SEC Guidance on Company Web Site Use

Over the past several years, rapid developments in technology and the Internet have significantly enhanced the quantity and quality of information available to investors. Investors are now able to retrieve information from the Securities and Exchange Commission (“SEC”) and many companies instantaneously. Acknowledging the significant technological advances since the SEC last provided guidance on Internet issues relating to the Securities Act of 1933 (the “Act”), the SEC, on Aug. 1, 2008, issued an interpretive release that provides updated guidance on the disclosure of investor information on company Web sites. Through this interpretative guidance and recently proposed rules to require companies to file financial statements in an interactive data format using XBRL (eXtensible Business Reporting Language), the SEC has sought to modernize its rules and the information it requires companies to disclose to investors to address the technological capabilities now widely available to most investors.

The SEC issued the release on company Web site use in an attempt to encourage the continued development of company Web sites as a vehicle for delivery and dissemination of information to investors. The release, which supplements earlier guidance from 2000 (Use of Electronic Media, Release No. 33-7856, available online at www.sec.gov/rules/interp/34-42728.htm), addresses the following areas:

• When information posted on a company Web site is “public” for purposes of the applicability of Regulation FD (Fair Disclosure);
• What liability a company has for information on company Web sites (including previously posted information, hyperlinks to third-party information, summary information and blogs);
• What controls and procedures are advisable with respect to information posted on a company Web site; and
• The format of information presented on a company Web site.

When Information Is 'Public'

Increasingly, investors are looking to company Web sites as sources of information to aid in their investment decisions. The primary focus of the SEC's release is whether information posted on a company's Web site provides sufficient dissemination and disclosure to the securities marketplace to be considered “public” for purposes of Regulation FD.

Regulation FD (available online at www.sec.gov/rules/final/33-7881.htm) was adopted to address the problem of selective disclosure of material information by companies. Regulation FD requires that once a selective disclosure has been made, a company must disclose the information to the public; either simultaneously in the case of an intentional disclosure, or promptly in the case of an accidental disclosure. Companies typically issue press releases and file Current Reports on Form 8-K that are available on the SEC's Web site (www.sec.gov) to disclose material information. Many companies also provide access to their SEC filings and press releases through their Web sites.

Given the significant technological advances since Regulation FD became effective in October 2000 and the pervasive use of the Internet by companies and investors, the SEC recognizes in the release that in certain circumstances information may be adequately publicly disclosed solely by a posting on the company's Web site. The SEC provides guidance as to the circumstances under which information posted on a company Web site would be considered “public” for purposes of evaluating: 1) whether subsequent private communications of posted information will trigger further disclosure requirements under Regulation FD; and 2) whether information published on a company's Web site promptly after an unintentional selective disclosure satisfies the requirement that the information be disclosed publicly.

The SEC did not provide a bright-line test, but instead states the analysis would be based on facts and circumstances. In evaluating whether information posted on a company Web site is “public” for the purposes of Regulation FD, the SEC states that companies must consider whether and when:

• A company Web site is a recognized channel of distribution;
• Posting information on a company Web site disseminates the information in a manner making it available to the securities marketplace in general; and
• There has been a reasonable waiting period for investors and the market to react to the posted information.

In the release, the SEC indicates that it would consider several factors, such as the ones listed below, in making the foregoing assessments based on the facts and circumstances. Unless it is reasonably clear, based on these factors, that the securities marketplace considers a company's Web site to be a recognized channel of distribution, the company should continue to disclose material information via more traditional modes of disclosure, such as filing an 8-K report or issuing a press release, at the same time it publishes such information on its Web site. Also, the SEC notes that companies with less of a market following, including smaller market capitalizations, may need to take more affirmative steps so that investors know that the information has been posted on the company's Web site.

Factors for a company to consider in evaluating whether its Web site is a “recognized channel of distribution” and if information posted on its Web site is “posted and accessible” and “disseminated” include:

• What steps has the company taken to alert the market to its Web site and its disclosure practices so that investors know to look to the Web site for material information?
• Is the company's Web site address included in its periodic reports and press releases, along with an indication that important information is routinely posted there?
• Does the company have a pattern of posting such information on its Web site?
• Is the Web site designed to lead investors efficiently to information about the company? Is the information prominently disclosed in the location known and routinely used for such disclosures?
• Is the information presented in a format readily accessible to the general public?
• Is the information on the Web site current and accurate?
• To what extent is information posted on the Web site regularly picked up by the securities markets and picked up and reported by readily available news media? Has the company advised the media about such information?
• Have steps been taken to make the Web site more accessible, such as use of “push” technology such as RSS feeds?
• Does the company use other methods in addition to Web site posting to disseminate information? What is the predominant method?
• What is the size and market following of the company?
• What is the nature and complexity of the information being disclosed?

