High-profile scandals have plagued the cryptocurrency industry. Recently, these cases have drawn attention to financial institutions’ ethical and legal responsibilities in the digital finance sector. In March 2024, the U.S. District Court for the Southern District of California heard a case in the cryptocurrency industry, Bhatia v. Silvergate Bank. The court addressed the extension of third-party liability for banks in the crypto sector, and set a distinct precedent for how courts might handle the liability of financial institutions and, more importantly, a new standard for fiduciary duties.

FTX, once a leading cryptocurrency exchange, and Alameda Research, its affiliated trading firm, were both founded by Sam Bankman-Fried. Their 2022 collapse, driven by alleged fraud and mismanagement, resulted in billions of dollars in losses and became one of the most significant scandals in cryptocurrency history. Following their bankruptcy, plaintiffs sued Silvergate Bank (the “Bank”), despite not being direct customers of the Bank, contending that Bank administrators allowed the improper transfer of funds to accounts controlled by Alameda without their consent as customers of FTX. The plaintiffs argued that despite multiple red flags, the Bank turned a blind eye to these irregularities, enabling the loss of billions in customer deposits. Specifically, the plaintiffs pointed to unusually large and frequent transactions between FTX and Alameda, the rapid movement of customer funds without adequate explanation, and the commingling of customer deposits with Alameda’s operational funds. These irregularities suggested potential misuse of funds, which, if addressed, might have prevented the misappropriation and subsequent financial collapse of FTX. The plaintiffs’ argument was that by ignoring these warning signs, the Bank enabled the loss of billions in customer deposits.

Traditionally, under California law, banks do not have a duty of care to non-customers. For instance, in Casey v. U.S. Bank National Association, the court held that banks generally don’t have a legal obligation to investigate or intervene in the transactions of their account holders when those transactions involve third parties who are not direct customers of the bank. In that case, the court reasoned that imposing such obligations could burden banks with extensive oversight responsibilities, potentially hindering their operational efficiency.

However, in this case, the court applied factors from Biakanja v. Irving to assess whether a duty of care should exist without a direct contractual relationship. These factors assessed the foreseeability of harm, the intent of the transaction, and the connection between the bank’s actions and the plaintiffs’ injury. The Bhatia court concluded that the nature of the Bank’s involvement with FTX and Alameda created circumstances where the foreseeability and direct connection of harm justified a broader scope of responsibility. This shift significantly broadens the scope of responsibility for financial institutions and implies that banks cannot process transactions without considering the consequences for non-customers. Therefore, this decision could establish a new standard of due diligence for cryptocurrency clients, ensuring that banks take proactive measures to monitor and mitigate risks associated with high-volume and high-velocity crypto transactions.

This case questions the corporate governance practices of financial institutions involved in cryptocurrency and exemplifies the evolving nature of fiduciary duties. The court found that FTX’s Terms of Service suggested a fiduciary relationship between FTX and its customers because FTX promised to segregate customer assets and protect them from misuse. It found that the Bank had facilitated the transactions that diverted these funds, thus contributing to FTX’s breach of fiduciary duty. This increased liability incentivizes banks to require stricter covenants and terms and conditions with their crypto clients to ensure proper safeguards. This decision could have significant implications for corporate governance in the crypto industry, which operates with less regulatory oversight than financial institutions. But, if fiduciary duties can be established by contracts or public representations, as asserted in the case, crypto platforms could face heightened liability, prompting them to adopt more rigorous compliance and governance standards.

Moreover, Bhatia v. Silvergate Bank comes at a time when the collapse of high-profile scandals put the cryptocurrency industry under increased scrutiny. If banks can be held accountable for their role in facilitating financial transactions within the cryptocurrency sector, many may distance themselves from the cryptocurrency sector. This distancing could reduce banking services available to crypto companies, making them difficult to operate.

A fringe implication of Bhatia is the potential new crypto industry regulations. After this case, companies with minimal oversight from regulators and financial partners could face greater scrutiny. Financial institutions could be required to enhance their monitoring systems and to report suspicious transactions more frequently. These regulations would raise business costs, potentially slowing the growth of crypto-focused banks and platforms because of increased operational expenses and regulatory burdens. Additionally, these regulations would provide greater protection for investors and customers.

The Bhatia case presents a critical lens into the responsibilities of financial institutions in the digital evolution. As technology evolves and the cryptocurrency industry continues to grow, regulators will have to re-examine how fiduciary duties should apply to banks facilitating crypto transactions. As the court broadens the scope of third-party liability and explores the application of fiduciary duties to financial institutions, it sets a precedent that could reshape the relationship between banks and crypto platforms. While economic efficiency remains an important key of the industry, Bhatia shows the need for fairness, stronger corporate governance, and enhanced safeguards in digital finance. Looking ahead, the crypto industry may face increased regulatory scrutiny and corporate reforms aimed at upholding fiduciary duties and preventing future collapses like FTX.

On December 29, 2023, the “Company Law of the People’s Republic of China (Revised in 2023)” (“New Company Law”) was passed by the Standing Committee of the Fourteenth National People’s Congress, formally coming into effect on July 1, 2024. The New Company Law represents the first major overhaul of the Company Law in the last two decades. The Company Law of the People’s Republic of China (PRC), initially established in 1993, has undergone six revisions. Throughout its creation and refinement, it has drawn extensively on rules from the western legal system, with regulations about self-dealing transactions being a prime example.

A. Self-dealing Regulations in China

Before this revision, China’s Company Law distinguished between direct self-dealing and indirect “affiliate transactions”. Article 148 prohibited directors and officers from directly trading with the company without approval from shareholders. Article 21 prohibits directors and officers from exploiting their control over affiliated entities to harm the company’s interests.

A significant transformation in the New Company Law is the elimination of the distinction above. The law now encompasses both under the umbrella term “self-dealing transactions,” which includes both direct and indirect dealings by directors and officers with the company. Additionally, the new law explicitly stipulates that the relatives of directors and officers are also subject to the rules.

Article 182 and 185 provides new sets of procedural requirements that govern all self-dealing transactions. Directors and officers, who intend to engage in self-dealing transactions either directly or through controlled entities, must report to the board or the shareholders. The transaction must be voted on by the board or during a shareholders’ meeting, where directors with a conflict of interest must avoid voting. Only after the resolution is passed can the transaction be considered compliant with the law.

