potential risks associated with the Chinese government interference as part of their normal reporting requirements.

You can read the entire post Chinese Companies Listed on US Exchanges Must Disclose Potential Risk Associated with Potential Government Interference.

You can also learn more about Debbie and her practice here:  Bio: Debbie A. Klis and if you want to obtain more information, feel free to contact Debbie A. Klis directly. Of course you can always contact me, Joe Rosenbaum, or the Rimon Law lawyer with whom you regularly work.

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“Family Office”? What’s In a Name

The Implosion Heard Around the (Financial Markets) World

What Can We Expect from the Regulators?

– Robin Powers, Partner, Rimon, P.C.

Archegos Capital Management’s collapse last week, and the resulting losses for several global banks, has and will impact financial markets for the foreseeable future. Regulatory efforts will likely focus on the ever-expanding shadow banking sector and shed light on its transparency (or lack thereof) and the risks. Shadow banking is a blanket term to describe financial activities that take place among non-bank financial institutions outside the scope of federal regulators and generally is defined to include family offices. *

Scrutiny of nonbanks was already a priority for Treasury Secretary Janet Yellen after last year’s Treasury market turmoil surrounding hedge funds, dislocations in the repurchase agreement market in 2019, and of course, the GameStop story earlier this year.

The current regulatory examination follows on the heels of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203) (commonly referred to as Dodd-Frank) which overhauled financial regulation in the aftermath of the 2009 financial crisis. Under the Dodd-Frank legislation, family offices won a special carve-out from Congress that allows them to avoid SEC registration if they serve a single family and don’t give investment advice. Family offices made the case to Congress at the time that they only make conservative investments to preserve family wealth and they do not try to beat the markets. And so, despite managing around $10 billion, Archegos is not directly regulated by the SEC because it manages Hwang’s wealth as a single-family office.

CFTC Commissioner Dan Berkovitz said, “The collapse of Archegos Capital Management and the billions of dollars in losses to investors and other market participants is a vivid demonstration of the havoc that errant large investment vehicles called ‘family offices’ can wreak on our financial markets.” He added, “A ‘family office’ has nothing to do with ordinary families. Rather, it is an investment vehicle used by centimillionaires and billionaires to grow their wealth, reduce their taxes, and plan their estates.”

On March 31st U.S. Treasury Secretary Janet L. Yellen led the first meeting of the Financial Stability Oversight Council (FSOC) under the new Biden administration. The FSOC was scheduled to discuss hedge fund activity and analysts expect it also addressed Archegos.
As calls for closer scrutiny of the shadow banking sector grow louder, we can expect policymakers to revisit systemically important financial institution designations for nonbank financial entities. Being designated as systemically important would allow for tougher regulation and oversight from the Federal Reserve.

Want to know more.  You can always contact me, Joe Rosenbaum, about any posting on Legal Bytes, but if you want to know more about the content of this post or you need assistance, feel free to reach out to Robin Powers directly or any of the Rimon professionals with whom you regularly work.

* Over 10,000 family offices globally manage an estimated $5-15 trillion in assets – larger than the entire hedge fund industry. The largest family offices operate like sophisticated investment firms, but they don’t have the same oversight. Unlike hedge funds, family offices do not have to disclose their assets, bank relationships, and other operational information.
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NYS Power of Attorney Legislation

Governor Andrew M. Cuomo has signed legislation amending New York State’s law relating to power of attorney forms.  The legislation makes granting, using and understanding a power of attorney simpler and removes much of the complexity traditionally associated with individual powers of attorney in New York.  Under the previous statute, these forms could be invalidated on technicalities if the exact wording of the statute wasn’t followed. Furthermore, often the form was not easy to put into effect – especially if you didn’t have a lawyer there to help the grantor understand what they were signing and the powers they were agreeing to grant. A hardship to many vulnerable nursing home and assisted living residents – especially during this pandemic.

While understanding the implications and legal effect of granting a power of attorney is still an essential ingredient to effectiveness and enforcement, the new law, Chapter 323 of the 2020 Session Laws, becomes effective 180 days from December 15, 2020.  What’s changed?

  • The new law modifies the prior requirement of “exact wording” in the “Caution to the Principal” and “Important Information for the Agent” sections of a power of attorney. Although those sections are still required, the ‘exact language’ requirement has been replaced with a “substantially conforms” standard – making it less likely that innocuous and immaterial technical differences will invalidate the power;
  • The new legislation creates a presumption in favor of the validity of the power of attorney form and expressly provides that anyone accepting an acknowledged power of attorney with no actual knowledge the signature isn’t genuine, may rely on the presumption the signature is, in fact, genuine;
  • Although the unwillingness or inability of an agent to provide an opinion of counsel or certification is grounds to refuse to honor a power of attorney, if a third party has a good faith belief the power is valid and has no knowledge that it isn’t valid or the agent doesn’t have the authority for a particular act, they can now feel comfortable honoring the power of attorney in reliance on the agent’s authority. In fact, the new law allows a judge to impose penalties (including attorneys’ fees) if an institution unreasonably refuses to accept a presumptively valid power of attorney form;
  • One other welcome benefit of the new law. The statutory gifts rider has been eliminated and the authority to make gifts above “standard amount” is to be included in a modifications section in the power of attorney itself. If there is no gifting language in the modification, the authority to make gifts is now $5,000 in any calendar year (up from the previous $500).

