Month: August 2025

(Westlaw) Liberty Mutual Insurance Europe S.E. says it has no duty to indemnify two investment companies for $1.7 million they paid to resolve a tax dispute over a charitable donation of a conservation easement.

Liberty Mutual Insurance Europe S.E. v. Fishtail Creek Investors LLC et al., No. 25-cv-195, complaint filed (S.D. Ga. Aug. 21, 2025).

Fishtail Creek Investors LLC and Fishtail Creek LLC are not entitled to coverage because the companies finalized the IRS settlement without the insurer’s knowledge or consent, according to Liberty’s complaint, filed Aug. 21 in the U.S. District Court for the Southern District of Georgia.

Charitable tax spat

FCI is a private fund that controls Fishtail Creek, a real estate holding vehicle that purchased about 67 acres of land in northeastern Oglethorpe County, Georgia, according to the insurer’s complaint.

Fishtail Creek elected to conserve the property by donating a conservation easement to a qualified charity. Based on the donation, Fishtail Creek then claimed a noncash charitable tax deduction of $20.2 million on its 2018 tax return, the complaint says.

The tax deduction passed through Fishtail Creek to FCI and then to its investors, according to the complaint.

However, the IRS ultimately disallowed the tax deduction. Fishtail Creek disputed the agency’s tax determination, which prompted the IRS to initiate an administrative proceeding, court documents said.

After the IRS offered to settle the tax dispute in July 2024, FCI’s investors voted in favor of accepting the deal, Liberty says.

The defendants sought Liberty’s consent to settle in February 2025, the complaint says.

The insurer refused to sign off on the deal on the grounds that it lacked sufficient information to provide consent, according to the complaint.

When the defendants had sought Liberty’s consent, it was not even aware that the investors had already agreed to the settlement months earlier, Liberty says.

The defendants made the settlement payment without Liberty’s consent, then demanded that the insurer reimburse it for $1.7 million under FCI’s investor liability insurance policy that ran from December 2018 to April 2019, according to court documents.

Declaration sought

Liberty is asking the court to declare that it need not indemnify FCI and Fishtail Creek because the policy indicates that “no settlement may be made, and no payment or obligation assumed, without the insurer’s prior written consent.”

The defendants also are on their own because they failed to notify Liberty of the IRS’s administrative proceeding during their coverage period, according to the complaint.

Additionally, the defendants are not entitled to coverage because they prejudiced Liberty’s subrogation rights by entering into investor settlement agreements that released certain brokers, dealers, financial professionals and other parties involved in the conservation easement strategy from liability, according to the insurer.

Liberty further maintains that the IRS settlement payment does not constitute a “loss” within the policy’s meaning because it is “restitutionary in nature.”

Attorneys from Wilson Elser Moskowitz Edelman & Dicker LLP and Fields Howell LLP represent Liberty.

By Jason Schossler

(Westlaw) Merle DeLancey Jr. and Samarth Barot of Blank Rome LLP discuss a U.S. Justice Department settlement with a defense contractor and how it demonstrates the need for cybersecurity due diligence in mergers and acquisitions.

A recent Department of Justice (“DOJ”) settlement highlights the importance of assessing cybersecurity compliance for government contractors during mergers and acquisitions (“M&A”). In April 2025, DOJ announced an $8.4 million settlement with a defense contractor resolving alleged cybersecurity noncompliance by a company it acquired.

Notably, under the settlement, the acquiring company was liable for cybersecurity noncompliance that occurred prior to the acquisition.

In the M&A context, successor liability arises when an acquiring company becomes responsible for liabilities, obligations, or wrongful acts committed by the company to be acquired prior to the acquisition. Fundamentally, successor liability ensures that a corporate acquisition does not allow the acquired entity to escape accountability.

In the settlement, DOJ explicitly named the acquiring company as the “successor in liability” for the acquired company’s alleged violations, even though the conduct at issue occurred years before the acquisition. This underscores the importance for acquirers to add cybersecurity compliance to the issues vetted during due diligence.

