Deborah S. Birnbach is a partner in the Litigation & White Collar Defense Group at Goodwin Procter LLP. This post is based on a Goodwin Procter publication by Ms. Birnbach and Michael T. Jones.
After receiving an inquiry from a government agency, such as a subpoena, a Civil Investigative Demand (“CID”), or an informal request for information, public companies ask whether they must disclose publicly that they may be under investigation. A corollary question to public disclosure is how broadly to disclose internally, to lenders, or to D&O insurers.
The standards for disclosing government investigations are not straightforward, due in part to an absence of cases and SEC interpretive guidance providing meaningful direction on this topic under the securities laws. As a result, disclosure practices vary. Companies sometimes disclose investigations upon receipt of a subpoena or CID, some wait until an intermediate stage after the investigation progresses, and some wait until the SEC advises the company that it tentatively decided to recommend an enforcement action by sending the company a “Wells” notice [1] or until the investigation is otherwise nearing conclusion. However, a few recent cases out of federal courts in the Southern District of New York and the Court of Appeals for the Ninth Circuit in California provide some additional guidance for companies navigating this issue.
