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— Judgment Call —
Take one example: The corporate blogger of a Fortune 500 company recently acknowledged posting real-time updates to Twitter during several of the company's earnings calls and analyst presentations without having consulted the company's legal department.
It remains to be seen whether these and other emerging technologies are attractive or even appropriate platforms for reporting corporate information. For instance, Twitter updates, or "tweets," are limited to 140 characters in length, making Twitter seem like an odd fit for communicating the substance of an earnings call. Nonetheless, many emerging Internet-enabled communications technologies appear to be gaining traction as an element of the public company investor relations toolkit. And for companies considering integrating these tools into their investor relations strategies, there are important considerations related to U.S. securities laws. The Securities and Exchange Commission's general anti-fraud rule, Rule 10b-5, applies to all corporate communications, including those affected via Internet-enabled communications technologies. Companies must be mindful of at least three potential sources of civil liability under this standard. First, the information a company made available must contain no material misstatements, that is, the information must be accurate in all material respects. Second, there can be no material omissions in the information, that is, it must present all facts material to understanding the information posted. Third, companies cannot engage in "selective disclosure," that is, they cannot disclose material information to certain investors or investment professionals without making this same disclosure on a public basis. The SEC has stated that as a general matter, it is interested in promoting disclosure on company Web sites and development by companies of interactive Web site features. In providing guidance about how to comply with the anti-fraud provisions of the securities laws in making available interactive Web site features, the SEC identified two principles that are equally applicable to emerging communications technologies: (1) companies are responsible for statements made by them or on their behalf; and (2) companies cannot require investors to waive protections under the federal securities laws as a condition to entering or participating in interactive Web site features. In addition, the SEC clarified that a company is not responsible for the statements that third parties post on a Web site the issuer sponsors, nor is an issuer obligated to respond to or correct misstatements made by third parties. Because many Internet-enabled platforms allow for real-time communication and in some cases impose limits on length and presentation, compliance with the anti-fraud rules may prove a serious challenge. Readily foreseeable issues include situations ranging from inadvertent typographical errors that overstate results to emphasizing a potentially positive development without noting the associated risks disclosed in other more complete disclosure materials, such as an 8-K earnings release or a 10-K annual report. In addition, the SEC has consistently identified summary information -- information that is no longer current and hyperlinks in statements posted by a company to the Internet -- as potential sources of liability. Communications containing forward-looking statements pose additional compliance issues as well. To obtain the benefit of the safe harbor from securities law liability afforded by the Private Securities Litigation Reform Act of 1995, the forward-looking statement must be identified as such and meaningful cautionary language must accompany it. The more flexible standard applicable to oral forward-looking statements will generally not protect tweets, posts and blogs that are available on the Internet after the presentation is completed. It will be a challenge, within the confines of real-time, space-limited communications, to navigate the safe harbor. In addition to complying with the general anti-fraud rules, communications over Internet-enabled communications channels also need to comply with more specialized disclosure rules. If the communication includes a non-generally accepted accounting principles financial measure, Regulation G would apply. Similarly, if the communication contains any material information regarding the public company that is not otherwise available to the public, Regulation FD would be triggered. If the communication is made in proximity to a stockholders' meeting, the communication may constitute soliciting material subject to the proxy rules. Finally, companies listed on a stock exchange, such as the New York Stock Exchange or Nasdaq, must comply with the exchange's rules regarding public disclosure of certain information. Disclosure of important corporate information that could reasonably be expected to affect the market for the issuer's stock via an issuer's Web site, blog, social networking profile or tweet may not meet the rules of an exchange as they are currently interpreted. A comprehensive set of disclosure policies will need to address
these issues and a host of others, including issues that will arise in
connection with securities offerings and the risk that employee or
third-party communications could be deemed to have been made by or on
behalf of the company. In the face of these challenges, companies
should consider whether the time has come to adopt or update policies
regarding the use of emerging Internet-enabled communications channels
as part of their investor relations strategies. Alan H. Paley is a Debevoise & Plimpton LLP corporate partner and co-chair of the firm's securities group. Paul M. Rodel is an associate with the firm. |
The steady stream of emerging Internet-enabled communications technologies, including Twitter Inc., Facebook Inc., MySpace Inc., LinkedIn Corp. and blogs, can pose serious and novel compliance challenges for public companies. 
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