The settlement also highlights DOJ’s continued scrutiny of contractors’ compliance with cybersecurity requirements mandated by DFARS and the National Institute of Standards and Technology’s (“NIST”) NIST SP 800-171. The settlement agreement detailed that the company being bought used an internal network to perform work on government contracts that required compliance with these cybersecurity standards.

However, according to DOJ, the acquired company failed to implement all of the required security controls, did not develop a system security plan for its network, and ultimately submitted false claims for payment under the False Claims Act (“FCA”) by implying certification of cybersecurity compliance —which DOJ, through this and other similar FCA settlements, has made clear is material to the government’s decision to pay.

Contractors can no longer consider implementation of cybersecurity controls as aspirational. Federal authorities have emphasized that accurate representations of compliance are essential when performing contracts involving covered defense information.

False or misleading representations about compliance with cybersecurity standards, whether intentional or the result of internal oversights, can be the source of liability under the FCA, as demonstrated by this and other recent enforcement actions.

This settlement demonstrates the importance of cybersecurity compliance during M&A due diligence. Beyond reviewing a target’s financial statements and operational status, buyers must obtain a thorough understanding of the seller’s cybersecurity posture, associated risk factors, and any deficiencies in the target’s existing compliance mechanisms. This may involve evaluating system security plans, incident response procedures, and any certifications or contractual commitments to ensure adherence to NIST protocols.

Buyers who fail to conduct comprehensive technical and legal assessments may inherit not only potential data breaches but also significant legal liabilities, including multimillion-dollar settlements and the costs of responding to regulatory investigations.

Sellers, for their part, should proactively document compliance steps, be transparent about the status of their cybersecurity programs, and make relevant stakeholders available for buyer inquiries.

Both parties should pay close attention to transaction agreement terms, including representations, warranties, and indemnities related to cybersecurity compliance.

In sum, this settlement serves as a reminder that government contractors should rigorously integrate cybersecurity compliance into their broader corporate governance and due diligence practices. Timely post-closing remediation is also critical — buyers should promptly address any identified deficiencies and ensure that all required controls are implemented as soon as practicable.

As the regulatory landscape continues to evolve, and with the phased rollout of the Department of Defense’s Cybersecurity Maturity Model Certification (“CMMC”), both buyers and sellers in the government contracting space must prioritize robust cybersecurity programs and transparent, well-documented compliance efforts to mitigate the risk of successor liability and enforcement actions.

By Merle M. DeLancey Jr., Esq., and Samarth Barot, Esq., Blank Rome LLP

(Reuters) -A U.S. appeals court ordered the Securities and Exchange Commission on Monday to assess the economic impact of President Joe Biden-era rules aimed at boosting transparency of short-sell trades, in a partial victory for hedge funds that brought the case.

Hedge fund associations in December 2023 sued in the 5th U.S. Circuit Court of Appeals to vacate the rules adopted earlier that year, arguing they could reveal confidential trading positions and potentially invite retaliation.

The National Association of Private Fund Managers, the Managed Funds Association, and the Alternative Investment Management Association also argued the rules violated the Administrative Procedure Act, which requires agencies to justify their rules and consider feedback, and that it exceeded the SEC’s authority.

On Monday, a three-judge panel rejected the argument that the rules would expose confidential investor positions and were beyond the SEC’s remit, but it did require the SEC to assess the costs and benefits of the rule.

Long controversial, short sales are trades that stand to profit when a stock falls. The practice drew renewed scrutiny from Congress in 2021, amid the so-called “meme stocks” frenzy when retail investors drove up the price of shares in GameStop and caused losses to hedge funds. In response, the SEC, led at the time by Democratic chair Gary Gensler, said it would introduce rules to increase transparency around short-selling.

The review will now fall to the SEC’s new leadership, led by Paul Atkins, President Donald Trump’s Republican SEC chair pick.

An SEC spokesperson said the regulator’s rulemaking must take into account a thorough cost-benefit analysis.

“The Commission is reviewing the decision and will determine next steps as appropriate,” the spokesperson said.

The hedge funds expect the agency will ultimately re-propose a new version of the rule rather than scrap it, according to one person familiar with their thinking.

Bryan Corbett, CEO of the MFA, the group which led the litigation, cheered the ruling in a statement.

