During August, 2008, the Securities and Exchange Commission provided new guidance, in the form of an Interpretive Release, on the use of company websites. The new guidance focuses on four main topics: (1) whether and when information posted on a registrant’s website is public for purposes of Regulation FD and sufficient to satisfy Regulation FD’s public disclosure requirement; (2) registrant liability for website content under the anti-fraud provisions of the federal securities laws; (3) the applicability of disclosure controls and procedures to website content; and (4) formatting of posted information.
The SEC’s last significant Internet-related guidance was in 2000. Since that time, investors have become more Internet savvy and corporate use of electronic media for investor relations has grown in both popularity and sophistication. In addition, the SEC has moved more towards a real time disclosure regime.
Websites and Regulation FD
Regulation FD is the SEC rule that limits selective disclosure of material non-public information. Subject to a few narrow exceptions, in order to comply with Regulation FD, prior to a selective disclosure, a registrant must disseminate the information through a method or combination of methods that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public. The Release addresses two issues under Regulation FD. First, whether and when information contained on a registrant’s website is public for purposes of Regulation FD. Second, whether website disclosure alone is a sufficient means of complying with Regulation FD.
Website Postings as Public Information
The SEC has not gone so far as to take the position that a website posting always will be sufficient to make information public for purposes of Regulation FD. Recognizing that no two websites are exactly the same, the SEC has instead taken a facts and circumstances approach. In the Release, the SEC indicates that information posted on a registrant’s website may be public for purposes of Regulation FD if it meets three criteria: (1) the website is a recognized channel of distribution; (2) the posting disseminates the information in a manner that makes it available to the securities marketplace in general; and (3) a reasonable waiting period has elapsed allowing investors and the market to react to the posted information.
Recognized Channel of Distribution. Whether a website is a recognized channel of distribution will depend on the steps that the registrant has taken to alert the market to its website and disclosure practices, as well as the use by investors and the market of the website.
Availability to the Marketplace. Whether a website posting results in dissemination to the securities marketplace in general depends upon the manner in which information is posted on the registrant’s website and the timely and ready accessibility of the information to investors and the markets. The Release cites the following non-exclusive factors to be taken in to account in making this determination:
- Whether and how the registrant lets investors and the market know of the existence of the website and that they should look there for information
- Whether the registrant has made investors and the markets aware that it will post important information on its website and whether it has a pattern or practice of doing so
- Whether the website is designed to lead investors and the market efficiently to information about the registrant, whether the information is prominently disclosed in an appropriate location and whether the information is presented in a readily accessible format
- The extent to which information posted on the website is regularly picked up by the market and readily available media, and reported in the media, or the extent to which the registrant has advised newswires or the media about the information, and the size and market following of the registrant
- The steps that the registrant has taken to make its website and the information accessible, including the use of "push" technology, such as RSS feeds, or releases through other distribution channels either to widely distribute the information or to advise the market of its availability
- Whether the registrant keeps its website current and accurate
- Whether the registrant uses other methods to disseminate the information and whether and to the extent those other methods are the predominate methods used to disseminate information
- The nature of the information
Reasonable Waiting Period. The third criterion is whether a reasonable time has elapsed to allow investors and the market to react to the information. What constitutes a reasonable waiting period will depend upon the particular circumstances of the dissemination, which, in the context of disclosure on a website, may include:
- The size and market following of the registrant
- The extent to which investor-oriented information on the registrant’s website is regularly accessed
- The steps that the registrant has taken to make investors and the market aware that it uses its website as a key source of important information about the registrant, including the location of the posted information
- Whether the registrant has taken steps to actively disseminate the information, including through other channels, or the availability of the information on its website
- The nature and complexity of the information
What constitutes a reasonable waiting period will differ among registrants. For example, a large registrant that frequently uses its website as a key information resource, has taken steps to make the market and investors aware of this and believes that its website is well-followed may be comfortable with a shorter waiting period than a registrant whose website does not have the same degree of prominence.
The Release indicates that, if the information is important, the registrant should consider taking additional steps to alert investors and the market that important information will be posted, such as by filing or furnishing a Form 8-K or issuing a press release with the information.
Using Website Disclosure to Comply With Regulation FD
When the SEC adopted Regulation FD in 2000, it took the position that website disclosure alone was not sufficient to satisfy the broad-based dissemination requirement of Regulation FD. At the time, the SEC felt that Internet penetration wasn’t yet deep enough. As a result of the technological sea change that has occurred over the last eight years, the SEC has now modified this position. In the Release, the SEC acknowledges that technology has evolved and the use of the Internet has grown such that, for some registrants in certain circumstances, posting information on the registrant’s website may by itself be a sufficient method of public disclosure to comply with Regulation FD.
The registrant will need to consider whether and when postings on its website are reasonably designed to provide broad, non-exclusionary distribution of the information to the public. For purposes of this analysis, the Release indicates that registrants can look to the first two elements of the analysis above. In addition, as part of the evaluation, the registrant must consider its website’s capability to meet the timing requirements for disclosing information pursuant to Regulation FD.
Liability for Website Content under the Anti-Fraud Provisions
The anti-fraud provisions of the federal securities laws apply to statements made by a registrant on its website in the same fashion as they apply to other statements made by or attributable to the registrant. Two areas of online content that are of perennial concern to registrants are archived information and hyperlinked information.
