The Foreign Corrupt Practices Act of 1977 (“FCPA”), as amended (15 U.S.C. §§ 78dd-1, et seq.), prohibits U.S. companies and individuals from offering or paying bribes to foreign officials in order to obtain or retain business. The statute applies to conduct inside and outside the United States, and covers the use of:

• U.S. mail
• Interstate commerce
• Wire communications
• Any act within U.S. territory that furthers a corrupt payment by foreign firms or individuals

The prohibition covers any offer, promise, authorization, or payment of money or anything of value to any person, while “knowing” that all or part of it will be passed directly or indirectly to a foreign official to influence official action, induce unlawful omissions, or secure an improper business advantage.

Accounting and Internal Controls Requirements

Companies with securities listed in the United States must comply with the FCPA’s accounting provisions (15 U.S.C. § 78m), which require issuers to:

1. Maintain accurate books and records that fairly reflect all corporate transactions; and
2. Implement adequate internal accounting controls sufficient to assure proper authorization and documentation of transactions.

The SEC and DOJ jointly enforce the FCPA. Penalties can include:

• Civil and criminal fines (up to twice the benefit sought)
• Corporate criminal resolutions
• Individual criminal liability
• Imprisonment of up to five years

DOJ Announces Safe Harbor for M&A Self-Disclosures

On October 4, 2025, Deputy Attorney General Lisa O. Monaco announced a new Department-wide Safe Harbor Policy for voluntary self-disclosures of criminal misconduct uncovered during mergers and acquisitions.

Her remarks highlighted the DOJ’s evolving view of corporate crime and its impact on national security, including:

• Terrorist financing
• Sanctions evasion
• Export-control violations
• Cyber and cryptocurrency-based misconduct
• Intellectual property theft
• Supply-chain and critical-technology risks

The DOJ emphasized its expectation that companies implement strong compliance programs, incorporate compliance metrics into compensation systems, and invest in the internal controls necessary to detect and mitigate risk.

What the New Safe Harbor Provides

For the first time, the DOJ will offer a presumption of declination meaning the DOJ will decline to prosecute, when an acquiring company:

• Voluntarily discloses criminal misconduct discovered during M&A;
• Does so promptly and within the Safe Harbor period;
• Fully cooperates with the ensuing investigation; and
• Conducts timely and appropriate remediation, restitution, and disgorgement.

Importantly:

• Aggravating factors at the acquired company (e.g., involvement of senior management, pervasive misconduct, significant profits from wrongdoing) will not disqualify the acquiring company from receiving a declination.
• This is a significant shift intended to encourage early detection and remediation during the M&A process.

Under the DOJ’s prior FCPA Corporate Enforcement Policy, a “declination” is defined as:

A case that would have been prosecuted or criminally resolved except for the company’s voluntary disclosure, full cooperation, remediation, and payment of disgorgement, forfeiture, and/or restitution.

The new Safe Harbor extends this presumption across all DOJ components, making it easier for acquiring companies to resolve inherited misconduct without facing corporate criminal charges.

Why This Matters for Companies Engaged in M&A

The Safe Harbor underscores the importance of:

• Robust pre-acquisition due diligence
• Immediate post-acquisition audits
• Clear compliance integration procedures
• Forensic review of books, records, and internal controls
• Rapid escalation and legal analysis of potential FCPA issues

Companies that proactively disclose in good faith may avoid:

• Criminal prosecution
• Corporate monitors
• Heavily punitive settlements
• Multi-year compliance obligations

Good compliance programs are no longer seen as a “cost center”, the DOJ reiterates they are a strategic asset that can protect companies from massive legal exposure.

Need Legal Guidance on FCPA Compliance or Self-Disclosure?

The attorneys at Corporate Securities Legal LLP advise domestic and international companies on: M&A due diligence and post-closing review, voluntary disclosures to the DOJ and SEC, corporate governance and remediation plans, risk assessments and compliance program enhancements

Our team is prepared to help you meet all deadlines, documentation requirements, and strategic considerations necessary to receive Safe Harbor protection.

Both parties are free to back out of the agreement without any obligation, but if one party decides to change the agreed upon terms, it will cause the other party to have to fully reconsider his position on the offer to buy or sell the stock.

