Have you ever signed up for a free online product where all you had to do was enter your credit card information to pay a small shipping fee, or perhaps you purchased a weight loss supplement because it was endorsed on social media by a famous celebrity, only to find out that it was a scam and you didn’t receive the product, or the supplement was just a placebo? These promotions are created by scammers with new technology called deepfakes. A deep fake is an image, video or audio recording created with artificial intelligence (AI) to look and sound like a real person or object.

HOW DEEP FAKES ARE PRODUCED

• Statistical Learning: Computer software algorithms scan hours of real audio or video footage to learn and store the facial movements and expressions, voice tone, and movements of a person to create artificial intelligence (AI).
• Integration: The AI then generates a new image of the person’s likeness and pastes it onto a different body or creates a realistic voice clone.
• Evolving Technology: New generative AI produces real-time, high-definition face images and voice cloning that are greatly improved over previous versions and very hard to distinguish.
• Ease of Operation: Corporations have the equipment and the knowledge to create AI, which makes it easier to create voice and image deepfakes.

WHAT HARM CAN DEEP FAKES PRODUCE

Common Uses and Risks

• Entertainment: The technology to create deep fake images and sounds is put to legal and safe use in movies, video games, and dubbing.
• Fraud and Scams: Cybercriminals use deep fake video or voice calls to trick employees into transferring money or sharing private company passwords.
• Misinformation: Deep fakes of political figures can spread false news or influence public opinion during elections.
• Harassment: Non-consensual deep fakes cause explicit embarrassment and jeopardize private individuals and celebrities.
• Emotional Manipulation: Deep fakes can be designed to stimulate extreme anger, shock, or fear resulting in foolish action before thinking critically.
• Victim Trafficking: Naïve young and elderly people can be lured into dangerous and captive situations.

According To Research:

• Number of Incidents: 25.9% of executives report that their organizations have experienced one or more deep fake incidents.
• Financial Loss: 92% of companies have experienced economic loss due to a deep fake.
• Availability: Accessibility of generative AI technology is only growing, lowering barriers to entry for deep fake creation.

WHO CAN BE HELD RESPONSIBLE FOR DEEPFAKES

Corporate Resources to Detect Deep Fakes

• Modern corporations have the technology, equipment, and access to industry-wide threat intelligence to implement identity verification processes.
• Deep fake videos of corporate managers could impact market perception and create securities risks.

Corporate Obligation to Protect Its Customers

• Corporations process online payments from their customers.
• Technology makes traditional scams more sophisticated and harder to detect.

Potential Litigation

• Fraudulent deep fakes create the potential for consumer protection litigation.
• Courts are more willing to hold corporations responsible for third-party fraud against customers.

Deep fakes created by AI are an evolving issue. Corporations and courts are working to find solutions that will protect customers without placing an unreasonable burden on corporations. The corporate lawyers at Corporate Securities Legal LLP are following the latest developments so they can adequately advise and protect their clients.

Under the Securities Act of 1933, every offer and sale of securities must either be registered with the Securities and Exchange Commission or qualify for an exemption from registration. Regulation D provides several exemptions that private companies frequently use to raise capital without conducting a registered public offering. (sec.gov)

Companies relying on Rule 504, Rule 506(b), or Rule 506(c) of Regulation D generally must file a Form D notice with the SEC within 15 calendar days after the first sale of securities in the offering. The company may also have notice-filing, consent-to-service, and fee obligations under applicable state securities laws. (sec.gov)

Important Regulation D Requirements

The applicable requirements depend on the exemption selected.

Offering limits: Rule 504 permits eligible companies to offer and sell up to $10 million of securities during a 12-month period. By contrast, Rule 506(b) and Rule 506(c) do not impose a maximum offering amount. (sec.gov)

Investor eligibility: Rule 506(b) permits sales to an unlimited number of accredited investors and up to 35 qualifying non-accredited investors within the applicable period. Rule 506(c) requires every purchaser to be an accredited investor.

General solicitation: Rule 506(b) generally prohibits general solicitation and advertising. Rule 506(c) permits general solicitation, but the company must take reasonable steps to verify that every purchaser is accredited. Rule 504 generally prohibits general solicitation, although limited exceptions apply. (sec.gov)

Restricted securities: Securities sold in most Regulation D offerings are restricted securities. Investors generally cannot resell them freely into the public market unless the resale is registered or qualifies for an exemption.

Rule 144 provides a nonexclusive safe harbor for certain resales. Restricted securities of a qualifying SEC reporting company generally must be held for at least six months. Restricted securities of a non-reporting private company generally must be held for at least one year. Additional conditions may apply depending on whether the seller is an affiliate of the company. (sec.gov)

Investors’ Registration Rights

The goals of a startup’s founders and investors may not always align. Founders may want to maintain control and pursue long-term growth, while investors may eventually want an opportunity to sell their shares.

Investors sometimes address this issue by negotiating a registration rights agreement. Registration rights are contractual rights; they are not automatically provided by the federal securities laws.

Demand Registration Rights

Demand rights allow qualifying investors to require the company to register specified shares for resale, subject to the agreement’s conditions and limitations.

A demand right does not necessarily allow an investor to force the company to conduct an IPO. Depending on the agreement and the company’s circumstances, it may instead require the company to file a resale registration statement for shares held by investors. Demand rights commonly specify:

• when the rights may first be exercised;
• the minimum number or value of shares required;
• the number of demands permitted;
• whether the company may postpone registration;
• who pays the registration expenses;
• whether the offering must be underwritten; and
• circumstances in which underwriters may reduce the number of shares included.

Piggyback Registration Rights

Piggyback rights allow investors to request that their shares be included in a registration initiated by the company or another eligible shareholder.

These rights are usually subject to exceptions and limitations. For example, the managing underwriters may be permitted to reduce the number of investor shares included in an offering if they determine that including all requested shares could adversely affect the offering. (sec.gov)

Protections Commonly Negotiated by the Company

A company may negotiate limitations that prevent registration rights from unduly interfering with its operations.

Postponement rights: The company may be allowed to postpone a demanded registration if proceeding would interfere with a material transaction, require premature disclosure of confidential information, or occur during seriously unfavorable market conditions.

Minimum offering thresholds: Demand rights may apply only if the proposed offering exceeds a stated dollar amount or involves a minimum percentage or number of registrable shares.

Waiting periods: Investors may be prohibited from exercising demand rights until a specified date or until the company has reached a particular stage of development.

Limits on frequency: The agreement may restrict how many demand registrations investors can require or impose a waiting period between registrations.

Underwriter selection: The agreement may give the company or its board the right to select the managing underwriters, sometimes subject to investor approval rights.

Underwriter cutbacks: The managing underwriters may have authority to limit the number of investor shares included in an offering.

Lockup obligations: Investors may be required to refrain from selling their shares for a specified period following an IPO or another underwritten offering.

Can Investors Ultimately Force an IPO?

The answer depends primarily on the company’s governing documents, financing agreements, and registration rights agreement. Share ownership alone ordinarily does not give an investor the unilateral right to force an IPO.

