I agree with almost everything you say with few clarifications. The "least action" the FAA can take is to simply close an investigation without a reprimand - happens quite often actually. (you should still answer YES to the question "have you ever been investigated?" - after all, there has been an investigation involved in determining a possible violation – many will disagree with me on this but I’ve been told by J. Ryan (OKC FSDO) that technically there’s an investigation involved even if the investigation is closed.)... The Letter of Warning is the least action that the FAA can take to close their file. If the Captain indicates something less than a "compliance oriented attitude" the LOW can become a "Letter of Correction" which is a finding of a violation. Of course that is a possible trigger for Certificate Action...
Also, a letter of warning (or actually the term they use is “notice of warning") is put squarely on the pilot's shoulders. Letter of correction on the other hand can also be used if the FAA thinks the other pilots at that particular airline might learn something by some additional ground school regarding that specific incident. Then there might be an hour or two of ground school involving a specific subject. Many times the "offender" ends up "teaching" the subject to others. Usually both LOWs and LOCs stay on one's record for 2 years.
I've seen several different investigation scenarios at my previous gig when we did newhire background checks; each time it turned out to be no big deal at all for the person involved if he/she treated it with honesty and with integrity.
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