Delaware Chancery Decision Highlights Risks of AI-Generated Transcripts of Board Meetings

The Delaware Court of Chancery recently issued a decision that serves as a reminder that boards should establish clear controls before using AI meeting tools because AI-generated recordings, transcripts, and summaries may later become evidence used in litigation.

On August 28, 2026, Vice Chancellor Will issued a post-trial opinion in ATG Capital Opportunities Fund LP v. Lane, holding that the board of Empery Digital, Inc. (“Empery”) improperly rejected an activist investor’s director nomination notice and in so doing breached its fiduciary duties. In reaching its decision, the Court considered not only official board minutes but also AI-generated transcripts from the same board meetings. The two records differed, and the Court relied on the AI-generated transcripts to supply additional context that was not present in the official minutes about the board’s objectives and decision-making process.

Court’s Discussion of AI-Generated Transcripts. While its opinion was not focused on the use of AI, the Court cited AI-generated transcripts of board deliberations in its analysis.

For example, after plaintiff ATG accumulated more than 10% of Empery’s stock and signaled a proxy contest, Empery’s board adopted a stockholder rights plan (“Rights Plan”), which would be triggered if a stockholder acquired 12.5% or more of Empery’s stock. The official minutes from the meeting at which the board adopted the Rights Plan reflected that the plan was intended to protect stockholders while Empery “continu[ed] to execute on its plan to close the NAV gap.” The AI-generated transcript, however, also included the Co-Chief Executive Officer telling the board that capping ATG’s ownership at 12.5% would limit ATG’s financial upside, making it “not worth it to put up [a] slate to go through the proxy solicitation process.”

The Court ultimately held that Empery’s bylaws did not require the disclosures Empery’s board demanded from ATG in rejecting ATG’s nomination notice, so the board’s decision to exclude ATG’s nominees lacked a contractual basis and, under Coster v. UIP Companies, Inc., 300 A.3d 656 (Del. 2023), was unreasonable in response to the threat perceived by the board. Although the AI-generated records did not decide the case, they formed part of the contemporaneous record the Court used to assess the board’s deliberations and motivations.

Key Considerations. Boards considering the use of AI tools, including to record, transcribe, or summarize board or committee meetings, should consider the following:

• Determine Whether a Recording Should Be Created and Set Guidelines. As a threshold matter, boards should decide with counsel and the corporate secretary whether to use AI meeting tools and, if so, in what circumstances, weighing perceived benefits against potential risks, and should agree on clear, easy-to-follow guidelines governing their use.

• Use Approved Tool and Vendor Controls. Use only tools specifically approved for board use after review of the product, configuration, and contract. Confirm that recordings and related data will remain confidential, will not be used to train models, will not be accessible to vendor personnel or shared with third parties except in specifically agreed circumstances, and will be protected by appropriate cybersecurity, access, storage and deletion controls.

• Protect Privilege and Confidentiality. Even if the board permits an AI recording tool in some circumstances, it should consider prohibiting or restricting its use in meetings involving legal advice, litigation, strategic transactions, regulatory matters, material nonpublic information, trade secrets, or other highly confidential or sensitive topics.

• Obtain Notice and Consent. Determine which recording and consent laws apply, especially when participants join from different jurisdictions.

• Address Retention, Discovery, and Litigation Holds. Identify each record an AI tool creates (including recordings, transcripts, prompts, summaries, and drafts), where each such record is stored, and whether the vendor retains copies.

For more information, see Harrington Update.

 

SEC Looks to Reform the Proxy Process: A Welcome Development for Listed Closed-End Funds and BDCs

On September 16, 2026, the U.S. Securities and Exchange Commission (the “SEC”) proposed to rescind Rule 14a-8 under the Exchange Act, and separately to modernize certain other rules, including rules governing broker searches (the “Proposals”). For sponsors and boards of listed registered closed-end funds (“CEFs”) and business development companies (“BDCs” and, collectively with CEFs, “Funds” or “Fund,” as applicable), however, the Proposals are more than technical proxy reforms. If adopted, they could meaningfully change the dynamics of activist campaigns at listed Funds.

Activist investors would still be able to nominate directors, solicit proxies and invoke state law or rights expressly provided for in the 1940 Act. But they would have to spend more, mobilize more shareholders and obtain more affirmative voting instructions to succeed. In a retail-heavy Fund, that shift can be outcome determinative.

What Is Being Proposed.

• Rule 14a-8 Rescission. The SEC proposes to eliminate the rule that has required companies, including CEFs and BDCs, to include qualifying shareholder proposals in their proxy statements. If adopted as proposed, state law and Fund governing documents would control whether a proposal must be included. Critically, express voting rights under the 1940 Act, including votes on advisory contracts, fundamental policies, below-net-asset-value (“NAV”) issuances and certain director matters, would remain intact.