“These regulations were fatally flawed from the start when the SEC adopted highly related rules on the same day without analyzing the impact one would have on the other,” he said.

The associations have sued to overturn other new rules the SEC adopted in 2023 under Gensler, with the groups scoring some victories.

(Reporting by Carolina Mandl, in New York; Editing by Andrea Ricci, Stephen Coates and Nia Williams)

(Westlaw) The transfer of a woman’s $259,400 home to a New York county to satisfy a tax lien of less than $19,000 was a fraudulent transfer that she is entitled to set aside, a bankruptcy judge has ruled.

In re Reynolds, No. 23-70879; Reynolds v. County of Suffolk, Adv. No. 24-8027, 2025 WL 2421228 (Bankr. E.D.N.Y. Aug. 20, 2025).

U.S. Bankruptcy Judge Alan S. Trust of the Eastern District of New York on Aug. 20 granted Jo Ann Reynolds’ motion for summary judgment, finding that she received less than a reasonably equivalent value in exchange for the transfer of her home to Suffolk County for failure to pay an $18,453 property tax debt.

History of the tax lien

According to Judge Trust’s opinion, Reynolds failed to make property tax payments due to Suffolk County for tax years 2017 and 2018.

The county obtained title to the property through a tax deed in January 2022 and sent Reynolds the first of a series of redemption notices in March.

A fifth and final extension letter was sent in June 2023, and Reynolds ran out of statutory redemption opportunities in July 2024, the opinion said.

Reynolds never paid the delinquent taxes and filed for bankruptcy under Chapter 13 in March 2023.

Reynolds filed an adversary complaint against the county in March 2024, saying the transfer of the property to the county through the tax deed was a fraudulent transfer under Sections 522(h) and 548(a)(1)(B) of the Bankruptcy Code, 11 U.S.C.A. §§ 522(h) and 548(a)(1)(B), and thus avoidable.

Section 522(h) says debtors can avoid involuntary transfers “to the extent that the debtor could have exempted such property if the trustee had avoided such transfer.”

Section 548(a)(1)(B) lets a trustee avoid a transfer made within two years of a bankruptcy filing if the debtor received less than a reasonably equivalent value in exchange and was insolvent at the time or was made insolvent by the transfer.

Insolvency

There was no dispute that Reynolds had an interest in the property before the transfer and that the transfer occurred within two years of the petition, leaving open only the questions of whether she was insolvent at the time of the transfer or was made insolvent, and whether she received less than reasonably equivalent value, Judge Trust said.

While the county disputed the value of Reynolds’ assets at the time of the transfer, properly filed proofs of claim, including a $77,000 proof of claim filed by the IRS in April 2023, established that her liabilities exceeded her assets at the time of the transfer, making her insolvent for purposes of Section 548(a)(1)(B), the judge said.

‘Reasonably equivalent value’

In determining whether a transfer was for “reasonably equivalent value,” courts consider whether the debtor received value substantially comparable to the worth of the transferred property, Judge Trust explained.

“The transfer of a substantial asset for a de minimis value, without the protections of judicial oversight or market forces, is not a transfer for reasonably equivalent value,” he wrote.

Reynolds’ property, with a value of $259,400, was transferred to the county to satisfy a tax lien debt of $18,453, which qualified as a de minimis value, the judge found.

Also, neither judicial oversight nor market forces were in play because Suffolk County’s administrative code made no provision for judicial oversight in obtaining fair or reasonably equivalent value and the property had not yet been sold to a third party, Judge Trust pointed out.

Consequently, the transfer was not for reasonably equivalent value, he concluded.

Richard F. Artura of Phillips, Artura & Cox represented Reynolds.

Jacqueline Caputi and Jeffrey Dayton of the Suffolk County Attorney’s office represented the county.

By Susan Swann, Esq.

(Practical Law Real Estate) On May 9, 2025, New York Governor, Kathy Hochul, signed the State budget bill (Assembly Bill A3009C, Senate Bill S4009, 2025 Sess. Laws, Ch. 59 (N.Y. 2025) (the bill)). Part F of the bill creates a new Article 16 of the New York Real Property Law, which took effect on July 1, 2025 (N.Y. Real Prop. Law §§ 520 to 522). Article 16 places restrictions on the purchase of single- and two-family residential homes by certain real estate investors.