B. Self-dealing Regulations in the United States

In the United States (U.S.), self-dealing or “conflicting interest transactions” often fall under the duty of loyalty. This duty, owed by directors and officers, restricts them from transactions that conflict with the company’s interests. The Model Business Corporation Act (MBCA) and Delaware General Corporation Law (DGCL) address this issue in similar ways.

MBCA states that conflicting interest transactions occur when a director or “related persons” – family members or other individuals with close relationships to the director – engage in company transactions that they have a significant financial interest in. MBCA specifies that when there’s a potential conflict of interest, directors have to disclose this information and abstain from voting at board meetings where such transactions should be decided.

Slightly different from the MBCA, which provides a compliance standard for making self-dealing transactions work, DGCL offers dispute-resolution-based guidelines for validating transactions. It creates a safe harbor for self-dealing transactions from automatic invalidity, as long as they have been approved by informed, disinterested directors or shareholders. Furthermore, if no prior approval is obtained, judicial review for fairness can justify the transaction.

The courts assess fairness based on several factors, including whether the corporation received full value in the commodities purchased; whether the transaction was at the market price, or below; whether there was a detriment to the corporation as a result of the transaction.

C. Comparison Between Rules in China and the United States

Comparing the rules of these two different jurisdictions, we can see that the New Company Law of the PRC has largely adopted the rules from the MBCA and DGCL, while there are also some differences between them.

1. Definition of Self-dealing Transaction

   With the New Company Law of the PRC unifying the definition of self-dealing, both Chinese and U.S. rules define self-dealing transactions as those involving directors and officers trading with the company, either directly or indirectly through persons or entities over which they have control or significant influence.

2. Approval Requirement

   Both Chinese and U.S. rules require the self-dealing transactions to be voted by informed and disinterested directors or shareholders. In this context, the New Company Law has largely incorporated the U.S. approval requirements for self-dealing transactions, thereby addressing the previous ambiguity in terms of procedural stipulations.

3. Fairness Standard

   DGCL validates self-dealing transactions lacking the approval procedure if the transaction meets the fairness standard. The New Company Law of the PRC does not explicitly provide for such an exception, but similar fairness principles have been incorporated in judicial practice.

   In the “Provisions of the Supreme Court on Application of the Company Law of PRC (V),” the Chinese Supreme Court underscored that mere procedural approval is insufficient as a defense in self-dealing cases. It has also emphasized in the (2019) Civil Final No. 496 case the importance of reviewing the substantive content of the transaction, including whether the contractual terms and performance conform to normal business principles and whether the price is reasonable.

4. Application of Business Judgment Rule

   The Delaware Court maintains that once a transaction is approved by an informed and disinterested board, the business judgment rule (BJR) should be invoked. Under this rule, the court refrains from interfering with the board’s decision unless there is evidence of gross negligence or a clear act of mismanagement, such as gift or waste. This contrasts with the Chinese Supreme Court’s opinion: here, a self-dealing transaction, even if it satisfies approval requirements, is non-compliant if it deviates from the principles of fairness.

   The reason for this difference is that boards in China are composed of shareholders or shadow directors (directors who can only follow the shareholders’ instructions), while boards of American companies are expected to either be independent or make decisions based on their fiduciary duties to the company. The shareholders sitting on Chinese company boards are usually not professional managers and may find it difficult to form professional business judgments. As a result, it is common for controlling shareholders to control the board of directors. Applying the BJR to their decisions without the extra protection of the fairness standard would lead to a huge increase in unfair, self-dealing transactions.

In conclusion, the New Company Law has drawn extensively from U.S. regulations to refine its rules on self-dealing transactions, thereby enhancing the self-dealing governance. This reform provides a stronger legal foundation for protecting the interests of companies, thus promoting corporate governance practices that align with international standards.

The biotechnology industry is highly competitive and dominated by a few major pharmaceutical companies, making it difficult for smaller companies to succeed. Biotechnology companies frequently face substantial challenges that may lead to dissolution or necessitate the sale of intellectual property to bring products to market.

Key challenges for these companies include extensive regulations, such as the United States Food and Drug Administration (FDA) requirements. Most companies must obtain FDA approval and undergo extensive trials before commercializing a product, a process that can be extremely lengthy. It typically takes 10-15 years to develop a single new medicine. Additionally, bringing a new product to market is costly, with expenses driven by trials, professional hiring, marketing, and so on. The average cost of developing a drug can reach up to $2.6 billion. Furthermore, given the high failure rate of businesses in this ecosystem, investors tend to be cautious about their investments.

Despite these obstacles, many biotechnology companies pursue acquisitions motivated by both societal impact and financial profit. The following mergers and acquisitions strategies are particularly relevant and common in this industry since they are influenced by and result from the unique challenges of this field.

Continuing the research and development of a drug to eventually commercialize it. Biotechnology companies frequently acquire assets at a reduced cost when a target corporation with late-stage products faces financial difficulties. Acquisitions may also be made with the future intent to sell or license a promising product. This strategy is common in the orphan drug industry, which focuses on treating rare medical conditions, where investments are often purpose-driven. However, big pharmaceutical companies also target this sector for profit. The Orphan Drug Act incentivizes drug development with benefits like tax relief and treatment protection, yet it does not regulate prices. As a result, big companies often acquire orphan drug rights and charge their consumers high prices, capitalizing on the lack of alternatives to life-saving treatments.

An example is seen with Ligand Pharmaceuticals (“Ligand”), which acquired the assets of Novan, Inc. (“Novan”), a company developing skin disorder treatments. In June 2023, after falling below NASDAQ listing requirements, Novan’s board decided to file for bankruptcy following an assessment of the company’s financial challenges and market conditions. In September 2023, the Bankruptcy Court approved Ligand’s $12.2 million bid to acquire Novan’s berdazimer gel and other assets. At the time, the FDA had already reviewed the berdazimer gel for molluscum contagiosum, approving it shortly after the acquisition. Ligand’s acquisition aligns with the strategy of purchasing underpriced, promising drugs from distressed companies to commercialize and generate profits, possibly selling or licensing them later without lengthy trials or high development costs. This helped rebuild Ligand’s reputation and restore shareholder confidence, despite the company’s earlier struggles and legal issues (including regulatory investigations, stock exchange issues, and lawsuits).

