The Securities and Exchange Commission recently updated its prior guidance on how public companies may use their websites to disseminate information to the market. The SEC last provided significant guidance on this subject in 2000, well before recent advancements in web site technology and usage.
The SEC’s interpretive release discusses:
- when information posted on a company website is “public” for purposes of Regulation FD;
- company liability for website information;
- disclosure controls and procedures relating to website information; and
- requirements for the format of website information.
The interpretive release is available on the SEC’s website. Please click here.
Regulation FD Compliance
Information properly disclosed to the market is “public” and, therefore, is not prohibited selective disclosure of material nonpublic information under Regulation FD. The SEC indicated a company should consider the following when determining whether information presented on its website is “public:”
- whether the company website is a recognized channel of distribution – consider the steps the company has taken to alert the market to its website and disclosure practices and the use of the company website by the market;
- whether posting information on the company website disseminates the information in a manner making it available to the marketplace – consider the manner in which information is posted and the timely and ready accessibility of the information; and
- whether there has been a reasonable waiting period for the market to react to the posted information.
The interpretive release suggests numerous non-exclusive factors that companies should consider when evaluating whether the foregoing three elements have been satisfied.
If a company selectively discloses material nonpublic information, Regulation FD requires that the company file or furnish a Form 8-K or use an alternative method of disclosure reasonably designed to “provide broad, non-exclusionary distribution of the information to the public.” In the release, the SEC announced that posting information on the company website could serve as an “alternative method of disclosure” so long as the first two elements of the “public” analysis above are satisfied.
Company Liability for Website Information
Previously Posted Materials
The SEC noted that the antifraud provisions of the federal securities laws apply to statements posted on a company website the same way they apply to any other statement made by or attributable to a company. Therefore, companies are responsible for the accuracy of their website information.
The SEC clarified that previously posted materials or statements on a company’s websites are not considered to be continuously reissued or republished simply because they remain on the website and accessible to the public. It is important, however, that companies separately identify the material as historical or previously posted, by dating it for example, and place the material in a separate section of the company website containing previously posted material.
Hyperlinks to Third-Party Information
Company websites frequently hyperlink to other websites and third-party information. The SEC noted that if a company has “explicitly or implicitly approved or endorsed” the hyperlinked information, then the company may be held responsible for its accuracy. Explicit approval, by definition, is plainly evident. Implicit approval depends on whether the context of the hyperlink and the hyperlinked information together create a reasonable inference that the company endorsed the hyperlinked information.
To avoid confusion, companies should explain the context and source of the hyperlink to clearly indicate why the hyperlink is being provided. A company may also use exit notices or intermediate screens to denote that the hyperlink is to third-party information. Note, however, that exit notices, intermediate screens or disclaimers will not shield a company from antifraud liability for hyperlinks to third-party information that the company knows to be false or misleading.
When providing summary information in websites, companies should minimize the potential for investor confusion by alerting readers to the summary nature of the information and directing them to the location of the detailed disclosure from which the summary is derived. Companies should use appropriate titles for the summary information, use explanatory language to identify the text as a summary, use a hyperlink to the more detailed information and “layer” their website such that the summary information is presented first with embedded links to the more detailed information.
The SEC also noted the importance of the readability of information presented on a company website. However, information presented on a company website need not satisfy a printer-friendly standard unless explicitly required by SEC rules.
Interactive Web Site Features – Blogs and Electronic Forums
All communications made by or on behalf of a company are subject to the antifraud provisions of the securities laws, including statements on company sponsored blogs and electronic shareholder forums. Employees acting as representatives of the company in these venues should be made aware of their responsibilities and advised that they cannot avoid company liability by purporting to speak in their “individual capacities.” Additionally, any attempt by a company to require investors to waive protections under the federal securities laws as a condition to entering the blog or forum violates the anti-waiver provisions of the federal securities laws and is not enforceable.
Disclosure Controls and Procedures
Disclosure controls and procedures apply to information that a company posts on its website as an alternative to filing or furnishing it in an Exchange Act report. Therefore, companies must ensure that their disclosure controls and procedures are designed to address such disclosures on their websites. This requirement does not apply to disclosures on company websites other than those made to satisfy Exchange Act disclosure requirements.
Each public company should undertake a careful review of its website to determine whether it complies with the SEC’s new guidance. In addition, companies should consider whether it would be advantageous to modify their current disclosure procedures to take advantage of the SEC’s more permissive website polices.