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SEC Issues Guidance Regarding Disclosures on Corporate Web Sites
Securities Law Update
August 21, 2008
The Securities and Exchange Commission (SEC) has issued an interpretive release that provides additional guidance regarding the use of company Web sites to communicate information to investors in compliance with the Securities Exchange Act of 1934 and the antifraud provisions of the federal securities laws. This release, which became effective August 7, 2008, represents the first comprehensive guidance from the SEC related to Web site disclosure and related matters since 2000. All public companies should evaluate their current Web site practices in view of this release and make modifications where appropriate. The release primarily focuses on:
- when information posted on a company Web site is "public" for purposes of the applicability of Regulation FD
- company liability for information on company Web sites, including previously posted information, hyperlinks to third-party information, summary information and the content of interactive Web sites
- the types of controls and procedures advisable with respect to such information
- the format of information presented on a company Web site, with the focus on readability, not printability
The release generally does not address the implications under the Securities Act of 1933 of Web site disclosures in the context of securities offerings. The SEC has addressed Securities Act issues related to Web site disclosures in other releases, including its 2000 release on the use of electronic media and its 2005 securities offering reform release.
Regulation FD Disclosure Obligations
"Public" Nature of Disclosures on Company Web Sites
When considering whether information disclosed on a company Web site is public for purposes of assessing the Regulation FD implications of a subsequent selective disclosure, a company is encouraged to consider whether and when:
- its Web site is a recognized channel of distribution
- posting of information on its Web site disseminates the information in a manner making it available to the marketplace
- there has been a reasonable waiting period for investors and the market to react to the posted information
Whether a company's Web site is a recognized channel of distribution of information depends on the extent to which the company has alerted the market to its Web site and its disclosure practices, as well as the use by investors and the market of the Web site.
Factors helpful to a company in evaluating whether the information posted on its Web site is adequately disseminated include:
- whether and how it lets investors and the markets know about its Web site and where they should look on the company's site for posted information
- whether it has made investors and the markets aware that it will post important information on its Web site and whether it has a pattern or practice of posting such information on its Web site
- whether its Web site is designed to lead investors and the market efficiently to information about the company and whether the information is prominently disclosed on the Web site in the location routinely used for such disclosures
- the extent to which information posted on the Web site is regularly picked up by the market and readily available media and reported in such media or the extent to which the company has advised newswires or the media about such information and the size and market following of the company involved
- the steps it has taken to make its Web site and the information accessible, including the use of "push" technology, such as RSS feeds, or releases through other distribution channels to widely distribute such information or advise the market of its availability
- whether the company keeps its Web site current and accurate
- whether it uses methods in addition to its Web site posting to disseminate the information and whether and to what extent those other methods are the predominant methods it uses to disseminate information
Procedures that constitute adequate public dissemination for one company may not be sufficient for another company. In particular, companies with smaller market capitalizations and lesser market followings may need to be more proactive than larger companies.
Whether investors and the market have been afforded a reasonable waiting period to react to the posted information depends on the circumstances of the dissemination. In this regard, a company should consider:
- the size and market following of the company
- the extent to which investor-oriented information on its Web site is regularly accessed
- the steps the company has taken to make investors and the market aware that it uses its Web site as a key source of information about the company
- whether the company has taken steps to actively disseminate the information or the availability of the information on its Web site
- the nature and complexity of the information
Companies should note that what may be a reasonable waiting period after posting information for a particular company and a particular type of information may not be reasonable for other companies or other types of information. Companies also should consider taking additional steps to alert investors to the posting of significant information, such as a press release in advance of or concurrently with the posting, advising investors that the information will be posted on its Web site.
Web Site Disclosure as Satisfactory Alternative Method of Disclosure Pursuant to Regulation FD
As noted in the release, Rule 101(e) of Regulation FD requires that once a selective disclosure has been made, the company must file or furnish a Form 8-K or use an alternative method or methods of disclosure that are "reasonably designed to provide broad, non-exclusionary distribution of the information to the public." Prior to the current release, the SEC did not recognize Web site disclosures, in and of themselves, as adequate public disclosure methods under Regulation FD. Now, however, the SEC agrees that in certain circumstances the posting of information on a company Web site, in and of itself, may be a sufficient method of public disclosure under Rule 101(e). Ultimately, it is the company's responsibility to evaluate whether a posting on its Web site will suffice for purposes of Regulation FD.
