The completely unsubstatiated investigations proposed here would most certainly have to be disclosed. Such investigations would most certainly be "material" information and the new management would certainly need to disclose them. They would not be the targets of such investigations, so why wouldn't they disclose such. The fact that no such information was disclosed in their 10-k and none of the posters here has even provided one single piece of evidence that "Fraud" or "Federal" investigations are taking place makes this entire thread bogus :
B. THE DUTY TO DISCLOSE MATERIAL INFORMATION
The duty to disclose material information arises from: (1) the need to make a periodic filing with the SEC that contains up-to-date information (such as a periodic report, a registration statement for a securities offering, or a proxy statement); (2) a regulatory requirement to disclose certain specific events as they occur; (3) a fiduciary obligation in the context of trading in the company's securities; (23) or (4) a selective disclosure (or intended selective disclosure) to a member of the professional investment community or a shareholder that triggers an obligation to disclose to the market generally. (24) Although there is no general duty to continuously update prior communications on a subject upon the discovery or development of new material facts, the issuer acquires a duty to update when the securities laws require the filing of a periodic report, current report, proxy solicitation, or registration statement. (25) In this context, an issuer must evaluate whether it must make a disclosure to ensure that a prior communication is not materially inaccurate, incomplete, or misleading.
Similarly, when a company determines that it has a duty--or otherwise chooses--to disclose information related to material facts, it has a duty to make a complete disclosure. (26) In one action, the SEC filed a settled securities fraud action against the former Chief Financial Officer and General Counsel of FFP Marketing Company, Inc. ("FFP"), for making an incomplete disclosure about the reasons for failing to file a periodic report on time. (27) In that matter, the SEC alleged that the defendant had prepared, and caused FFP to file, notices of late filing of periodic reports on Form 12b-25 that were false and misleading because they vaguely characterized the reasons for the delays as the need to obtain "[c]ertain financial and other data." (28) While this may have been true, the SEC alleged, the company failed to disclose that the reason for the delays was that the company was investigating its own accounting. (29) Because FFP made a statement that it would delay filing its Form 10-K, it was required to disclose fully the reason for the delay, affirmatively citing its internal investigation. (30)
Likewise, while an issuer need not announce that it or its officers are involved in a criminal or regulatory investigation, or that an internal investigation has been launched into particular conduct, (31) courts generally have held that if one discloses something about an investigation, the disclosure must include all material information. For example, in In re Immucor Inc. Securities Litigation, the company issued a press release disclosing an Italian criminal investigation of improper payments, and an internal investigation into the same matter. (32) The release stated that the internal investigation had revealed one incident, that the company's President and CEO had been relieved of his responsibilities as CEO, and that the company perceived a need to strengthen the controls in its European affiliates. (33) Because the plaintiffs alleged that, in fact, the investigation concerned multiple incidents of legally dubious payments, the court held that "[t]he omission creates a distorted picture of Immucor's alleged liabilities. That is, while parts of the disclosure may have been accurate, Defendants' duty was to describe fully the nature and scope of the conduct under investigation...." (34)
Absent a delineated requirement to disclose an event as it occurs, the duty to disclose may arise only with respect to "material" information. (35) Information is rendered material when there is a substantial likelihood that its disclosure "would [be] viewed by the reasonable investor as having significantly altered the 'total mix' of information made available." (36) Although practices vary with respect to disclosure of government investigations, as a matter of law, the mere existence of a government investigation alone, arguably, is not material information. (37) Rather, it is the information that the company or the government discovers through such investigations that may be material, and therefore may need to be disclosed. (38)
Determinations of materiality require assessments of both quantitative and qualitative factors. (39) More specifically, companies and their counsel must consider the extent and nature of the acts or conduct uncovered and the position(s) of the people involved in those acts or conduct. (40) Thus, for example, an investigation that uncovers the inappropriate recognition of small amounts of revenue is not likely to be material unless that improper revenue recognition was directed by a member of senior management who acted in knowing disregard of accounting principles. (41) On the other hand, an investigation related to a company's payment of bribes that do not materially impact the company's financial statements may well be material information if the company derives substantial business from government contracts and a finding of improper payments were to result in the company being barred from participating in such contracts. (42)