A carefully drafted demand registration right may require a company to pursue registration once the contractual conditions are satisfied. However, it may still leave important decisions—such as timing, offering structure, underwriter selection, and postponement—with the company or its board. Corporate-law duties, securities-law requirements, market conditions, and the precise contractual language will also affect the outcome.

Registration rights agreements are voluntary when negotiated, but they become legally binding once executed. Companies and investors should therefore define clearly when registration rights may be exercised, what exceptions apply, who controls the offering process, and how the related expenses will be allocated.

The securities lawyers at Corporate Securities Legal LLP assist founders, companies, and investors with private offerings, registration rights agreements, corporate governance, and preparations for registered offerings. Contact the firm to discuss how registration rights may affect your company or investment.

Reasons a Company May Prefer to Remain Private

Reduced Public Disclosure: Privately held companies generally are not required to disclose publicly the same extensive information required of SEC reporting companies. Subject to applicable law and contractual obligations, they may have greater confidentiality regarding their financial performance, executive compensation, business strategy, material agreements, and operations.

Private status does not, however, eliminate all disclosure obligations. A private company may still be required to provide information to shareholders, investors, lenders, regulators, and taxing authorities.

Lower Compliance Burden: Public reporting companies must devote substantial financial and management resources to SEC filings, audited financial statements, internal controls, shareholder communications, and, if exchange-listed, applicable stock-exchange requirements. SEC reporting commonly includes annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K for specified events. (sec.gov)

Potentially Lower Liability Exposure: Directors and officers of both private and public companies can face liability for breaches of fiduciary duty, fraud, self-dealing, and violations of applicable law. Public companies, however, face additional exposure under the federal securities laws for materially false or misleading statements, material omissions, insider trading, reporting violations, and failures to comply with other public-company obligations. The SEC recognizes that a company and its management may face liability if public-company obligations are not satisfied. (sec.gov)

Greater Management Flexibility: Public companies are subject to federal securities laws, SEC rules, and—if listed—stock-exchange requirements. Certain transactions may also require shareholder approval. These requirements can reduce management flexibility and increase the time and expense involved in corporate decision-making.

Greater Control Over Ownership: A private company may have more control over how and to whom its shares are issued, subject to corporate law, securities laws, existing agreements, and shareholder rights. Remaining private can therefore help founders and existing investors manage dilution and changes in voting control.

Reduced Short-Term Market Pressure: Public companies are closely monitored by investors, analysts, and the financial media. Market expectations concerning quarterly performance can create pressure to prioritize near-term results. Remaining private may allow management to pursue longer-term strategies without the same degree of public-market scrutiny.

Access to Private Capital: Venture capital, private equity, growth-equity funds, strategic investors, family offices, and other private financing sources can enable a company to raise substantial capital without conducting an IPO. Private financing can nevertheless involve significant dilution, investor consent rights, board representation, liquidation preferences, and other negotiated restrictions.

When a Private Company May Become Subject to SEC Reporting

Under Section 12(g) of the Securities Exchange Act of 1934, a company may be required to register a class of equity securities with the SEC even if it has not completed an IPO.

For most companies, registration may be required if, on the last day of the company’s fiscal year:

1. The company has more than $10 million in total assets; and
2. The relevant class of equity securities is held of record by either:
   • 2,000 or more persons; or
   • 500 or more persons who are not accredited investors. (sec.gov)

These calculations are subject to important definitions and exceptions. For example, certain securities issued under employee compensation plans may be excluded from the holder-of-record calculation. Conditional exemptions may also apply to qualifying Regulation Crowdfunding and Regulation A securities. Banks, bank holding companies, and savings and loan holding companies are subject to different holder thresholds. (sec.gov)

Crossing the applicable threshold does not require the company to conduct an IPO or list its shares on a stock exchange. It may, however, require the company to register the relevant class of securities and begin filing periodic reports with the SEC. The company could therefore become a public reporting company while its shares remain unlisted and relatively illiquid.

Once subject to Exchange Act reporting, a company may be required to file annual, quarterly, and current reports and make information concerning its financial condition, operations, management, material agreements, executive compensation, and specified corporate events publicly available. The precise disclosure requirements depend on the company’s circumstances and filer status; eligible emerging growth companies and smaller reporting companies may use scaled disclosure requirements. (sec.gov)

A company approaching the Section 12(g) thresholds should evaluate its capitalization table, holder-of-record count, investor accreditation information, applicable exclusions, and reporting alternatives before the end of its fiscal year.

Potential Benefits of Going Public

Access to Capital: A registered public offering can raise substantial capital for expansion, research and development, debt repayment, acquisitions, and other corporate purposes. Public-company status may also broaden opportunities for future financing. (sec.gov)

Potential Liquidity: A public trading market may allow founders, employees, and investors to sell shares more easily. Liquidity is not guaranteed, however, and sales may be limited by lockup agreements, securities-law restrictions, company trading policies, market conditions, and the availability of buyers.

Acquisition Currency: Publicly traded shares may be used as consideration in mergers and acquisitions, potentially reducing the amount of cash required for a transaction. (sec.gov)

Employee Recruitment and Retention: Public-company equity and stock options may help a company attract, compensate, and retain employees. (sec.gov)

Visibility and Credibility: An IPO and public listing may increase brand awareness, publicity, and market recognition. (sec.gov)

Transparency and Investor Information: Public reporting provides investors with standardized financial and operational information that may assist them in evaluating the company. This transparency, however, also gives competitors and other third parties access to information that a private company might otherwise keep confidential. (sec.gov)

Conclusion

The decision to remain private, become an SEC reporting company, or pursue an IPO requires careful consideration of the company’s capital needs, shareholder base, financial condition, growth strategy, governance structure, and tolerance for regulatory and disclosure obligations.

Counsel from experienced securities lawyers can help a company monitor its Section 12(g) status, structure private financing transactions, manage its capitalization table, prepare for SEC reporting obligations, and evaluate whether and when a public offering is appropriate. Corporate Securities Legal LLP can advise companies, founders, directors, and investors on these considerations.

However, Section 10(b) of the Securities Exchange Act of 1934, which is enforced through Rule 10b-5, says it shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, to:

• Employ any device, scheme, or artifice to defraud
• Make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading
• Engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with the purchase or sale of any security

The United States Court of Appeals for the Ninth Circuit clarified the relationship between marketing slogans and the reasonable investor standard for reliance and materiality. The court held that a company slogan used in investor presentations was not misleading to reasonable investors, especially in light of accompanying disclosures.

The pharmaceutical company at the center of this case had developed an opioid medication that could be administered under the tongue rather than intravenously, like other opioids. To highlight this advantage, the company developed the marketing slogan “Tongue and Done.” In addition to complying with U.S. Securities and Exchange Commission (SEC) regulations, the Food and Drug Administration (FDA) required the company to create a Risk Evaluation and Mitigation Strategy (REMS) that restricted the use of their opioid to certain healthcare settings and licensing protocols.

