In the often Byzantine world of corporate mergers and acquisitions, ensuring compliance with the Department of Justice’s (DOJ) newly established safe harbor policy is of paramount importance for legal professionals. Notably, a recent development surrounding Lifecore Biomedical, Inc. is offering insights into the DOJ’s stance on the same.
In November last year, the DOJ declined to prosecute Lifecore, despite evidence that its newly acquired subsidiaries in Mexico had violated the Foreign Corrupt Practices Act. This decision was announced shortly after the DOJ detailed its expectations on the M&A safe harbor policy, offering a roadmap for the companies to avoid prosecution, given misconduct didn’t surface before or shortly after business acquisitions.
The case offers an illustration for M&A professionals to understand the DOJ’s expectations of timely self-disclosures and remediation. Though Lifecore’s disclosure and remediation failed to adhere to set timelines in the default policy, the Company has been praised for its handling of the M&A process.
Even though Lifecore’s acquiescence came after the safe harbor policy’s announcement, it presents pertinent insights. According to the Justice Manual, a declination for misconduct can be secured if the acquiring company has made a timely voluntary self-disclosure, remediated the misconduct timely, and paid any disgorgement, forfeiture, and restitution arising from the misconduct.
- Timely self-disclosure implies disclosure within 180 days of closing a deal.
- Timely remediation generally means within one year of the closing date.
- Any disgorgement, forfeiture, and restitution arising from the misconduct must be paid.
However, timelines are subject to change, depending on various transaction-related factors. Here Lifecore didn’t meet these criteria, but present facts still provide a glimpse of the DOJ expectations on voluntary disclosure, full remediation, and disgorgement payments.
The DOJ lauded Lifecore for prompt and voluntary disclosure. Despite missing the 180-days deadline, the DOJ may treat the Company’s schedule as reasonable, given thorough pre-acquisition due diligence, Lifecore’s efforts to conceal misconduct, and the discovery of misconduct within a year of closing. The DOJ has also acknowledged Lifecore’s remediation efforts and alignment with the DOJ’s policies and guidance.
Lifecore agreed to disgorge $406,505, which was the amount of costs avoided by the company by not paying for the wastewater treatment and duties due to local authorities. Press reports suggest Lifecore sold the Yucatan at a price significantly lower than its acquisition price. This fact, in possible consideration of the DOJ, isn’t mentioned in the declination.
Until the DOJ issues more declinations under the new safe harbor policy, Lifecore’s declination remains the benchmark for understanding the DOJ’s expectations for M&A due diligence and any related voluntary self-disclosures.