The release does not provide clear guidance on what is considered a “reasonable waiting period” for market reaction to the information posted on a company Web site. Again, the SEC emphasizes that what constitutes a “reasonable waiting period” is based on facts and circumstances and may vary from company to company and on the particular type of information being disclosed. The SEC indicates in the release that the factors listed above would be considered in this assessment. Given the uncertainty of the timing of the reasonable waiting period, if a company intends to make selective disclosure shortly after disclosing the information on its Web site, companies should take additional steps to alert investors and the securities marketplace in some manner that important information is being, or has been, posted on its Web site. In some circumstances, companies should publish such information via a more traditional mode, such as a press release or SEC filing. By providing advance notice to investors that the company intends to post important information on its Web site, the company will increase investor and market awareness of the availability of such information, as well as increase the dissemination of such information.

The SEC acknowledges that in certain circumstances, posting of material information on a company Web site may be a sufficient method of public disclosure under Regulation FD once a selective disclosure has been made. The release indicates that the company should look to the factors outlined above to determine whether a posting on its Web site will, by itself, satisfy Regulation FD.

Antifraud and Other Exchange Act Provisions

In the release, the SEC also confirms that the antifraud provisions of the federal securities laws apply to company statements made on the Internet, including postings on and hyperlinks from a company Web site, in the same way they would apply to any other statement made by, or attributable to, a company. The release provides advice and clarification on liability risks from the antifraud provisions for a few specific situations as discussed below.

Previously Posted Material

The release clarifies that the SEC does not consider the maintenance of previously posted materials on a Web site as a reissuance or republication of such materials for purposes of the antifraud provisions. If the originally posted information simply remains available on a company's Web site as historic information, then the company will not have a duty to correct or update the information; however, if a company affirmatively restates or reissues a statement, such action may create a duty to update the statement. The SEC advises that to assure investors understand that posted materials or statements speak as of an earlier date or period, previously posted materials or statements should be separately identified as historical (with dates), and should be located in a separate section
of the company's Web site containing previously posted materials or statements.

Hyperlinks to Third-Party Information

The release provides guidance on circumstances under which a company may be subject to antifraud liability for information that is contained on a third-party Web site hyperlinked from the company's Web site. The SEC explains that whether such third-party information is attributable to the company depends on whether the company has involved itself in the preparation of the information, or explicitly or implicitly endorsed or approved the information. Among the important factors that the SEC will consider in this determination is what the company says about the hyperlink, including what is implied by the context of the hyperlink as well as the nature and content of the hyperlink. To avoid the inference that the company is commenting on or approving the hyperlink, the SEC indicates that companies should consider adding explanatory language about the source of the hyperlink and why the company is providing the hyperlink. While the SEC makes it clear that the use of disclaimers alone will not shield a company from antifraud liability, a company should consider including “exit notices” or “intermediate screens” to clarify
that the hyperlink is to third-party information.

Summary Information

The release provides guidance with respect to companies' use of summaries or overviews to present information on their Web sites. To avoid confusion as to the level of incompleteness in these disclosures, the SEC recommends that companies presenting summary information on their Web sites use:

• Explanatory language to identify the information as summary and to identify the location of more detailed information;
• Appropriate titles that convey the summary or overview nature of the information;
• Hyperlinks from the summary to more detailed information; and
• A “layered” or “tiered” format that allows the reader to “drill down” to more detail by clicking on the links.

Blogs, Shareholder Forums
And Other Interactive Features

In the release, the SEC affirms that all communications made by, or on behalf of, a company, including blogs and shareholder forums, are subject to the antifraud provisions of the federal securities laws; however, the SEC clarifies that a company is not responsible for statements that third parties post on a Web site the company sponsors, nor is a company obligated to respond to or correct misstatements made by third parties. The SEC recommends that companies take steps to put controls and procedures in place to monitor statements made by, or on behalf of, the company in electronic forums. For instance, employees acting as representatives of the company should be aware of their responsibilities in these forums and that they cannot avoid such responsibilities by purporting to speak in their individual capacities. In addition, companies cannot require investors to waive protections under the federal securities laws as a condition to entering or participating in a blog or forum.