At investor conferences, the company CEO gave speeches which included the product’s limited use to medically supervised settings and a broad description of the process for administering the product, as well as company displays that:

• Used its slogan in posters, banners, and brochures
• Directed investors to additional information at the booths
• Provided product safety warnings
• Highlighted the REMS plan

Although the CEO did not include in his speeches every detail of administering the opioid, the Court ruled that it is necessary to consider the full context in which a statement or omission is made — including any other available information — to determine if it would mislead investors. The Court decided that a reasonable investor would understand the need to look at the “total mix” of information, rather than any isolated phrase or document.

As an additional point, the Court noted that there was no “strong inference of Scienter” — which is when a person acted with knowledge of wrongdoing or with a reckless disregard for the truth.

The experienced securities lawyers at Corporate Securities Legal LLP will make sure your advertising is in full compliance with all regulatory restrictions, with full disclosures about risks, restrictions, and market realities in your consumer-facing materials and in referenced websites.

Key Issues in IP Licensing Include

• Generative AI Training Data: The legality of using copyrighted materials to train AI large-language models remains a major battleground. Generative AI systems require vast amounts of text, images, and audio to learn how to produce realistic content. The dispute centers on whether companies are scraping publicly available data without obtaining proper authorization, or exercising their rights under the legal doctrine of fair use, which permits limited use of copyrighted material without permission under certain circumstances. The key legal question is whether AI-generated content constitutes “derivative work” under the Copyright Act.
• Vague Licensing Scope & Royalties: A common mistake in license agreements is poorly defining the scope of the license. It is difficult to collect royalties from foreign users of domestic software. Every detail should be clearly explained, including the IP being licensed, the current version and status of future updates, the country or territory where the license is valid, and the limitations of use. A comprehensive agreement will cover the entire financial picture, including how royalties will be calculated, whether payment terms will be based on net sales, gross revenue, or a per-unit fee, the frequency of payments, late charges, penalties and interest charges, the currency used, and licensing rights across different jurisdictions.
• Vague or Non-Existent Exit Strategies and Termination Clauses: A well-drafted agreement should include clear termination clauses that outline how and when the relationship can be dissolved, what constitutes a breach of contract, the licensee’s post-termination obligations such as ceasing all use of the IP, returning any confidential materials, and disposing of any remaining inventory, as well as how much notice is required to terminate the agreement.
• Digital Media & Non-Fungible Tokens (NFTs): The metaverse, virtual goods, and NFTs have severely challenged traditional IP frameworks. Courts are currently grappling with how to apply existing copyright and trademark laws to intangible, digital-only assets.

Successful license agreements are built on clarity to help you understand the common pitfalls of licensing negotiations and how to avoid them, foresight to focus on achieving your long-term business objectives, a solid legal foundation to protect your business interests, and flexibility to mandate periodic review of terms or establish a process for renegotiating specific elements and handling improvements or derivative works.

The Benefit of Licensing Agreements

A current solution to these legal challenges is licensing agreements between AI companies and content creators. This is how the digital music streaming industry solved the problem — streaming services adopted licensing models that compensated artists and record labels, creating a sustainable system for digital music distribution.

At Corporate Securities Legal LLP, we strive to help you understand how state-specific regulations may apply to your agreements, adding another layer of protection. Fair trade practices and consumer protection laws can also interfere with licensing in franchising or distribution deals. Contact us today to discover how our firm can assist you. We understand and can apply well-established contract law, which plays a key role in governing license agreements and resolving complex commercial disputes.

The process to document and prove responsibility for those actions is recorded with organizational resolutions — or corporate resolutions, as they are more commonly known. An organizational resolution is a formal, legally binding document adopted and used by a corporation’s board of directors to officially authorize specific company actions such as:

• Authorizing the beginning of legal business operations
• Appointing officers
• Opening bank accounts
• Authorizing the issuance of shares to the stockholders
• Hiring directors
• Adopting the bylaws
• Signing major contracts
• Protecting the business’s assets and limited liability status
• Approving the purchase of real estate, loans, or business mergers

Well-written organizational resolutions establish the foundation for legal compliance and good corporate governance.

While LLCs aren’t legally required by states to create corporate resolutions, they often draft similar documents, usually called LLC resolutions or member resolutions. Instead of board meetings, LLC members use these documents to formally record major decisions, like buying property, and authorizing specific actions, like opening a bank account or taking out a business loan.

Structure of a Resolution

The accepted form of any organizational resolution should include these key elements:

• Title & Heading: Clearly labeled as an organizational resolution on company letterhead
• “Whereas” Clauses: Statements explaining the background, necessity, and purpose of the resolution
• “Resolved” Clauses: The exact actions, permissions, or authorities being granted by the board
• Authorized Signatures: Signatures of authorized individuals (such as the corporate secretary) and the date to legally bind the document

Common Organizational Resolutions to Authorize These Functions

• Designate a registered agent to receive service of process
• Adopt the corporate bylaws, which govern the internal management of the corporation
• Authorize the hiring and appointment of directors
• Name the initial corporate officers (e.g., President, Treasurer, Secretary)
• Adopt a corporate seal
• Authorize the issuance of initial shares to stockholders and adopt a form of stock certificate
• Select the corporate fiscal year
• Establish the principal executive office
• Secure a federal employer identification number (EIN) and state tax IDs
• Select times for board of directors meetings
• Select the time for the annual meeting of shareholders
• Authorize the opening of corporate bank accounts and designate authorized signers for checks and funds
• Authorize the payment of incorporation expenses
• Ensure securities law compliance
• Direct the maintenance of the corporate minute book, which will contain the certificate of incorporation, bylaws, and all meeting minutes and resolutions

Protect Yourself and Your Personal Assets with Complete Documentation

Organizational resolutions document that the board of directors is upholding its fiduciary duty to act responsibly and in the best interest of the corporation and its shareholders. They demonstrate that the company is properly organized and observes all necessary corporate formalities, and they create an audit trail of who made what decision and when — which is essential for audits, tax purposes, and future legal or financial due diligence.

The corporate lawyers at Corporate Securities Legal LLP can provide continuing compliance with organizational resolutions that protect you and your company.

However, sometimes you will want to inform the public and the press about something noteworthy or of material significance, such as:

• A new product
• A quarterly earnings report
• An impending merger
• Any other material information

You are required to file periodic reports about your company details with the U.S. Securities and Exchange Commission (SEC), but only a select category of investors take the time to read those reports, and they do it to consider becoming one of your company’s owners, not one of its customers.

Putting information about a public company in a press release is subject to the scrutiny of the SEC. It is important to only include facts and eliminate information that cannot be proven in a company’s financial statements and business operations. There are no specific rules or restrictions on press releases, but content cannot sound like an inducement to invest in the company or promise a result that is still only speculative. Subjective adjectives such as “greatest” or “only” are borderline and can lead to an investigation by the SEC.

