The Securities and Exchange Commission (SEC) has issued an interpretative release that gives reporting companies the flexibility to, under the right set of circumstances, make disclosures required by Regulation FD on the company's Web site. This provides a new alternative to the current practice of issuing a press release and/or filing a Form 8-K to comply with Regulation FD. The release also clarifies when statements on a company's Web site could create liability under antifraud rules.
Reporting companies should consider taking steps now in order to avail themselves of the benefits of the release (see “Best Practices” below). If you have questions about how to properly utilize your Web site for disclosure purposes, please contact your Briggs and Morgan attorney or a member of our Securities Group.
The SEC’s Release
Regulation FD and Company Web Sites
Regulation FD provides that when a company, or a person acting on its behalf, discloses material, non-public information to a select group, such as securities analysts or certain shareholders, the company must disclose the information publicly. The company may make this disclosure by filing or furnishing a Form 8-K, or by an “alternative method of disclosure reasonably designed to provide broad, non-exclusionary distribution.”
The SEC’s release provides that, given the right set of circumstances, posting information on a company Web site may be a sufficient method of public disclosure within the meaning of Regulation FD. This represents a departure from the SEC’s earlier position, last articulated in 2005, and reflects the now-pervasive use of the Internet. This new interpretation of Regulation FD has two important applications.
1. Web Site Posting and Subsequent Selective Disclosure
First, if a company discloses certain material, non-public information on its Web site and the Web site posting meets the SEC’s criteria for making that information public (see below), then subsequently stating the disclosed fact in a selective disclosure environment will not violate Regulation FD.
To determine if information is “public,” the following conditions must be met:
- The company Web site is a recognized channel of distribution;
- Posting the information disseminates it in a manner that makes it available and accessible to the general securities marketplace; and
- There has been a reasonable waiting period for investors and the market to react to the posted information.
The SEC provided the following list of non-exclusive factors to meet the first two determinations above:
- Whether the company has informed investors and the markets that it maintains a Web site and they should access it for information;
- Whether the company has a practice of posting important information there;
- Whether the company’s Web site is designed to lead investors and the market efficiently to such information, and whether it is prominently disclosed and readily accessible;
- The extent to which information posted on the Web site is regularly picked up by the market or reported on by the media;
- The steps the company has taken to make its Web site accessible, such as the use of “push” technology such as RSS feeds;
- Whether the company keeps its Web site current and accurate;
- Whether the company uses other methods (in addition to the Web site posting) to disseminate the information and whether those methods are the predominant methods the company uses to disseminate information; and
The nature of the information.
The factors to determine what constitutes a reasonable waiting period are:
- The size and market following of the company;
- The extent to which investors have accessed information at the Web site;
- The steps the company has taken to inform investors and the market that its Web site is an important source of information about the company;
- The steps the company has taken to actively disseminate the information or point out its availability, including through other methods of distribution; and
- The nature and complexity of the information.
2. Web Site Posting as an Alternative Method of Satisfying the Public Disclosure Requirement
Second, if a company executive intends to disclose certain material, non-public information in a meeting with certain investors, and therefore the company is required by Regulation FD to publicly disclose that information, the company may do so by posting such information on its Web site (if the posting meets SEC criteria). In this circumstance, the company would determine whether its Web site is: 1) a recognized channel of distribution and 2) whether the information has been disseminated, using the factors articulated above. If so, the information may be posted on the company’s Web site to satisfy Regulation FD. A smaller company with less of a market following could opt to announce the information in a press release and post it on its Web site. Either option would now conceivably avoid the need to file or furnish a Form 8-K with the SEC. Note that the requirement to post simultaneously (for intentional disclosures) or promptly (for unintentional disclosures) would still apply.
For especially important information, the SEC advises taking additional steps, such as issuing a press release, giving advance notice and/or filing or furnishing the information with the SEC.
NOTE: Press Release Requirements May Still Apply; Application to Incorporation by Reference
Note that if the company’s stock is listed on a national securities exchange, a press release may be separately required by the exchange. For example, issuers listed on the New York Stock Exchange (NYSE) are currently required to disclose material news through a press release. In addition, disclosure on a Web site is not a substitute for a filing made on Forms 8-K, 10-Q or 10-K if a company desires to incorporate such information into its filings under the Securities Act of 1933, such as registration statements on Forms S-3 or S-8.