National Trend

In an effort to combat the housing affordability crisis, the federal government, and states across the country, are introducing laws that restrict institutional investors’ ability to acquire residential real estate. Institutional investors own and control a growing amount of the housing market, which drives up purchase prices and rental rates for residential properties and makes it harder for families to purchase and rent homes.

Laws aimed at restricting institutional lenders’ ability to purchase residential properties have been introduced in the United States Congress (S.788, H.R.1745), and multiple states, including California (2025 Cal. SB 722), Georgia (2025 Ga. HB 305), and Virginia (2025 Va. SB 1140).

New York Restrictions on Institutional Real Estate Investors

90-Day Waiting Period

The bill requires single- and two-family residential properties be listed for sale to the general public for 90 days before a covered entity can purchase, acquire, or offer to purchase or acquire the property. The waiting period resets if the sale price changes. (N.Y. Real Prop. Law § 521.) Covered entities include institutional real estate investors, which are defined as entities that, directly or indirectly:

• Own ten or more single- and/or two-family residences.
• Manage pooled investor funds as a fiduciary.
• Have $30 million or more in net value or assets under management on any day during the taxable year.

(N.Y. Real Prop. Law § 520(2)(a), (3).)

However, the following entities are not included as covered entities:

• Organizations that qualify as tax exempt under I.R.C. § 501(c)(3).
• Land banks.
• Community land trusts.
• Creditors acquiring the property through foreclosure.

(N.Y. Real Prop. Law § 520(2)(b).)

Required Notices

When making an offer to purchase a single- or two-family residence, a covered entity must submit to the seller a signed and notarized form stating that the purchaser is a covered entity. The statute includes a form of notice. (N.Y. Real Prop. Law § 521(4), (5)).

Penalties

The law includes significant civil damages liability and penalties for non-compliance, including that:

• Violations of the 90-day waiting period may incur penalties of up to $250,000.
• Failure to provide the required disclosure that the purchaser is a covered entity is punishable by penalties of up to $10,000.

(N.Y. Real Prop. Law § 521 (3), (5)).

Tax Amendments

The bill amends sections of the New York Tax Law, affecting certain depreciation and interest deductions available to covered entities. Most notably:

• Covered entities cannot claim depreciation on single- or two-family residences.
• Covered entities cannot apply the federal interest deduction contained in I.R.C. § 163 on single- and two-family residences when computing their New York adjusted gross income.

(N.Y. Tax Law §§ 208(9)(c-4), 612(y), and 1503(b).)

Practical Implications

Institutional real estate investors must understand the applicability of New York’s newly passed restrictions when considering purchasing residential real estate in the state. Multi-family buildings, which are common investment vehicles, are not impacted by the restrictions. In addition to the 90-day waiting period, New York has removed certain tax benefits of investing in residential real estate making it more difficult, and less desirable, for institutional investors to purchase and own residential real estate.

(Reuters) – Vanguard Group settled a lawsuit accusing the mutual fund giant of saddling investors in its popular target-date funds with inflated tax bills, after a federal judge rejected an earlier settlement.

In a filing on Thursday in Philadelphia federal court, Vanguard and the investors said they agreed in principle following private mediation to resolve all claims.

They plan by September 22 to seek preliminary approval of the settlement from U.S. District Judge John Murphy, who rejected a $40 million accord on May 19.

Terms were not disclosed. Vanguard said it was pleased to settle. Lawyers for the investors did not respond to requests for comment.

Target-date funds contain mixes of stocks, bonds and cash that are designed to become less risky as investors age, and also be tax-efficient.

The lawsuit stemmed from Vanguard’s December 2020 decision to reduce the minimum investment in lower-cost fund classes meant for institutional clients to $5 million from $100 million.

Many investors shifted to those fund classes from higher-cost retail fund classes. This forced the retail funds to sell assets to meet redemptions, and pass taxable capital gains to investors like the plaintiffs who remained.

