No Duty to Disclose Early‑Stage Government Investigations as “Reasonably Possible” Liabilities: Third Circuit Aligns §10(b) with ASC 450 and the Supreme Court’s Half‑Truth Doctrine

Introduction

The Third Circuit’s precedential opinion in In re: Walmart Inc. Securities Litigation clarifies when public companies must disclose government investigations in their SEC filings, and how such disclosures intersect with both the federal securities laws and Generally Accepted Accounting Principles (GAAP), specifically ASC 450 on loss contingencies. The court affirmed dismissal of a putative §10(b)/Rule 10b‑5 class action alleging Walmart misled investors by omitting an ongoing Department of Justice investigation into its opioid dispensing practices from its “Contingencies” disclosures, and by violating ASC 450’s disclosure requirements.

At the center of the case is a familiar but often‑misunderstood disclosure dilemma: does being under government investigation itself constitute a “liability” that is “reasonably possible and may be material,” triggering disclosure duties, and, independently, when does ASC 450 require disclosure of a potential loss arising from an unasserted government claim? The court’s answer is nuanced but clear: early‑stage investigations are not, by themselves, “liabilities,” and ASC 450 does not require disclosure of unasserted government claims unless certain probability thresholds are met. The decision also applies the Supreme Court’s recent half‑truth doctrine (Macquarie) and its opinion-statement framework (Omnicare) to the precise language many issuers use in their “Contingencies” sections.

Summary of the Judgment

• Omission theory rejected. Walmart’s pre‑June 4, 2018 “Contingencies” statement—that “where a liability is reasonably possible and may be material, such matters have been disclosed”—was not misleading for omitting reference to an ongoing DOJ/EDTX investigation. An investigation is not itself a “liability,” and on the allegations pled, no reasonably possible, material loss had yet crystallized.
• ASC 450 claim rejected. Before June 4, 2018, ASC 450 did not require disclosure of the investigation, which was an unasserted claim whose potential loss remained indeterminate; the complaint did not plausibly allege that (a) assertion of a claim was “probable” and (b) an unfavorable outcome was at least “reasonably possible,” as ASC 450-20-50-6 requires.
• Adequacy of post‑June 4, 2018 disclosures. Walmart’s subsequent filings disclosed that it was responding to subpoenas and investigations relating to opioid dispensing and could provide no assurance as to scope, outcome, or material impact. The court held those disclosures sufficient under §10(b), ASC 450, and Omnicare.
• Half‑truth doctrine (Macquarie) applied. Because Walmart did not make statements implying it was not under investigation, there was no actionable half‑truth; the case involved a pure omission, which is not actionable under §10(b).
• Leave to amend denied as futile. Proposed amendments added scienter allegations but did not cure falsity—i.e., the disclosures were not misleading as a matter of law—so further amendment would not save the claim.
• Consequential rulings. The court also rejected risk‑factor (Item 105) arguments and affirmed dismissal of §20(a) controlling‑person claims because there was no primary §10(b) violation.

Background

From late 2016 through 2018, the U.S. Attorney’s Office for the Eastern District of Texas investigated Walmart’s pharmacies for alleged violations of the Controlled Substances Act (CSA). After internal meetings and DOJ Criminal Division review in August 2018, DOJ declined criminal prosecution, though civil investigation continued. In June 2018—and consistently thereafter—Walmart disclosed in its SEC reports that it was responding to subpoenas, information requests, and investigations concerning controlled substances dispensing and could provide no assurance as to outcome or material impact. A 2020 ProPublica article recounted the investigation and DOJ declination, after which Walmart’s stock fell approximately 5%; a later DOJ civil filing caused an additional modest decline.

Investors sued under §10(b)/Rule 10b‑5, asserting (1) Walmart’s “Contingencies” language falsely implied it had already disclosed all “reasonably possible” material liabilities while omitting the DOJ probe, and (2) Walmart’s financial statements violated GAAP (ASC 450) by not disclosing a “loss contingency.” The district court dismissed and denied leave to amend; the Third Circuit affirmed.

Issues Presented

• Does a company’s omission of a government investigation render false or misleading a boilerplate statement that “reasonably possible” material liabilities have been disclosed?
• When does ASC 450 require disclosure of a potential loss arising from an unasserted government claim or investigation?
• Are generic “no assurance” statements about scope, outcome, and material impact adequate under §10(b) and Omnicare?
• Did the district court err in denying leave to amend to bolster scienter allegations?

