The Securities and Exchange Commission recently issued an interpretive release1 regarding the application of the federal securities laws to information posted on public company web sites. The release provides helpful SEC guidance on several web site topics.
Company Liability for Information Posted to a Web Site
The SEC release reaffirms the SEC’s position that the antifraud provisions of the federal securities laws apply to a company’s statements posted on the company web site in the same manner they would apply to any other statement attributable to the company.
Previously Posted Information
The SEC release states explicitly that a company which maintains historical information on its web site is not “reissuing” or “republishing” such information for purposes of the antifraud provisions of the federal securities laws just because the information continues to be available to the public. The antifraud rules do, however, apply to company statements when they are initially made, as well as when a company affirmatively restates or reissues historical statements. The release also notes that an affirmative restatement or issuance may create a duty to update the information so that it is accurate as of the date it is restated or reissued. To ensure that previously posted materials speak as of an earlier time period, the SEC recommends the following steps:
- Separately identify historical or previously posted materials or statements, including, for example, by dating the posted materials or statements; and
- Locate the previously posted materials or statements in a separate section of the company’s web site.
A company may have liability for links to third-party information if the company has either (i) involved itself in the preparation of the information; or (ii) explicitly or implicity endorsed or approved the information. The SEC release focuses solely on whether the context of the hyperlink and the hyperlinked information together create a reasonable inference that the company has endorsed or approved the hyperlinked information. To avoid such an inference, the SEC recommends the following practices:
- A company should consider explaining the context of the hyperlink and explicitly state why the hyperlink is being provided (for example, whether the company endorses the information, the hyperlinked information supports a company assertion or the information may be of interest only).
- If links to third-party information are provided, a company should not selectively link solely to positive information. For example, the SEC indicated in the release that a company should not limit third-party links to only positive analyst reports.
- The release also encourages the use of “exit notices” or “intermediate screens” to notify investors that they are leaving the company’s web site and entering a third-party’s web site.
- The use of disclaimers is generally advisable when hyperlinking to third-party web sites; however, a disclaimer does not insulate a company from liability if it knows, or was reckless in not knowing, that the hyperlinked information was materially false or misleading.
The SEC notes that summary information can be useful to investors but cautioned that summaries or overviews standing alone could be misleading because they are often not read in the context of the more detailed information being summarized. As a result, the SEC recommends the following techniques to highlight the fact that certain information is in summary form only:
- Use appropriate titles or headings such as “summary” or “overview” to avoid confusion;
- Use additional explanatory language to identify the text as a summary or overview and to highlight the location of the more detailed information;
- Place summaries or overviews near hyperlinks to the more detailed information on which the summary is based; and
- Use a “layered” or “tiered” format with embedded links so that readers can immediately locate the details underlying the summary information.
Blogs and Other Electronic Forums
The SEC release reaffirms the theory that all communications made by or on behalf of a company, including those contained in a blog or electronic forum, are subject to the antifraud provisions of the federal securities laws. The following are the SEC’s guidelines for companies hosting or participating in blogs or electronic forums:
- A company will be responsible for statements made by or on behalf of the company and the antifraud provisions will apply to such statements;
- A company cannot avoid liability by having employees speak in their “individual” capacities;
- A company cannot require users to waive the protections of the antifraud provisions under the securities laws as a condition to participating in a blog or electronic forum; and
- A company is not responsible for third-party statements on company-sponsored web sites, and therefore companies are under no duty to monitor, respond to or correct misstatements by third parties. Companies should, however, avoid implicitly adopting “statements” by third parties by endorsing particular statements or selectively posting third-party statements.
Disclosure Controls and Procedures
The SEC release clarifies that disclosure controls and procedures required by the SEC rules (and which are the subject of CEO and CFO certifications in certain Exchange Act filings) generally do not apply to web site disclosures. However, these disclosure controls and procedures do apply to information posted by a company in order to satisfy its disclosure obligations under the Exchange Act (for example, reconciliations of non-GAAP financial measures, audit, nominating and compensation committee charters or material amendments to or material waiver of its code of ethics). In those limited circumstances, however, the SEC states that companies must make sure that their disclosure controls and procedures are designed to address the disclosure of such information on their web sites.
Web Site Format
In addition to the web site techniques mentioned above, the SEC release explains that web site materials do not need to be formatted in a printer-friendly manner unless SEC rules explicitly require it (e.g. for electronically delivered proxy materials).
Using Web Sites for Regulation FD purposes
The SEC release confirms that disclosure of information on a company web site can, under certain circumstances, satisfy the company’s obligations under Regulation FD2 regarding public dissemination of material non-public information. It also provides a non-exclusive list of factors for a company to consider in making its evaluation. Commentators, however, have noted that the guidance provided is likely useful for only the very largest public companies. This means that for most companies the significance of the new guidance on Regulation FD is to encourage the continued development of company web sites as an additional channel for the dissemination of important company information to investors, even if the web site does not itself yet qualify as a substitute for other approved channels of dissemination under Regulation FD.