SEC Issues Guidance on Use of Company Websites to Disseminate Information to Investors

July 31, 2008

Yesterday, the Securities and Exchange Commission (the "SEC") approved the issuance of an interpretive release regarding the application of the federal securities laws to information posted on public company websites.  The release will update interpretive guidance provided by the SEC in 2000 in light of advances in technology and increasing demand from investors for interactive, up-to-date sources of information.  The SEC’s guidance is intended to encourage increased use of websites to disseminate information to investors, as well as more innovative and creative means of electronic dissemination such as interactive shareholder forums and blogs.

The SEC guidance will address four primary topics:

Regulation FD:  The release will include guidance on whether information posted to a company’s website will be considered "public" for purposes of Regulation FD.  This guidance is two-fold:

• Website disclosure as a satisfactory method of alternative public disclosure.  Under certain circumstances, website disclosure will satisfy Regulation FD’s exemption from the requirement to file a Form 8-K if the information is disseminated by a means "that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public".  In determining whether website posting provides an acceptable alternative to either a Form 8-K or a press release as a means of making an initial public disclosure of information that satisfies Regulation FD, companies will need to consider whether the website is a "recognized channel of distribution" and whether the information is "posted and accessible". 
• Applicability to subsequent discussions or disclosures.  In determining whether information posted on a company website is considered "public" for purposes of the applicability of Regulation FD to subsequent discussions or disclosures of that information, the company must consider the extent to which: 
  • the website is a recognized channel of distribution;
  • posting of information on the website 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. 

The release will provide a non-exclusive list of factors to consider in determining whether these conditions have been satisfied.

Liability Issues:  The release will provide guidance on certain liability issues arising under the antifraud rules in connection with electronic disclosure of information.  In particular, it will address the following four areas of concern: 

• Previously posted materials.  The release will provide that making archived or historical materials available on a company’s website will not generally give rise to a duty to update those materials. 
• Links to third-party websites.  The release will provide methods by which companies can include hyperlinks to third-party websites without incurring liability for the content of those third-party websites.  These methods will include, among others, providing a clear explanation of the reasons for the third-party link and making clear that the link is to the third-party’s (and not the company’s) information.
• Summary information.  The release will provide techniques companies can use to minimize the risk that the use of summary information on a company’s website will violate the antifraud rules by making clear to investors that the information is summary in nature. 
• Interactive websites.  The release will include guidance on the participation by companies and their officers and employees in company-sponsored blogs and electronic shareholder forums.  In particular, the SEC staff clarified at yesterday’s open meeting that companies are not liable for statements by third parties on such blogs and forums, and are not under a duty to monitor and correct information posted by third-parties.

Disclosure Controls and Procedures:  The release will clarify that disclosure controls and procedures required by SEC rules generally do not apply to website disclosures.  Nevertheless, the SEC staff noted that companies would be wise to adopt appropriate procedures, given the possibility that company postings on its website could give rise to liability under the antifraud rules.

Formatting:  In recognition of the evolving and increasingly interactive format of information provided on company websites, the release will make clear that website materials need not be formatted in a printer-friendly manner unless SEC rules explicitly require it.

Please note that we will provide more detailed guidance on these issues once the release is made available on the SEC’s website, which is expected to occur within the next two weeks.  The guidance provided in the release will become effective upon its publication in the Federal Register.

The SEC’s press release announcing the approval of the interpretive guidance is available at:

http://www.sec.gov/news/press/2008/2008-158.htm

An archived webcast of the SEC’s open meeting approving the release is available at:

http://www.sec.gov/news/openmeetings.shtml