How Press Releases Violate Securities Laws

• False Statements or Material Omissions: Statements regarding earnings, product developments, or contracts are material to investor decisions and must be accurate and complete
• Misleading Impressions: Misleading commentary about technically accurate financial data creates a false picture of performance. This type of fraud makes companies and executives legally liable
• Regulation FD Violations: Sharing material nonpublic information by executives before the company has disclosed it to the public can lead to insider trading
• Illegal Solicitation: There are specific conditions about publishing public, marketing-oriented information about general solicitation in private offerings
• Misleading Forward-Looking Statements: Financial projections must provide a reasonable basis for the results or a safe harbor declaration in the event of failure to achieve the promised outcome
• Negative News Concealment: Full transparency is vital to press releases. Issuing positive, unrelated, or distracting information to obscure negative information can be viewed as deceptive
• Use of Non-GAAP Measures: Earnings releases that highlight non-GAAP financial figures are deceptive without giving reconciliations to GAAP results

Consequences of Violations

• SEC Enforcement Actions: The SEC can take legal action against the company and individual officers for fraudulent or misleading statements, resulting in heavy fines
• Trading Suspension: The SEC may halt trading to protect investors
• Investor Lawsuits: Investors can sue for damages caused by misleading statements

How Legal Counsel Can Help

You should have a securities lawyer review all press releases, especially those containing forward-looking statements (projections) or financial data, to ensure they are legally compliant, avoid liability, and prevent the disclosure of material non-public information.

At Corporate Securities Legal LLP, we consider the risks associated with press releases very seriously. We work to keep our clients safe while they provide valuable information to their shareholders and the market in general.

The value and effectiveness of a board auditing committee depend on its governing charter. A well-drafted committee charter keeps the committee in line, and a well-run committee keeps everyone in the corporation in line. It defines the specific purpose, authority, composition, and operating procedures of the committee and aligns members with organizational goals. Trust of employees is built in multiple ways, but is still fragile and subject to varying interpretations — but for the auditing committee, figures and reports that reflect those figures never lie.

Key Components of an Auditing Committee Charter

• Purpose/Mission: The financial reporting, internal controls, independent auditor relationships, prevention of waste in assets, protection against excessive and unnecessary liabilities, the wise allocation of resources, and accuracy in reporting all financial matters
• Authority: The scope of the committee’s areas of recommendations to the full board and the binding effect of its final decisions
• Composition: Qualifications for committee membership, term limits, degree of independence, and professional expertise requirements
• Procedures & Operations: Meeting schedules, quorum requirements for rule making, how minutes are recorded, and reporting procedures and deadlines expected by the full board

Duties and Responsibilities of the Auditing Committee

• Recommending to the board the selection, retention, or termination of the outside auditor
• Defining the scope, fee, risk factors, and general extent of the outside auditors’ annual audit. No limitations should be placed on the scope or nature of their audit procedures
• Reviewing the corporation’s accounting and financial reporting controls and requiring an annual report from outside auditors on the adequacy of the corporation’s accounting and financial reporting controls
• Reviewing with the COO and outside auditors generally accepted accounting and reporting principles, practices, and procedures applied by the corporation in preparing its financial statements
• Verifying the independence of the outside auditors and obtaining formal written statements explaining all relationships between the outside auditors and other consulting work being performed for the corporation
• Conducting annual reviews of conflict-of-interest statements by the auditing staff
• Reviewing the annual auditing report with the president and CEO and the outside auditors to verify that the outside auditors received cooperation during their audit, including access to all requested records, data, and any other information pursuant to current accounting standards relating to the conduct of the audit

The work of the auditing committee may not monitor the performance of all the employees or their capacity to perform their assigned duties, but it will safeguard the financial and property assets of the corporation and point out any mishandling of those assets. The effectiveness of the auditing committee is established by the charter document that sets up the committee and guides its work. To make sure your auditing committee charter is complete, you should contact the corporate lawyers at Corporate Securities Legal LLP. Their experience and expertise in corporate governance will give you peace of mind that your corporate assets are well protected.

Types of Risk Metrics

Failure to comply with those requirements can result in:

• Legal challenges to items not on the agenda
• Violation of the company’s bylaws
• Failure to meet quorum requirements
• Questions about the validity of any votes taken
• A petition to a court to invalidate the defective proceedings

The best solution to ensure full compliance is to conduct the meeting by following a well-prepared shareholders meeting script. It is a prepared, step-by-step guide for the meeting chairperson to officially conduct an annual or special meeting. It dictates exactly what to say and the sequence of events to ensure the company follows legal requirements.

Key Components of a Script

• Call to Order & Welcome: The chairperson formally announces the start of the meeting
• Proof of Notice & Quorum: The corporate secretary states that meeting notices were legally distributed and that enough shares are represented to establish a quorum so business can be conducted
• Approval of Previous Minutes: A motion is made and voted on to accept the minutes from the last shareholder meeting
• Management Presentations: Company leadership presents annual reports, financial updates, and future outlooks
• Voting/Proposals: Shareholders vote on official matters, such as electing the board of directors, appointing auditors, reviewing executive compensation, and properly submitted proposals under SEC Rules
• Other Authorized Business: Any other specific matters detailed in the proxy solicitation materials
• Q&A Session: An open floor for shareholders to ask questions about the company
• Adjournment: A final motion and vote to formally close the meeting

Why a Script Is Used

• Maintains Compliance: It covers all agenda items and ensures that mandatory corporate formalities are satisfied
• Prevents Disputes: It protects against any challenges to the validity of votes or voting procedures
• Manages Disruptions: It gives pre-approved, legally correct language to maintain orderly proceedings, and to handle objections, shareholder questions, and meeting disruptions
• Aligns with Minutes: It is the precursor to the meeting minutes and a check against the accuracy of the meeting’s actions

Legal and Procedural Statutes

• State Corporate Law: Governs the statutorily required topics of electing directors, the date of the meeting, notice periods, and voting standards
• Corporate Bylaws: Determine who chairs the meeting, procedural rules, and the contents of the agenda
• SEC Regulations: Require public companies to file annual meetings and proxy requirements documents

When you are dealing in a regulated industry like equity in public companies, whose shares are traded on public exchanges, it is foolish to risk not being in compliance with all the statutes and regulations. The consequences of non-compliance are too devastating. That is why the professional counsel from securities lawyers at Corporate Securities Legal LLP is a gold standard for making wise choices in this critical industry.

To protect their professional reputation and to make sure they have complied with generally accepted accounting principles, your outside auditors need to account for any contingencies of liability by the company that may have a negative impact on the financials. To do that, as part of the audit process, they will send a letter to your company attorney asking for information about any contingent company liability based on pending or threatened litigation loss. The letter must be signed by an authorized company officer or board member to authorize the attorney’s response. The letter is only needed when the potential financial loss is material, which is decided between the auditor and the company.

