Can Fox Be Found Liable For Not Reporting Roger Ailes Harassment Claims?

There is now renewed media attention on the spate of sexual harassment claims made against former Fox News chief Roger Ailes, this time for 20th Century Fox’s purported failure to report those claims to its shareholders. After former Fox News anchor Gretchen Carlson filed a lawsuit accusing Ailes of sexual harassment, a number of other women came forward with similar horror stories about their former boss. According to an attorney for Andrea Tantaros, former Fox News co-host and one of Ailes’ alleged victims, he received a subpoena from federal prosecutors, which strongly suggests that the government may be probing the media giant for keeping the alarming claims under wraps.

By quietly settling with Ailes’ accusers instead of reporting the claims to the Securities and Exchange Commission (SEC), is 20th Century Fox guilty of violating securities laws? In order to hold public companies responsible for disclosing pertinent information to investors, the SEC incorporated the principle of materialty into its laws. Materialty follows the general rule that if a reasonable investor finds information important in making an investment or voting decision, that information must be disclosed to shareholders. For example, the medical health of a CEO is generally “material” to investors, as a serious illness or other health problem of an executive, particularly an iconic or well known one, could have a major impact on the future success of his or her company.

Does a federal prosecutor have the right to know settlement under securities law? Not automatically. In order for 20th Century Fox to be held liable over the Ailes claims, then the investigation must demonstrate that the legal settlements were “material” information for shareholders, which isn’t a long stretch. Fox News has been a strong component of the company for a long time and has been led by Roger Ailes for two decades. It can be effectively argued that the departure or impending departure of the head of a key division to the company may effect whether a reasonable investor will buy or sell the company’s securities. A company’s legal obligation to disclose settlement term isn’t a bright line rule, and is fact specific to each scenario.

As most companies would do in the same situation, Fox will likely resist any such lawsuit. There are often broader issues to be considered by companies unrelated to their liability. For example, companies, not just Fox, would not like such information to be disclosed because it can create the basis of a series of lawsuits over securities issues that may have no basis or give plaintiffs’ lawyers a window into how such lawsuits are settled as there may be other claims out there. However, although Roger Ailes was the president of Fox News, there was a succession plan in place such that his departure would not dramatically affect the business unit such that it would be material to a reasonable investor in deciding to buy or sell the company’s securities. Fox certainly has a right to keep its settlements private, but Fox is always subject to compliance with Federal securities laws, and that will trump any right to keeping such settlements private if it is determined that these lawsuits would have influenced a reasonable investor’s decision to buy or sell the company’s securities.

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