To many, welcome and long overdue changes to the power of attorney law in New York State. You can read the amended version of the legislation that was signed by the Governor of New York State here:  NYS Power of Attorney Legislation.

As always, if you have questions about anything in this post, feel free to contact me, Joe Rosenbaum, or any of the Rimon lawyers with whom you regularly work.

 

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California CPRA – CCPA 2.0

On Election Day in California, voters will not only be determining choices among candidates standing for election, but they will also be deciding the fate of Proposition 24, referred to as the California Privacy Rights Act (CPRA).  Proposition 24 is intended to build upon the California Consumer Privacy Act (CCPA) that came into force at the beginning of 2020. Among other things, the CPRA would create a California Privacy Protection Agency, a new regulatory agency that would ultimately take over privacy enforcement responsibility from the Office of the California Attorney General.

Among the areas that would be affected by the CPRA would be a clear ban on discrimination against anyone choosing to ask a company to delete their information and opt-out of marketing communications, stronger rights to prevent data sharing by companies (e.g., cross-context behavioral advertising), clearer mechanisms to enable consumers to correct information that is not accurate and a requirement that companies tell consumers how long they plan to retain the information.

Proposition 24 would also legitimize marketing and promotional schemes that offer consumers a discount or access to benefits in exchange for voluntarily disclosing personally identifiable information (e.g., in the context of rewards or loyalty programs).  Privacy and data protection proponents and opponents have long debated whether consumers should have an option to pay for privacy – viewed as a logical consequence of offering benefits in exchange for information that can be used for marketing and promotional purposes.

Since the CCPA came into force, companies have already been scrambling to comply.  If Proposition 24 passes and CCPA 2.0 comes into force, companies will again have to review and likely revamp their policies and practices to deal with the added new compliance obligations. Just as significantly, a separate California Consumer Privacy Agency would likely end up brining many more enforcement actions since protecting the privacy rights of California consumers will be its only mission.  Proponents of Proposition 24 say that may well be a good thing for California consumers, but they also argue that an agency solely focused on data protection will also mean more clarity, consistency and guidance surrounding some of the nuances of the California requirements.

Stay tuned. Election day is only a week away.

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Swiss-US Privacy Shield

In July, we reported that the EU Court had invalidated the viability of the US-EU Privacy Shield (EU Invalidates the Privacy Shield . . BUT Says Contracts May Save the Day!).  A few weeks ago (September 8, 2020), the Swiss Federal Data Protection and Information Commissioner (FDPIC) also decided to remove the United States from a list of nations that are considered to be providing “adequate level of data protection.”

Unlike the EU Court’s decision, decision by the Swiss FDPIC does not automatically invalidate the applicability of the Privacy Shield, because the list of countries on or off the list is technically not legally binding. That said, if your company is relying on the Swiss-US Privacy Shield to continue to transfer data from Switzerland to the United States, it would not be prudent to assume these transfers will continue to be viewed as complying with the adequate protection standards under Swiss law.  It seems to make sense to re-assess the risks and start relying on corporate policies and regulations, as well as legally binding contract clauses to ensure they are consistent with Swiss data protection law.

Even when the company policies and contract provisions are properly constructed, there still remains the risk that even these protections may be considered inadequate.  For example, if local authorities have the right to obtain the data without safeguards and legal protections consistent with those required under Swiss regulation, the transfer may be considered in contravention of Swiss law.  Similarly, if the entity to which the data is being transferred is not legally obligated, for any reason, to cooperate with the enforcement requirements that may apply under Swiss law this too creates a problem.  While encryption technology exists that can ensure no personal data can become available in another country, that approach only makes sense for pure storage capability (e.g., cloud based storage) but NOT if the data is intended to be used, displayed or otherwise handled in another nation.

While further guidance and information may ultimately be promulgated by the FDPIC, at present, a review of current procedures and data transfers, the exercise of caution and consideration of implementing additional steps to deal with this development in Switzerland, as with the EU Court decision, seems to be a prudent course of action.

At Rimon Law, our professionals are available to answer question about these developments, so feel free to contact me, Joe Rosenbaum, or any of the Rimon lawyers with whom you regularly work for information about this or any other matters.