This situation puts you in a difficult position between a rock and a hard place. You need to report your financial status to your investors, including an account for any litigation, claims, and assessments against the company, but the attorney’s response to the audit letter presents a problem of the potential waiver of the attorney-client privilege. Generally, any disclosure to a third party of otherwise privileged information acts as a waiver of the attorney-client privilege. There are limited exceptions to this rule. The attorney’s response is critical and delicate and needs to be prepared in consultation with you as the client.

The American Bar Association dealt with this problem by issuing guidelines for the appropriate scope of a lawyer’s response to the auditor’s request. A lawyer may properly respond to the auditor’s request for information concerning loss contingencies if:

• The client has authorized the disclosure
• The disclosure would not reveal any attorney-client confidence
• The client has been informed of the legal consequence of the disclosure
• The response is limited to the scope of the engagement and the items to which the representation pertains
• The client has already disclosed information regarding pending litigation, contractual obligations, or an unasserted claim
• The attorney does not express any opinion or judgment as to outcomes
• Disclosure is limited to materiality
• It is clearly included in the response that any disclosure does not act as a waiver of attorney-client privilege

The securities lawyers at Corporate Securities Legal LLP have been responding to audit litigation letters for many years. They vigorously protect communications with their clients while giving disclosure to auditors that satisfies their professional obligations. They understand the delicate situation their clients face in meeting the needs of their investors and achieving full compliance with all SEC regulations. They understand that professional standards for both lawyers and auditors are only there to protect their clients.

Financial institutions used to close customer accounts or refuse to open customers’ accounts based on subjective reasons such as:

• Mitigating risks related to regulatory compliance
• Money laundering
• Fraud
• Terror financing
• Operational risks
• Religious or political views
• Avoiding reputational damage to the bank
• High-risk or politically sensitive industries

In 2011, federal regulators began issuing informal guidance encouraging banks to consider these subjective standards. This practice gave regulators great latitude to be biased against certain industries which they considered to be too risky and to warn banks against doing business with them.

Banks are heavily regulated and can only operate when in good standing with the regulators. Banking regulators are more than a strong influence on bank operations. They can direct and control bank activities.

President Trump’s August 7, 2025, Executive Order, “Guaranteeing Fair Banking for All Americans” (EO 14331), requires banks to ensure that decisions to restrict or terminate accounts (debanking) are based on individualized, documented, objective, and risk-based criteria, rather than political or religious beliefs.

Key Details of the Executive Order and Implementation

• Purpose: To eliminate “politicized or unlawful debanking” by financial institutions
• Requirements: Financial institutions must base decisions on documented, objective, and risk-based analyses
• Regulatory Actions: Federal regulators (OCC, FDIC, Fed, NCUA, CFPB) are instructed to review institution policies, take remedial action (fines, consent decrees) against those engaging in illegal debanking, and remove “reputational risk” as a justification for terminating accounts
• Scope: Protects against discrimination based on political views, religious beliefs, or lawful business activities
• Enforcement: The OCC (Office of the Comptroller of the Currency) announced actions to enforce this order, including reviewing bank performance under the Community Reinvestment Act (CRA)

Legislative Efforts

Congress passed the Ensuring Fair Access to Banking Act to further solidify these requirements into federal law. This law places restrictions on certain banks, credit unions, and payment card networks if they refuse to do business with a person who complies with the law. Restrictions on financial institutions for violations include prohibiting the use of electronic funds transfer systems and lending programs, termination of an institution’s depository insurance, and specified civil penalties. It establishes the right for a person to bring a civil action for a violation of this bill.

Government officials used to encourage banks to debank customers primarily to mitigate perceived risks related to money laundering, terrorism financing, and fraud. Using initiatives like “Operation Chokepoint” and “Know Your Customer” (KYC) rules, regulators have pushed banks to close accounts for high-risk or politically disfavored industries (such as gun manufacturers, crypto, and energy companies) under the guise of “reputational risk”.

Neither the Constitution nor any Congressional statute grant powers to the regulators to decide which lawful businesses deserve access to banking services. If you have been the victim of debanking, please consult the lawyers at Corporate Securities Legal LLP to review your rights and protect your financial reputation.

“The third-party litigation financing industry is not specifically regulated under U.S. federal law. However, some states regulate consumer funding by, for example, limiting the fees funders can charge. There also is no nationwide requirement to disclose litigation funding agreements to courts or opposing parties in federal litigation, although courts have required disclosures of funding arrangements in some instances”. The Litigation Funding Transparency Act and HR 1109, which seek to expose potential conflicts of interest and reduce risks of prolonged, funded litigation was introduced in Congress in February of 2026 but is still moving through the process to become law.

Common Complaints and Risks

• Lack of Transparency: TPLF agreements are usually confidential, and not subject to discovery, although that rule is slowly changing. The objective is to increase transparency and mitigate risks in the justice system. Defendants are put at a disadvantage if they do not know if a third-party investor is pulling the strings in a lawsuit.
• Control over Litigation: Although funders are investors, they may require contractual control over case decisions, including veto power over settlements.
• Foreign Influence: Many foreign entities are using TPLF to attack U.S. companies and gain access to sensitive information.

How TPLF Impacts Commercial Businesses

• Rise in “Nuclear Verdicts”: The influx of outside capital allows plaintiffs to pursue high-stakes, prolonged litigation, often resulting in massive, excessive jury awards that exceed $10 million.
• Increased Litigation Frequency: TPLF incentivizes the filing of non-meritorious or “questionable” claims, as plaintiffs are shielded from the risks of losing.
• Harder Settlement Negotiations: Because funders prioritize maximizing their investment returns, they may push for higher payouts, rejecting reasonable, early settlement offers that businesses often prefer.
• Rise in Specific Areas: TPLF is common in large commercial disputes.
• Operational Strain: Businesses face higher insurance premiums, tighter coverage terms, and increased legal fees defending these cases.

Although federal and state regulation of TPLF is slow in coming, businesses can take steps themselves to mitigate risks through contractual arrangements and other possible legal positions. The lawyers at Corporate Securities Legal LLP have many years of experience dealing with difficult threats to business operations, both for startups and for public companies.

AI is no longer experimental. It now plays a central role in core decision-making processes, and without proper oversight, it can create significant legal, financial, and operational consequences. Regulators are increasingly requiring organizations to move beyond general policy guidance and implement actionable, audit-ready controls.

Emerging AI Risk Areas

As regulatory scrutiny increases, several key risk areas have emerged across industries:

• Black box opacity: AI systems often operate in ways that are difficult to interpret. Organizations must be able to explain how decisions are made to regulators and stakeholders.

• Systemic and automation risk: AI can rapidly scale decisions, allowing small errors to be repeated at high speed, potentially leading to widespread operational failures.

• Third-party and data risks: Reliance on external data sources introduces risks related to data privacy, accuracy, and potential bias or manipulation.

• AI-enabled fraud: Technologies such as deepfakes and AI-driven phishing schemes create new avenues for fraud, increasing potential liability and requiring stronger verification controls.

Why AI Risk Management Matters

Organizations that fail to implement effective AI governance frameworks face both regulatory and competitive consequences:

• Avoiding heavy penalties: Regulatory enforcement actions have resulted in significant financial penalties for inadequate compliance systems.