Disclosure Controls and Procedures

The release notes that disclosure on a company's Web site may implicate Securities Exchange Act rules governing certification requirements relating to disclosure controls and procedures. Various rules adopted by the SEC permit issuers to satisfy certain Securities Exchange Act disclosure obligations by posting information on their Web sites as an alternative to providing a report. If a company elects to satisfy its disclosure obligations by posting information on its Web site, such disclosure would be subject to the certification of disclosure controls and procedures by the company's principal executive and financial officers. Therefore, companies should ensure that their disclosure controls and procedures are designed to address the disclosure of such information on their Web sites.

Format of Information and Readability

The release clarifies that information appearing on company Web sites need not be in printer-friendly format, unless the SEC rules explicitly require it in a particular circumstance. By giving companies more flexibility in the format of their Web sites, companies may be encouraged to develop their Web sites and enhance the presentation of information. Note however, that in some cases, such as the SEC's notice and access model for e-proxy, the SEC requires that electronically posted proxy materials be present in a format “convenient for both reading online and printing on paper.”

Conclusion

While the SEC's recent release provides a necessary update and supplement to previously issued guidance on company liability for Web site content, the facts and circumstances test outlined in the release leaves significant uncertainty surrounding the question of how the SEC will determine compliance in each particular situation. In the case of smaller companies with less of a market following, the guidance indicates that such companies will need to take more affirmative steps to make investors aware of postings. This will compel many companies to continue using traditional modes of disclosure in addition to posting information on their Web sites.

Nevertheless, the SEC acknowledges in this release the vital role of the Internet and proliferation of electronic communications and has tacitly approved disclosure through company Web sites (albeit in limited circumstances), which is likely to result in reduced disclosure costs in the future and encourage companies to develop and promote their Web sites as effective tools for investors.

Over the past several years, rapid developments in technology and the Internet have significantly enhanced the quantity and quality of information available to investors. Investors are now able to retrieve information from the Securities and Exchange Commission (“SEC”) and many companies instantaneously. Acknowledging the significant technological advances since the SEC last provided guidance on Internet issues relating to the Securities Act of 1933 (the “Act”), the SEC, on Aug. 1, 2008, issued an interpretive release that provides updated guidance on the disclosure of investor information on company Web sites. Through this interpretative guidance and recently proposed rules to require companies to file financial statements in an interactive data format using XBRL (eXtensible Business Reporting Language), the SEC has sought to modernize its rules and the information it requires companies to disclose to investors to address the technological capabilities now widely available to most investors.

The SEC issued the release on company Web site use in an attempt to encourage the continued development of company Web sites as a vehicle for delivery and dissemination of information to investors. The release, which supplements earlier guidance from 2000 (Use of Electronic Media, Release No. 33-7856, available online at www.sec.gov/rules/interp/34-42728.htm), addresses the following areas:

• When information posted on a company Web site is “public” for purposes of the applicability of Regulation FD (Fair Disclosure);
• What liability a company has for information on company Web sites (including previously posted information, hyperlinks to third-party information, summary information and blogs);
• What controls and procedures are advisable with respect to information posted on a company Web site; and
• The format of information presented on a company Web site.

When Information Is 'Public'

Increasingly, investors are looking to company Web sites as sources of information to aid in their investment decisions. The primary focus of the SEC's release is whether information posted on a company's Web site provides sufficient dissemination and disclosure to the securities marketplace to be considered “public” for purposes of Regulation FD.

Regulation FD (available online at www.sec.gov/rules/final/33-7881.htm) was adopted to address the problem of selective disclosure of material information by companies. Regulation FD requires that once a selective disclosure has been made, a company must disclose the information to the public; either simultaneously in the case of an intentional disclosure, or promptly in the case of an accidental disclosure. Companies typically issue press releases and file Current Reports on Form 8-K that are available on the SEC's Web site (www.sec.gov) to disclose material information. Many companies also provide access to their SEC filings and press releases through their Web sites.

