The Securities and Exchange Commission (the “SEC”) recently published Commission Guidance on the Use of Company Web Sites, which is the SEC’s first interpretative release since 2000 on how companies may provide information to investors on their Web sites in compliance with federal securities laws. In the release, the SEC recognized the growth of the Internet and the widespread use of company Web sites to disseminate information to investors. The SEC acknowledged the benefit of allowing investors to view data in different formats than those dictated by EDGAR. The SEC also expressed its interest in promoting greater access to company information. To this end, the release provides a framework by which companies may develop their Web sites to communicate more effectively with investors.
The interpretative release focuses on four areas:
Regulation FD and Web Site Information.
Information posted on a company Web site raises the issue of whether the disclosure of that information complies with Regulation FD (Fair Disclosure). The SEC adopted Regulation FD to address the problem of selective disclosure in which a select few gain from their superior access to company information. Regulation FD requires a company to make public disclosure of any material nonpublic information that a company privately discloses to selective persons, such as stock analysts, who may trade on that information. When selective persons receive material nonpublic information, Regulation FD requires the company, either simultaneously or promptly, to file a Form 8-K or otherwise disclose the information to the public. The interpretative release provides guidance as to whether and when information is “public,” such that subsequent disclosure of that information to a selective person is not a disclosure of nonpublic information that violates Regulation FD. Previously, the SEC had stopped short of concluding that Web site disclosure alone was sufficient for Regulation FD purposes. The release discusses when a company may now use its Web site, in lieu of other disclosure mechanisms, such as Form 8-K, to make the required public disclosure after it discloses material nonpublic information to selective persons.
Antifraud Liability for Web Site Information.
The interpretative release emphasizes that the antifraud provisions of the federal securities laws apply to company statements made on the Internet in the same way they would apply to any other statement made by, or attributable to, a company. The antifraud provisions include Rule 10(b) of the Exchange Act of 1934 and Rule 10b-5, which prohibit making material misstatements and omissions of fact in connection with the purchase or sale of securities. The release gives specific guidance on the effect of the antifraud provisions on accessing previously posted information on company Web sites, hyperlinking to third-party information on company Web sites, using summaries or overviews to present financial information on company Web sites, and having interactive Web site features, such as blogs and electronic shareholder forums, on company Web sites.
Necessity of Disclosure Controls and Procedures.
The interpretative release clarifies that information on a company Web site is generally not subject to the rules under Sarbanes-Oxley relating to a company’s disclosure controls and procedures. Under these rules, a company’s principal executive officer and principal financial officer must establish and maintain disclosure controls and procedures. When a company satisfies its Securities Exchange Act disclosure obligations, however, by posting the required information on its Web site rather than filing a Form 8-K or other report, it must design its disclosure controls and procedures to address the disclosure of such information on its Web site.
Web Site Formatting.
In order to promote readability, the interpretative release states that companies do not have to satisfy a printer-friendly standard unless SEC rules explicitly require it. Most information on a company’s Web site therefore need not be made available in a format comparable to paper-based information. Companies should review their Web site disclosures to ensure they are in compliance with the interpretive release and to determine how they can best utilize their Web site as part of their SEC disclosures.
The interpretative release became effective on Aug. 7, 2008. There is still an opportunity to submit comments to the interpretive release. Comments are due on or before Nov. 5, 2008.