United States: SEC Issues Guidance On The Use Of Company Web Sites

Corporate and Securities Update

Introduction

In August 2008, the Securities and Exchange Commission published an interpretive release providing guidance on the use of company web sites under the Securities Exchange Act of 1934 and the antifraud provisions of the securities laws.¹ This release is part of the SEC's continued efforts to promote the use of company web sites as a vehicle for the dissemination of information to investors in order to bring SEC reporting requirements in line with twenty-first century technology and communication. The release addresses whether:

• information posted on company web sites may be used to comply with Regulation FD requirements;
  
  
• the antifraud provisions of the securities laws apply to information posted on or hyperlinked to company web sites; and
  
  
• disclosure controls and procedures are applicable to information posted on the company web sites.
  
  

The release also clarifies that not all information posted on company web sites must be in printer-friendly format.

Information Posted on Company Web Sites May Be Used to Comply with Regulation FD Requirements

If a company or any person acting on its behalf makes selective disclosure of material nonpublic information regarding the company or its securities, then the company must make public disclosure of such information as required by Regulation FD. The SEC has clarified in its release that if the information on the company web site is deemed public (what constitutes public disclosure on a company web site is explained in this release and described below), then subsequent selective disclosure of that information to an analyst or in a private conversation would not trigger Regulation FD's public disclosure requirement. In addition, should a company make selective disclosure, the SEC Staff indicates that subsequent posting of such information on the company web site could satisfy the simultaneous (in the case of intentional disclosure) or prompt (in the case of unintentional disclosure) public disclosure requirement under Regulation FD and serve as an alternative to filing a current report on Form 8-K or using other methods of disclosure designed to provide broad distribution of information to the public. This is a significant departure from the position previously taken by the SEC Staff when Regulation FD was adopted.

For information to be public for purposes of Regulation FD, it must be disseminated to investors through recognized channels of distribution, and there should be a reasonable waiting period available to investors after such dissemination in order to react to the information. To help a company determine whether its web site is a recognized channel of distribution that has effectively disseminated information about the company to the market, the SEC recommends each company to consider, among other factors:

• whether and how it notifies the market that its web site contains information for investors;
  
  
• whether such information is prominently disclosed and readily accessible on the web site;
  
  
• how extensively the web site is used by investors to regularly retrieve such information; and
  
  
• whether the web site provides up-to-date and accurate information.
  
  

With respect to providing the market with an appropriate time period to react to posted information, the determination of whether such information is public for the purposes of the subsequent selective disclosure depends on specific facts and circumstances related to the dissemination of the information, which include, among other factors:

• the size of the company;
  
  
• the market following the company;
  
  
• the extent to which investor information is regularly accessed on the company web site; and
  
  
• the level of complexity of the information.
  
  

If the company would like to use its web site disclosures to satisfy Regulation FD requirements, it should evaluate carefully whether its web site is a recognized channel of distribution and whether the posted information is broadly disseminated.

Antifraud Provisions of the Securities Laws Apply to Information Posted on or Hyperlinked to Company Web Sites

The antifraud provisions of the federal securities laws, including Exchange Act Section 10(b) and Rule 10b-5 promulgated under the Exchange Act, apply to information posted on or hyperlinked to a company web site. Because these provisions generally prohibit making material misstatements and omitting material facts in connection with the purchase or sale of securities, it is imperative that the company ensures the accuracy of such information. The SEC provides guidance regarding the company's potential antifraud liability for:

• information previously posted on its web site;
  
  
• hyperlinks to third-party information;
  
  
• summary information; and
  
  
• content of interactive web site features.
  
  

The SEC takes a position that a company has not reissued or republished previously posted information for the purposes of the antifraud provisions of the securities laws simply because such information remains on the web site and is accessible to the public. However, if a company affirmatively reissues a statement, the antifraud provisions of the securities laws would apply to such statement, which may require the company to continue updating the previously posted information. The SEC recommends that companies post all historical investor information in a separate section of the web site specifically designated for such purpose and date such previously posted information to avoid the impression of reissuing such information.