Archived Information. The Release clarifies that, absent an affirmative restatement or reissuance, maintaining previously posted materials on a website does not constitute reissuance or republication of those materials each time that they are accessed, and that there generally is no duty to update the posted information. To the extent that it is not apparent that the posted materials are as of a certain date, the Release indicates that the materials should be separately identified as historical materials, including by dating the materials, and they should be placed on a separate section of the website that contains previously posted information.
Hyperlinked Information. Under the anti-fraud rules, a registrant can be held liable for third-party information to which it hyperlinks from its website to the extent that the information is attributed to the registrant. This can occur if the registrant is involved in the preparation of the information (entanglement) or if it endorses or approves the information (adoption). The Release provides additional guidance on when a registrant may be deemed to have adopted third-party information.
The SEC indicates in the Release that it believes the focus should be on whether the registrant has explicitly or implicitly approved or endorsed the third-party statement. In the case of an implicit approval or endorsement, the key question in the context of hyperlinking is whether the hyperlink and the hyperlinked information together create a reasonable inference that the registrant has approved or adopted the hyperlinked information.
The SEC believes that an important factor in the analysis is what the registrant says about the hyperlink, including what is implied by the context in which it places the hyperlink. In order to avoid potential confusion or misunderstanding as to the registrant’s view or opinion of the hyperlinked information, the SEC recommends in the Release that the registrant explain the context for the hyperlink. For example, at one end of the spectrum, the registrant may explicitly endorse the hyperlinked information or suggest that it supports a particular assertion on the registrant’s website. Alternatively, it may merely note that the hyperlinked information contains information that may be of use to the reader. The SEC recommends that the explanation for the hyperlink take into account the nature and content of the information. A more fulsome explanation may be appropriate if the registrant is selectively linking to a favorable piece of third-party information, as opposed to if the link is on a media page on the registrant’s website that links to both positive and negative news articles about the registrant.
Many registrants use other methods, such as exit notices or intermediate screens, to clearly indicate that information is from a third party. The Release indicates that the sufficiency of these methods to avoid an inference that the registrant has adopted the hyperlinked information will depend upon the particular circumstances surrounding the hyperlinked information. The Release also reiterates the SEC’s position that disclaimers alone do not insulate a registrant from liability for information that it makes available to investors, through hyperlinks or otherwise, that it knows, or is reckless in not knowing, to be materially false or misleading.
Use of Summaries or Overviews. The Release encourages registrants to make use of summaries or overviews to present information, particularly financial information, on their websites. In light of registrant concerns over liability for material misstatements or omissions when presenting summary or overview information, the Release provides guidance concerning their use.
The registrant should alert readers to the summary nature of the information and where more information can be found. In particular, the Release indicates that a registrant may wish to consider the following: (1) using appropriate titles or headings that convey the summary nature of the information; (2) providing explanatory language to identify the information as summary in nature and the location of the more detailed additional information; (3) placing the summary in close proximity to hyperlinks to the more detailed information from which the summary is derived; and (4) using a "layered" format, i.e., embedded links in the information that enable the reader to obtain increasingly detailed information.
Blogs and Electronic Shareholder Forums. Over the last few years, blogs and online forums have become increasingly popular and have begun to be added to public company websites. In recognition of the increasing role played by electronic shareholder forums, earlier in the year, the SEC issued a release specifically addressing selected issues that they raise.
The Release clarifies the application of the anti-fraud provisions to blogs and electronic shareholder forums. These clarifications do not break new ground and are consistent with the application of the anti-fraud provisions to other types of communications. In the Release, the SEC reminds registrants that all communications made by on or behalf of the registrant are subject to the anti-fraud provisions of the federal securities laws, including those made through blogs and electronic shareholder forums. Accordingly, the Release recommends that registrants consider putting in place controls and procedures to monitor company statements made through these channels. However, the SEC notes in the Release that a registrant is not responsible for third party statements made on a company-sponsored website, nor is it obligated to correct or respond third party misstatements.
In the Release, the SEC also indicates that a term or condition of a blog or shareholder forum that requires a user to agree not to make investment decisions based on its content or that disclaims liability for damages arising from the use or inability to use the blog or forum, in the SEC’s view, violates the anti-waiver provisions of the federal securities laws.
Applicability of Disclosure Controls and Procedures
The Securities Exchange Act requires a registrant to carry out an evaluation regarding the effectiveness of the design and operation of its disclosure controls and procedures, and its principal executive officer and principal financial officer must certify as to the same. The Release clarifies that information furnished on a registrant’s website is not subject to disclosure controls and procedures, unless the information is posted in order to satisfy an Exchange Act disclosure obligation. Examples of information that the SEC allows to electively be disclosed on a corporate website, rather than in an Exchange Act filing, include code of ethics waivers and the policy of the registrant’s board on attendance at the annual meeting. Therefore, disclosure controls and procedures must be designed to address the elective disclosure of any information required by the Exchange Act on the registrant’s website, but will not apply to any other information contained on the registrant’s website.
Format of Information and Readability
Finally, in the Release, the SEC recognizes the increasingly interactive nature of online communications. The Release clarifies that it is not necessary for information on a public company website to adhere to a printerfriendly format, except where explicitly required by the SEC’s rules (such as for proxy materials).
A copy of the Release is available at http://www.sec.gov/rules/interp/2008/34-58288.pdf.