In evaluating whether posting information on a company Web site would satisfy the alternative public disclosure provision of Regulation FD, the key consideration is whether the postings are "reasonably designed to provide broad, non-exclusionary distribution of the information to the public." With that in mind, companies should consider the same factors regarding public dissemination listed above. In addition, companies also will need to consider their Web sites' capability to meet the simultaneous or prompt timing requirements for public disclosure once a selective disclosure has been made.
Company Liability for Web Site Information
The release also offers guidance regarding the application of the antifraud provisions of the federal securities laws, including Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, to disclosures appearing on company Web sites. These laws contain a general prohibition on making material misstatements and omissions of fact in connection with the purchase or sale of securities.
Previously Posted Materials
The release confirms the SEC's position that maintaining previously posted materials or statements on a company's Web site does not reissue or republish such material or information for purposes of the federal securities laws each time an investor accesses such materials or statements. Accordingly, the company has no general duty to update such materials or statements unless it affirmatively reissues or restates the information.
Nevertheless, if it is difficult to determine whether information is historical, the company could be viewed as having reissued or republished such information. In order ensure that investors understand that the posted material or statements speak as of a date or period earlier than when the investor is accessing the posted materials or statements, the company should:
- separately identify material as historical or previously posted material or statements
- locate such material in a separate section of the company's Web site containing previously posted materials or statements
Links to Third-Party Web Sites
Under Section 10(b) and Rule 10b-5, a company can be held liable for third party information to which it hyperlinks from its Web site and which could be attributable to the company. In the release, the SEC confirms its position that companies explicitly or implicitly endorsing or approving the information can be liable for such third party information.
Accordingly, a company must determine whether the context of the hyperlink and the hyperlinked information together create a reasonable inference that it has approved or endorsed the hyperlinked information. In addressing this question, a company should consider the following practices:
- providing explanations of the context and reasons for the hyperlinked information and disclaimers that the company does not endorse or recommend the third party content
- utilizing exit screens to notify investors that they are leaving the company's site for the third party site
- providing all of the available links of a particular type rather than selecting hyperlinks favoring only positive materials
- arranging the hyperlinks so that each link of a particular type is given equal prominence
Companies should remember that the use of disclaimers alone is not necessarily sufficient to insulate a company from responsibility for the content of hyperlinked sites, particularly where the company knows or is reckless in not knowing that the linked site contains information that is materially false or misleading.
The release reiterates the SEC's view that the presentation of summaries or overviews to highlight important information may be helpful to investors but cautions companies to consider ways to alert readers to the location of the detailed disclosure from which such summary information is derived. As with hyperlinked information, companies should consider the context in which the summary information is presented on their Web sites and consider using appropriate explanatory language to identify the summary or overview information. Companies also are encouraged to consider the following techniques that may highlight the nature of the summary or overview information:
- use of appropriate titles identifying information as summary in nature
- use of additional explanatory language
- use and placement of hyperlinks to the more detailed information
- use of a "layered" or "tiered" format that presents summary information on an opening page, with embedded links that enable the reader to obtain more detail by clicking on the links.
Interactive Web Sites
The release makes it clear that the antifraud provisions of the federal securities laws apply to blogs and to electronic shareholder forums. Companies may be liable for statements made by or on behalf of the company in these forums. Accordingly, companies should consider implementing controls and procedures to monitor statements made by or on behalf of the company on these types of electronic forums. Company representatives should be aware that statements made by them in these forums that are purported to be in their "individual" capacities and not as representatives of the company may nevertheless be deemed to be on behalf of the company. Under the anti-waiver provisions of the federal securities laws, companies cannot require investors to waive their protections under federal securities laws as a condition to entering or participating in a blog or forum.
Disclosure Controls and Procedures
In certain circumstances, companies are permitted to make required disclosures by posting the information on its Web site as an alternative to providing the information in an Exchange Act report. The release clarifies that, when a company elects to satisfy such disclosure obligations through Web site postings, the disclosure controls and procedures that public companies are required to maintain (and as to which CEOs and CFOs are required to certify) are applicable to such Web site disclosures. Disclosure controls and procedures do not apply, however, to other disclosures of information on a company's Web site.
The SEC believes that the focus on information posted on Web sites is on readability not printability. Accordingly, it is not necessary for information appearing on company Web sites to satisfy a printer friendly standard unless the SEC's rules explicitly require it (as in the case of electronic delivery of proxy materials).
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Companies are encouraged to take this opportunity to review their Web site disclosure practices. For assistance with any of the issues addressed in this update, please contact any one of the Bracewell & Giuliani attorneys listed on the upper right-hand side of this page.