Consider your terms carefully. A term sheet is your opportunity to lay out your proposal for all the critical items that will make the deal worthwhile to you. If you overlook essential aspects in the beginning, it will be very difficult to add them in later. It is wise to evaluate ways to optimize such things as option pools, liquidation and participation, dividends, protective provisions, and controlling rights before you ever begin negotiations. The term sheet is the documented results of your negotiations, not the beginning points of negotiation.

Forbes further points out that “Just as founders don’t want difficult or greedy investors on board, investors don’t want hassle or founders that only want to take the money and run. The term sheet should facilitate a win-win for both sides.” It is a waste of everyone’s time to try to negotiate terms that are so unfavorable to one of the parties, that he will end up walking away from the deal before it is ever executed. Consider ahead of time the difference between where you can give in and where you have to draw the line.

It is important to think ahead about issues that are not currently pressing, but will raise serious problems in the future, if not properly negotiated. For example, restrictive debt financing terms might prevent you from getting needed funds when bankruptcy is looming. Giving away a controlling stake in the company may be a subtle sign that you will be replaced after the investors feel more comfortable in running the business. Limitations on future fundraising or projections for too quick of a turnaround may predict that investors are looking for a quick exit, leaving you with investors not of your choice.

As a final word of advice, you can protect yourself and maximize your negotiations by following these three tips: “1) Make the most of your term sheet; 2) Hire the right lawyer; and 3) Know the difference between the terms of preferred and common stockholders.” The attorneys at Wilson, Bradshaw and Cao, LLP, have more than 70 years of combined experience in securities law and can maximize your application for going public and conducting your negotiations for optimal results.

Section 4(a)(2) of Rule 506(b) provides a “safe harbor” for companies that comply with certain requirements. In addition to a prohibition from using general solicitation to market securities, the requirements of the exemption include:

• A company may sell its securities to an unlimited number of “accredited investors” and up to thirty-five other purchasers
• A company’s information provided to accredited investors must not violate antifraud provisions of federal securities laws, and must not contain false or misleading statements
• Companies must make themselves available to prospective purchasers to answer questions

Rule 506 does not expressly limit how many people the issuer may offer securities. However, offers to a significant number of people may be considered a general solicitation resulting in the loss of the private placement exemption.

For example, sending an email to every person in your contacts list stating that you are planning to raise money soon might qualify as general solicitation if the message was sent to enough people to be considered public and the email’s text was related to the offering.

According to an analysis conducted by Kilpatrick Townsend & Stockton LLP of a recent SEC disciplinary action opinion, the SEC has a “zero-tolerance” policy regarding general solicitations. (See: https://www.lexology.com/library/detail.aspx?g=ca800c6d-58dd-42dc-99c8-d3092f9e75490 ) According to the facts of the disciplinary action, an issuer went ahead and accepted funding from accredited investors they had a pre-existing relationship with after they were informed that their prior newspaper advertisement was general solicitation. The issuer thought they could continue with the offering because they had complied with all other requirements of Rule 506(b). However, in the disciplinary action opinion, the SEC explicitly stated that even though the other terms were complied with, the company lost its ability to rely on 506(b) as soon as they generally solicited.

See: https://www.crowdfundinsider.com/2017/05/100000-blow-reg-d-offering-general-solicitation/

If you are unsure of whether your company is following Regulation D or engaging in general solicitation, call Wilson, Bradshaw & Cao, LLP today to speak with an experienced securities lawyer.

General Solicitation is the act of marketing a capital raise publicly. Rule 506(b) of Regulation D prohibits the use of general solicitation to market securities. (link: https://www.sec.gov/fast-answers/answers-rule506htm.html)

Additionally, Rule 502(c) prohibits:

(1) Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television and radio; and

(2) Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.

See: https://www.equitynet.com/crowdfunding-terminology/general-solicitation

The Securities and Exchange Commission (SEC) takes a case-by-case approach when determining whether a company is engaging in general solicitation.

Prohibited communications tend to be broad-based; they are not targeted to a specific audience. A typical example of general solicitation is telling potential investors in a newspaper the terms of an offering and inviting them to purchase securities.

