When a public company learns that it is the subject of a government investigation, the company must decide whether and when to publicly disclose the investigation. While the decision whether to disclose an ongoing investigation may implicate many different legal, public relations, and business concerns, decisions in the Southern District of New York provide comfort that a company need not disclose an ongoing investigation under federal securities laws, unless and until the company determines that the investigation is “substantially certain” to lead to a formal government enforcement action, so long as the company’s other disclosures are not rendered misleading by the omission of information about the investigation.1
Disclosure Obligations
Federal securities law mandates disclosure of information only if there is some specific legal duty to disclose.2 A duty to disclose generally will arise either (1) through an independent statutory or regulatory disclosure obligation or (2) if disclosure is necessary “to make…statements made, in the light of the circumstances under which they were made, not misleading.”3 For U.S. reporting companies, the principal affirmative disclosure requirements are contained in Regulation S-K, which governs required disclosures in a company’s periodic Form 10-K and 10-Q filings.
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