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Companies may need to disclose sexual harassment to investors

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In light of the #MeToo movement and sexual harassment allegations against corporate leaders like Steve Wynn, publicly traded companies are discussing when such allegations must be shared with investors.

U.S. securities law requires public companies to report any "material event" that may impact share prices. The definition of "material event" is somewhat subjective and depends in part on the size of the company. For example, a $5 million sexual harassment settlement could be material to a $100 million company, but not to one worth $100 billion.

However, the size of a given settlement is not the only issue. Evidence of pervasive sexual harassment in a company's culture -- including top leadership -- could easily indicate other problems.

When should Wynn have disclosed CEO's misconduct?

Steve Wynn, CEO of Wynn Resorts Ltd., is accused of sexually harassing, coercing and assaulting female staff members. He reportedly paid $7.5 million in a settlement to a former manicurist out of his own pocket. Nevertheless, Wynn has said the claims are "preposterous."

Despite the fact that Wynn allegedly paid the $7.5 million settlement himself, the company's stock has dropped by about 15 percent since the allegations were made public. As a result, several securities class-action firms have indicated that they may file lawsuits.

Second, the allegations have resulted in at least two investigations, which can be costly and disruptive. One investigation is being led by an internal committee at Wynn Resorts. Another, as reported by Reuters, has been started by gaming regulators in Nevada.

Third, Massachusetts regulators have expressed concern that Wynn may not meet a state "suitability" requirement for a gaming license. That could halt a planned Wynn casino in that state.

Investors may well feel they should have been told of the allegations before the issue began affecting the company's performance and prospects. The sexual harassment allegations may have seemed personal to Wynn, but certainly look like "material events" now.

For some companies, however, disclosing such allegations may unfairly imply that the problem is more widespread than it actually is. On the other hand, a company may open itself to liability if it describes a widespread problem as isolated.

There is also a need to balance the interests of shareholders, who want to know about such allegations, and those of the accuser, who may not want them made public.

In the current climate, more companies may decide that shielding sexual harassers simply isn't worth it, no matter how valued they may be. Certainly, corporate counsel is going to consider the possible need for public disclosure of such settlements as "material events."

For those who are suffering sexual harassment in the workplace, it may be time to take a stand. We recommend you do so with an attorney at your side.

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