A pre-existing relationship between the issuer and a potential investor is strong evidence that general solicitation has not taken place. A relationship is pre-existing if the it was formed before a securities offering commences, or if it was established through a registered broker-dealer or investment adviser before the registered broker dealer or investment adviser participated in the offering.

A pre-existing relationship may arise in business, social settings, or any other context. The general rule is that the pre-existing relationship must be of some duration and substance. The SEC defines a substantive relationship as “[a relationship] in which the issuer (or person acting on its behalf) has sufficient information to evaluate, and does, in fact evaluate, a prospective offeree’s financial circumstances and sophistication, in determining his or her status as an accredited or sophisticated investor.”

The relationship must be established from actual effort to get to know the person, rather than “just checking some box” or waiting a set amount of time.

See: https://www.wealthforge.com/insights/what-constitutes-a-pre-existing-substantive-relationship-in-a-506b-offering

The SEC has stated in past no-action letters that a third-party broker-dealer may establish a pre-existing relationship with a potential investor by sending the potential investor a generic form that provides enough information for an issuer’s evaluation of the potential investor’s financial circumstances. The generic form may not reference the offering the issuer is undertaking.

See: http://www.wnj.com/files/Publication/a941cb2d-f6db-40da-9cb0-85b44f514c70/Presentation/PublicationAttachment/ba8ac6ec-6388-4a90-b2fa cb6b5b30328d/FAQ_Regarding_the_Private_Placement_of_Securities_under_Regulation_D_Rule_506.pdf

If you are unsure of whether your company is following Regulation D or engaging in general solicitation, call Wilson, Bradshaw & Cao, LLP today to speak with an experienced securities lawyer.

The SEC suspended trading in the securities of Simex, Inc. due to concerns about inaccurate and insufficient information in the marketplace regarding the company’s products and services and purported regulatory approvals. The SEC order was entered pursuant to Section 12(k) of the Exchange Act.

See: https://www.sec.gov/litigation/suspensions/2018/34-84460.pdf

Earlier this month, Robert A. Cohen, Chief of the SEC Enforcement Division’s Cyber Unit, said that the SEC “does not endorse or qualify custodians for cryptocurrency” and warned investors to be “skeptical of those attempting to sell digital assets” that make claims about future SEC actions. Cohen stated that to allay confusion, the SEC will announce official actions regarding digital assets through official government sources. Examples of official government sources include agency press releases, the Federal Register, an agency’s official government website (SEC.gov, Investor.gov, or CFTC.gov), or authorized public statements by the agency’s leadership.

See: https://www.investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-alert-watch-out-false-claims-about-sec

The SEC can suspend trading in stock for 10 days and can enjoin a broker-dealer from soliciting investors until the broker-dealer has met reporting requirements. Pursuant to rule 15c2-11 under the Exchange Act, at the termination of the trading suspension, no quotation can be issued unless they have “strictly complied with all provisions of the rule.”

The SEC’s Office of Investor Education and Advocacy has issued materials to educate investors, including an Investor Bulletin on initial coin offerings and a mock ICO website. Additional information is available on SEC.gov/ICO and Investor.gov.

If you have questions about SEC regulation of cryptocurrency transactions and complying with rule 15c2-11, call the Bradshaw Law Group before publishing statements that may lead to SEC enforcement action.

There are four principal conditions to a private placement “not involving a public offering” of securities under Section 4(a)(2) and Regulation D, Rule 506; namely:

1. Offeree suitability (investors must be accredited or sophisticated);
2. Availability of material information (all material information about the issuer and its business must be made available to investors);
3. Manner of offering (no general solicitation, except under D, Rule 506(c); and
4. Absence of redistribution (restrictions on transfer).

There are two ways to satisfy condition 2 above (Availability of material information); namely:

1. “Disclosure”;
2. “Access”.

If a private placement will be offered to non-accredited investors (but nevertheless “sophisticated”), then “Disclosure” is the mandatory means of satisfying condition 2. If a private placement will be offered only to accredited investors, then “Access” is a permitted means of satisfying condition 2. However, in all events it is preferred still to provide a PPM to accredited investors for a variety of reasons, the main one being avoidance of Rule 10b-5 claims against the issuer and possible liability of the issuer (and its directors and officers) under Rule 10b-5.

