A new court decision by the Second Circuit has decided that a publicly-traded company’s failure to disclose a government investigation could result in the company or its management being held liable for securities fraud. In addition, under sections of the Securities Exchange Act, the company and management could even be held criminally liable for failure to report an investigation. The case is Noto v. 22cd Century Group https://law.justia.com/cases/federal/appellate-courts/ca2/21-0347/21-0347-2022-05-24.html and it says that a company’s failure to disclose a government investigation could result in its management being held liable for securities fraud when the government investigation is something reasonable investors would want to know or would bear upon an assessment of the company’s prior disclosures.
As per Noto, disclosure may be required even where the fact of the investigation is merely something a reasonable investor would “want to know,” “bear on” investor assessments of prior disclosures, or complete “the whole truth.” That is a stronger reason than prior cases have stated previously.
Under the SEC Rules, companies must make disclosures in their 10-Q and 8-k reports, which are public records which can be viewed on the SEC website.
The federal securities laws require publicly reporting companies to disclose information on an ongoing basis. For example, domestic companies must submit annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K for a number of specified events and must comply with a variety of other disclosure requirements.
The annual report on Form 10-K provides a comprehensive overview of the company’s business and financial condition and includes audited financial statements. Although similarly named, the annual report on Form 10-K is distinct from the “annual report to shareholders,” which a company must send to its shareholders when it holds an annual meeting to elect directors.
JEFFREY NEWMAN IS A WHISTLEBLOWER LAWYER WITH THE FIRM NEWMAN & SHAPIRO WHO HANDLES SEC WHISTLEBLOWER CASES AS WELL AS FALSE CLAIMS ACT CASES AND HE CAN BE REACHED AT JNEWMAN@NEWMANSHAPIRO.COM OR AT 617-823-3217