SEC to Issue Interpretive Release Regarding Company Website Disclosure
July 31, 2008
At its open meeting on July 30, 2008, the Securities and Exchange Commission (the “SEC”) announced that it would be issuing an interpretive release providing guidance to issuers in complying with the federal securities laws in connection with information disseminated on company websites. The release is being issued in response to a recommendation of the SEC Advisory Committee on Improvements to Financial Reporting in its February 2008 report, in which the Committee expressed concern that a lack of further guidance could hinder the development of new means of electronic communication, such as interactive websites, that would benefit investors.
The SEC staff made clear in today’s open meeting that the intention of the new guidance is to encourage issuers to embrace the Internet as a disclosure tool. Chairman Christopher Cox noted that since 2000, when the SEC last issued guidance with respect to electronic media, new Internet technologies, such as blogs and shareholder forums, have become prevalent and resulted in increased demand for more timely company disclosure. Chairman Cox emphasized that the Internet can be used to enhance disclosure by providing highly current and interactive information in a cost-effective manner. Based on the comments of the SEC staff at the open meeting and a press release issued by the SEC, we understand the release will address the following four issues.
1. Whether Information on a Company Website is Public under Regulation FD
The SEC staff indicated that the interpretative guidance will address two aspects of whether information on company websites is considered publicly disseminated for purposes of Regulation FD, which prohibits selective disclosure of material non-public information. First, the release will set forth factors for companies to consider in deciding whether information contained on a company website is considered “public” so that subsequent communications would not constitute disclosure of material non-public information. These factors will include (1) whether a company website is a recognized channel of distribution; (2) whether posted information is considered broadly disseminated; and (3) whether the information has been posted for a sufficiently long duration to be absorbed by the market. Second, the release will address the circumstances under which the disclosure of information on a company website is an adequate method of making such information “public” for purposes of the alternative public disclosure provision of Regulation FD (i.e., as an alternative to furnishing a Form 8-K to satisfy Regulation FD obligations). This position represents a departure from the SEC staff’s prior position that website disclosure alone would not constitute adequate public disclosure under Regulation FD. The guidance on this aspect of Regulation FD will indicate that companies should consider whether their websites meet the simultaneous or prompt timing requirements under Regulation FD, in addition to analyzing the “recognized channel of distribution” and “broadly disseminated” factors cited above.
2. Clarification of Antifraud Liability for Certain Types of Electronic Disclosure
The release will clarify the scope of antifraud liability with respect to four types of information: historical, hyperlinked, summary and interactive information. With respect to historical information, the release will address the steps issuers should take to avoid the inference that historical archived information has been reissued. Revisiting a topic addressed in prior SEC guidance, the new release will suggest means by which an issuer can use hyperlinks without being deemed to have “adopted” the third-party content. The release will also provide guidance for posting a summary of information contained in a company’s SEC filings. Finally, it will address liability risk for interactive communications, clarify that issuers do not generally have a duty to monitor or correct information disseminated electronically by third parties (including third-party postings on company-sponsored blogs and shareholder forums), and restrict a company’s ability to condition participation in a blog or shareholder forum on the waiver of antifraud protections under the federal securities laws.
3. Website Content Not Generally Subject to SOX Disclosure Controls and Procedures
The release will make clear that, in general, website information is not subject to the disclosure controls and procedures requirements of the Sarbanes-Oxley Act of 2002 (“SOX”). The SEC staff noted, however, that companies should have processes in place to monitor what is being placed on their websites, since website content is subject to antifraud liability under Rule 10b-5 of the Securities Exchange Act of 1934. Information posted on a company website for the purpose of satisfying an obligation under the Exchange Act (e.g., disclosure of waivers under required codes of ethics) will continue to be subject to disclosure controls and procedures under SOX.
4. Printer-friendly Formatting Not Required
Emphasizing the importance of read-ability over print-ability, the release will clarify that website content need not be presented in a printer-friendly format unless other SEC rules explicitly require such presentation.
According to the SEC staff, the release will provide a principles-based framework that relies on a facts-and-circumstances analysis to assess compliance. The SEC staff indicated that it favors this approach over bright-line rules in crafting guidance in the area of electronic media, given the rapid evolution of technology. As a consequence of the new guidance, Division of Corporation Finance Director John W. White noted that he anticipates more innovation and creativity in the methods companies use to communicate with investors. He also predicted a potential reduction in the filing of reports on Form 8-K, as companies rely on website postings to a greater degree to satisfy the alternative public disclosure requirement of Regulation FD. It remains to be seen whether the release will provide enough concrete guidance so as to encourage companies to adopt more innovative and creative means of disclosure. The release will become effective upon publication in the Federal Register, and it will contain a forward-looking request for comments to facilitate the development of guidance in related areas.