• Competitive advantage: Companies that successfully integrate AI within structured risk frameworks can innovate more efficiently while maintaining compliance and trust.

NIST AI Risk Management Framework

The National Institute of Standards and Technology (NIST) has developed a widely adopted AI Risk Management Framework that organizations can use to manage AI systems throughout their lifecycle.

The framework includes four core functions:

• Govern: Establish internal governance structures to oversee accountability, compliance, security, and risk management, including clear decision-making and escalation procedures.

• Map: Develop and maintain an inventory of AI use cases, including third-party tools, and evaluate each for risk factors such as data security, regulatory impact, and operational significance.

• Measure: Assess risks through audits and feedback, focusing on issues such as bias, transparency, explainability, and potential manipulation.

• Manage: Implement controls to mitigate identified risks, including human oversight, access controls, employee training, and continuous system monitoring.

Staying Ahead of Regulatory Developments

AI risk management is rapidly evolving as both technology and regulatory expectations continue to develop. Organizations that proactively implement structured frameworks will be better positioned to manage risk, maintain compliance, and capitalize on emerging opportunities.

The attorneys at Corporate Securities Legal LLP provide guidance on navigating evolving regulatory requirements and implementing effective compliance strategies.

As financial strain intensifies, companies are facing higher exposure to liability, contract disputes, and employment-related claims. Proactive planning can be the difference between continued operations and financial failure.

Impact of Corporate Distress

The burdens placed on companies experiencing financial distress can significantly disrupt normal operations and long-term planning. Common impacts include:

• Increased legal costs: The growing complexity of disputes requires substantial resources for legal defense and risk management.
• Reputational damage: Litigation can result in negative publicity, reducing stakeholder trust and future business opportunities.
• Reduced operational flexibility: Ongoing legal matters may limit management’s ability to make strategic decisions and adapt to changing conditions.

Statistical Trends

Recent data highlights the growing severity of corporate distress and its legal consequences:

• Corporate distress and bankruptcy: Monthly large bankruptcy filings have increased significantly, particularly among companies with assets exceeding $1 billion.
• Economic pressures: Rising interest rates and debt burdens have contributed to a notable increase in commercial Chapter 11 filings.

Trending Litigation Areas

Certain types of litigation have become more prevalent as companies navigate financial stress:

• Data breach and cybersecurity: Companies handling sensitive customer data face increased exposure to litigation when security failures occur.
• Employment litigation: Workplace disputes have expanded following the COVID-19 era, including wage issues and evolving employment standards.
• Liability management disputes: Financial restructuring strategies, such as debt exchanges and priority shifts among creditors, have led to increased legal challenges.
• Class actions and regulatory enforcement: Companies are facing heightened scrutiny related to environmental, social, and governance (ESG) issues, as well as contractual and regulatory compliance.

Common Legal Consequences

Legal actions arising from corporate distress can lead to serious financial and operational consequences, including:

• Acceleration of debt: Creditors may demand immediate repayment of outstanding obligations.
• Foreclosure and asset seizure: Lenders may enforce their rights against collateral securing loans.
• Forced bankruptcy: Creditors may initiate involuntary bankruptcy proceedings.
• Receivership: Courts may appoint a receiver to take control of company assets.
• Shareholder claims: Courts may award damages or grant injunctive relief to affected parties.

Why Advance Planning Matters

Preparing for potential legal and financial challenges is essential in times of economic uncertainty. Strategic planning, including carefully structured contracts and internal policies, can help mitigate risk, preserve assets, and maintain operational control.

The attorneys at Corporate Securities Legal LLP have extensive experience advising companies through periods of financial stress, helping them anticipate risks and implement effective protective strategies.

The process involves filing a registration statement—including a prospectus, financial statements, and other disclosures—followed by staff review, comment letters, amendments, and final approval. Once all regulatory requirements are satisfied and the company formally requests effectiveness, the SEC may declare the registration statement effective, allowing the company to proceed with its public offering.

Initial Staff Review

The SEC staff conducts an initial review of the registration statement to confirm compliance with disclosure and accounting requirements. The goal of the review is to ensure that the filing contains sufficient information for investors to make informed decisions.

Importantly, the SEC does not evaluate the merits of the transaction or determine whether the investment is appropriate for any particular investor.

The scope of review generally takes one of three forms:

• Full Review: A comprehensive examination of the entire filing for compliance with securities laws and disclosure standards.
• Financial Statement Review: A focused review of financial statements and related disclosures to ensure compliance with applicable accounting standards.
• Targeted Issue Review: A limited review focusing on specific disclosure issues or regulatory concerns.

Staff Comment Letter

After reviewing the filing, the SEC staff may issue a comment letter identifying deficiencies, questions, or areas where additional clarification is required.

Comment letters may request:

• Expanded disclosure to enhance investor understanding;
• Additional financial information;
• Clarification of statements that could potentially be misleading;
• Supplemental information that assists the staff in evaluating the filing.

Company Response to Comments

The company must respond to each staff comment, typically through a written response letter submitted alongside amendments to the registration statement.

Companies may address comments by:

• Providing additional explanations or analysis;
• Revising disclosure language within the filing;
• Supplying supplemental information requested by the staff.

If the company does not fully understand a comment, it may seek clarification from the reviewing examiner before responding.

Certain technical accounting issues may also be addressed with the SEC’s Office of the Chief Accountant, while disclosure issues are typically handled by the reviewing division.

Iterative Review Process

The SEC staff reviews the amended filing and the company’s responses. Depending on the adequacy of the revisions, the staff may issue additional comment letters requesting further clarification.

This iterative process—involving comments, responses, and amendments—continues until both the SEC staff and the company agree that the registration statement satisfies regulatory requirements.

Request for Effectiveness

Once all comments have been resolved, the company may formally request that the SEC declare the registration statement effective. This request signals that the company believes the filing is complete and compliant with applicable disclosure rules.

Declaration of Effectiveness

If the SEC staff determines that the filing satisfies all requirements, the Commission will declare the registration statement effective. The SEC confirms this determination through a formal notice and records the effectiveness on the EDGAR system.

Once the registration statement becomes effective, the company may legally proceed with its public offering of securities.

Legal Guidance During the SEC Review Process

Preparing and navigating a registration statement review requires careful coordination among legal counsel, accountants, and company management. Errors or incomplete disclosures can significantly delay the process or trigger additional regulatory scrutiny.

The attorneys at Corporate Securities Legal LLP assist companies throughout every stage of the public offering process—from preparing registration statements to responding to SEC comment letters and securing the final declaration of effectiveness.

Contact Corporate Securities Legal LLP to learn how experienced securities counsel can guide your company through the SEC registration review process and help ensure a successful public offering.

Illegal insider trading can expose a company and its leadership to severe legal, financial, and reputational consequences. A well-structured insider trading policy helps protect the company by establishing clear expectations and discouraging improper conduct.

