Hypothetical Scenario Disclosures by Companies Risk SEC Scrutiny

The SEC’s recent court win against a Massachusetts investment adviser underscores the fine line companies walk when divulging conflicts and risk factors to investors.

A judge agreed with the Securities and Exchange Commission earlier this month that Commonwealth Financial Network’s use of the word “may” in an SEC filing to describe an actual conflict of interest was inadequate.

The agency argues “hypothetical” disclosures can mislead investors. The potential pitfalls arise in a range of disclosures, from investment advisers’ conflict-of-interest filings to publicly traded businesses alerting investors to a government investigation.

Companies, including Meta Platforms, Blackbaud, and Merck, have been fined ...