* * *
Please feel free to contact any of your regular contacts at the firm or any of our partners and counsel listed under “Capital Markets” or “Corporate Governance” on this website if you have any questions.
The SEC staff made clear in today’s open meeting that the intention of the new guidance is to encourage issuers to embrace the Internet as a disclosure tool. Chairman Christopher Cox noted that since 2000, when the SEC last issued guidance with respect to electronic media, new Internet technologies, such as blogs and shareholder forums, have become prevalent and resulted in increased demand for more timely company disclosure. Chairman Cox emphasized that the Internet can be used to enhance disclosure by providing highly current and interactive information in a cost-effective manner. Based on the comments of the SEC staff at the open meeting and a press release issued by the SEC, we understand the release will address the following four issues.
1. Whether Information on a Company Website is Public under Regulation FD
The SEC staff indicated that the interpretative guidance will address two aspects of whether information on company websites is considered publicly disseminated for purposes of Regulation FD, which prohibits selective disclosure of material non-public information. First, the release will set forth factors for companies to consider in deciding whether information contained on a company website is considered “public” so that subsequent communications would not constitute disclosure of material non-public information. These factors will include (1) whether a company website is a recognized channel of distribution; (2) whether posted information is considered broadly disseminated; and (3) whether the information has been posted for a sufficiently long duration to be absorbed by the market. Second, the release will address the circumstances under which the disclosure of information on a company website is an adequate method of making such information “public” for purposes of the alternative public disclosure provision of Regulation FD (i.e., as an alternative to furnishing a Form 8-K to satisfy Regulation FD obligations). This position represents a departure from the SEC staff’s prior position that website disclosure alone would not constitute adequate public disclosure under Regulation FD. The guidance on this aspect of Regulation FD will indicate that companies should consider whether their websites meet the simultaneous or prompt timing requirements under Regulation FD, in addition to analyzing the “recognized channel of distribution” and “broadly disseminated” factors cited above.
2. Clarification of Antifraud Liability for Certain Types of Electronic Disclosure
The release will clarify the scope of antifraud liability with respect to four types of information: historical, hyperlinked, summary and interactive information. With respect to historical information, the release will address the steps issuers should take to avoid the inference that historical archived information has been reissued. Revisiting a topic addressed in prior SEC guidance, the new release will suggest means by which an issuer can use hyperlinks without being deemed to have “adopted” the third-party content. The release will also provide guidance for posting a summary of information contained in a company’s SEC filings. Finally, it will address liability risk for interactive communications, clarify that issuers do not generally have a duty to monitor or correct information disseminated electronically by third parties (including third-party postings on company-sponsored blogs and shareholder forums), and restrict a company’s ability to condition participation in a blog or shareholder forum on the waiver of antifraud protections under the federal securities laws.
3. Website Content Not Generally Subject to SOX Disclosure Controls and Procedures
The release will make clear that, in general, website information is not subject to the disclosure controls and procedures requirements of the Sarbanes-Oxley Act of 2002 (“SOX”). The SEC staff noted, however, that companies should have processes in place to monitor what is being placed on their websites, since website content is subject to antifraud liability under Rule 10b-5 of the Securities Exchange Act of 1934. Information posted on a company website for the purpose of satisfying an obligation under the Exchange Act (e.g., disclosure of waivers under required codes of ethics) will continue to be subject to disclosure controls and procedures under SOX.
4. Printer-friendly Formatting Not Required
Emphasizing the importance of read-ability over print-ability, the release will clarify that website content need not be presented in a printer-friendly format unless other SEC rules explicitly require such presentation.
According to the SEC staff, the release will provide a principles-based framework that relies on a facts-and-circumstances analysis to assess compliance. The SEC staff indicated that it favors this approach over bright-line rules in crafting guidance in the area of electronic media, given the rapid evolution of technology. As a consequence of the new guidance, Division of Corporation Finance Director John W. White noted that he anticipates more innovation and creativity in the methods companies use to communicate with investors. He also predicted a potential reduction in the filing of reports on Form 8-K, as companies rely on website postings to a greater degree to satisfy the alternative public disclosure requirement of Regulation FD. It remains to be seen whether the release will provide enough concrete guidance so as to encourage companies to adopt more innovative and creative means of disclosure. The release will become effective upon publication in the Federal Register, and it will contain a forward-looking request for comments to facilitate the development of guidance in related areas.
* * *
Please feel free to contact any of your regular contacts at the firm or any of our partners and counsel listed under “Capital Markets” or “Corporate Governance” on this website if you have any questions.