On August 1, 2008, the SEC released interpretive guidance concerning the use of websites as a means of communicating important information to the investing public. The SEC last released guidance on this topic in 2000. Since then, investors have been increasingly using the Internet to get information about public companies. This updated interpretive guidance was anticipated to be a significant step in recognizing such changes and elaborating on the role of the anti-fraud provisions of the securities laws in light of the changing environment. SEC Chairman Christopher Cox explained in a related speech that the release is intended to provide guidance in light of developments such as social networking and increasing investor demand for interactive formats. He stated that the SEC recognizes that allowing information to be disseminated in formats that are more technologically advanced than EDGAR can be helpful to investors. The new SEC guidance addresses four primary topics.
What Information is “Public” for Reg. FD Purposes? The release clarifies that information posted on a company website may be considered “public” for purposes of Reg. FD if specified conditions are met. If information posted on a company website is “public,” then subsequent disclosure of that information to a person described in Reg. FD would not constitute selective disclosure of non-public information. The factors to consider in evaluating whether a website is “public” are:
- Is the website a recognized channel of distribution? Has the company taken steps to inform investors of its use of the company website to distribute information, such as including the website address in its reports and press releases? What use do investors and the market make of the website?
- Is the information posted on the website disseminated in a way that makes it generally available to the securities marketplace? Is the website easily navigable by investors, and is investor information prominently displayed and presented in an easily accessible format? Does the company keep its website up-to-date and accurate? Does the company use web-based distribution channels that widely distribute information or advise investors of its availability, such as “push” technology? Can the company’s website accommodate a spike in traffic that may accompany a major development?
- Has there been a reasonable waiting period for the market and investors to react to the posted information? There is no uniform reasonable waiting period applicable to all issuers. As a result, a company must use a facts and circumstances approach to determine the duration of a reasonable waiting period. Relevant factors include:
- the size and market cap of the company;
- the extent to which the investor-related information on the website is accessed;
- steps taken to make investors aware that the website is a key source of important information;
- steps taken to disseminate information on the website; and
- the nature and complexity of the information.
Certain important information may require additional steps to alert investors that the information will be posted, such as a press release providing adequate advance notice of the date and time of the anticipated posting.
Is Posting Information on a Website Sufficient for Public Disclosure Under Reg. FD? Disclosure on a company website alone may be an acceptable method of public disclosure of material non-public information for purposes of satisfying this Reg. FD requirement, depending on the specific facts and circumstances. Companies should consider whether their website postings are “reasonably designed to provide broad non-exclusionary distribution of the information to the public.” The same factors set forth for the first two elements above are used in this analysis. In short, this guidance is quite subjective and, therefore, it is likely that most issuers will continue to file Form 8-Ks with critical information, at least for the time being.
Historical Information. The anti-fraud provisions under the Exchange Act apply when a statement is made or is affirmatively restated or reissued. The release clarifies that historical information on a company website is not reissued or republished for purposes of the federal securities laws anti-fraud provisions just by virtue of remaining on the site and available to the public. The SEC recommends that the company make clear what materials are historical or previously posted by dating materials and possibly keeping them in a different section of the website and clarifying that the information is historical and has not been updated.
Links to Third Party Websites. Third party statements are generally not attributable to a company unless the company was involved in the preparation of the information or adopted the information. The release reiterates factors provided in the 2000 release concerning the context and presentation of the link, as well as the risk of confusing investors. The central issue is whether the company has approved (explicitly or implicitly) or endorsed the statement of a third party such that the company should be liable for the statement. An implicit approval can occur if the context and information together create a reasonable inference that the company has approved or endorsed the information. The SEC recommends that a company consider explaining the context of a link to a third party site to make it explicitly clear why the link is being provided. The SEC specifically cautioned that linking solely to reports that are favorable may lead to an inference that the company has approved or endorsed those reports. Explanations should fit the nature and content of the information linked to – and be as general or specific as necessary. The SEC also recommends the use of notices when leaving the company site and entering a different site to help avoid confusion. These precautions will not absolve the company of liability, and the use of disclaimers alone is not sufficient to insulate a company from liability, such as when a company knows, or is reckless in not knowing, that it is providing a link to materially false or misleading information.
Summaries. Summary information provided on websites is useful and important to highlight important information for investors. Summaries should alert the reader how to find more detailed disclosure. Companies should consider using explanatory language to identify summaries and layered or tiered formats which present summary information with embedded links that enable the reader to access more detail.
Electronic Forums. The SEC encourages companies to put procedures and controls in place to monitor statements made on behalf of the company in electronic forums and reminds companies that interactive features, such as blogs and electronic shareholder forums, are subject to the anti-fraud provisions of the federal securities laws. This means companies are responsible for statements made by the company or on its behalf on their website or a third party website, and liability cannot be avoided by purporting to speak in one’s “individual” capacity. In addition, the release makes clear that a company cannot require investors to waive protections under the federal securities laws as a condition to accessing or participating in a blog or forum. However, a company is not responsible for statements made by third parties and is not obligated to respond or correct misstatements made by third parties, even if those statements are made on a company-sponsored forum or blog.
Disclosure Controls and Procedures
Postings on a website may implicate Exchange Act rules regarding officer certification as to disclosure controls and procedures. The controls and procedures requirement would not apply to all information on a website, just to that information posted on the website as an alternative to providing it in a traditional Exchange Act report.
The format of information presented on a company website should be focused on readability, not printability, unless SEC rules otherwise explicitly require printer-friendly format.
The SEC release encourages the use of company websites and interactive Internet tools as an effective way to broadly disseminate information to investors. The release does not go so far as to require company websites (although exchanges do) or set forth any bright line rules for compliance with Reg. FD requirements, but instead sets forth a facts and circumstances approach. Much of the concrete guidance focuses on the aesthetics and appropriate presentation of material on a company website. There is, however, helpful guidance on how to make the transition towards website disclosure. In its lists of factors, the SEC has laid out a framework for how a company can set the stage for making disclosure on their website “public” and “widely disseminated.” A company should take steps to establish that its website is a place for investors to come for important information by consistently keeping it accurate and current and by publicizing its website in all press releases and Exchange Act filings. A company may initially want to allow more than adequate time periods before making any subsequent selective disclosures that may implicate Reg. FD. During the transition, it may be useful to track increased traffic to investor relations areas of the site. In the meantime, it seems prudent to continue to use Form 8-K and press releases until the market and the SEC more fully embrace the use of company websites for public disclosure.
The full text of the SEC interpretive release is available at http://www.sec.gov/rules/interp/2008/34-58288.pdf.