Murphy said the $40 million settlement did nothing for investors because Vanguard could have offset that amount from its related $106.4 million settlement in January with the U.S. Securities and Exchange Commission.

The judge also said investors would have been worse off, once more than $13 million was taken out for legal fees.

Vanguard is based in Valley Forge, Pennsylvania. It had $10.4 trillion of assets under management as of January 31.

The case is In re Vanguard Chester Funds Litigation, U.S. District Court, Eastern District of Pennsylvania, No. 22-00955.

Paxos Trust reached a $48.5 million settlement to resolve New York charges the virtual currency company failed to police illegal activity related to cryptocurrency exchange Binance, the state’s financial services regulator said on Thursday.

Adrienne Harris, New York’s financial services superintendent, said Paxos will pay a $26.5 million civil fine and spend $22 million to upgrade its compliance program.

Paxos previously partnered with Binance, the world’s largest cryptocurrency exchange, to market and distribute the Binance USD stablecoin.

New York’s Department of Financial Services said Paxos lacked effective controls to monitor wrongdoing at Binance, failed to escalate red flags to senior management, and had systemic failures in its anti-money laundering program.

The regulator said it ordered Paxos to review Binance’s exposure to illegal activity, which found that from July 2017 to November 2022 about $1.6 billion of transactions on Binance’s platform involved illicit actors, including Ponzi schemers and people sanctioned in darknet marketplaces.

Binance also processed transactions involving entities sanctioned by the U.S. Office of Foreign Assets Control, the review found.

New York ordered Paxos in February 2023 to stop issuing Binance’s stablecoin. Paxos subsequently ended its partnership with Binance.

In a statement, Paxos said it was pleased to settle. It also said it has “fully remediated” the compliance issues, customer accounts were not affected, and consumers were not harmed.

Binance was not a defendant in the New York case.

It entered a guilty plea in November 2023 and accepted a $4.32 billion criminal penalty for violating federal anti-money laundering and sanctions laws.

The U.S. Securities and Exchange Commission dismissed its own civil case against Binance in May, reflecting a change in approach toward cryptocurrencies during U.S. President Donald Trump’s second White House term.

(Reuters) – Law firm Taft, Stettinius & Hollister said Monday that it plans to combine with Atlanta-based Morris, Manning & Martin, marking what Taft said was its ninth merger in less than two decades and continuing a string of U.S. legal industry tie-ups this year.

The firms said the merger, set to take effect on Dec. 31, will add 100 lawyers to Taft’s roster and allow the Cincinnati-founded law firm to open an office in Atlanta. Taft said the combined firm will have more than 1,200 lawyers in 25 offices and more than $1 billion in revenue.

Taft’s “overall strategy is really to become a national middle-market super firm,” said Robert Hicks, Taft’s firmwide chairman and managing partner. He said Taft is looking for merger partners to expand into other markets, including New York and Texas.

“Our model represents 80 to 90% of the U.S. economy,” Hicks said. “That’s the middle market. We don’t think anybody has nationally dominated that market.”

A spokesperson for Taft said the firms’ partners approved the merger unanimously last week.

In January, Morris Manning lost about 20% of its partnership to Reed Smith. In April, 12 of its intellectual property lawyers joined Bradley Arant Boult Cummings.

Simon Malko, Morris Manning’s managing partner, said the firm nonetheless had been poised to have a strong year and that joining forces with Taft was “not a merger of necessity.”

Hicks said Taft began merger talks with Morris Manning in February.

Taft at the start of the year completed a merger with Denver-founded firm Sherman & Howard, gaining 125 lawyers. In June, it merged with 18-lawyer, Florida-based litigation firm Mrachek Law.

McDermott, Will & Emery and Schulte Roth & Zabel earlier this month completed a planned merger to form McDermott Will & Schulte, with about 1,750 lawyers. In June, New York-based Kramer Levin combined with larger global law firm Herbert Smith Freehills. New York’s Shearman & Sterling last year merged with London-founded global firm Allen & Overy.

(Law 360) The government was not required to give a bigger whistleblower award to a former auditor who helped the Internal Revenue Service recover $180,000 in taxes, the Federal Circuit said Tuesday, affirming a ruling that a lower court lacked authority to hear her case.