• Discretionary Voting. Under the SEC’s proposed amendment to Rule 14a-4(c), the Fund could omit the shareholder’s proposal and vote returned cards as disclosed in its proxy statement. Only a shareholder that checks an opt-out box on the Fund’s card could prevent that result and only as to its own shares.

• Broker Searches, Annual Reports and Other Procedural Changes. The companion modernization Proposal would shorten the minimum broker search period from 20 business days to five, eliminate the Notice of Exempt Solicitation filing, remove the 20-business day delivery minimum for materials incorporated by reference and eliminate the requirement to deliver a Rule 14a-3 annual report.

How the Activist Playbook Would Change. Between 2022 and 2025, more than 43% of proxy contests in which proponents solicited votes on their own proposals targeted CEFs. That is why the Rule 14a-4 amendments may matter more to contested listed CEF proxies than the rescission itself. The typical activist investor strategy is: acquire CEF shares at a discount to NAV, use the proxy process to force a tender offer or open ending, exit near NAV and move on. These Proposals would change those Fund activist economics in three important respects: the activist would be responsible for its own proxy costs, returning the Fund’s proxy card would no longer be neutral and the time available for activist campaigns would shrink.

The SEC Wants Fund Industry Input. The SEC expressly asked whether registered funds and BDCs should be treated differently, including whether it should preserve proxy access for proposals relating to matters on which the 1940 Act provides voting rights. The SEC also asks whether registered funds, with their retail-heavy ownership, intermediary chains and complex beneficial owner records, need a longer period.

Next Steps. Comments on the Proposals should be received on or before November 20, 2026. Rule 14a-8 remains in effect unless and until the SEC adopts a final rule. In the meantime, Fund boards should audit their governing documents to understand what controls shareholder proposals in a world without Rule 14a-8, including advance notice requirements, special meeting thresholds, consent rights and existing defensive provisions.

For more information, see Harrington In Depth.

 

Onchain and Onboard: The SEC’s Innovation Exemption for Tokenized NMS Stock

On September 17, 2026, the SEC issued an order (the “Order”) granting temporary, conditional exemptive relief under Section 36(a)(1) of the Exchange Act to facilitate permissioned trading of tokenized National Market System (“NMS”) stock using automated market makers and liquidity pools (“AMM Liquidity Pools”). The “Innovation Exemption” runs from September 17, 2026 to September 17, 2031 and has two parts: (i) an exemption from the “exchange” definition for qualifying “Tokenized Securities Venues” (“TSVs”), and (ii) an exemption from the “dealer” definition for certain liquidity providers to those venues (“Covered Firms”).

The TSV Exemption. The Order exempts a qualifying TSV from exchange and ATS registration and Regulation NMS, but not from other securities activity or the antifraud and antimanipulation provisions of the federal securities laws, and is unavailable to a TSV subject to statutory disqualification absent SEC permission. Key conditions include a public notice at least 30 calendar days before operating, 30 calendar days’ written notice to an issuer and an opportunity to object before listing a stock tokenized by an unaffiliated third party, tiered volume and symbol limits, publication of transaction data within 10 minutes of each trade, and no leverage.

The Covered Firm Exemption. Section 3(a)(5) excludes from the “dealer” definition a person who trades for its own account “not as a part of a regular business” (the “trader” exception). AMM liquidity providers would typically fall within the trader exception absent other indicia of dealing, such as quoting prices or committing capital under an agreement with the TSV. Because committed liquidity is necessary for a pool to function, the SEC concluded a temporary exemption for such “Covered Firms” is appropriate. To rely on the exemption, a firm must limit its securities activity to a TSV-provided pool, trade solely for its own account without customer custody, keep records of its liquidity provision and compensation, disclose on its website that it is not a registered broker-dealer, and notify the SEC of its role.

Practical Implications for Market Participants. TSV operators should treat the Order as a substantive compliance exercise. Firms considering liquidity-provision arrangements should structure them to stay within the exemption’s boundaries, and all market participants should expect close SEC scrutiny and monitor the comment process before relying on the exemptions for long-term planning.

For more information, see the Order here.