The SEC has published guidance outlining best practices for companies developing insider trading policies.

Who and What Is Covered

An insider trading policy should clearly identify who is subject to the rules and what types of activities are restricted. SEC Rule 10b-5 prohibits corporate insiders from using confidential corporate information to trade securities for personal gain.

Covered individuals may include:

• Corporate officers and directors;
• Employees with access to sensitive information;
• Consultants and contractors;
• Significant shareholders;
• Family members and household residents of insiders.

The rule also prohibits “tipping,” which occurs when insiders share confidential information with third parties who then use that information to trade securities.

A company’s policy should summarize relevant federal securities laws—including the Securities Exchange Act of 1934 and SEC Rule 10b-5—and explain how insiders may trade securities while remaining compliant with these regulations.

Defining Key Terms

Clear definitions help employees understand what information and conduct may create insider trading risks. Important terms typically addressed in the policy include:

Material Information: Information that could reasonably affect the value of the company’s securities or influence an investor’s decision to buy, sell, or hold stock. Examples include:

• Financial projections;
• Proposed mergers or acquisitions;
• Significant new products or services;
• Major corporate transactions.

Non-Public Information: Information that has not yet been widely disseminated to the public or fully absorbed by the market.

Insider: Any individual who has access to material non-public information due to their relationship with the company, including officers, directors, large shareholders, and individuals who receive confidential tips.

Trading Restrictions and Procedures

An insider trading policy should establish clear rules governing when and how insiders may trade company securities.

Common procedures include:

Blackout Periods: Pre-determined periods during which certain executives and directors may not trade securities, such as around quarterly earnings announcements or other major corporate events.

Event-Specific Trading Restrictions: Temporary restrictions imposed when the company is involved in confidential transactions such as merger negotiations or strategic business developments.

Pre-Clearance Requirements: Directors, officers, and employees with access to confidential information may be required to obtain approval from a designated compliance officer before trading company securities.

Compliance, Enforcement, and Penalties

An effective insider trading policy must address enforcement mechanisms and the consequences of violations.

Key components include:

Designated Compliance Officer: A specific individual—often the company’s general counsel—responsible for administering the policy and answering compliance questions.

Reporting Violations: A confidential reporting channel allowing employees to report suspected violations without fear of retaliation.

Penalties: Violations may result in serious consequences, including:

• Disciplinary action or termination of employment;
• Civil enforcement actions by regulatory authorities;
• Criminal prosecution and imprisonment.

Insider trading penalties can be severe and may include:

• Up to 20 years imprisonment;
• Criminal fines of up to $5 million;
• Civil penalties of up to three times the profits gained or losses avoided.

Implementation and Best Practices

For an insider trading policy to be effective, it must be properly implemented and communicated throughout the organization.

Best practices include:

• Legal Review: Have the policy drafted or reviewed by experienced securities counsel.
• Employee Training: Conduct regular training sessions for employees, especially those with access to sensitive information.
• Monitoring Systems: Track trading activity to detect unusual or suspicious patterns.
• Clear Communication: Provide employees with electronic access to the policy and distribute written copies to directors and senior management.
• Regular Updates: Revise the policy as the company grows or transitions from a private company to a publicly traded entity.

Why Legal Guidance Matters

As companies grow and evolve, insider trading risks and compliance requirements may also change. Maintaining a clear and enforceable insider trading policy helps protect the company and its leadership from significant legal exposure.

The attorneys at Corporate Securities Legal LLP assist companies in developing insider trading policies, implementing compliance programs, and navigating federal securities regulations.

Contact Corporate Securities Legal LLP to ensure your company’s insider trading policies remain compliant with current securities laws and regulatory expectations.

Board members hold fiduciary duties of care, loyalty, and obedience, which require them to protect company assets, oversee management, and ensure that corporate operations comply with applicable laws and governing documents.

Strategic Oversight and Corporate Governance

The number of directors serving on a board typically depends on the needs and size of the company. Boards provide strategic guidance and long-term planning, while the day-to-day execution of business operations is delegated to executive officers.

As part of their governance responsibilities, boards are expected to:

• Provide strategic direction and long-term planning;
• Oversee executive management performance;
• Protect company assets and financial stability;
• Identify and mitigate operational and regulatory risks;
• Ensure transparency and ethical business practices.

The powers and responsibilities of the board are defined in the articles of incorporation and corporate bylaws. Major corporate decisions—such as amendments to governing documents or mergers with other companies—generally require approval from shareholders, who ultimately own the corporation.

Fiduciary Duties of Directors

Directors are generally protected from liability for decisions made in good faith while performing their fiduciary duties. However, this protection only applies when directors act responsibly and within the scope of their obligations.

The three primary fiduciary duties include:

Duty of Care
Directors must act with the same level of diligence and prudence that a reasonably careful person would exercise under similar circumstances.

Duty of Loyalty
Directors must place the interests of the corporation above personal interests and avoid conflicts of interest when making decisions on behalf of the company.

Duty of Obedience
Directors must ensure that the corporation operates in compliance with applicable laws and its own governing documents.

Corporate governing documents may limit liability for certain decisions, but they generally cannot eliminate liability for breaches of fiduciary duties involving fraud, misconduct, or illegal activity.

Directors of publicly traded companies may also face liability for violations of federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934, particularly when anti-fraud or disclosure requirements are violated.

Indemnification of Directors

Most state corporate statutes provide indemnification protections for directors who successfully defend themselves against legal claims related to their service on the board.

Corporations may also voluntarily indemnify directors when the board determines that the individual acted:

• In good faith;
• In a manner reasonably believed to be in the corporation’s best interests.

These protections help encourage qualified individuals to serve as directors without undue personal risk.

Roles Within the Board Structure

Although the board acts collectively when making decisions, individual directors may hold specific leadership roles within the organization.

Common board positions include:

• Chairperson – Leads board meetings and guides the board in overseeing the company’s strategic direction.
• Vice Chairperson – Assists the chairperson and assumes responsibilities when necessary.
• Chief Executive Officer (CEO) – Implements the strategic decisions and policies adopted by the board.
• Chief Financial Officer (CFO) – Oversees financial management and reports to the board on financial performance and compliance matters.
• Corporate Secretary – Maintains board records, meeting minutes, and official corporate communications.
• Independent Directors – Provide objective perspectives and unbiased oversight in board decisions.

Board Committees

Boards frequently establish committees to assist with oversight responsibilities. These committees provide recommendations to the board but do not exercise the board’s full authority.

Common board committees include:

• Audit committees responsible for financial oversight;
• Compensation committees reviewing executive compensation structures;
• Governance committees addressing corporate governance policies and practices.

Preparing for Public Company Governance

Companies preparing for an initial public offering (IPO) must establish formal corporate governance policies and board procedures that comply with federal securities regulations and stock exchange requirements.

The attorneys at Corporate Securities Legal LLP assist companies in developing governance frameworks, advising boards of directors regarding fiduciary duties, and implementing the governance practices required for publicly traded companies.

