Earlier this month, the Securities and Exchange Commission issued an interpretive release providing important, new guidance to issuers regarding use of company web sites under the Securities Exchange Act of 1934 and the antifraud provisions of the federal securities laws. SEC Release No. 34-58288 (August 1, 2008). The new release was prompted by the February 2008 Progress Report of the Federal Advisory Committee on Improvements to Financial Reporting, which recommended more guidance on how companies can use their web sites to provide information to investors in compliance with the federal securities laws. The SEC last provided such guidance in 2000. See SEC Release No. 34-42728 (April 28, 2000).
In the introduction to the new release, the SEC notes that “today we have reached a point where the availability of information in electronic form – whether on EDGAR or a company web site – is the superior method of providing company information to most investors.” In a footnote, the SEC goes on to state: “We do not view the guidance in this release as a delineation of the outer limits of how technology can or should be used on company web sites.”
The new guidance covers two principal areas: (1) use of company web sites to satisfy public disclosure requirements under Regulation FD; and (2) applicability of securities antifraud provisions to several common web-site practices. Although it is helpful to have additional SEC interpretation in these areas, most of the guidance in the new release consists of complex facts-and-circumstances analyses instead of the sort of bright-line guidance that might have had a more immediate impact on current practices.
Regulation FD and Company Web Sites
The new release provides guidance on two Regulation FD issues relating to web sites:
1. When does web posting make information “public” for Regulation FD purposes so an issuer may then discuss it with analysts, shareholders and others in private settings without a Regulation FD violation?
2. When does concurrent posting of information (or posting of information within 24 hours) on a company web site “cure” a selective disclosure that would otherwise be a Regulation FD violation?
When evaluating whether web-site-posted information is public for purposes of Regulation FD, the SEC recommends that companies consider: (1) whether their web site is a “recognized channel of distribution,” and (2) whether posting of information on the web site “disseminates” the information in a manner that makes it available to the securities marketplace in general. In addition, with respect to Regulation FD disclosures made to allow for subsequent private discussion of the disclosed information, the guidance suggests that companies consider whether there has been a “reasonable waiting period” for investors and the market to react to the posted information.
Whether a web site is a “recognized channel of distribution” depends on the steps the company has taken to alert the market to the site and to its disclosure practices, as well as the use of the site by investors and the market. Similarly, to analyze “dissemination” for purposes of Regulation FD “public” status requires focus on (1) the manner in which information is posted and (2) timely and ready accessibility of such information to investors and the markets.
The new release includes a non-exclusive list of factors to consider in evaluating whether a company web site is a “recognized channel of distribution” and whether information is “posted and accessible” and therefore “disseminated,” including:
- Whether and how a company lets investors and markets know it has a web site.
- Whether the company has made investors and markets aware that it will post important information and whether it has a pattern or practice of posting such information.
- Whether the company’s web site is designed to lead investors efficiently to information, whether the information is prominently disclosed in a location known and routinely used for such disclosures, and whether the information is presented in a format readily accessible to the public.
- The extent to which posted information is regularly picked up by the market and reported in readily available 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.
- Steps taken to make the company’s web site and information accessible, including use of “push” technology, such as RSS feeds, or releases through other distribution channels, either to widely distribute such information or advise markets of its availability.
- Whether the company keeps its web site current and accurate.
- Whether the company uses other methods in addition to web-site posting to disseminate the information and whether those other methods are the predominant methods the company uses to disseminate information.
- The nature of the information.
The new guidance also provides advice on what constitutes a “reasonable waiting period” for purposes of web-site posting of material information in advance of a private discussion of that information. This analysis depends on the circumstances of the dissemination, including:
- The size and market following of the company.
- The extent to which investor-oriented information on the company web site is regularly accessed.
- Steps taken to make investors and the market aware that the company uses its web site as a key source of important information about itself, including the location of posted information.
- Whether the company has taken steps to actively disseminate the information or the availability of the information posted on the web site.
- The nature and complexity of the information.
Antifraud Provisions and Company Web Sites
Antifraud provisions apply to company statements made on the Internet in the same way they apply to any other statement made by, or attributable to, a company. The new release provides guidance on certain antifraud issues relating particularly to web disclosures.
Maintaining Posted Materials or Statements for Prolonged Period
The SEC indicates it does not “believe that companies maintaining previously posted materials or statements on their web sites are reissuing or republishing such materials or information” for purposes of antifraud provisions “just because the materials or statements remain accessible to the public.” This is of real importance to issuers because an affirmative restatement or reissuance of information may create a duty to update the information so it is accurate as of the date it is restated or reissued.
