When Should Public Companies Disclose Government Investigations?

However, “the decision regarding whether to disclose a government investigation is not always straightforward,” Pillsbury partner David Oliwenstein, formerly with the SEC’s Division of Enforcement, told Global Investigations Review.

He said one of the most important principles in determining the need to disclose a government investigation is its "materiality." Companies often go through a careful process to decide how and when information becomes material, which may involve the investigative team, board committees, and subject matter experts.

When assessing the materiality of investigations, companies have to consider the potential consequences if allegations are substantiated, including who at the company is implicated, potential fines and penalties, or legal costs, Oliwenstein said.

"The crux of the inquiry is whether it's significant enough that shareholders are going to care,'' he added.

Companies that learn of a material investigation are legally obligated to disclose it. Not providing enough detail about the materiality of an investigation in company disclosures can lead to shareholder lawsuits or SEC enforcement actions. Sharing too much detail, on the other hand, could allow parties to challenge facts from earlier disclosures if additional information about an investigation comes to light, he noted.

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