If you receive a subpoena or other notice that the SEC or another government agency is investigating your company, are you required to disclose it publicly? The answer is less certain than you might think.

Regulation S-K

This regulation sets forth reporting requirements for various SEC filings. Item 103 requires companies to describe “any material pending legal proceedings, other than ordinary routine litigation,” including “any such proceedings known to be contemplated by governmental authorities.”

The courts and legal commentators generally interpret “legal proceeding” to exclude investigations. Thus, disclosure under Item 103 isn’t required until an investigation reaches a point where litigation is substantially certain to occur.

Rules 10b-5, 12b-20

Even if Item 103 imposes no affirmative duty to disclose, under SEC Rules 10b-5 and 12b-20, disclosure may be necessary to avoid rendering other statements as misleading. For example, a company not otherwise obligated to disclose a government investigation may have to make this information public if its SEC filings state that management isn’t aware of any contemplated or threatened legal proceedings that would have a material adverse impact on the company’s financial condition.


Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is a critical component of a public company’s annual report and other SEC filings. Regulation S-K, Item 303, requires companies to describe in the MD&A any known trends or uncertainties that they reasonably expect to have a material unfavorable impact on revenues or income.

Usually, a government investigation is insufficient to trigger a public disclosure obligation. But, in some cases, management may conclude that an investigation has reached a point where it’s reasonably likely to have a material adverse impact. At that point, the investigation must be disclosed.

Contingent Losses

Reporting requirements for contingent losses, including those associated with pending litigation or government investigations, are found in Accounting Standards Codification (ASC) Topic 450, Contingencies. Generally, companies are required to classify contingent losses as “remote,” “probable” or “reasonably possible.” If a loss is probable — that is, likely to occur — and the company can reasonably estimate the amount or a range of amounts, it must accrue the loss in its financial statements. If a probable loss can’t be reasonably estimated, the company must disclose the nature of the contingency and explain why the amount can’t be estimated.

If a loss is reasonably possible, the company must disclose it, but needn’t record an accrual. If a loss is remote, no disclosure is required.

Again, the mere existence of a government investigation likely won’t trigger a reporting obligation. But management might reach a different conclusion if the investigation has reached a point where a material loss has become probable or reasonably possible.

Judgment Calls

Even if disclosure isn’t required, there may be situations in which voluntary disclosure makes sense. For example, if an investor or analyst asks if you’re being investigated, you may feel compelled to respond. Or you may have agreements with lenders or investors to disclose investigations to them and conclude that public disclosure is necessary to avoid violating selective disclosure rules.

Finally, you may conclude that voluntary disclosure is preferable, from an investor relations standpoint, to having the information come out another way. In those cases, you should weigh the benefits of disclosure against the potential costs.