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— Industry Insight —
Transparency is now a constant refrain on Wall Street. As part of its ongoing effort to increase transparency and reduce cost through greater use of technology, the Securities and Exchange Commission issued an interpretive release on Aug. 1, 2008, that provides the first significant guidance since 2000 on how a company may use its Web site to disclose information. The release focuses on when information posted on an issuer's Web site may be considered public for purposes of Regulation FD and on the application of the anti-fraud rules to an issuer's Web site. The release states that a three-factor test rather than a bright-line rule should be used to determine whether a site and its postings are adequately designed to provide broad public dissemination of information in order to satisfy the public disclosure requirements of Regulation FD.
The factors are: 1) Is the Web site a recognized channel of distributing information; 2) does posting information on the site assure its dissemination; and 3) is there a reasonable waiting period for investors and the marketplace to react to the information? Nonexclusive factors bearing on the analysis include how an issuer has advised the market that its site contains important information, the pattern or practice of posting information, the accessibility of postings, the use of push technology such as really simple syndication, or RSS, feeds and frequency of investor use of the site. Only very large companies with robust, high-traffic Web sites will feel comfortable concluding that site posting alone constitutes public disclosure for purposes of Regulation FD. Moreover, the New York Stock Exchange currently requires its listed companies to issue press releases for material information, so Web site disclosure alone is not sufficient. In contrast, Nasdaq-listed companies may use any Regulation FD-compliant method of disclosure. The SEC's release reaffirms that a company's statements made on its site are subject to the anti-fraud provisions of the federal securities laws. Importantly, the SEC provides specific guidance in the interpretive release on how the anti-fraud provisions may apply when investors access previously posted company statements; hyperlinked third-party information; summary or overview information; and/or interactive Web site features such as company-sponsored blogs or electronic shareholder forums. The SEC clarified that a company maintaining previously posted information on its site will not be deemed to have reissued or republished the information every time an investor accesses that information. To clarify this for investors, the company should date the posted information or put it in a separate section of the site. When a company provides a hyperlink to third-party information, the company may become liable for the contents of that information if it explicitly or implicitly endorses or approves the hyperlinked information. The SEC suggests that a company should explain why it is providing the hyperlink, should consider the degree to which the company is making a selective choice to link to that specific third-party information and should consider the use of methods such as exit notices or intermediate screens to indicate the information is from a third party. The release also addresses a company's use of summaries or overviews, particularly summary financial information. The SEC states that a company should use appropriate explanatory language and headings to make it clear that the information is summary information. Moreover, issuers should place summary information in close proximity to a hyperlink to the more detailed information. The SEC generally endorses interactive company site features such as blogs and electronic shareholder forums. However, the SEC cautions that statements made by or on behalf of a company in an interactive forum are subject to the anti-fraud rules. A company now has more guidance in determining how and when it may post information on its site while maintaining compliance with applicable federal securities laws. Although the SEC's guidance does not dramatically change current disclosure practices, the number of Form 8-Ks being filed by issuers for compliance with Regulation FD should diminish over time, especially if the NYSE changes its disclosure requirements to be more in line with the SEC's guidance. Michael B. Kirwan is of counsel and a member of Foley & Lardner LLP's transactional and securities practice group. |
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