Enhancing or developing a new product (based on the same IP as an existing product). This strategy highlights the potential for drug repurposing in biotechnology, where existing drugs or formulas can be adapted for new uses (also seen in the orphan drug sector). Repurposing offers biotechnology companies many benefits addressing the unique challenges they face by providing existing data for clinical trials, reducing development costs, and quicker development time overall. Additionally, a formula or technology may complement or enhance another, and advance research and development. Therefore, biotechnology companies are incentivized to acquire other biotechnology corporations that hold existing intellectual property they think has the potential to be repurposed.

An example is seen with Novartis AG (“Novartis”), which acquired products from GlaxoSmithKline plc (“GSK”). In 2015, Novartis paid $16 billion to acquire GSK’s oncology portfolio, including Arzerra, a drug for chronic lymphocytic leukemia (CLL). Though Arzerra struggled in the CLL market due to extensive competition, Novartis saw its potential as a treatment for multiple sclerosis (MS). This acquisition for repurposing proved successful when in 2020, Novartis secured FDA approval for its use for MS. This example demonstrates how acquiring and repurposing drugs offers biotechnology companies a cost-effective, lower-risk alternative to developing new drugs from scratch.

Expanding the company’s portfolio to strengthen market presence or enter new markets. This strategy is common among large pharmaceutical companies with the resources to invest in emerging markets and trends. By acquiring assets from other sectors, they stay competitive and lead innovation. However, this approach isn’t exclusive to big companies, expanding a portfolio can be profitable for any pharmaceutical company by broadening its product range and strengthening its market presence.

An example is seen with Merck & Co., Inc. (“Merck”), which acquired Sirna Therapeutics, Inc. (“Sirna”), an RNAi (RNA interference) drug development company, for $1.1 billion (almost double Sirna’s stock price). At the time, Merck’s partnership with RNAi leader Alnylam Pharmaceuticals, Inc. (“Alnylam”), had faltered, with Alnylam pausing joint development of their RNAi-based blindness drug. Sirna’s similar drug positioned it as an alternative. This acquisition highlights Merck’s strategy of diversifying its portfolio to maintain its presence in the growing RNAi market after setbacks. Ultimately, in 2014, Merck sold Sirna to Alnylam for only $175M. This sale likely reflects frustration with slow progress, as extended trials often result in sale of assets, to recoup losses. Another reason for the sale could be Merck’s effort to re-strengthen its partnership with Alnylam.

Occasionally, this strategy can lead to antitrust issues, as seen with Amgen, Inc. (“Amgen”) acquisition of Horizon Therapeutics plc (“Horizon”). As Amgen tried to broaden its rare disease portfolio, the Federal Trade Commission raised concerns that it might bundle its products with Horizon’s, using discounts on its existing drugs to limit competition. Eventually, Amgen received the green light after committing to refrain from such practices.

Ultimately, companies pursue acquisitions for various reasons, often achieving multiple purposes through a single transaction. While these methods are not exclusive to the biotechnology industry, they illustrate the unique and evolving ecosystem of this industry, being widely recognized and used within the sector because of the unique challenges that pharmaceutical companies face. The biotechnology sector, along with the regulating entities operating within it, presents significant obstacles for those looking to participate and contribute. However, successful acquisitions can be highly profitable and beneficial to humanity.

2025 has the potential to be one of the most significant years for tax policy in a generation. Donald Trump’s election, Republican control of the House and Senate, and the expiration of the Tax Cuts and Jobs Act (TCJA) will make 2025 a major year for changes to the federal tax code that will likely alter many businesses’ tax liability.

Enacted in 2017, the TCJA marked the most significant change to the U.S. federal tax code since the Tax Reform Act of 1986. The nearly $1.5 trillion legislation amended tax rates and policies for individuals and businesses alike, impacting every corner of the U.S. economy. The TCJA’s changes for individuals (which included cutting marginal tax rates, increasing the standard deduction, and capping the amount of state and local taxes families could deduct) were temporary and will expire on December 31, 2025, absent congressional action. Conversely, the TCJA’s changes for businesses (which included cutting the corporate tax rate and repealing the corporate alternative minimum tax) were made permanent with some exceptions. Observers from across the political spectrum, including the independent, nonpartisan Congressional Research Service, have noted that the law favored higher-income taxpayers because much of the benefit of cutting the corporate tax rate and the larger individual tax cuts went to higher-income individuals.

While businesses celebrated a permanent reduction to the corporate tax rate, several changes to the business-related provisions of the tax code upon the TCJA’s expiration will put businesses in a less-advantageous position absent congressional action:

1. The TCJA permitted businesses to fully and immediately expense the cost of equipment in a provision known as “bonus depreciation,” which allowed businesses to write off the full cost of equipment as a tax deduction in the year it was purchased. Prior to the TCJA, businesses could only expense a portion of the cost of newly purchased equipment. Bonus depreciation began to phase down in 2023 and will completely revert to pre-TCJA treatment in 2027 without congressional action.
2. The TCJA limited the amount of interest that certain businesses could deduct to 30% of the business’s earnings, down from 50% prior to the TCJA. Beginning in 2022, interest deductions were restricted to an even smaller earnings measure, further reducing the amount of interest that businesses may deduct when paying off debt. This smaller earnings measure will stay in effect absent congressional action.
3. Finally, the TCJA required that businesses begin to amortize their research and experimental expenditures beginning in 2022, reducing their value over time. Likewise, this requirement will stay in effect absent congressional action.

Congress has already started to prepare and draft legislation to address the expiration of the TCJA through partisan tax teams in the House and Senate. The House of Representatives passed legislation to extend bonus depreciation to 2026, allow businesses to deduct interest equal to 30% of a business’s earnings using a broader earnings measure until 2026, and delay amortizing research and experimental expenditures until 2026. Still, Donald Trump’s election and Republican control of the House and Senate are the significant factors that will determine the final contours of business tax policy for the next decade.