The reason why “Access” is a permitted means of satisfying condition 2 is that both the SEC and the federal courts (in extensive case law) have taken the position that accredited investors can “fend for themselves” and therefore are able to obtain from the issuer whatever information they deem necessary to make a fully-informed investment decision. A non-accredited investor cannot fend for himself; therefore “Disclosure” is mandatory to a non-accredited investor.

The problem with accredited investors, however, is that they are smart enough to bring false claims against the issuer. They can allege that the issuer stated this or that and/or that the issuer omitted to state this or that. That is all they have to do to commence a lawsuit in federal court. The burden of proof is on the issuer. Without a written PPM that includes the statement in substance that “we are only telling you what is in this PPM, and no one is authorized to communicate any information to you other than what is stated in this PPM,” how can the issuer satisfy its burden of proof? It cannot.

This means basically an automatic rescission right, and, if the issuer already spent the investment capital, then its officers and directors can be held personally liable.

General Solicitation is the act of marketing a capital raise publicly. Rule 506(b) of Regulation D prohibits using general solicitation to market securities. General solicitation is undefined in the statutes or rules, and the Securities and Exchange Commission (SEC) takes a case by case approach. A typical example of general solicitation is telling potential investors in a newspaper the terms of an offering and inviting them to purchase securities.

See: https://www.nyventurehub.com/2015/09/09/new-sec-guidance-on-what-constitutes-general-solicitation/

Rule 502(c) prohibits:

(1) Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television and radio; and

(2) Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.

See: https://www.equitynet.com/crowdfunding-terminology/general-solicitation

A pre-existing relationship between the issuer and a potential investor is strong evidence that general solicitation has not taken place. A relationship is pre-existing if the relationship was formed before a securities offering commences, or when it was established through a registered broker-dealer or investment adviser before the registered broker dealer or investment adviser participated in the offering.

A pre-existing relationship may arise in business, social settings, or any other context. The general rule is that the pre-existing relationship must be of some duration and substance. The SEC defines a substantive relationship as “[a relationship] in which the issuer (or person acting on its behalf) has sufficient information to evaluate, and does, in fact evaluate, a prospective offeree’s financial circumstances and sophistication, in determining his or her status as an accredited or sophisticated investor.”

The relationship must be established from actual effort to get to know the person, rather than “just checking some box” or waiting a set amount of time.

See: https://www.wealthforge.com/insights/what-constitutes-a-pre-existing-substantive-relationship-in-a-506b-offering

The SEC has stated in past no-action letters that a third-party broker-dealer may establish a pre-existing relationship with a potential investor by sending the potential investor a generic form that provides enough information for evaluation of the potential investor’s financial circumstances. The generic form may not reference the offering the issuer is undertaking.

See: General Solicitation Regulation D Rule 506

When will a general solicitation ruin your ability to rely on Rule 506(b)?

Section 4(a)(2) of Rule 506(b) provides a “safe harbor” for companies that comply with certain requirements. In addition to a prohibition from using general solicitation to market securities, the requirements of the exemption include:

• A company may sell its securities to an unlimited number of “accredited investors” and up to thirty-five other purchasers
• A company’s information provided to accredited investors must not violate antifraud provisions of federal securities laws, and must not contain false or misleading statements
• Companies must make themselves available to prospective purchasers to answer questions

Rule 506 does not limit how many people the issuer may offer securities. However, offers to a significant number of people may be considered a general solicitation resulting in the loss of the private placement exemption.

For example, sending an email to every person in your contacts list stating that you are planning to raise money soon might qualify as general solicitation if the message was sent to enough people to be considered public and the email’s text was related to the offering.