In an opinion, a three-judge panel said the regulations governing Suzanne Jean McCrory’s claim to a larger whistleblower award are not “money-mandating” because the underlying law makes awards discretionary for cases in which the proceeds are less than $2 million.

Therefore, the Court of Federal Claims properly dismissed McCrory’s complaint claiming she was owed at least 15% of the $180,000 in proceeds, as opposed to the 1% she was granted, under Internal Revenue Code Section 7623 , the panel said.

McCrory has filed 600 claims for whistleblower awards since 2014, according to the ruling. Prior to her case in the claims court, the U.S. Tax Courtrejected her request to review the award at issue, citing the $2 million threshold.

The case is McCrory v. U.S., case number 2025-1308, in the U.S. Court of Appeals for the Federal Circuit.

(Law360) Former Binance CEO Changpeng Zhao asked a Delaware bankruptcy judge to dismiss him from a clawback suit filed by the estate of bankrupt crypto exchange FTX seeking to recover $1.76 billion it says FTX illegally transferred before its collapse two years ago, saying the transaction was outside the court’s jurisdiction.

Zhao, who served four months in prison last year after pleading guilty to a money-laundering-related charge, said in a motion Monday that the fraudulent transfer claims made in the complaint related to a share repurchase do not apply to the foreign transfer and “improperly demand the extension of bankruptcy law abroad.”

In the suit launched in November, the FTX estate said the company fraudulently transferred almost $2 billion in cryptocurrency to Binance in 2021 to repurchase shares that the rival exchange acquired starting in 2019. The FTX unit that funded the share repurchase was insolvent at the time of the deal and relied on FTX customer deposits to support it, furthering the fraud committed by FTX founder Sam Bankman-Fried, according to the complaint.

FTX and Bankman-Fried pursued the share repurchase deal while knowing the exchange lacked the money to fund it, according to the complaint. Caroline Ellison, the former CEO of FTX affiliate Alameda Research, testified that she told Bankman-Fried that Alameda would have to tap customer funds to complete the deal, and Bankman-Fried dismissed her concerns, FTX said.

But Zhao said Monday that the cryptocurrency was exchanged on global exchanges, and even if the bankruptcy code could be applied, the plaintiffs still could not bring a claim against him because they have not plausibly alleged he received the transfers.

“Plaintiffs do not allege that Mr. Zhao received or possessed dominion over the exchanged cryptocurrency,” the motion states. “Plaintiffs in fact show that Mr. Zhao was not a transferee. They allege he was merely a ‘nominal counterparty’ in the transfer of [Binance stablecoin] from Alameda LTD to Binance.”

The FTX estate alleged in the complaint that Zhao took actions and made false and misleading statements that were “maliciously calculated to destroy his rival FTX” following the share repurchase deal.

Zhao tweeted in November 2022 that Binance would liquidate its holdings of FTX token FTT in light of “recent revelations,” a deliberate attempt to destroy FTX and elevate Binance’s own market position, according to the complaint. His tweets and public statements were intended to sow doubt about FTX’s financial position and spark a wave of customer withdrawals, FTX said.

Zhao said on Monday, however, that his tweets did not contribute to the bank run.

“Even on plaintiffs’ own terms, the false statements do not support the injurious falsehood claim. … The ‘run on the bank’ would have followed all the same,” he said. “The complaint alleges that it was the fact of the publicizing of the liquidation that ‘trigger[ed]” the run on the bank.'”

Representatives of the parties did not immediately respond to requests for comment on Tuesday.

The FTX plaintiffs are represented by J. Christopher Shore, Brian D. Pfeiffer, Colin West, Ashley R. Chase and Brett L. Bakemeyer of White & Case LLP and Kevin Gross, Paul N. Heath, Brendan J. Schlauch and Robert C. Maddox of Richards Layton & Finger PA.

Zhao is represented by Teresa Goody Guillén, Katherine L. McKnight and Jeffrey J. Lyons of BakerHostetler.

The case is FTX Recovery Trust et al. v. Binance Holdings Ltd. et al., case number 1:24-ap-50222, in the U.S. Bankruptcy Court for the District of Delaware.