While tax policy did not play a significant role in the 2024 election, Donald Trump advanced several high-level promises during his campaign that could be a starting point for anticipating his tax agenda as President. These promises include:

1. In September, Trump announced he would further reduce the corporate tax rate from 21% to 15% for companies that make their products in the United States. It isn’t clear how those companies would be identified or defined, an important consideration for businesses looking to take advantage of this potential tax cut given the complex nature of globalized supply chains.
2. Trump also promised to extend the TCJA, which, as described earlier, would allow businesses to immediately expense the cost of equipment, restore a higher limit on interest expense deductions, and allow for a full deduction for research expenditures.

Like the TCJA in 2017, Trump’s proposals for 2025 appear likely to again confer larger benefits on businesses and high-income earners rather than low- and middle-income Americans. With a Republican majority in Congress and Trump returning to the White House, there will be little standing in the way of sweeping tax cuts. Those cuts may not be shared equally, however. While not widely discussed on the presidential campaign trail, Republicans in Congress have advanced legislation that repeals many of the tax incentives for clean energy and clean transportation in the Inflation Reduction Act. Should similar legislation be enacted as part of Congress’ legislation to extend the TCJA, many businesses utilizing these incentives may actually see a tax increase. With trillions of dollars at stake and the potential for major changes to the tax code, businesses must be vigilant about how they might adjust their tax planning strategies to best serve their shareholders with a new administration and Congress.

In February 2024, Capital One announced its intention to acquire Discover Financial Services for $35.3 billion. The merger, if approved, would make Capital One the largest credit card issuer in the United States by balanced owed, and significantly challenge the market dominance of Visa and Mastercard.  However, the deal has raised significant regulatory concerns, particularly around potential anti-competitive effects and market concentration. Critics argue that the merger could reduce competition among credit card issuers, leading to higher fees and fewer choices for consumers. These concerns are expected to be at the forefront of regulatory scrutiny.

Strategic Motivation and Market Impact

Capital One’s motivation for the merger is clear: it aims to strengthen its position in the highly competitive credit card market. Currently, Capital One ranks as the fourth-largest credit card issuer by purchase volume, with $272.6 billion in transactions. Discover, while a notable player, has struggled to gain significant market share against giants like Visa and Mastercard. By acquiring Discover, Capital One would not only surpass JPMorgan Chase to become the largest credit card issuer in the United States by balance owed—holding approximately 19% of outstanding U.S. credit card loans—but also increase its overall market share to around 22%. This would make Capital One a more formidable competitor, both in terms of balances and the number of cards in circulation.

Potential Benefits and Concerns

The merger promises several potential benefits. Capital One could leverage Discover’s payment network to offer more competitive products, such as no-fee checking accounts and cashback debit cards aimed at lower-income consumers. Additionally, this deal could enhance competition among credit card networks by challenging Visa and Mastercard’s dominance.

However, there are significant concerns about the merger’s impact on competition and consumer costs. Critics argue that the merger could lead to higher interest rates and fees for consumers due to reduced competition among credit card issuers. The consolidation would give Capital One a substantial share of the non-prime credit card market, which refers to consumers with credit scores below 660 or those with limited or no credit history, who typically face higher interest rates and fees due to their perceived higher credit risk. This could potentially allow Capital One to raise interchange fees on transactions. Furthermore, the merger could reduce consumer choices. These concerns have led to calls from consumer advocacy groups and lawmakers to block the deal.

Regulatory Scrutiny and Antitrust Concerns

The merger faces intense scrutiny under the 2023 U.S. Merger Guidelines, which have adopted a more aggressive stance on antitrust enforcement. These guidelines suggest that mergers resulting in a market share above 30% are presumptively illegal due to potential anti-competitive effects. Although Capital One’s projected market share post-merger is below this threshold, at approximately 22%, the horizontal nature of the merger—where two companies operating in the same industry and offering similar products combine—raises significant antitrust concerns because it can reduce direct competition, potentially leading to higher prices, reduced innovation, or fewer choices for consumers.

Regulators, including the Federal Trade Commission (FTC) and Department of Justice (DOJ), are likely to scrutinize whether this merger would substantially lessen competition or pose risks to financial stability. The Biden administration has generally been skeptical of large bank mergers, adding another layer of complexity to the approval process.

Addressing Regulatory Concerns

To address regulatory concerns, Capital One has proposed a $265 billion community benefits plan. This initiative includes significant investments in low and middle-income communities and aims to mitigate potential negative impacts on competition by fostering economic opportunities. Specifically, the plan allocates $200 billion for loans to these communities and $44 billion for development work. Additionally, Capital One has committed to empowering customers with greater control over their financial decisions through accessible financial education and tools for managing finances. They have pledged $15 million in grants to credit counseling agencies and expanded programs like “Keep Customers in their Cars” to assist borrowers during financial setbacks. Furthermore, Capital One plans to increase spending with diverse suppliers by 70% and enhance support for small businesses with tools like Cash Flow Insights. These efforts are designed to address some of the potential competitive and consumer impact concerns raised by the merger, demonstrating Capital One’s proactive approach to regulatory compliance and community support.

Antitrust Trends and Comparisons

Recent trends in antitrust enforcement highlight a challenging environment for large mergers. For instance, the DOJ successfully blocked JetBlue’s acquisition of Spirit Airlines due to concerns over reduced competition and higher consumer fares. The proposed $3.8 billion merger would have combined two of the largest low-cost carriers in the United States, potentially reducing budget travel options and increasing prices for consumers reliant on ultra-low-cost airlines. The DOJ argued that eliminating Spirit as an independent competitor would reduce the availability of low-cost fares and increase overall ticket prices, particularly affecting price-sensitive consumers who rely on affordable travel options.

In contrast to JetBlue-Spirit, Capital One’s proposed acquisition of Discover is positioned as potentially increasing competition among payment networks rather than diminishing it. While both mergers involve significant market players aiming for growth through consolidation, Capital One argues that its merger would enhance competition against dominant networks like Visa and Mastercard. However, similar antitrust concerns exist regarding potential market concentration and reduced competition among credit card issuers.