Although the SEC does not believe mere maintenance of information on a website constitutes reissuance, it goes on to suggest that, where it is not reasonably apparent that the posted materials or statements speak as of an earlier date or period, the issuer should (1) separately identify the information as historical or as previously posted (for example, by dating the posted materials or statements), and (2) locate the information in a separate section of the web site containing previously posted materials or statements.
Hyperlinks to Third-Party Information
A company may be liable under antifraud provisions for third-party information to which it hyperlinks from its web site, if such information is “attributable” to the company. In its 2000 release on web-site disclosure, the SEC indicated that hyperlinked information may be attributable to a company if the company has (1) involved itself in preparation of the information (“entanglement” theory), or (2) explicitly or implicitly endorsed or approved the information (“adoption” theory). The SEC cited the following factors which may influence analysis of whether an issuer has adopted hyperlinked information:
- Context of the link – what the company says about the link or what is implied by the context in which the company places the link.
- Risk of confusing investors – presence or absence of precautions against investor confusion about the source of the information.
- Presentation of the linked information – how the link is presented graphically on the web site, including layout of the screen containing the link.
In the new release, the SEC provides further guidance on these issues as they relate to the adoption theory. With respect to the context of the link, the SEC states:
[T]he company should consider explaining the context for the hyperlink – and thereby make explicit, rather than implicit, why the hyperlink is being provided. For example, a company might explicitly endorse the hyperlinked information or suggest that the hyperlinked information supports a particular assertion on the company’s web site. Alternatively, a company might simply note that the third-party web site contains information that may be of interest or of use to the reader.
The SEC goes on to say that the nature and content of the linked information also should be considered in deciding how to explain the context:
The degree to which a company is making a selective choice to hyperlink to a specific piece of third-party information likely will indicate the extent to which the company has a positive view or opinion about that information. . . . For example, if a company has a media page and simply provides hyperlinks to recent news articles, both positive and negative, about the company, the risk that a company may have liability regarding a particular article or that it endorses or approves of each and every news article may be reduced. In this case, a title such as “Recent News Articles” may be all the explanation that a company may determine is needed to avoid being considered to have adopted the materials.
The SEC believes summary information can be particularly appropriate and helpful to investors when it relates to lengthy or complex information. The SEC suggests that a company consider ways to alert readers to the location of the detailed disclosure from which a summary or overview is derived, such as:
- Titles or headings conveying the summary nature of the information.
- Additional explanatory language to identify the text as a summary and the location of more detailed information.
- Placing a summary section in close proximity to hyperlinks to the more detailed information.
- Multiple hyperlinks to create a “layered” or “tiered” format, with the most important summary information on the opening page and more detailed information available by drilling down through the links.
Interactive Web-Site Features
With respect to “blogs,” “electronic shareholder forums” and other interactive web-site features, the SEC starts by stating that all communications made by or on behalf of a company are subject to antifraud provisions, so companies should consider controls and procedures to monitor statements made by or on behalf of the company. The SEC goes on to note, however, that “a company is not responsible for the statements that third parties post on a web site the company sponsors, nor is a company obligated to respond to or correct misstatements made by third parties” in a blog or forum.
Finally, the SEC states that, except in those limited instances where information may be posted on the Internet as an alternative to providing it in an SEC report, CEO and CFO certifications regarding disclosure controls and procedures will not cover any controls the company may have put in place with respect to web-site disclosure. In addition, the SEC states its belief that information appearing on a company web site does not need to satisfy a printer-friendly standard, except for information otherwise required to be printable (e.g., electronically delivered proxy materials).
For large issuers with robust analyst coverage and a dedicated following in the news media, the guidance in the new release may provide a basis for posting on the company web site as an alternative to press releases. For the majority of issuers, however, the facts-and-circumstances guidelines in the release will not provide a sufficient level of comfort to forego the more traditional dissemination of material news through press releases. Indeed, the vast majority of issuers, regardless of their size and whether they rely on press releases or web-site posting of information, will in all likelihood continue taking advantage of the Regulation FD safe harbor for public disclosure by filing a Form 8-K in connection with announcements of material information.
Although the guidance on the use of company web sites for Regulation FD disclosure purposes may have limited impact on current practices, the guidance on applicability of antifraud provisions to company web sites will provide issuers with some additional comfort on practices already in use, such as prolonged web posting of materials and linking to third-party information.