- SEC Brings Action Against General Counsel For Failure to Disclose and Accrue a Loss Contingency
- October 17, 2016
- Law Firm: Greenberg Traurig LLP - New York Office
- The SEC recently brought an enforcement action against a company and its general counsel for failure to timely disclose, or record an accrual for, a loss contingency relating to an ongoing government investigation. Under GAAP, a public company must disclose a loss contingency when a material loss is reasonably possible. Furthermore, if the likelihood of material loss becomes probable, and if the loss is reasonably estimable, the company must then accrue for that loss.
In the action, the SEC alleges that the general counsel oversaw the company’s response to the government investigation but failed to disclose material facts about the investigation to the company’s chief executive officer, chief financial officer, Audit Committee and independent auditors. Those material facts included that:
- the company had sent the government agency an analysis estimating the amount at issue in the investigation,
- the company agreed to submit a settlement offer to the agency by a specific date, and
- prior to submitting the settlement offer, the company’s estimate of the amount at issue had grown significantly.
The SEC is seeking a judgment against the company and the general counsel providing for permanent injunctive relief and ordering them to pay disgorgement, interest and penalties.