Contact Corporate Securities Legal LLP to learn how effective corporate governance practices can strengthen your organization and prepare it for future growth and public market opportunities.

The Foreign Corrupt Practices Act of 1977 (FCPA) prohibits U.S. companies and individuals from offering or paying bribes to foreign officials in order to obtain or retain business advantages. The law applies to conduct occurring both outside and within the United States and broadly covers the use of mail or any means of interstate commerce in furtherance of improper payments.

The statute makes it unlawful to offer, promise, authorize, or provide money or anything of value while knowing that such benefits may be directed—either directly or indirectly—to a foreign official for the purpose of influencing official actions, securing improper advantages, or directing business opportunities.

Importantly, the FCPA also applies to foreign companies and individuals whose actions further corrupt payments within the United States.

Accounting and Internal Control Requirements

Companies subject to the FCPA must maintain strong internal accounting controls designed to ensure transparency and accurate financial reporting. Public companies whose securities trade in the United States are required to:

• Maintain books and records that accurately reflect corporate transactions;
• Implement internal accounting controls sufficient to prevent and detect improper payments;
• Ensure financial reporting systems properly account for corporate expenditures.

The U.S. Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) jointly enforce FCPA provisions. Violations may result in severe penalties, including:

• Civil and criminal enforcement actions;
• Monetary fines reaching up to twice the anticipated benefit obtained through misconduct;
• Individual criminal liability;
• Imprisonment of up to five years.

Increased Enforcement and National Security Concerns

Federal regulators have expanded FCPA enforcement efforts in response to growing concerns that corporate misconduct may impact national security. Enforcement priorities now include risks associated with:

• Sanctions evasion and export control violations;
• Cybercrime and cryptocurrency-related misconduct;
• Intellectual property theft;
• Disruption of critical supply chains and emerging technologies.

Companies are increasingly expected to implement sophisticated compliance programs and exit business relationships or markets presenting unacceptable regulatory risks.

DOJ Safe Harbor Policy for Mergers and Acquisitions

In October 2025, Deputy Attorney General Lisa O. Monaco announced a department-wide Safe Harbor Policy encouraging voluntary self-disclosure of misconduct discovered during mergers and acquisitions transactions.

Under this policy, acquiring companies that:

• Promptly and voluntarily disclose criminal misconduct;
• Fully cooperate with government investigations;
• Implement timely remediation measures;
• Provide restitution and disgorgement where appropriate

may receive a presumption of declination, meaning the DOJ may decline prosecution despite otherwise prosecutable conduct.

Significantly, misconduct discovered at an acquired company—including aggravating factors—will not automatically prevent the acquiring company from qualifying for Safe Harbor protection.

According to the DOJ’s FCPA Corporate Enforcement Policy, a declination applies where prosecution would otherwise occur but is avoided due to voluntary disclosure, cooperation, remediation, and financial restitution.

The Importance of Compliance Planning

Modern enforcement policy reflects a shift in regulatory expectations. Corporate compliance programs are no longer viewed merely as operational costs but as essential safeguards against substantial financial and reputational exposure.

Companies engaged in cross-border transactions or acquisition activity should evaluate compliance risks early in the transaction process to preserve eligibility under Safe Harbor protections.

For questions regarding FCPA compliance or voluntary self-disclosure obligations, consultation with experienced securities counsel is critical. The attorneys at Corporate Securities Legal LLP assist companies in meeting regulatory deadlines, conducting internal investigations, and navigating Safe Harbor requirements during mergers and acquisitions transactions.

Contact Corporate Securities Legal LLP to discuss strategies for maintaining compliance and minimizing enforcement risk under the Foreign Corrupt Practices Act.

The risks presented by artificial intelligence (AI) are becoming an increasing concern for corporate boards as emerging technologies influence business strategy, operations, and long-term planning. At the same time, regulators are closely examining how accurately companies disclose AI-related risks and the mitigation measures being implemented.

The U.S. Securities and Exchange Commission (SEC) has already initiated enforcement actions challenging misleading or incomplete disclosures related to artificial intelligence claims.

Growing Focus on AI Risk Reporting

A recent study conducted by Cornell University analyzed more than 30,000 filings from over 7,000 companies during the past five years. Using both quantitative and qualitative analysis, researchers identified a significant increase in AI risk disclosures. Mentions of AI-related risks in company filings increased from 4% of filings in 2020, to more than 43% of filings in 2024. This dramatic increase reflects both expanded corporate reliance on artificial intelligence and heightened regulatory scrutiny.

The Role of Form 10-K Disclosures

Evaluation of AI-related risk disclosure begins with Form 10-K, the annual report most U.S. public companies must file with the SEC. The Commission establishes required disclosure topics and prescribes how information must be presented to investors.

Companies must disclose:

• Material risks affecting business operations;
• Methods used to evaluate emerging risks;
• Strategies implemented to mitigate potential threats.

Because artificial intelligence can affect nearly every aspect of business operations, AI risks may be considered material at multiple levels, including:

• The broader economy;
• Industry-wide impacts;
• Geographic exposure;
• Company-specific operational risks.

Material Disclosure Obligations

Federal securities laws prohibit companies from:

• Making materially false or misleading statements; or
• Omitting material information necessary to prevent investor deception.

To reinforce accountability, both the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) must certify the accuracy and completeness of Form 10-K disclosures.

Categories of Material Risk

Companies generally evaluate disclosure obligations across four recognized categories of material risk.

Market Risk

Market risk arises from broad economic fluctuations such as:

• Interest rate changes;
• Foreign exchange volatility;
• Commodity price movements;
• Stock market valuation shifts.

These risks are largely outside company control but must still be disclosed when material.

Credit Risk

Credit risk evaluates the likelihood that customers or counterparties may fail to meet payment obligations. Companies may manage this risk through:

• Structured repayment terms;
• Collateral requirements;
• Credit evaluation procedures.

Liquidity Risk

Liquidity risk concerns a company’s ability to meet financial obligations as they become due. Companies must assess how quickly they can:

• Obtain financing; or
• Convert assets into cash during downturns.

Operational Risk

Operational risk involves failures in internal systems or external dependencies, including:

• Cybersecurity threats and AI system vulnerabilities;
• Ineffective internal controls;
• Employee training deficiencies;
• Supplier concentration risks;
• Financial reporting fraud or system failures.

Why Compliance Matters

Failure to comply with SEC disclosure requirements—including Form 10-K reporting obligations—can result in significant regulatory consequences and enforcement actions. Accurate disclosure not only promotes investor confidence but also protects companies from allegations of misleading statements.

Consultation with experienced securities counsel helps companies maintain compliance while developing practical risk mitigation strategies aligned with evolving regulatory expectations.

The securities lawyers at Corporate Securities Legal LLP assist companies in navigating disclosure obligations, strengthening compliance frameworks, and implementing effective governance practices related to emerging technologies such as artificial intelligence.

Contact Corporate Securities Legal LLP to ensure your company’s SEC disclosures remain accurate, compliant, and aligned with current regulatory standards.