On the other hand, JPMorgan’s acquisition of First Republic was approved due to its strategic importance for improving financial stability during a period of banking turmoil. This acquisition was facilitated by regulatory bodies like the Federal Deposit Insurance Corporation (FDIC) to prevent further disruptions following significant bank failures. JPMorgan acquired substantial assets from First Republic with FDIC assistance, emphasizing financial stability over competitive concerns.

The contrasting outcomes of these mergers highlight how regulatory bodies assess potential impacts on competition and consumer welfare differently across industries. While the Capital One-Discover merger presents opportunities for enhanced competition and consumer benefits, it also faces substantial regulatory hurdles. The outcome will depend heavily on whether regulators perceive the potential benefits as outweighing the risks of increased market concentration. As such, this merger represents a critical test case for the future of antitrust policy in the financial services industry.

Environmental, social, and governance (“ESG”) considerations have influenced corporate choices more and more in the past several years, especially when it comes to cross-border mergers and acquisitions (“M&A”). Companies have been compelled by ESG principles to incorporate sustainability and ethical conduct into their strategies, shaping investment decisionmaking, due diligence, financial valuations. Although ESG has become increasingly popular as a tool for improving long-term value and minimizing risks, it has also come across increasing opposition from a variety of business, political, and economic stakeholders – a phenomenon described as “ESG backlash.” This backlash arises primarily from concerns that complying with ESG standards imposes burdensome expenses and restricts profitability. These concerns are especially prominent in countries like the United States, where opposition to ESG principles is on the rise.

Regulatory authorities across different regions, particularly in the European Union (EU), have placed growing importance on ESG compliance, driving multinational companies to prioritize these standards when expanding into new markets. For instance, the EU’s Corporate Sustainability Reporting Directive and the Sustainable Finance Disclosure Regulation mandate detailed ESG reporting, compelling acquiring companies to thoroughly assess and evaluate the ESG practices of their target companies.

Despite the increasing influence of ESG, it has faced substantial backlash, especially in countries like the United States. In the U.S., the rise of ESG backlash has been driven by political and economic opposition, with critics arguing that ESG principles impose unnecessary costs and regulatory burdens on businesses.

These criticisms are particularly strong in conservative-leaning states. For example, U.S. states such as Texas and Florida have introduced legislation restricting companies from considering non-financial factors when making investment choices. In these environments, companies must balance ESG concerns with broader political and market forces, adjusting their due diligence processes to reflect these shifting sentiments. However, with the introduction of numerous anti-ESG bills in various U.S. states, many of these legislative efforts are facing political and legal challenges, which result in delays, modifications, or failures. Key factors influencing these outcomes include party control in state legislature and economic impacts influencing the outcome.

ESG has become an important factor in cross-border M&A transactions, impacting target company selection, negotiation procedures, and post-merger integration plans. Businesses with strong ESG credentials are commonly seen as less risky by investors such as because they are in line with sustainability objectives, in compliance with regulations, and prioritize long-term financial success.

Due diligence in cross-border M&A transactions has evolved to incorporate ESG-related risks as part of the process. Companies must assess ESG risks associated with their targets and the potential for regulatory or political pushback in regions with strong anti-ESG sentiment.

Moreover, the financial valuation of companies has always been an essential factor in M&A deals, but ESG backlash has led the role of ESG-related risks and opportunities to become more nuanced. Companies seen as ESG-compliant may enjoy a premium in markets where these factors are valued, while those in industries facing backlash may face discounted valuations. This creates tension for companies engaging in cross-border M&A, where differing regulatory landscapes can lead to strategic misalignments between ESG-driven priorities and profitability concerns.

The intersection of ESG and cross-border M&A is still a critical factor in the global business environment. Companies facing increasing criticism over ESG practices must navigate a more intricate landscape where regulatory, political, and economic factors overlap. Multinational corporations face the challenge of maintaining the viability of cross-border deals while also following changing global standards by balancing the advantages of ESG compliance with the consequences of any potential backlash. Understanding this dynamic will be essential to ensure that M&A strategies remain relevant in a landscape where ESG remains significant both as a means of enhancing value and causing contention.

Cross-border mergers and acquisitions (M&As) are a crucial strategy for companies aiming for sustainable growth in diverse global markets. This approach allows firms to acquire cutting-edge technologies, expand their market presence, and optimize costs. However, a recent surge in investments from China and other emerging countries has raised alarms about the risks of leaking confidential information and technologies, as well as the dominance of key infrastructure, which pose threats to national security in various countries.

The Committee on Foreign Investment in the United States (CFIUS) plays a critical role in safeguarding national security. CFIUS oversees foreign investments to prevent the transfer of critical technologies, infrastructure, and information to foreign entities. Recently, however, there have been concerns regarding the political utilization of CFIUS reviews of cross-border transactions in the United States. The recent case involving Nippon Steel Corporation’s attempt to acquire United States Steel Corporation highlighted concerns over CFIUS being used for political purposes. Denying an acquisition on political grounds undermines the integrity of the process and creates uncertainty for future cross-border deals, which may potentially discourage foreign investment, particularly in key industries.

To understand the context of CFIUS, we should look back at its recent developments. In 2018, President Trump signed the Foreign Investment Risk Review Modernization Act (FIRRMA). This act aimed to (1) strengthen and broaden the scope of investments requiring CFIUS review and (2) enhance the efficiency, effectiveness, and transparency of the review process, thereby codifying previous CFIUS operations. Following a CFIUS review, if a deal poses a potential threat to national security, the President has the authority to cancel the transaction or impose conditions to mitigate the risks. But not all foreign investment deals require CFIUS review; only three categories necessitate scrutiny: (1) investments that result in foreign control of a US business (covered control transactions), (2) certain investments in US businesses dealing with critical technologies (covered investments), and (3) investments in specific real estate transactions (covered real estate transactions). While not all transactions will be reviewed by CFIUS, those where parties submit for review, or where CFIUS independently determines that a review is necessary, will undergo review.