 

Agents of Change: The SEC Proposes to Modernize the Transfer Agent Rules

On September 1, 2026, the SEC proposed a comprehensive set of amendments to its rules governing registered transfer agents (the “Proposal”), together with related amendments to Forms TA-1 and TA-2. The Proposal is the SEC’s first substantive revision of the transfer agent rules since the late 1970s and early 1980s. The key operative provisions of the Proposal include:

• Two New Rules: Compliance and Restrictive Legends. Proposed Rule 17ad-30 would require every registered transfer agent to establish, maintain and enforce written policies and procedures reasonably designed to achieve compliance with the federal securities laws applicable to its transfer agent activities. Proposed Rule 17ad-31 would prohibit a transfer agent from facilitating an unregistered securities transaction unless it has a reasonable basis to believe the transaction does not violate, and is not part of a chain of transactions that would violate, Section 5(a). The rule provides a non-exclusive safe harbor for establishing that reasonable basis, through either a reasoned opinion of independent counsel or the transfer agent’s own documented determination reviewed and approved by management. Together, these new requirements will represent the Proposal’s most significant change for market participants, as transfer agents will need to construct risk management procedures designed to demonstrate compliance with the new requirements.

• Registration and Reporting. The Proposal amends Rule 17ac2-1 to extend the effective date of a transfer agent’s registration from 30 days to 45 days after the Form TA-1 is filed. It also amends Rule 17ac2-2 to require a transfer agent to file an amended Form TA-2 within 60 days of discovering that information in a previously filed Form TA-2 was materially inaccurate, misleading or incomplete at the time of filing.

• The End of the Rule 17ad-4 Exemptions. One of the Proposal’s most structurally significant changes is the proposed rescission of Rule 17ad-4 in its entirety. Once rescinded, those transfer agents would become subject to the otherwise applicable turnaround, processing, limitations-on-expansion and recordkeeping requirements.

• Recordkeeping and a New Handover Obligation. Rule 17ad-7 would replace the existing multi-tiered retention schedule with a single, uniform six-year retention period applicable to most records, the first two years of which must be in an easily accessible place. A new provision would require a departing transfer agent to deliver all relevant master securityholder files, transfer journals, control books and other key records within 15 calendar days of ceasing to perform transfer agent functions for an issue.

• Risk Management. The Proposal reframes Rule 17ad-12 as an outcomes-based, comprehensive risk management rule. All issuer, securityholder and other third-party funds held by a transfer agent must be maintained in a bank account designated as a “for the benefit of” account, and every transfer agent must establish, maintain and enforce a written business continuity plan that is tested, reviewed and updated no less frequently than annually.

The Proposal, if adopted substantially as proposed, would represent a significant compliance undertaking for the transfer agent industry, but one that the SEC has structured to preserve meaningful flexibility. Transfer agents that have not historically maintained formal, written risk management programs should begin developing them well ahead of any compliance date.

For more information see the Proposal here.

 

SEC Issues Further Relief for Retail Voting Programs

The Corp Fin Staff has issued two no-action letters that provide further guidance for public companies seeking to establish voluntary voting instruction programs for retail shareholders. The letters build on the Corp Fin Staff’s September 2025 no-action letter to Exxon Mobil Corporation (“ExxonMobil”), which addressed a voluntary program under which participating retail shareholders could provide standing voting instructions to vote their shares in accordance with the recommendations of ExxonMobil’s board of directors.

Tesla IVRVP No-Action Letter. In response to a request from Tesla, Inc. (“Tesla”), the Corp Fin Staff issued a no-action letter that builds on the ExxonMobil program and addresses additional program features and market developments. Tesla refers to the retail voting programs contemplated by its request as “issuer voluntary retail voting programs” (“IVRVPs”). The Corp Fin Staff indicated that its position applies to any issuer operating an IVRVP in the manner described in Tesla’s request. Among the additional features addressed by the Tesla framework are expanded participation and enrollment options. An issuer may offer enrollment to all or a subset of retail shareholders. Shareholders may enroll outside the context of a particular shareholder meeting. Reflecting developments in shareholder communication technology, the framework also contemplates centralized platforms, or “hubs,” maintained by shareholder communication service providers through which retail investors could enroll in the voting programs of multiple participating issuers at the same time.

GS VIP No-Action Letter. The Corp Fin Staff also issued a no-action letter to The Goldman Sachs Group, Inc. (“Goldman”) stating that it would not recommend enforcement action if Goldman implements its proposed voting instruction program (the “GS VIP”), which is consistent with the ExxonMobil program, while adding communications and enrollment features designed to increase participation by current and former Goldman employees and partners. The relief provided by the Corp Fin Staff is specific to the GS VIP and is based on the facts and representations set forth in Goldman’s request.

Looking Ahead. Retail voting programs were not widely utilized during the 2026 proxy season, but the recent no-action letters reflect continued attention from public companies and the Corp Fin Staff to mechanisms designed to facilitate retail shareholder voting. Issuers considering programs with features that are not addressed by the existing no-action relief may wish to consider engaging with the Corp Fin Staff regarding those features.

For more information, see Harrington Debrief.

 

SEC Rulemaking Agenda

The SEC’s 2026 Regulatory Agenda was posted in July 2026. A summary of pending rule changes is included below, along with the SEC’s announced release date. For more information, see the full regulatory agenda here.