Detailed Analysis

Precedents Cited and Their Influence

• Matrixx Initiatives, Inc. v. Siracusano (U.S. 2011). Establishes there is no freestanding duty to disclose all material information; omissions are actionable only if necessary to make other statements not misleading. The Third Circuit used this baseline to emphasize that omission liability flows from half‑truths, not silence.
• Macquarie Infrastructure Corp. v. Moab Partners, L.P. (U.S. 2024). Clarifies that §10(b) covers “half‑truths, not pure omissions.” The panel leaned on Macquarie to distinguish Walmart’s “Contingencies” language from statements that imply “we are not under investigation.” Because Walmart did not suggest an absence of investigations, there was no half‑truth.
• Omnicare, Inc. v. Laborers District Council (U.S. 2015). Provides the framework for when opinion statements can be actionable—when disbelieved by the speaker, containing embedded false facts, or omitting particular material facts that render the opinion misleading. The court applied Omnicare to Walmart’s “no assurance” language and found it non‑actionable.
• Dura Pharmaceuticals, Inc. v. Broudo (U.S. 2005) and Tellabs, Inc. v. Makor Issues (U.S. 2007). Recited for elements and PSLRA pleading standards, though the court decided the case on falsity alone.
• City of Warren Police & Fire Retirement System v. Prudential Financial (3d Cir. 2023). Confirms Omnicare’s applicability to §10(b) opinion claims in the Third Circuit. The court relied on Prudential to analyze Walmart’s opinion‑style “no assurance” statements.
• ASC 450 authorities and case applications:
  • ASC 450-20-50-6. For unasserted claims, disclosure is not required unless (a) asserting a claim is “probable” and (b) an unfavorable outcome is at least “reasonably possible.” The court’s core GAAP analysis turns on this standard.
  • In re Lions Gate Entertainment Corp. Securities Litigation (S.D.N.Y. 2016). Held an SEC investigation and Wells notice are not “pending or threatened litigation” requiring disclosure under ASC 450 absent more. Cited to show early investigative steps do not necessarily trigger disclosure.
  • Indiana Public Retirement System v. SAIC, Inc. (2d Cir. 2016). Required disclosure where government action had matured to specific indications of wrongdoing—criminal complaint referencing improper actions, agency reviews, indicted employees, and an audit quantifying exposure.
  • SEC v. RPM International, Inc. (D.D.C. 2017). Distinguished Lions Gate where a federal civil complaint was actually pending; mere investigations, by contrast, don’t compel ASC 450 disclosure.
  • Salim v. Mobile Telesystems PJSC (E.D.N.Y. 2021), aff’d (2d Cir. 2022). Dismissed ASC 450 claims where an ongoing DOJ investigation left key outcomes unpredictable; the Third Circuit quoted and adopted this “indeterminacy” reasoning.
• Cases where §10(b) claims survived because defendants implied no investigation:
  • Menaldi v. Och‑Ziff Capital Management (S.D.N.Y. 2016). Misleading to say “not subject to any pending regulatory proceedings” when already responding to subpoenas.
  • In re BioScrip, Inc. Securities Litigation (S.D.N.Y. 2015). Misleading to imply the company had not received subpoenas when it had.
  • Bond v. Clover Health (M.D. Tenn. 2022). Misleading to say the company was not aware of any investigation when investigative demands existed.
  The Third Circuit distinguished these because Walmart never suggested there were no investigations; it simply spoke about “liabilities.”
• City of Pontiac Policemen’s & Firemen’s Retirement System v. UBS AG (2d Cir. 2014). Disclosure that the company was under investigation can suffice without admitting ongoing wrongdoing; used to reject plaintiffs’ claim that Walmart had to confess CSA violations.