A key deal that highlighted the political implication of current cross-border transactions is the acquisition of US Steel by Nippon Steel. Nippon Steel, the world’s fourth-largest steel producer, is renowned for its advanced manufacturing processes. On December 18^th, 2023, Nippon Steel proposed an acquisition of US Steel with an all-cash transaction at $55.00 per share, representing an equity value of approximately $14.1 billion, in addition to the assumption of debt, resulting in a total enterprise value of $14.9 billion. Established in 1901, US Steel has been one of the most prominent steel makers, holding the second largest production volume in the US and playing a significant role during the Second World War. However, since the 1970s, the company has faced increasing competition from cheaper steel imports, resulting in a decline in competitiveness and recent financial struggles. As a result, US Steel has been actively marketed for sale, prompting Nippon Steel’s acquisition proposal. Yet, the United Steelworkers (USW), a union representing workers in the steel industry, has expressed concerns about the acquisition of a US company by a foreign entity. This issue was closely intertwined with the political landscape of the 2024 presidential election, further complicating the global deal. Notably, President Biden, former President Trump, and Vice President Kamala Harris had all publicly opposed the acquisition, arguing that US Steel should remain under American ownership. This position held particular significance in key swing states like Pennsylvania, where US Steel is headquartered. It was also significant in other Midwestern steel producing states like Ohio. The USW, which represents approximately half of US Steel’s employees, was poised to play a pivotal role in these battleground states during the 2024 election, making their support highly sought after by both presidential candidates.

While many arguments suggest that the Nippon Steel deal poses national security risks, a closer examination reveals that these risks are unlikely to materialize. First, there are concerns regarding Nippon Steel’s operations in China, particularly its past partnership with Baoshan Iron & Steel, a state-owned firm linked to the Chinese Communist Party. However, it is essential to note that Nippon Steel exited this partnership in August 2024 and has been progressively reducing its scale of business in China since 2021, resulting in a minimal market share in the region. Consequently, it can be inferred that the connection between Nippon Steel and the Chinese Communist Party is becoming increasingly insignificant. Second, there are worries about potential job and production relocations outside of the United States following the acquisition, which could impact economic security and industrial capabilities. However, Nippon Steel has made commitments to not lay off employees or close plants as a result of the transaction. Additionally, it has also pledged to invest $1.3 billion to upgrade the Mon Valley Works facilities in Pennsylvania and $300 million to improve a blast furnace at Gary Works in Indiana. Finally, it is worth noting that Japan is one of the United States’ closest allies and an economically robust nation. Critics of the potential risks associated with the deal, such as Edward Alden, a Senior Fellow at the Council on Foreign Relations, contend that acquiring a US company by a close ally does not inherently pose clear security threats.

If the acquisition of US Steel by Nippon Steel ultimately fails, the repercussions could be significant. US Steel has struggled with declining performances, experiencing decreases in revenue, EBITDA, and net income since 2021, with an EBITDA growth rate of –49.41% and a net income growth rate of –64.54% in 2023. If the deal collapses, it could lead to three major consequences: (1) There may be potential plant closures at Mon Valley Works in Pennsylvania and the mill in Indiana, which would affect employees in those locations; (2) US Steel’s corporate headquarters might be relocated out of Pennsylvania, imposing considerable burdens on current employees; and (3) there could be a continued shift in production to lower-cost sites, such as US Steel’s Arkansas factory.

Estimated Impacts in the Event of Acquisition Failure:

• The closure of the two plants will potentially impact 7,300 employees, representing 52% of the total workforce of US Steel’s US operations.
• The closure is expected to affect 53% of US Steel’s production volume (based on production capacity), resulting in an estimated $9 billion decrease in net sales by US Steel.
• US Steel’s Pennsylvania headquarters currently employs approximately 800 individuals, who may be affected by the relocation.
• The anticipated decline in sales is projected to account for about 5% of the entire steel and iron industry in the US, potentially leading to a deterioration in the sector’s competitiveness.

In conclusion, if CFIUS is employed for political purposes, the failure of the US Steel acquisition by Nippon Steel would have detrimental effects on US Steel and the entire steel industry in the United States, potentially undermining the industry’s competitiveness. While CFIUS has extended the review process until after the presidential election, it is vital that political considerations do not overshadow sound economic rationales. Denying this acquisition lacks justification, as both companies and their countries stand to gain from the deal.

With the Chevron Doctrine’s reversal by Loper Bright Enterprises v. Raimondo, the transformation of the regulatory landscape proves inevitable. The Chevron Doctrine previously granted federal agencies the power to interpret ambiguous federal statutes. Its dissolution poses a threat to legislative efficiency, with the judicial courts now taking the lead on such interpretations—an often lengthy and complicated process. But which communities are harmed when federal regulatory agencies can’t create public policy independently? The answer reveals a disproportionate impact on black and brown communities.

The Federal Trade Commission (FTC) is tasked with shielding consumers from unfair and deceptive business practices. A large historical track record precedes it: Congress empowered the agency to administer consumer protection laws in 1938, and the FTC has since benefited from the large range of latitude in rule-making granted by Chevron. While the FTC protects all consumers, their mission deeply impacts those most vulnerable to fraudulent business schemes: black and brown communities.

Research has indicated that unfair business practices affect consumers of color disproportionately. Most notably, these communities pay more car loan interest than their white counterparts and are more frequently targeted by government impersonators and deceptive advertisers. Consequently, black and brown consumers benefit most from robust FTC power that can combat such conduct. The main source of that power was its discretionary authority to define what an “unfair” business practice is–a power that now exists as a relic of the pre-Loper Bright era.

Similarly, the Environmental Protection Agency (EPA) is charged with administering landmark legislations like the Clean Air Act and the Clean Water Act. These acts respectively regulate emissions of hazardous air and water pollutants. These regulations are crucial for black and brown communities disproportionately exposed to harmful pollutants from waste facilities, as corporations routinely choose to place hazardous facilities in low-income neighborhoods in efforts to exploit the low cost of operations and relaxed industry regulations.

Even with EPA regulations in place, corporations have regularly taken advantage of these disadvantaged communities to offset the costs of properly disposing their waste material. For example, in Louisiana, a predominantly black neighborhood concentrated with petrochemical facilities has earned the name Cancer Valley: it’s burdened by the largest rates of cancer caused by industrial pollutants in America. Lax Louisiana state regulations perpetuate this disproportionate environmental harm–shedding only a small light on the danger in the weakening of environmental regulation.

