Compliance, Compliance, Compliance

How often these days do we hear about the evolving regulatory environment, the dynamic legal landscape, or the uncertain political outlook?

Quite, to say the least. And why wouldn’t we? Every day, it seems, some company somewhere has a new law, regulation, order, directive, or standard to think about.

But the relentless change in the rules governing companies means that one thing should always stay constant: compliance vigilance. Companies must always be paying attention to the rules governing their industry, and do what they must to comply with them.

In this edition of Vantage Point, we look at compliance developments at three key US regulatory agencies: the Federal Trade Commission, the Department of Justice, and the Securities and Exchange Commission.

Dealmakers, Take Note: Premerger Reporting Will Soon Require a Lot More Work

Dealmakers already put in a lot of work to secure regulatory clearance for their mergers. But under a new FTC rule, this work is about to become more time-consuming, expensive, and complex.

On October 10, the FTC issued a Final Rule adopting major reforms to the reporting requirements under the Hart-Scott-Rodino (HSR) Act.

The Final Rule, likely to take effect in the first quarter of 2025, overhauls the premerger notification form that many dealmakers must file with the FTC and DOJ before their transactions can be completed.

Some will be relieved that the FTC scaled back a few of the new reporting requirements set forth in its Proposed Rule from June 2023. For example, the Final Rule dropped the need to report on filers’ “labor markets,” unions, and collective bargaining.

But make no mistake: HSR filings under the Final Rule will be far more burdensome than they are today, especially for asset managers, private equity firms, and other firms with complex fund structures — and particularly on the buy side.

See our antitrust transactional team’s detailed analysis for more on the Final Rule and its impacts.

DOJ Shares Insights into Its New Compliance Priorities

Among the many resources companies consider when assessing their compliance programs, the DOJ’s Evaluation of Corporate Compliance Programs guidance is one of the most important.

Now, the DOJ has given the guidance a substantial update , sharing new insight into the areas that federal prosecutors could examine when determining whether a company’s compliance program is effective.

As our attorneys explain, the updated guidance:

• asks companies to demonstrate how they are using newly available technology, such as AI, and whether they have adequately prepared for the risks associated with using these technologies
• sets forth new expectations that a company’s policies and procedures are regularly tested and evaluated and effectively utilize technology to manage risk
• instructs prosecutors to consider whether a company incentivizes reporting of misconduct and whether a company measures the likelihood that an employee will report suspected misconduct
• emphasizes the need for conducting “comprehensive due diligence” and for integrating compliance into the M&A process, especially post-acquisition compliance integration.

Alongside the spate of recent DOJ initiatives, the updated guidance demonstrates a sustained focus on corporate misconduct.

Companies would thus be wise to take a hard look at their compliance policies and procedures, and to put in the work necessary to ensure they meet the standards of the updated guidance.

Our attorneys with more on what companies should know about the updated guidance.

In Corporate AI Fraud Case, the SEC Sharpens Its Focus on Gatekeepers

You might have heard: Last month, the SEC charged the former chairman and CEO of an advertisement software company — Kubient, Inc. — for allegedly fabricating reports that the company had successfully tested its AI-supported software program.

This fabrication, the Commission says, caused the company to overstate and misrepresent its revenue in connection with two public stock offerings.

But for companies and their top officers, the most noteworthy story in this AI enforcement action doesn’t involve AI.

Indeed, the SEC also brought charges against the company’s former audit committee chair and CFO for perpetuating the company’s overstatements and misrepresentations, demonstrating the Commission’s continued focus on corporate gatekeepers and its expectations that they act in response to red flags brought to their attention.

Three compliance takeaways from these developments:

• The SEC is showing that it won’t hesitate to charge board members for failing to act on red flags and potentially perpetuating company or officer misconduct.
• The misdeeds of a company’s CEO could lead to personal liability for the CFO, even if the CFO didn’t initiate the misdeeds.
• The SEC’s stance on gatekeeper inaction is clear: Persons in a position of authority and involved in the financial reporting and disclosure process?must?take affirmative steps to protect the integrity of the company’s public disclosures when they become aware of potential concerns.

More from our lawyers on the case and its implications .

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