Legal Reasoning

1) Pre–June 4, 2018: No actionable omission; no ASC 450 violation

• Contingencies language. Walmart’s recurring statement that “where a liability is reasonably possible and may be material, such matters have been disclosed” did not become misleading simply because the company was under investigation. An investigation is not itself a “liability,” and the complaint did not plausibly allege that, at the time, a material loss was a “reasonably possible” outcome tied to a defined claim.
• March 28–June 4, 2018 inflection point. Even after an AUSA expressed intent to indict, the investigation’s scope and the nature of any possible charges remained uncertain. Walmart immediately sought meetings to clarify, and no indictment issued. The Third Circuit concluded that a single prosecutor’s intent—without more specificity—did not transform an investigation into a “reasonably possible” material liability that had to be disclosed in the March 30, 2018 10‑K.
• Half‑truth doctrine. Because Walmart’s filings did not imply “we are not under investigation,” there was no actionable half‑truth. The Supreme Court’s Macquarie rule squarely foreclosed pure omission liability.
• ASC 450. The investigation fit the broad definition of a “loss contingency” (an uncertain condition that may result in loss), but ASC 450 requires judgment about likelihood and maturity. For unasserted claims, no disclosure is required unless (a) assertion of a claim is probable and (b) an unfavorable outcome reasonably possible. Considering factors enumerated in ASC 450-20-55-12—nature of the matter, progress, counsel’s views, past experience, and intended response—the court held the allegations did not plausibly show the thresholds were met before Walmart engaged with prosecutors in mid‑2018.
• Analogy to Salim (MTS). The court quoted Salim’s emphasis on indeterminacy—at the investigation stage, a company cannot predict whether charges will be filed, their nature, whether settlement or litigation will occur, or potential terms—underscoring why ASC 450 did not yet compel disclosure.

2) Post–June 4, 2018: Disclosures were adequate under §10(b), ASC 450, and Omnicare

• What Walmart said. Beginning June 4, 2018, Walmart disclosed it was responding to subpoenas, information requests, and investigations about opioid dispensing, and stated it could give “no assurance as to the scope and outcome” or “whether [its] business, financial condition or results of operations will not be materially adversely affected.”
• Why that was enough. The filings conveyed:
  • Existence of investigations;
  • Their subject (dispensing of controlled substances/opioids); and
  • Uncertainty about scope, outcome, and potential material impact.
  This met both §10(b)’s anti‑fraud standard and ASC 450’s requirement to describe the nature of the contingency and, if no estimate is possible, to say so.
• Granularity not required. The court rejected the view that ASC 450 demanded a specific statement about potential criminal penalties; investigations can result in many outcomes (no action, DPA, civil claims), and Walmart did not have to choose among hypotheticals.
• Omnicare analysis. The “no assurance” language is a statement of opinion. Plaintiffs did not plausibly allege that Walmart disbelieved it, embedded false facts, or omitted particular facts that made the opinion misleading in context. Reasonable investors recognize that opinions rest on weighing competing facts; the company was not required to catalog its enforcement history to avoid misleading investors.
• City of Pontiac (UBS) analogy. Disclosing the existence of investigations and potential penalties suffices; a company need not also concede underlying illegality.

3) Leave to amend was properly denied as futile

• The proposed third amended complaint primarily augmented scienter allegations, drawing on materials from parallel Delaware Chancery litigation. But the Third Circuit affirmed dismissal on falsity alone; bolstering scienter could not cure the threshold failure to plead a misleading statement.
• Because no primary §10(b) violation was stated, derivative §20(a) “controlling person” claims failed as a matter of law.

Impact and Practical Implications

Key doctrinal clarifications

• Investigations ≠ liabilities. In the Third Circuit, the mere fact of a government investigation does not itself amount to a “liability,” nor does it necessarily create a “reasonably possible” material liability triggering disclosure under a generic “Contingencies” statement.
• ASC 450’s gatekeeping function. For unasserted government claims, disclosure duties arise only when both (a) assertion of a claim is “probable” and (b) there is a “reasonable possibility” of an unfavorable outcome. Early investigative activity typically does not meet this threshold absent specific signals (e.g., formal charging decisions, detailed agency findings, explicit notices quantifying exposure, or analogous facts like SAIC).
• Half‑truth liability is narrow. Macquarie’s pure‑omission rule is now firmly embedded in the Third Circuit’s §10(b) jurisprudence: liability turns on whether what the issuer chose to say created a misleading impression. Boilerplate “Contingencies” language that says nothing about investigations does not imply that no investigation exists.
• Opinion‑style qualifiers. “No assurance” statements are opinion statements analyzed under Omnicare. They are defensible if sincerely held, contextually grounded, and not contradicted by undisclosed, particular facts that would meaningfully alter how a reasonable investor reads the opinion.