According to an analysis conducted by Kilpatrick Townsend & Stockton LLP of a recent SEC disciplinary action opinion, the SEC has a “zero-tolerance” policy regarding general solicitations. (See: https://www.lexology.com/library/detail.aspx?g=ca800c6d-58dd-42dc-99c8-d3092f9e75490 ) According to the facts of the disciplinary action, an issuer went ahead and accepted funding from accredited investors they had a pre-existing relationship with after they were informed that their prior newspaper advertisement was general solicitation. The issuer thought they could continue with the offering because they had complied with all other requirements of the Rule 506(b) safe harbor. However, in the disciplinary action opinion, the SEC explicitly stated that regardless of whether the other terms with complied with, the company lost its ability to rely on 506(b) as soon as they generally solicited.

See: https://www.crowdfundinsider.com/2017/05/100000-blow-reg-d-offering-general-solicitation/

At first blush, you might think that creating a private placement memorandum can be done without an attorney. All you need to do is talk about the business plan, take the investment money, and then file a Form D with the SEC and then notice the state where you raised the capital, right?

One thing you might not realize is that in order to make the offering circular fully compliant, you need to give your investors access to the same type of information that they would have access to if the startup was a public company. Since public companies need to file a Form S-1 when they initially register shares, in order to protect yourself you essentially need to disclose to your investors (and believe me, ESPECIALLY friends and family), the same type of information required by Form S-1. That means you should follow the information required by the instructions to Form S-1 which are detailed in Regulation S-K.

Unless you are a securities attorney, then this is a monumental undertaking–even licensed attorneys in other fields don’t get this right and produce disclosures that are not compliant and expose you to liability.

What I would do is two-fold: (1) hire a securities attorney as soon as possible to help you put together your private offering memorandum; and (2) begin writing an exhaustive business plan using a site like www.liveplan.com. Beware, this business plan will not be fit to circulate to your investors. However, it will be immensely useful to an attorney drafting your offering circular. The last thing you want to do is make your attorney write your business model and business plan. An attorney will usually reduce their prices substantially if there is an excellent business plan to work with while drafting their offering memorandum (or commonly known as a “Private Placement Memorandum”).

Your attorney should be able to help you find licensed Broker/Dealers to guide you through the process as well and help you safely raise capital.

The stakes are high. People go to jail for improperly disclosing investments to investors. You are certainly in need of some serious assistance on such an undertaking.

There are three main reasons to provide potential investors with a full private placement memorandum (“PPM”): (1) to effectively market your company to potential investors; (2) to negotiate with your investors from a position of strength and (2) to protect yourself from liability in the event of a lawsuit.

When you do a private offering prior to your IPO then you can give the investors a discounted stock price. For example, let’s say the stock price is valued at approximately $20 per share.

Thus, in order to induce your investors to invest, you will let them invest at a discount you choose, like at $17 or $18 per share (sometimes companies will allow them to invest even lower, like $15 a share). You can even let them invest at $18 per share with a grant of warrants that will allow them to buy even more shares post-IPO at $18 per share as well, that will include registration rights. The amount of warrants is usually tied to the amount they purchase. Example: Every two shares they purchase comes with one warrant (or one to one).

Negotiating from a Position of Strength with a PPM

The PPM will explain your company’s business as well as describe the class of stock and warrants, if any. Having a PPM gives you an advantage because you can start negotiating with potential investors from a position of strength because you have a PPM and the investors know that if they don’t accept the investment terms that you are offering that you can get another investor who will. Investors are less likely to propose new terms if you have a PPM. However, keep in mind that if an investor proposes new terms after they receive the PPM you can freely negotiate with them (in some cases you will want to amend the PPM).

How a PPM Mitigates Litigation Risk

These offerings come with risk. Let me explain. All IPOs have a very real risk that the investing public will not appreciate or notice the company and the stock price could fall once there are shares investors can buy and sell. There are so many reasons it could happen (likewise, there are many reasons it won’t happen). However, if you sold shares to investors at $18 a share as a discounted Pre-IPO investment, and then in the worst case scenario the share price drops to $15 per share (or lower), then the investors might initiate a lawsuit.

The best way to protect yourself from a lawsuit in the U.S. and in most other countries is to give them a fully compliant PPM. A fully compliant PPM contains a description of the business and competitors, audited financial statements and risk factors that clearly identify the risks, including the risk of total or partial loss of their investment. This PPM will protect the company and the company’s officers and directors personally from liability as much as possible and put you in the best position possible to defend any lawsuits.