You’ve just closed on a major acquisition. The paperwork is signed, the announcement is made, and everything looks like a win, until you find out the business you bought was hiding fraud. Can you hold someone accountable? Can the seller walk away clean? These are high-stakes questions that often arise after a deal is done, and the answers depend on how the purchase agreement was written and what steps were taken before closing.
What the Law Says About Fraud in Deals
However, this rule is not applied the same way everywhere. For example, in New York, courts often allow evidence of fraud to be introduced even when a merger clause exists, particularly where the alleged misrepresentations were intentional.
Smart Contracts Include Fraud Carve-Outs
Experienced buyers often negotiate “fraud carve-outs” to protect themselves. These are special clauses that say fraud claims can still be brought, even if the rest of the agreement limits liability or includes broad disclaimers. The goal is to preserve the right to take legal action if the seller intentionally lied. How these clauses are enforced can vary by state. In places like New York, Delaware, or California, courts interpret anti-reliance and fraud carve-out language differently, so it’s important to understand the rules in your specific jurisdiction.
Risks Beyond the U.S. Contract
In some countries, like France, legal systems allow for even stricter penalties when companies try to use mergers to cover up wrongdoing. While U.S. regulators rarely bring criminal charges for buying a company with hidden fraud, they may still step in if there’s evidence of intent to mislead. Civil lawsuits are more common and can involve significant financial and reputational fallout.
How We Can Help
At Romano Law, we help businesses navigate acquisitions with a sharp eye for risk. From negotiating contracts that include clear promises and fraud protections, to setting up escrow accounts and deadlines for post-deal claims, we build agreements designed to reduce surprise liabilities. Whether you’re buying or selling, our team can help you structure the deal, conduct due diligence, and make sure you’re protected.
Contributions to this blog by Kennedy McKinney.