The EPA and the FTC, through their regulatory power, play crucial roles in enhancing the quality of life of all Americans, but especially Americans of color. However, the legitimacy of their enforcement policies has been exposed to widespread critique just months after the overruling of the Chevron Doctrine. Corporate giants such as Kroger Co., Meta Platforms Inc., and Express Scripts have recently challenged the FTC’s powers through defamation lawsuits that claim the agency’s in-house court to be unconstitutional. Most recently, in response to the administrative court’s complaint that the corporate group unlawfully raised the price of insulin via an illegal drug rebate program, corporations attacked the validity of the administrative court as an institution. These corporations challenge the in-house administrative commissions established by Humphrey’s Executor, a landmark 1935 Supreme Court decision. The FTC’s in-house court is home to administrative proceedings that enforce consumer protection laws without federal judicial interference—a power formerly granted by the Chevron Doctrine. Their administrative court is crucial to protecting communities of color from practices that disproportionately affect them, such as deceptive marketing. It most recently had success in settling a suit against a personal finance app, Brigit, for these practices. Attacks on long-standing institutions just months after the Loper Bright decision demonstrate the new vulnerability these agencies now face in the protection of consumers affected most.

The EPA and other similar environmental agencies are under equally pressing criticism, as a slew of cases on the Supreme Court’s docket directly challenge the breadth of their authority as an environmental regulator. Most prominently, a Utah coalition representing private corporate interests hopes to narrow the environmental impact analysis required by the National Environmental Policy Act (NEPA). The group, Seven County Infrastructure Coalition, hopes to construct a crude oil railway in the Uintah Basin of Utah. The project is largely backed by private partners such as Rio Grande Pacific Corporation, a Texas-based private railroad holding company. Local environmental groups have stressed that the potential effects of increased crude oil refining on communities in Louisiana and Texas must be considered before approval of the 80-mile railway. While the District of Columbia Circuit Court agreed that the downstream impact of the railway on Louisiana communities—over thirty percent of which’s oil production is predicted to pollute the Louisiana Gulf Coast—should be a required consideration before construction, the Supreme Court has put the scope of the NEPA’s standards into question as it agreed to hear challenges to this assertion. Seven County Infrastructure Coalition v. Eagle County, Colorado is set to be argued on December 10, 2024. If the Court agrees with the Coalition, the power of federal agencies to interpret what kind of analysis is necessary under NEPA may be diminished if the Supreme Court chooses to set the standard solely to the direct consequences of industrial construction. Narrowing the scope of NEPA would enable corporations to further exploit low-income communities for business gain, restricting the accountability the EPA provides in requiring a consideration of social impacts before corporate developments.

While the ambush of litigation challenging federal regulatory discretion to interpret regulatory statutes post-Loper Bright has been correctly anticipated, the implications of the possible success of such challenges proves particularly worrisome for communities of color. Black and brown communities should remain at the forefront of analysis of a post-Chevron regulatory sphere, as they are most impacted by federal regulatory discretion, or lack thereof. By shedding light on the specific impacts of suppressing regulatory oversight, public policy can focus on how to curb the looming effects of a post-Loper Bright political landscape on already-disadvantaged communities.

Even as private equity cools, the private credit market is rapidly growing, now valued conservatively at over $2 trillion. Private credit primarily takes the form of direct lending, where nonbank and other private institutions lend to companies. This boom is up by $400 billion since 2021 (while public debt has declined roughly the same amount in that period), and it is poised to grow another 87% in the next five years. The U.S. Securities and Exchange Commission (SEC) has concerns about the systemic risk associated with the private credit market’s opacity and is attempting to regulate it. But subjecting the private credit market to bank-style regulations is likely not the best solution.

Although private credit has existed for decades, its popularity has recently surged. Historically, businesses sought capital from banks and other highly regulated public institutions. The private lending industry arose after the 2008 recession when heightened banking regulations imposed tightened capital reserve, loan term, and disclosure requirements on public markets. In recent years, rising interest rates and inflexible loan structures in the public debt markets have led to untenable borrowing costs and stretched timelines for issuers seeking financing, resulting in a 25% dip in publicly traded high-yield debt in the last three years. In response, market share shifted from banks to the private sector as capital-hungry investors sought alternative borrowing options.

Private market heavyweights, such as Apollo and Blackstone, replicate traditional commercial banking practices but tap into deep pools of insurance capital to provide private loans rather than relying on highly regulated bank deposits. This liquidity enables them and other private credit firms to provide quick and adaptable financing solutions that are especially attractive amidst strapped, high-interest public debt markets. Corporate borrowers benefit from long-term financing structures and the relative freedom to bilaterally negotiate bespoke terms of size, type, or timing of transactions to meet borrowers’ and creditors’ distinctive needs—innovative agreement options that regulated banks cannot provide.

While regulators have yet to conclude that the private credit industry poses an immediate threat to the financial system’s stability, they have called for scrutiny. The SEC regulates private credit funds as private fund advisers, which are subject to limited disclosure requirements and often have greater discretion on investments. Critics—particularly from the banking sector—warn about the risks of private credit’s opacity and potential instability during economic downturns. Crucially, critics flag that the rapid growth of private credit and the resultant competition with banks to secure large transactions have led private credit providers to hastily deploy capital, leading to weaker underwriting standards, looser loan covenants, infrequent valuation, and unclear and often unassessable credit quality.

Perhaps most concerning is the muddled interconnectedness between private credit funds, commercial banks, and investors despite private credit’s lack of transparency. Increasingly, banks and private credit firms cooperate and compete. Although Deloitte found that many banks are not adopting new strategies in response to private credit, some heavy-hitters are. Where they cooperate, banks facilitate faster, more flexible lending terms for their corporate clients by serving as middlemen between private credit firms. Tapping into banks’ relationships benefits private credit firms and lowers credit risk for banks, although banks lose revenue. To compete directly with nonbanks, some banks, such as Morgan Stanley, are creating their own private credit capabilities.

Increased cooperation between banks and private funds has led regulators to scrutinize how banks, private equity firms, and insurers are tied to private credit, and how the private sector’s lack of transparency can affect those groups, creating wider systemic risk. The SEC recently called for greater transparency and regulation of private funds, and certain investors and investor groups have expressed support for wider availability of information related to fund performance and investment terms. However, a Fifth Circuit appeals court struck down a new set of proposed SEC rules that would require private fund advisers to provide investors with quarterly fee and performance reports, obtain annual fund audits, and prohibit certain preferential treatment of investors.

