Client Alert

SEC Provides Guidance on Use of Company Websites

August 19, 2008

On August 1, 2008, the SEC published an interpretative release to provide guidance on the use of company websites under the Securities Exchange Act and the antifraud provisions of the federal securities laws.¹ Recognizing that the proliferation of company websites and technological advances since 2000, when the SEC last provided guidance on electronic delivery of disclosure documents and company liability for website content, have made dissemination of information in electronic form a superior method of providing company information, the SEC felt that the time for additional guidance was appropriate. The guidance is currently effective.

The SEC guidance focuses on:

• When information posted on a company website is “public” for purposes of Regulation FD; 
• Company liability for information on company websites under the antifraud provisions of the federal securities laws; 
• The types of controls and procedures advisable with respect to such information; and 
• The format of information provided on a company website.

Compliance with Regulation FD

Evaluation of “Public” Nature of Information on Company Websites

Regulation FD prohibits the selective disclosure of material non-public information, which could create unfair advantages in the marketplace. Information posted on a company website is considered a form of communication subject to Regulation FD guidelines. In evaluating whether information posted to its website is “public” under the Regulation FD guidelines, so that its subsequent selective disclosure would not violate Regulation FD, a company must consider whether and when:

• The website is a “recognized channel of distribution”: This determination will depend on the steps the company has taken to publicize the website and its disclosure practices to the market and the use by investors and the market of the website as a source of information about the company. 
• The information is “disseminated” to the securities marketplace in general: This analysis should focus on the manner in which the information is posted on the website and that information’s timely and ready accessibility to the markets. The SEC provides a number of non-exclusive factors that a company may want to consider when evaluating whether the information posted on the website is “posted and accessible” and therefore “disseminated”. 
• There has been a “reasonable waiting period” for investors and the market to react to the posted information: What constitutes a reasonable waiting period depends on the circumstances of the dissemination, including (1) the size and market following of the company, (2) the actions of the company to publicize the use of the website as a source of important information and to disseminate actively the information, or its availability on the website, through other channels, and (3) the nature and complexity of the information.

Satisfaction of Public Disclosure Requirement of Regulation FD

Revisiting its prior position from 2000, the SEC now believes that the posting of information on a company’s website, in and of itself, may be a sufficient method of public disclosure under Rule 101(e) of Regulation FD to satisfy the public disclosure requirements of Regulation FD in connection with an intentional selective disclosure or following an inadvertent selective disclosure of material non-public information. Under this revised position, a company must consider whether and when postings on its website are reasonably designed to provide broad, non-exclusionary distribution to the public by looking at the first two factors discussed above — whether the website is a recognized channel of distribution and whether the information is disseminated to the marketplace. The SEC underscores, however, that it remains the company’s responsibility to evaluate whether its website posting would satisfy the public disclosure requirements of Regulation FD.

Application of Antifraud Provisions to Websites

The antifraud provisions of the federal securities laws will apply to statements a company makes via its website in the same fashion that they apply to any other company statement. In the release, the SEC provides guidance on the application of the antifraud provisions to (1) previously posted materials or statements, (2) hyperlinks to third-party information, (3) summary information and (4) interactive website features.

Previously Posted Materials or Statements on Company Websites

The SEC believes that for the purposes of the antifraud provisions, maintaining previously posted materials or statements on a company website would not be considered reissuing or republishing those materials or statements just because they remain available to the public, unless the company affirmatively restates or reissues that information. For the avoidance of doubt, the SEC suggests that previously posted information should be clearly identified and located in a separate section of the website.

Hyperlinks to Third-Party Information

A company may be held liable for third-party information contained on websites to which a company provides hyperlinks and which would be attributable to the company. In evaluating a company’s potential antifraud liability for hyperlinks to third-party information, the SEC guidance suggests that the focus should be on whether a company has explicitly or implicitly approved or endorsed the statement of a third party such that the company should be liable for that statement. A company should explain the context for the hyperlink and make explicit why the hyperlink is being provided. The SEC guidance states that a company may also use other methods, such as “exit notices” or “intermediate screens” denoting that the hyperlink is to third-party information, to distinguish information not endorsed or adopted by the company. The SEC also notes that a disclaimer alone is not a sufficient shield from potential liability from a hyperlink to third-party information — the entire context of the hyperlink should be considered.

Summary Information

While the SEC encourages the use of summary information, use of summaries standing alone which a reasonable person would not perceive as a summary and which does not alert a reader to where more detailed information is located may be deemed misleading without the context of the more complete information. The SEC guidance suggests that companies consider ways to clearly identify summary information and alert readers to the location of the detailed disclosure on which the summary is based, including through:

• Use of appropriate titles; 
• Use of additional explanatory language; 
• Use and placement of hyperlinks to the more detailed information in close proximity to the summary; and 
• Use of a layered or tiered format.

Interactive Website Features

The SEC guidance makes clear that interactive features such as “blogs” and “electronic shareholder forums” on a company website are subject to the antifraud provisions of the federal securities laws just as company statements made through any other medium would be. As a result, companies should put into place proper controls and procedures to monitor statements made by or on behalf of the company on these electronic forums. The SEC guidance also states that a company cannot require investors to waive federal securities laws' protections as a condition to entering a forum or participating in a blog.

Disclosure Controls and Procedures

Information posted to a website is generally not subject to Exchange Act rules governing certification of disclosure controls and procedures. However, if the company elects to use website posting to satisfy a disclosure obligation as an alternative to filing an Exchange Act report, disclosure controls and procedures would apply because it is information required to be disclosed in an Exchange Act report.

Format of Information and Readability

Under the guidance, the SEC does not believe it is necessary for materials appearing on a company’s website to be printer-friendly format, unless the SEC rules explicitly require it.

Comments Sought

Although the guidance is effective as of August 7, 2008, the SEC is nevertheless soliciting comments with regard to the guidance, which are due by November 5, 2008. Information on submitting comments to the SEC can be found on the SEC’s website at www.sec.gov/rules/submitcomments.htm. 

Our client alerts are for general information purposes and should not be regarded as legal advice.

^{1. SEC Release Nos. 34-58288; IC-28351; File No. S7-23-08. A copy of the release is available on the SEC’s website at www.sec.gov/rules/interp/2008/34-58288.pdf.}