By Cydney Posner
At an open meeting this morning, the SEC voted to publish an interpretive release providing guidance regarding the use of company websites under the Exchange Act and the antifraud provisions of the federal securities laws. When the SEC published guidance on the use of electronic media in 2000, it recognized that the guidance would need to be updated as technology advanced. Now, the staff recognizes that the 2000 guidance was "conservative," and the SEC wants to encourage the use of the internet for the release of information and to accommodate the dynamic and interactive nature of the medium. The guidance, which has not yet been posted, will be effective upon publication in the Federal Register.
The guidance will address a number of areas:
Use of the internet to satisfy Reg FD. Previously, company websites could not be used as the sole method to satisfy the requirement to disseminate information for purposes of Reg FD. Under the new guidance, disclosure on a corporate website may be used to satisfy the FD requirements under certain circumstances (e.g., the website is a recognized channel of distribution, the information is easily accessible with adequate time available for broad general dissemination). This topic was the only one to stir any controversy, with questions raised as to whether the facts-and-circumstances analysis required, as opposed to imposition of a bright-line test, would pose some risk to companies and therefore discourage sole reliance on corporate websites to satisfy FD. (The staff will be monitoring the extent of use of websites for FD purposes.) In a farewell appearance, Commissioner Atkins also cautioned about the potential chilling effect on the internet as a dynamic medium if the staff, with the benefit of hindsight, undertook the type of detailed review of every word posted that led to problems in the SEC's FD case against Siebel Systems.
Liability for electronic postings. The guidance will clarify the extent of corporate liability for posted information, including blogs and interactive formats. The release will address how to retain previously posted information without the risk of republication or creating a duty to update, techniques for indicating summary information and methods for including hyperlinks to third-party information (e.g., explaining the context, identifying it as a third-party site). Remember that, until now, links to websites had to be disabled to avoid the risk of liability. Apparently, the guidance will provide that companies will be liable only for information posted by or on behalf of the company and not for information posted by third parties, nor will there be any duty to correct third-party information.
Application of disclosure controls and procedures. Website postings will not be subject to disclosure controls and procedures except to the extent that the website is used to satisfy a rule requirement. However, companies should be encouraged to monitor their websites as they will still have liability under Rule 10b-5 for company statements, and website information may have implications in other contexts, such as for proxy solicitations.
Printer friendly. In light of the prevalence of blogs and interactive forums, the guidance will clarify that postings do not need to be printer friendly, unless otherwise expressly required by the rules.