Given the significant technological advances since Regulation FD became effective in October 2000 and the pervasive use of the Internet by companies and investors, the SEC recognizes in the release that in certain circumstances information may be adequately publicly disclosed solely by a posting on the company's Web site. The SEC provides guidance as to the circumstances under which information posted on a company Web site would be considered “public” for purposes of evaluating: 1) whether subsequent private communications of posted information will trigger further disclosure requirements under Regulation FD; and 2) whether information published on a company's Web site promptly after an unintentional selective disclosure satisfies the requirement that the information be disclosed publicly.

The SEC did not provide a bright-line test, but instead states the analysis would be based on facts and circumstances. In evaluating whether information posted on a company Web site is “public” for the purposes of Regulation FD, the SEC states that companies must consider whether and when:

• A company Web site is a recognized channel of distribution;
• Posting information on a company Web site disseminates the information in a manner making it available to the securities marketplace in general; and
• There has been a reasonable waiting period for investors and the market to react to the posted information.

In the release, the SEC indicates that it would consider several factors, such as the ones listed below, in making the foregoing assessments based on the facts and circumstances. Unless it is reasonably clear, based on these factors, that the securities marketplace considers a company's Web site to be a recognized channel of distribution, the company should continue to disclose material information via more traditional modes of disclosure, such as filing an 8-K report or issuing a press release, at the same time it publishes such information on its Web site. Also, the SEC notes that companies with less of a market following, including smaller market capitalizations, may need to take more affirmative steps so that investors know that the information has been posted on the company's Web site.

Factors for a company to consider in evaluating whether its Web site is a “recognized channel of distribution” and if information posted on its Web site is “posted and accessible” and “disseminated” include:

• What steps has the company taken to alert the market to its Web site and its disclosure practices so that investors know to look to the Web site for material information?
• Is the company's Web site address included in its periodic reports and press releases, along with an indication that important information is routinely posted there?
• Does the company have a pattern of posting such information on its Web site?
• Is the Web site designed to lead investors efficiently to information about the company? Is the information prominently disclosed in the location known and routinely used for such disclosures?
• Is the information presented in a format readily accessible to the general public?
• Is the information on the Web site current and accurate?
• To what extent is information posted on the Web site regularly picked up by the securities markets and picked up and reported by readily available news media? Has the company advised the media about such information?
• Have steps been taken to make the Web site more accessible, such as use of “push” technology such as RSS feeds?
• Does the company use other methods in addition to Web site posting to disseminate information? What is the predominant method?
• What is the size and market following of the company?
• What is the nature and complexity of the information being disclosed?

The release does not provide clear guidance on what is considered a “reasonable waiting period” for market reaction to the information posted on a company Web site. Again, the SEC emphasizes that what constitutes a “reasonable waiting period” is based on facts and circumstances and may vary from company to company and on the particular type of information being disclosed. The SEC indicates in the release that the factors listed above would be considered in this assessment. Given the uncertainty of the timing of the reasonable waiting period, if a company intends to make selective disclosure shortly after disclosing the information on its Web site, companies should take additional steps to alert investors and the securities marketplace in some manner that important information is being, or has been, posted on its Web site. In some circumstances, companies should publish such information via a more traditional mode, such as a press release or SEC filing. By providing advance notice to investors that the company intends to post important information on its Web site, the company will increase investor and market awareness of the availability of such information, as well as increase the dissemination of such information.

The SEC acknowledges that in certain circumstances, posting of material information on a company Web site may be a sufficient method of public disclosure under Regulation FD once a selective disclosure has been made. The release indicates that the company should look to the factors outlined above to determine whether a posting on its Web site will, by itself, satisfy Regulation FD.

Antifraud and Other Exchange Act Provisions

In the release, the SEC also confirms that the antifraud provisions of the federal securities laws apply to company statements made on the Internet, including postings on and hyperlinks from a company Web site, in the same way they would apply to any other statement made by, or attributable to, a company. The release provides advice and clarification on liability risks from the antifraud provisions for a few specific situations as discussed below.

