In August 2008 - eight years after the U.S. Securities and Exchange Commission issued its last comprehensive guidance on how a company may use its web site to disclose information and communicate with investors - the commission issued an updated interpretive release that takes into account technological advances and growth in Internet usage.
“The new release is very significant because it affects so many companies, including New York Stock Exchange-listed companies required to maintain company web sites, companies that choose to use their sites to satisfy SEC disclosure requirements, and companies that maintain sites for a variety of marketing or investor relations matters without necessarily considering the securities law implications,” says Laura Richman, counsel at Mayer Brown’s Chicago office.
At the heart of the guidance is a change in the SEC’s approach to web site disclosures for the purpose of Regulation FD (Fair Disclosure), which governs selective disclosure and insider trading.
“Prior to the current release, the SEC did not recognize web site disclosure, in and of itself, as an adequate public disclosure method under Regulation FD,” says William Anderson, a partner at Bracewell & Guiliani’s Houston office.
“Now, however, the SEC agrees that in certain circumstances the posting of information on a company web site may, in and of itself, be a sufficient method of public disclosure.”
But there are no hard-and-fast rules.
“The SEC is very attuned to the fact that technology has evolved and will continue to evolve, which explains why the release is in the form of principles rather than a bright line test,” Richman says.
In other words, when push comes to shove, it is the company’s responsibility to evaluate whether a posting on its web site will suffice for purposes of Regulation FD.
Regulation FD does require information to be furnished in a prescribed form in order to avoid selective disclosure concerns. But it permits alternative methods of communications reasonably designed to provide broad public distribution.
“Distributing a press release through a widely disseminated news service, for example, is generally considered an acceptable method of alternative public disclosure,” Richman says.
And now, information posted on web sites can also qualify, but only if the site meets three conditions: investors and markets must recognize the site as a channel of distribution of information about the company; posting the information on the site disseminates it so as to make it available to the securities marketplace in general; and the information has been posted in a timely way that allows investors and the market to react to it.
To assist companies to determine whether its postings satisfy these requirements, the release provides a non-exclusive list of factors against which companies can evaluate their position.
“This list of evaluative factors allows companies to know what balls they’re juggling, and that’s a very welcome development in the context of the SEC’s recognition that web-based disclosure can satisfy Regulation FD,” Richman says.
Some of the factors listed by the SEC are:
whether and how the issuer lets investors and markets know about its web site and where they should look on the company’s site for information;
whether the issuer has made investors and the markets aware that it posts important information on its site and whether it has a practice of doing so;
whether the design of the site leads users to the relevant information efficiently and whether the information is prominently disclosed in appropriate locations;
whether the market and the media readily access and report the information on the site, or whether the company has advised media about the information’s availability;
whether the web site is widely accessible to the market through RSS feeds or other distribution channels;
whether the site is current and accurate; and
whether the company uses other methods to disseminate the information and the extent to which it uses them.
But not everyone is thrilled: some observers say that only the crème de la crème of corporate society will benefit from the new guidance.
“My initial opinion is that only large, well-followed companies will be able to conclude that publishing information on their web site would satisfy the rules,” Anderson says. “The key is the extent of dissemination to the marketplace, and it is only certain very big companies that reporters and analysts track regularly.”
Anderson is not convinced that investors commonly check company web sites.
“The Internet’s search capabilities means people don’t have to go to primary sources for information,” he says. “Companies are going to have to show that their site is a source of information for investors on a regular basis.”
It remains to be seen, then, whether some companies will be able to demonstrate the ubiquity of their sites by analyzing “hits” and the demographics of the hits.
Otherwise, their burden will be to let investors, analysts, and media know that the information is on the site by means of prominent displays on the homepage or the use of push technologies such as RSS feeds that alert people when information is posted.
“Companies who follow set procedures to ensure dissemination will be better positioned, but I still believe that they have to be pretty good-sized companies for these types of procedures to take hold,” Anderson says.
Jeff Coopersmith, a partner in DLA Piper’s Seattle office, agrees that “smaller, less well-established” issuers might have difficulty using their web sites to satisfy Regulation FD.
“At the same time, I don’t think the guidance is aimed just at the really big companies,” he says. “Even companies that are not followed as well as the household names can qualify by doing a really great job of keeping their web sites up to date.”
Indeed, Coopersmith goes so far as to opine that an SEC desire to incorporate or institutionalize web sites as hubs of the securities information dissemination system has at least partially driven the updated guidance.
“I believe that part of the thinking behind the guidance is to ensure that companies manage their sites better than they have in the past,” he says. “Any company properly advised needs to take a good, hard look at its web site in the context of the release.”
Difficulties, for example, can arise because the relevant portions of company’s web sites sometimes come under the purview of the investor relations department.
“The point is that either in-house or external securities lawyer should monitor the site from time to time to ensure that the company is comfortable with the statements published there, and that old stuff - like references to a line of business or a strategy that the company is no longer pursuing - is deleted,” Richman says.
What is certain is that it will take time for best practices to evolve and for companies to get comfortable with satisfying Regulation FD by resort to their web sites.
And just when they do, it’s likely that things will change again. Although the release became effective in August, the SEC was seeking comments on it through early November.
“The comments will impact on future guidance, which I believe will come much, much sooner than the eight-year wait we had this time,” Richman says.