Antifraud Liability for Information on Company Web Sites
In general, the antifraud provisions of the federal securities laws apply to any statement made by, or attributable to, a company, including statements on the Internet. The SEC’s release puts to rest some concerns that have been raised in recent years about liability related to Web site disclosures, and provides advice for companies in certain situations.
Historical or Previously Posted Statements: Providing access to previously posted information does not, in and of itself, “republish” or “reissue” the statements or create a duty to update them. Companies should identify historical information (e.g. press releases or articles), such as by clearly dating them, and also locate previously posted materials in a separate section of the Web site.
Hyperlinks to Third-Party Information: Generally, a company will be liable for a statement that it has “adopted,” which will be judged by whether the company has explicitly or implicitly endorsed or approved of the statement. To avoid confusion about why a hyperlink appears on an issuer’s Web site, companies should explain why the hyperlink was included (for example, to support a particular assertion, or that the information may be of interest or use to the reader) and consider other methods such as exit notices or intermediate screens that communicate that hyperlinked information does not originate with the company. While helpful, the SEC’s release indicates that these approaches are not an absolute shield against liability. The SEC also continues to take the position that disclaimers will not protect a company from liability for hyperlinking to information that it knows, or is reckless in not knowing, is materially false or misleading.
Summary Information: When presenting summaries or overviews of more complex information on a company Web site, make it clear that the information is a summary, and identify and link to the more detailed information from which the summary was derived.
Interactive Web Site Features: Companies are liable for third-party statements in a blog or electronic forum only when they are made by, or attributable to, the company. A company is not otherwise responsible for third-party statements on its Web site, and is not obligated to respond to or correct their misstatements, unless by the company’s conduct it has otherwise “adopted” the third party’s statement. Employees acting as representatives of the company cannot avoid these obligations by purporting to speak in an individual capacity, and companies cannot require investors to waive protections under the federal securities laws as a condition to entering a blog or forum.
Other Securities Implications of Web Site Statements
The guidance set forth in the release applies only to liability under the Securities Exchange Act of 1934 (Exchange Act) for false or misleading statements. Public companies should be mindful of other potential securities law implications of statements on company Web sites, including the proxy solicitation rules, the prohibition on general solicitation for companies engaged in a Regulation D offering, and disclosure restrictions on companies planning or engaged in a registered offering.
Disclosure Controls and Procedures
Now that the SEC is permitting companies to satisfy certain Exchange Act obligations through Web site postings, the release clarifies that the company’s certifications regarding disclosure controls and procedures will apply to any postings made to satisfy Exchange Act filing requirements. Although disclosure controls and procedures do not apply to the Web site generally, Web site postings made in response to Exchange Act obligations should meet the same high standards as other Exchange Act filings. For companies with disclosure committees in place, the committee’s role could be expanded to include such Web site postings. Failure to post the information that would have otherwise been required to be filed under the Exchange Act would make the company's Exchange Act reports incomplete. Format of Posted Information
Information on a Web site does not need to be in printer-friendly format, unless it is specifically required by another rule.
Best Practices for Reporting Companies to Take Advantage of the New Interpretation
Promote your Web site. Include it in all press releases and periodic reports, and refer to it at other appropriate times. State that your company routinely posts material information on its Web site, and do so. Consider using “push” technology or e-mail alerts.
Update your Web site. Establish systems to ensure all press releases and other important information are posted on your company’s Web site in a timely manner and are dated.
Label information. Label summaries, explain hyperlinks and date historical information.
Establish cross-media systems. Marketing, compliance and technical personnel will need to work together to meet the multi-faceted requirements of a successful Web site. Consider implementing controls related to creating (or editing) Exchange Act-required material and controlling statements made on the company’s Web site or blogs that could be attributed to your company.
Consider your Web site design. Ensure that an investor relations section of the Web site is available directly from the home page and includes your press releases. Historical information should be routinely archived so that new, material information is easily accessible.