Previously Posted Material

The release clarifies that the SEC does not consider the maintenance of previously posted materials on a Web site as a reissuance or republication of such materials for purposes of the antifraud provisions. If the originally posted information simply remains available on a company's Web site as historic information, then the company will not have a duty to correct or update the information; however, if a company affirmatively restates or reissues a statement, such action may create a duty to update the statement. The SEC advises that to assure investors understand that posted materials or statements speak as of an earlier date or period, previously posted materials or statements should be separately identified as historical (with dates), and should be located in a separate section
of the company's Web site containing previously posted materials or statements.

Hyperlinks to Third-Party Information

The release provides guidance on circumstances under which a company may be subject to antifraud liability for information that is contained on a third-party Web site hyperlinked from the company's Web site. The SEC explains that whether such third-party information is attributable to the company depends on whether the company has involved itself in the preparation of the information, or explicitly or implicitly endorsed or approved the information. Among the important factors that the SEC will consider in this determination is what the company says about the hyperlink, including what is implied by the context of the hyperlink as well as the nature and content of the hyperlink. To avoid the inference that the company is commenting on or approving the hyperlink, the SEC indicates that companies should consider adding explanatory language about the source of the hyperlink and why the company is providing the hyperlink. While the SEC makes it clear that the use of disclaimers alone will not shield a company from antifraud liability, a company should consider including “exit notices” or “intermediate screens” to clarify
that the hyperlink is to third-party information.

Summary Information

The release provides guidance with respect to companies' use of summaries or overviews to present information on their Web sites. To avoid confusion as to the level of incompleteness in these disclosures, the SEC recommends that companies presenting summary information on their Web sites use:

• Explanatory language to identify the information as summary and to identify the location of more detailed information;
• Appropriate titles that convey the summary or overview nature of the information;
• Hyperlinks from the summary to more detailed information; and
• A “layered” or “tiered” format that allows the reader to “drill down” to more detail by clicking on the links.

Blogs, Shareholder Forums
And Other Interactive Features

In the release, the SEC affirms that all communications made by, or on behalf of, a company, including blogs and shareholder forums, are subject to the antifraud provisions of the federal securities laws; however, the SEC clarifies that a company is not responsible for statements that third parties post on a Web site the company sponsors, nor is a company obligated to respond to or correct misstatements made by third parties. The SEC recommends that companies take steps to put controls and procedures in place to monitor statements made by, or on behalf of, the company in electronic forums. For instance, employees acting as representatives of the company should be aware of their responsibilities in these forums and that they cannot avoid such responsibilities by purporting to speak in their individual capacities. In addition, companies cannot require investors to waive protections under the federal securities laws as a condition to entering or participating in a blog or forum.

Disclosure Controls and Procedures

The release notes that disclosure on a company's Web site may implicate Securities Exchange Act rules governing certification requirements relating to disclosure controls and procedures. Various rules adopted by the SEC permit issuers to satisfy certain Securities Exchange Act disclosure obligations by posting information on their Web sites as an alternative to providing a report. If a company elects to satisfy its disclosure obligations by posting information on its Web site, such disclosure would be subject to the certification of disclosure controls and procedures by the company's principal executive and financial officers. Therefore, companies should ensure that their disclosure controls and procedures are designed to address the disclosure of such information on their Web sites.

Format of Information and Readability

The release clarifies that information appearing on company Web sites need not be in printer-friendly format, unless the SEC rules explicitly require it in a particular circumstance. By giving companies more flexibility in the format of their Web sites, companies may be encouraged to develop their Web sites and enhance the presentation of information. Note however, that in some cases, such as the SEC's notice and access model for e-proxy, the SEC requires that electronically posted proxy materials be present in a format “convenient for both reading online and printing on paper.”

Conclusion

While the SEC's recent release provides a necessary update and supplement to previously issued guidance on company liability for Web site content, the facts and circumstances test outlined in the release leaves significant uncertainty surrounding the question of how the SEC will determine compliance in each particular situation. In the case of smaller companies with less of a market following, the guidance indicates that such companies will need to take more affirmative steps to make investors aware of postings. This will compel many companies to continue using traditional modes of disclosure in addition to posting information on their Web sites.

Nevertheless, the SEC acknowledges in this release the vital role of the Internet and proliferation of electronic communications and has tacitly approved disclosure through company Web sites (albeit in limited circumstances), which is likely to result in reduced disclosure costs in the future and encourage companies to develop and promote their Web sites as effective tools for investors.