Introduction

The SEC recently issued new guidance on the use of company web sites under the Securities Exchange Act of 1934 and the antifraud provisions of the federal securities laws. The guidance was issued in response to a recommendation by the Federal Advisory Committee on Improvements to Financial Reporting that the SEC furnish additional guidance on how companies can use their web sites to provide information to investors in compliance with the federal securities laws. The SEC was also prompted by ongoing technological advances in electronic communications which have increased the markets' and investors' demand for timely company disclosure. The updated guidance primarily addresses (1) when information posted on a company web site is "public" for purposes of Regulation FD (Fair Disclosure) and (2) company liability for information on web sites.

Summary of the Guidance

When Information is Public

The guidance establishes a test for determining whether information is public. The test provides that companies should consider whether and when:

  • company web site is a recognized channel of distribution of company information, 

  • posting information on a company web site disseminates it by making it available to investors and the securities marketplace, and

  • there has been a reasonable waiting period for investors to react to the posted information.

Antifraud Provisions

The guidance provides clarity with respect to following issues arising under the antifraud provisions of the federal securities laws as they apply to content, including hyperlinks, posted on company web sites:

  • Previously posted materials maintained on a company's web site generally will not be considered reissued or republished for purposes of the antifraud provisions;

  • Companies should explain on their web site why it is providing a particular hyperlink in order to avoid endorsing or approving third-party information and prevent liability for third-party information accessible from such hyperlink;

  • Companies should consider using explanatory language to identify summary information in order to avoid violating the antifraud provisions; and

  • Statements made on blogs or other interactive web sites are subject to the antifraud provisions of the federal securities laws and companies cannot require investors to waive protections under the federal securities laws as a condition to the use of such interactive web sites.

Disclosure Controls and Procedures

The release also clarifies a company's obligations relating to disclosure controls and procedures. If a company elects to satisfy disclosure obligations by posting information on its web site, disclosure controls and procedures would apply to such information because the information is required to be disclosed by the company in an Exchange Act report. Therefore, a company's disclosure controls and procedures should be designed to address the disclosure of information on its web sites.

Format of Information and Readability

Finally, the guidance explains that information on company web sites does not have to be printer-friendly unless explicitly required by the securities laws.

Complying with the Guidance

Based on this new guidance, a company should consider the elements of the "public" test in determining whether information posted on its web site is public such that subsequent selective disclosure of information (e.g., private comments to individual investors) will trigger the application of Regulation FD. While information posted on a company web site readily accessible to the general public is not selective disclosure, the information may not be public for purposes of determining whether a subsequent selective disclosure triggers Regulation FD if it does not comply with this test. The guidance indicates that determining whether information posted on a web site is public is a "facts and circumstances" determination. Therefore, companies should consult with counsel to help them determine whether their web sites comply with the elements of the test and, if not, what additional steps should be taken to make information posted on its web site public.

When previously posted materials are maintained on a company's web site or when a company posts hyperlinks to third-party information, the company must consider the context of the information. If readers may not readily understand that posted materials relate to an earlier period or that information hyperlinked by a company's web site is not endorsed by such company, the company should include a statement explaining the nature of the information. Similar statements should be included with respect to the posting of summary financial information. Counsel can assist companies in determining how and when information should be separately identified.

Counsel can also assist companies in establishing disclosure controls and procedures to monitor statements made by or on behalf of the company on interactive portions of web sites. Establishing such controls is important since the guidance clarifies that statements made on blogs or other interactive web sites are subject to the antifraud provisions of the federal securities laws.

As stated above, the release also addresses a company's obligations relating to disclosure controls and procedures. Since disclosure controls and procedures apply to information posted on a company's web site to satisfy disclosure obligations, companies must ensure that their disclosure controls and procedures are designed to address disclosure of information on their web sites.

Additional Information

This guidance will be effective upon its publication in the Federal Register. Ballard Spahr can provide more information on the impact of the SEC’s new guidance. For more information on this release or other securities matters, please contact Justin P. Klein at kleinj@ballardspahr.com, Mary J. Mullany at mullany@ballardspahr.com, Gerald J. Guarcini at guarcini@ballardspahr.com or Peter A. Jaslow at jaslowp@ballardspahr.com.


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