The U.S. Securities and Exchange Commission (SEC) has issued an interpretive release1 that provides the first significant SEC guidance since 2000 on how a company may use its Web site to disclose information and communicate with investors in compliance with the Securities Exchange Act of 1934 (Exchange Act).2 The interpretive release provides guidance to companies in assessing:
When Company Web Site Information Is Considered Public for Purposes of Avoiding or Curing Selective Disclosure Under Regulation FD
Under Regulation FD, when information is considered public, a subsequent disclosure of that information to a securities market professional or a holder of the company’s securities is not disclosure of material, non-public information in violation of Regulation FD’s prohibition against selective disclosure. Significantly, for the first time the SEC has recognized that in certain circumstances the posting of information on a company Web site may, in itself, satisfy the public disclosure requirement of Regulation FD, including public disclosure for purposes of curing a selective disclosure of non-public information to a securities market professional after it occurs. Unfortunately, however, the SEC does not provide any bright line guidance for what constitutes Web site public disclosure for purposes of Regulation FD. Instead, the interpretive release offers the following three-factor test, the application of which depends on analyzing a variety of facts and circumstances. A company should consider: (1) if its Web site is a recognized channel of distributing information about the company; (2) whether the method of posting the information on the Web site disseminates that information in such a manner that it is available to the marketplace in general; and (3) whether there has been a reasonable waiting period for investors and the market to react to the posted information. Non-exclusive facts and circumstances bearing on the analysis include the nature of the posted information, the timeliness and accessibility of postings, the use of “push” technology such as really simple syndication (RSS) feeds, frequency of investor use of the Web site, and the robustness of the Web site in accommodating spikes in volume.
Only very large companies with robust, high-traffic Web sites will feel comfortable in concluding that Web site posting alone is sufficient to constitute public disclosure for purposes of Regulation FD. Moreover, the New York Stock Exchange (NYSE) currently requires its listed companies to issue press releases for material information, so NYSE-listed companies may not use Web site disclosure alone to make public disclosure of material information under Regulation FD. NASDAQ rules permit any Regulation FD-compliant method of disclosure. Companies that make inadvertent selective disclosure of material non-public information will want to continue using Form 8-K to make public disclosure of the information, rather than risk being wrong in analyzing whether Web site disclosure alone would constitute sufficient curative disclosure.
Company Web Site Information Is Subject to Antifraud Rules
The interpretive release reaffirms that a company’s statements made on its Web site are subject to the antifraud provisions of the federal securities laws, including Exchange Act Section 10(b) and Rule 10b-5, in the same manner as any other statement made by, or attributable to, the company. Under Section 10(b) and Rule 10b-5, a company may be liable for any material misstatements or omissions of fact in connection with the purchase or sale of securities. Importantly, the SEC provides specific guidance in the interpretive release on how the antifraud provisions may apply when investors access (1) previously posted company statements; (2) hyperlinked third-party information; (3) summary or overview information; and/or (4) interactive Web site features such as company-sponsored blogs or electronic shareholder forums.
Identifying Previously Posted Information
In the interpretive release, the SEC clarifies that a company maintaining previously posted information on its Web site will not be deemed to have reissued or republished the information every time an investor subsequently accesses that information on the company Web site. To ensure that investors understand that the posted information speaks as of an earlier date or period, the company should: (1) date the posted information; and/or (2) put the information in a separate section of the company Web site.
Avoiding Liability for Hyperlinks
When a company provides a hyperlink to third-party information on its Web site, the company may become liable for the contents of the hyperlinked third-party information if it explicitly or implicitly endorses or approves the hyperlinked information. To limit exposure to liability for the content of hyperlinked third party information, the SEC suggests that a company should explain why it is providing the hyperlink, should consider the degree to which the company is making a selective choice to link to that specific third-party information (in lieu of other third-party information that may present a different viewpoint), and should consider the use of methods such as exit notices or intermediate screens to notify a reader that the information is from a third party. Although exit notices or intermediate screens pose an aggravation to readers, a company should consider their adoption if the hyperlinked site appears to be part of the company’s Web site. The company should bear in mind that the use of disclaimers regarding hyperlinks will not excuse liability when the hyperlink contains information that the company knows, or is reckless in not knowing, is materially false or misleading information.
Identifying Summary Information
The interpretive release also addresses a company’s use of summaries or overviews on its Web site, particularly summary financial information. The SEC states that a company should use appropriate explanatory language and titles or headings to make it clear that the information is summary information. Moreover, the company should alert readers to the location of detailed information by placing the summary section in close proximity to a hyperlink to the more detailed information.
A Company Is Not Liable for Third-Party Statements on Blogs and Shareholder Forums
In the interpretive release, the SEC generally endorses interactive company Web site features such as blogs and electronic shareholder forums as important means of communicating with company investors and other stakeholders. However, the SEC cautions that statements made by or on behalf of a company in an interactive forum are subject to the antifraud rules. A company cannot insulate itself from the application of the antifraud rules by requiring investors to waive protections under the federal securities laws as a precondition to participating in a blog or forum. Nevertheless, even though as noted above, the SEC cautions that a company may be deemed to endorse content that is hyperlinked from its Web site, the interpretive release states that a company will not be held responsible for statements posted by a third party on blogs or interactive forums sponsored by the company. A company is responsible only for its own statements, or those made on its behalf, that are posted on the blog or forum. The interpretive release also states that a company is not responsible for correcting misstatements made by third parties on the blog or forum.
Disclosure Controls and Procedures and Company Web Site Information
Under the Sarbanes-Oxley Act, a company’s principal executive officer and principal financial officer are required to certify that, among other things, they (1) have caused the company to design controls and procedures that ensure timely accumulation and communication to management of information required to be disclosed in Exchange Act reports, and (2) have evaluated the effectiveness of these disclosure controls and procedures. The interpretive release clarifies that such officers will not be required to certify controls covering all information posted on a company Web site. Rather, officers will only be required to certify controls related to information that is posted on a company Web site in lieu of being presented in a required Exchange Act periodic report, such as disclosures regarding waivers of the company’s code of ethics.
Format of Information Posted on Company Web Sites: Emphasis on Readability
The interpretive release also provides companies with greater flexibility in selecting the format in which they post information on their Web sites. A company will only be required to present information posted on its Web site in a printer-friendly format when mandated by applicable SEC regulations, such as the SEC’s e-proxy rules. The company may present all other posted information, including interactive information presented on a company Web site, in formats other than the typical print-and-read format, with a focus on readability rather than printability.
What Does the Interpretive Release Mean for Companies?
A company posting information on its Web site now has more guidelines to assist it in determining how and when it may post the information while maintaining compliance with applicable federal securities laws. However, the SEC guidance is not path breaking and does not provide any specific safe harbor or bright line rules. In large part, the SEC guidance reflects what many companies are already doing. Nevertheless, companies should continue enhancing and making wider use of their Web sites to communicate with investors and other market participants. Making Web sites more informative, user-friendly, and interactive will drive additional traffic to the Web sites. Wider application of existing technology as well as improvements to technology will further enhance Web sites as efficient, cost-effective, and user-friendly means for companies to provide greater transparency under the federal securities laws.
1 Exchange Act Release No. 34-58288. The full text of the interpretive release is available on the SEC’s Web site at http://www.sec.gov/rules/interp/2008/34-58288.pdf.
If you have any questions about this alert or would like to discuss the topic further, please contact your Foley attorney or the following individuals:
Linda Y. Kelso
Peter C. Underwood
Adam C. Lenain
Michael B. Kirwan
Stephen J. Byrnes, Jr.