Carrots and Sticks: New Efforts to Reduce Fraud in Dealmaking

Welcome to the October 2023 edition of our newsletter!  In this issue, we’ll examine increased regulatory efforts to root out fraud and corporate malfeasance during the merger and acquisition processes.

What’s The Deal? Justice Department Pursues Measures to Scrutinize Transactions

In recent years, regulators have increased efforts to oversee more business transactions in the name of preventing fraud which harms shareholders and consumers.  That trend has come to the mergers and acquisitions space, as the U.S. Justice Department announced a policy which incentivizes an acquiring company to report wrongdoing at an acquired company within six months of the deal closing.  If the acquirer “fully cooperates” with an investigation, the department said it will maintain a presumption that the acquirer would not be prosecuted.  The recently announced policy would only apply to criminal inquiries, not civil enforcement actions.

This creates an increased importance for pre-acquisition due diligence, including thorough checks on executives and interviews about key suppliers and other relationships.  Public records-driven checks can complement other avenues of investigation to help an acquiring company fully understand a target company’s history, and better prepare for the day when all the facts – known and unknown – could be called into question.