A number of firms discussed considerations relevant to disclosure of otherwise confidential regulatory investigations in the form of "lessons learned" from the recent SEC/Mylan settlement of alleged misleading risk factor disclosures and a failure to timely disclose or accrue for loss contingencies relating to a DOJ investigation of Mylan's EpiPen.
These excerpts from this Covington memo impart key reminders to companies:
- Risk Factors: [P]ublic companies should frequently reassess their risk factor disclosures rather than just treating them as boilerplate, and in particular should consider whether any of the risks could be viewed as materially misleading because they present as a hypothetical an actual situation that the company is facing.
- Loss Contingencies: [T]he Mylan action is a good reminder that ASC 450 prescribes certain disclosures as the possibility of the loss becomes more likely. As an investigation evolves, a public company should regularly evaluate the facts and consider whether it is required to disclose a loss contingency because material loss has become “reasonably possible.” Moreover, once a material loss is “probable,” the company should consider whether it can determine a range of potential losses and accrue a charge against income.
While Mylan was regulatory investigation-focused, the firms' guidance largely extends to significant internal investigations as well.
See also these memos/posts from Cleary and Cooley, and additional information & resources on our SEC Enforcement and Financial Reporting pages. This post first appeared in the weekly Society Alert!