In the jittery post-Enron world, more and more companies are disclosing every twist and turn of US Securities and Exchange Commission investigations, without really knowing if they should, securities lawyers say.
Uncertainty over investigation disclosure has companies playing a guessing game on how, when and whether to tell the world about SEC inquiries and the steps that typically follow.
Handling information about investigations all gets down to "materiality," or whether a company's stock price could be affected, SEC Chairman Christopher Cox told Reuters this week.
"Making materiality judgements is hard enough in a general way, and then when it involves SEC investigations ... it's even more touchy," he said. "I understand the uneasiness among the bar. But I don't have an answer at this point."
At a time when the SEC is pushing companies to be more open, but also getting an earful from business about unclear standards and compliance costs, investigation disclosure is on the agenda of at least one SEC member.
Commissioner Paul Atkins said disclosure of investigations is tricky and the SEC should clarify its expectations. "I think we should give guidance. Right now people are so scared of being second-guessed," he said in an interview.
In a recent speech, Atkins said he was frustrated by companies disclosing agreements-in-principle to settle with the SEC, sometimes without saying such pacts hammered out with SEC staff also require review by the commission itself.
Bank of New York Co, for instance, said on March 01, it had made a settlement offer, but made clear that SEC staff had agreed only to recommend it to the commission.
Atkins also questioned at what point an SEC investigation becomes an event needing disclosure, and whether disclosure should be made when a company receives a Wells Notice, the warning SEC investigators give when they plan to file charges. The SEC's investigation process is wrapped in secrecy.
Agency officials routinely refuse to confirm or deny whether an inquiry even exists, let alone its status or focus.
In the vacuum that results, markets often respond to press reports and rumours. Companies lately have been disclosing more on their own to try to clear the air and avoid lawsuits.
Inside the SEC enforcement division, a computerised tracking system is used. If an investigator starts to look into something, a "matter-under-inquiry" (MUI) entry is made. After two months or so, a MUI converts automatically - if not closed out first - to an "informal investigation."