A company can also be held liable under the antifraud provisions of the securities laws for third-party information that it has hyperlinked to its web site, provided the company was involved in its preparation or endorsed such information, and thus essentially adopted it as its own information. Explaining why third-party information is hyperlinked to the web site may help to clarify any ambiguity as to whether the company is endorsing the third-party information or merely providing it as a point of interest for the reader. Another factor to consider is whether the content of the hyperlinked information is very selective (for example, only positive information about the company is hyperlinked), which may suggest that the company has adopted the views conveyed. Moreover, while "exit notices" or "intermediate screens" leading to hyperlinked information may clarify confusion as to the source of the hyperlinked information, the SEC warns that these measures alone may not suffice to shield a company from antifraud liability. Similarly, disclaimers as to the accuracy of the third-party information will not insulate a company from antifraud liability if the company knows or is reckless in not knowing that such third-party information is materially false or misleading.

Companies that hyperlink to third-party information that they did not prepare and do not necessarily approve, such as analysts reports and recommendations, should consider whether to continue to include these hyperlinks or institute additional precautions given the SEC guidance that disclaimers and exit notices may not be sufficient to protect companies from unintended liability.

While summaries of information, such as financial information, can be helpful on company web sites, the SEC recommends companies to specifically explain that such information is a summary as well as provide the reader a link to more detailed information on the subject to avoid antifraud liability based on the information that the investor can obtain from the summary.

As companies are making greater use of interactive web site features such as "blogs" or "electronic shareholder forums," the SEC suggests that they should have appropriate controls and procedures monitoring statements made by or on behalf of the company on such blogs or forums, because the antifraud provisions of the securities laws apply to these channels of communication. In addition, the SEC clarified that companies may not have investors waive federal securities laws protection as a condition of using a blog or a forum.

In light of this guidance, companies should review their web sites to make sure that they take the appropriate steps to protect themselves from antifraud liability under the federal securities laws in connection with historical information and summaries posted on the web sites as well as their use of hyperlinks and interactive web site features, if any.

Disclosure Controls and Procedures Apply to Certain Information Posted on Company Web Sites

Under SEC rules and regulations, the company's principal executive officer and principal financial officer must certify that they have evaluated the effectiveness of the disclosure controls and procedures as of the end of every fiscal quarter and such certifications must be attached to the quarterly and annual reports filed with the SEC.

The release clarifies that these disclosure controls and procedures cover information disclosed on the company web site as an alternative to providing the required disclosure in an Exchange Act report or proxy statement filed with the SEC. For example, if a company elected to post its code of ethics on its web site instead of filing it as an exhibit to its annual report on Form 10-K as permitted by the SEC rules, but the company failed to post its code of ethics on the web site, then its Form 10-K is incomplete, and such failure to post the code of ethics on the web site should be considered by the principal executive and financial officers in evaluating the effectiveness of disclosure controls and procedures.

As a result of the foregoing guidance, companies should review their elections to use web site posting as the appropriate disclosure vehicle instead of providing such disclosure in Exchange Act reports or proxy statements to ensure that these postings are maintained for the required periods. In addition, specific controls should be put in place, as necessary, to avoid the inadvertent deletion of these materials from the company web site. These efforts will help avoid the deletion of required disclosure, where such omission may lead to a determination that disclosure controls and procedures are not effective.

Information Posted on Company Web Sites Does Not Have to Be in Printer-Friendly Format

The SEC has previously recommended that the information posted on the company web site should satisfy a printer-friendly standard. The SEC's new guidance clarifies that some information on a company's web site may be designed for interactive viewing rather than printing and focuses on the readability of the information. The SEC is no longer requiring a printer-friendly format for all information posted on the company web site unless specific SEC rules expressly mandate it (for example, rules related to proxy materials).

Footnotes

1. See Commission Guidance on the Use of Company Web Sites, Exchange Act Release No. 34-58288 (eff. August 7, 2008).

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