Increased transparency may prove beneficial in some regards, but private credit’s lack of transparency and regulation are what enable it to serve investors and companies so well. Saddling private credit with excessive regulation would defeat a crucial aspect of the sector’s strength. Considering that banks will continue to exist and not only compete with but support and benefit from the private credit market, the risks associated with prioritizing private decision-making—even if opaque—over regulatory decision-making are likely not fatal. As SEC Commissioner Hester M. Peirce illuminates, although “we should watch for hidden leverage, regulatory arbitrage, and hidden interconnections with banks,” we should not “run away from an efficient, effective, and economically useful form of finance.” Policymakers should aim to create a regulatory framework that enables private credit’s innovative financial solutions without excessive restrictions.

From the moment we unlock our phones, we are inundated with artificial intelligence (AI) advertisements—many making grandiose promises that seem too good to be true. Businesses have claimed their AI can help customers build an “AI-powered Ecommerce Empire” or “generate perfectly valid legal documents in no time.” But at what point do these lofty, AI-infused promises cross the line into deception—and more interestingly, is this even a new phenomenon?

The Federal Trade Commission (FTC) has attempted to delineate the boundary between unrealistic over-promises and realistic expectations through Operation AI Comply. This operation began on September 25, 2024, with five settlements and injunctions against companies that misused AI. It aims to protect consumers by deterring corporate misuse of AI, a goal which has been supported by the FTC Chair, Lina M. Khan, stating that “[u]sing AI tools to trick, mislead, or defraud people is illegal.”

Four of the target companies, DoNotPay, Ascend Ecom, Ecommerce Empire Builders, and FBA Machine, made false claims or exaggerated what their services could accomplish by hiding behind the premise of revolutionary AI advancements. Additionally, the fifth targeted company, Rytr, had a functional AI service that could produce thousands of product testimonials. However, the generated reviews served “[no] reasonable, legitimate use,” leading to consumer harm.

DoNotPay claimed its AI chatbot could allow users to “sue for assault without a lawyer” and “generate perfectly valid legal documents in no time.” This was not the case. The FTC found that “employees had not even tested the quality and accuracy of the legal documents” and that some “advertised features… [DoNotPay] simply did not provide.”

Ascend Ecom’s exaggerated promises make DoNotPay’s seem comparatively tame. Ascend Ecom called itself a “surefire business opportunity in e-commerce,” claiming that its AI-powered business model allows customers to “quickly earn thousands of dollars in passive income.” However, instead of producing vast incomes, most hopeful customers were left with empty bank accounts and hefty bills. The FTC determined that the “[d]efendants’ scheme has defrauded consumers of at least $25 million.”

Similarly, Ecommerce Empire Builders (EEB) was another scheme preying on consumers looking for passive income. It promised to help customers build an “AI-powered Ecommerce Empire.” EEB sold courses promising to teach customers how to “start a million-dollar business today” through “online stores powered by artificial intelligence” for prices between “$10,000 and $35,000.” Instead of creating thriving million-dollar businesses for users, EEB enriched itself, leaving its clients with failing ventures.

FBA Machine was the third “AI-powered” ploy promising unsuspecting customers a guide to making a “7-figure business” backed by “risk-free” guarantees, with promises of “$20,000 in revenue in 90 days… or the company will work for free.” However, “of the 42 known clients, approximately 86% had gross aggregated sales of $15,000 or less… 12% had no sales at all.” Customers who attempted to return the product had their refunds conditioned on removing their negative online reviews, but regardless, the business still “failed to pay the promised refunds.”

Finally, Rytr, unlike the others, seemingly offered a legitimate service as an “AI assistant.” However, one of its tools, a “Testimonial & Review” feature, led to harmful consumer outcomes. This service let users generate “detailed reviews that contain specific… details [about consumer products] that have no relation to the user’s input [and] that would almost certainly be false.” Furthermore, “respondent [Rytr] set[] no limit on the number of reviews a user… c[ould] generate and copy.” Predictably, this was abused by its consumers: “Subscribers generated tens of thousands of reviews in a short time…[which] pollute[d] the marketplace with a glut of fake reviews.” The FTC found the “Testimonial & Review” service to provide no “legitimate use,” with “its likely only use [being] to facilitate subscribers posting fake reviews with which to deceive consumers.”

At first glance, the premise of these five cases seems novel. AI has recently taken the spotlight, and the FTC hasn’t prosecuted AI cases in the past for “deceptive marketing” claims. However, if we peel back the shiny AI-gilded cover of these cases, there is something to be discovered. None of these five businesses’ tactics are new or unique to AI. Throughout history, advancing technologies like the dot-com boom or some early blockchain ventures have been leveraged to make exaggerated promises, only to fall short and deceive consumers. Only last year, the FTC fined the cryptocurrency company Celsius $4.7 billion dollars because it “promised consumers that Celsius was ‘safer’ than a bank… because Celsius earned profits at ‘no risk’ to consumers.” Celsius subsequently went bankrupt after it “engag[ed] in uncollateralized and undercollateralized lending despite their promises to the contrary.” Consumer deception is not new—the only thing that has changed is that AI provides another option for ill-intentioned businesses and opportunistic hustlers to obfuscate false claims.

Since 1914, the FTC has defended consumers against deceptive businesses and their unfair conduct. The FTC treats these AI cases no differently: “There is no AI exemption from the laws on the books.” While the medium has evolved, the fundamental issue of deceptive marketing remains the same. There are consequences when companies fail to exercise caution and integrity when marketing their products.

While these five businesses have faced repercussions from FTC enforcement, the crackdown is not meant to be purely punitive. By removing misleading advertisements and opportunities for product abuse, the “FTC is ensuring that honest businesses and innovators can get a fair shot and consumers are being protected.” Bad actors will continue to misappropriate AI in their advertisements and promises—harming all honest businesses. However, with the injunctions from these cases and a warning signal sent to deter future malfeasors, companies with legitimate AI features and services may be able to prevail while consumers are simultaneously protected.