In a January 22, 2016 decision, a federal court in New York dismissed federal securities law claims against Lions Gate Entertainment and several of its senior executives based on the company’s decision not to disclose that it was being investigated by the SEC or that it received Wells notices from the SEC in connection with the investigation. The Lions Gate decision finds that there is no general obligation under the federal securities laws to disclose to investors an ongoing SEC investigation or the receipt of a Wells notice, and provides important disclosure guidance to companies facing SEC inquiries.

I. BACKGROUND -

When the staff of the SEC’s Enforcement Division decides to recommend that the Commission assert claims against the subject of an investigation, the Enforcement Division generally sends a “Wells notice” setting forth the contemplated claims and providing the recipient an opportunity to respond.