Practical guidance for issuers and audit committees

• When to move from silence to disclosure:
  • Track “manifestations of awareness” by government actors and the maturity of the matter. Signals like a Wells notice, draft complaint, precise deficiency findings, indicted or indemnified employees, or agency communications quantifying or concretizing exposure move you toward ASC 450 disclosure.
  • Evaluate both prongs of ASC 450-20-50-6 for unasserted claims: is claim assertion probable, and is an unfavorable outcome reasonably possible?
• How to disclose:
  • Describe the nature of the contingency at a functional level (what is being investigated) and state if a loss or range cannot be estimated.
  • Use “no assurance” and other opinion qualifiers carefully; ensure they reflect real uncertainty, are internally consistent, and are supported by the record.
• What not to say:
  • Avoid categorical statements implying there is no investigation or no material proceedings if any exist—those are the half‑truths that trigger §10(b) liability (Menaldi, BioScrip, Bond).
• Documentation:
  • Maintain contemporaneous records of judgment under ASC 450: nature, progress, counsel’s views, prior experience, and intended response. Those are the factors the court found persuasive.

Considerations for plaintiffs

• Falsity before scienter. In the Third Circuit, plaintiffs must first plausibly allege a misleading statement. Scienter allegations will not rescue weak falsity theories grounded in pure omission.
• Focus on half‑truths. The strongest §10(b) claims will point to language implying “no investigation,” or to opinion statements that are contradicted by undisclosed, particular facts in the issuer’s possession.
• GAAP claims need more than an investigation. Establish concrete indicators that the issuer’s ASC 450 probability thresholds were crossed during the class period, such as specific notices, charging documents, or internal quantifications of exposure.

Open questions and limits

• When do investigations “mature”? The court expressly did not decide if, at some later date post‑June 2018, the matter became a disclosable loss contingency or a “reasonably possible” liability; it held only that Walmart’s ongoing disclosures were adequate either way.
• Wells notices and agency findings. While Lions Gate is persuasive that a Wells notice alone does not compel ASC 450 disclosure, combinations of agency signals (SAIC‑style facts) may.
• Issuer heterogeneity. Different industries and enforcement histories may alter the ASC 450 judgment calculus. The opinion underscores that the assessment is fact‑specific and requires managerial judgment.

Complex Concepts Simplified

What is a “half‑truth” under §10(b)?

A half‑truth happens when a company chooses to speak on a topic and, by what it says, creates a misleading impression because it omits key facts. Pure silence—saying nothing at all on a topic—is not actionable. Liability turns on whether the statement actually made is misleading in context.

ASC 450: Loss contingencies in plain English

• Loss contingency: An uncertain situation that may result in a loss, resolved by future events (e.g., lawsuits, regulatory actions).
• Likelihood categories:
  • Probable: Likely to occur.
  • Reasonably possible: More than remote but less than probable.
  • Remote: Slight chance of occurrence.
• Unasserted claims (like early investigations): No disclosure unless:
  • It is probable that a claim will be asserted; and
  • There is a reasonable possibility of an unfavorable outcome.
• What to disclose if required: Nature of the contingency and, if possible, the estimated loss or range—or a statement that an estimate cannot be made.

Opinion statements and Omnicare

Statements like “we can provide no assurance” are opinions. They are actionable only if the speaker did not believe them, if they contain false embedded facts, or if the issuer omits particular facts that make the opinion misleading in context. Investors understand opinions involve weighing incomplete, competing facts.

“Reasonably possible” vs. “probable” vs. “remote”

These are judgment calls. “Probable” is stronger than “reasonably possible”; “remote” is minimal. ASC 450 does not prescribe numeric thresholds; it expects management to assess factors like nature, progress, counsel’s views, prior experience, and response strategy.

Conclusion

The Third Circuit’s decision establishes a workable and issuer‑friendly rule that nevertheless protects investors against real deception: a company has no duty to disclose an early‑stage government investigation merely because it exists, and a generic “Contingencies” statement does not magically convert silence into a half‑truth. Under ASC 450, unasserted government claims become disclosable only when assertion is probable and an unfavorable outcome is reasonably possible. Once a company chooses to disclose an investigation, high‑level descriptors of the nature of the matter, coupled with a candid “no assurance” qualifier, will generally satisfy both §10(b) and GAAP, provided the statements reflect genuine uncertainty and do not mask contradictory, particular facts.

For issuers, the opinion underscores the value of disciplined, factor‑based ASC 450 judgments and carefully drafted opinion‑style contingencies disclosures. For plaintiffs, it is a reminder that §10(b) is about half‑truths, not silence: the path to liability lies where companies imply they face no investigation when one is underway, or render opinion statements misleading by omitting particular, contradictory facts known at the time.

Bottom line: Not every government investigation is a “reasonably possible” liability, not every uncertainty is a GAAP‑mandated disclosure, and not every corporate silence is securities fraud.