United States: Disclosure And Notification Considerations When Managing A Crisis

Global Crisis Management Series: This post is part 5 in a series concerning topics further elaborated on in Cleary Gottlieb's Global Crisis Management Handbook—a desk reference for spotting issues and avoiding common mistakes when faced with a crisis. The current version is available here.

Effectively dealing with a crisis often requires disclosure to government authorities, shareholders, and other stakeholders, even when many facts remain unknown. Companies must toe a delicate line when assessing when, to whom, and how much to disclose, especially in the absence of complete information.

Mandatory Disclosure

One of the first things a company should consider in a crisis is whether disclosure to authorities is mandatory. Mandatory disclosure obligations vary widely across legal regimes and may be imposed by Congress, government regulators, self-regulatory bodies, or even stock exchanges. For example, regulated entities may face immediate disclosure obligations to report violations of financial laws to FINRA (Rule 4530) or annual disclosure obligations to report misconduct to the CFTC in the entity's chief compliance officer report (although earlier disclosure of a crisis may be advisable). Often the relevant laws, rules, and regulations do not specify what information must be disclosed, injecting substantial discretion into what is otherwise a mandatory obligation.

Requirements under the federal securities laws generate a particularly important set of mandatory disclosure obligations because of the breadth of the obligations and because both the SEC and private parties may bring suit when companies fail to meet them. Regulation S-K, for example, imposes affirmative obligations on registrants to disclose "any material pending legal proceedings" and "proceedings known to be contemplated by governmental authorities,"1 and "any known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations."2 Even where companies have no affirmative obligation to disclose a crisis, they should consider whether facts uncovered in managing the crisis may render other statements materially misleading. In a crisis, time is of the essence. Nonetheless, courts generally agree that companies are permitted a reasonable amount of time to investigate potential wrongdoing before any disclosure obligation attaches.3

Finally, one particularly complex and growing strain of mandatory disclosure and notification obligations that has emerged in recent years relates to cyber-breaches of personal information stored by a company. When certain personal information has been compromised, these statutes require notification to, variously, state attorneys general, credit reporting agencies, and affected customers. Disclosure obligations vary across all 50 states depending on the type and format of information acquired and the number of residents of that state that are affected, further complicating a company's ability to quickly respond to such a crisis. Still, these laws often require rapid reporting. For example, companies doing business in New York must disclose any breach of data "in the most expedient time possible and without unreasonable delay," albeit with the caveat that companies may first take measures to determine the "scope of the breach."4 Global privacy regimes impose similar obligations. Most notably, Europe's General Data Protection Regulation requires notification to competent authorities within 72 hours of having "become aware" of a data breach.5

Voluntary Disclosure

Enforcement authorities confer a variety of benefits on companies that self-report issues, ranging from granting cooperation credit to full amnesty. Self-reporting generally allows companies to influence the tone of the investigation and the flow of information—critical elements lost when a whistleblower or journalist brings an issue to light. On the other hand, concessions made in self-reporting may be admissible against the company in a civil case. Further, self-reporting, and the ongoing cooperation that generally follows, can impose significant costs and generate uncertain risks, especially where the company has not yet established the full extent of wrongdoing or where undiscovered misconduct awaits. Self-reporting is a central element of government policies that address leniency. For example, the DOJ Justice Manual generally considers voluntary disclosure as a "factor" in evaluating "overall cooperation,"6 and specific FCPA guidelines offer certain prescribed benefits to companies, such as declination or a 50% reduction in a sentence, for self-reporting, cooperating, and appropriately remediating any wrongdoing.7 Other agencies, such as the EPA, have formal voluntary disclosure programs with concrete steps for the company to follow in order to receive credit.

The timing of voluntary disclosures can be critical to the degree of leniency received. Most notably, the DOJ Antitrust Division's Leniency Program provides "only one corporate leniency per conspiracy," and as such the Division has a formal "marker" system for corporations to report a possible criminal antitrust violation while preparing to make additional disclosures. In certain rare cases a company may preserve an anonymous marker while gathering additional information.8 Other authorities have strict disclosure timelines to receive credit. For example, the EPA allows 9 months to disclose certain violations after acquiring a new company to receive a penalty mitigation for violations prior to the acquisition.9 In all cases, companies should be mindful that a clock will be ticking once an issue is discovered, and there will be a need to balance expediency with diligence and to be mindful that disclosure may be necessary even when not all the facts are known.

Disclosures Based on Prior Resolutions

Prior agreements with authorities often generate ongoing disclosure obligations. In particular, deferred or non-prosecution agreements (DPAs and NPAs) help companies avoid sanctions but can create pitfalls when handling future crises, and therefore companies should consider carefully the scope and nature of any reporting obligations created by such agreements. Disclosure obligations under a DPA or NPA may extend beyond the conduct that is the subject of the agreement. Even if not formally part of such an agreement, regulators may expect that a company subject to a DPA, NPA, or monitorship would disclose additional wrongdoing even if that wrongdoing is unrelated to the underlying conduct. As such, companies should be mindful of both explicit and implicit disclosure obligations arising from settlements with regulators.

Disclosure to Commercial Partners

Though government regulators and agencies should be the first consideration, it is also important to consider whether a company needs to make disclosures to its commercial partners, customers, or suppliers. Such considerations are inevitably fact specific but can work to mitigate the collateral business consequences and disruptions—both reputational and legal—that crises can pose.

In short, the decisions about when, to whom, and how much to disclose are some of the most important decisions that a company will make at the outset of a crisis. Often these decisions will have to be made without full information, and an appropriate public relations strategy will be part and parcel of these considerations in order to fully consider the implications of speaking about a crisis.

Footnotes

[1] 17 C.F.R. § 229.103.

[2] 17 C.F.R. § 229.303.

[3] See, e.g., Gruber v. Gilbertson, No. 16-cv-9727, 2018 WL 1418188, at *10 (S.D.N.Y. Mar. 20, 2018) (Defendants "are permitted a reasonable amount of time to evaluate potentially negative information and to consider appropriate responses before a duty to disclose arises." (citation omitted)); Higginbotham v. Baxter Int'l, Inc., 495 F.3d 753, 761 (7th Cir. 2007) ("Taking the time necessary to get things right is both proper and lawful.").

[4] N.Y. Gen. Bus. Law § 899-AA.

[5] EU General Data Protection Regulation, Regulation (EU) 2016/679, Art. 33.

[6] Dep't of Just., "Justice Manual," § 9-28.900 (2018), https://www.justice.gov/jm/justice-manual.

[7] Dep't of Just., "Justice Manual," § 9-47.120 (2018), https://www.justice.gov/jm/justice-manual.

[8] Dep't of Just., "Frequently Asked Questions About the Antitrust Division's Leniency Program and Model Leniency Letters" at 2-3 (Jan. 26, 2017), https://www.justice.gov/atr/page/file/926521/download.

[9] EPA, "EPA's Interim Approach to Applying the Audit Policy to New Owners" (May 15, 2018), https://www.epa.gov/compliance/epas-interim-approach-applying-audit-policy-new-owners.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions