Eight long years after the Securities & Exchange Commission (SEC) issued its last comprehensive guidance on how a company may use its Web site to disclose information and communicate with investors, the Commission has issued an updated interpretive release. The release, which took effect Aug. 7, takes into account technological advances and Internet usage growth.
"The new release affects so many companies, including New York Stock Exchange-listed companies required to maintain 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," says Laura Richman, counsel at Mayer Brown.
At the heart of the guidance is a change in the SEC's approach to Web site disclosures for the purpose of Regulation FD, which governs selective disclosure and insider trading.
"Prior to the current release, the SEC didn't recognize Web site disclosure as an adequate public disclosure method under Regulation FD," says William Anderson, a partner at Bracewell & Giuliani. "Now, however, the SEC agrees that in certain circumstances the posting of information on a company Web site may be a sufficient method of public disclosure."
But there are no hard and fast rules on the issue.
"The SEC is very attuned to the fact that technology continues to evolve, which explains why the release is in the form of principles rather than a bright line test," Richman says.
In other words, 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 communication 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 a site meets three conditions. First, investors and markets must recognize the site as a channel for distributing information about the company. Second, posting the information on the site must make it available to the securities marketplace in general. Finally, the information must be posted in a timely way that allows investors and the market to react to it.
To assist companies in determining whether its postings satisfy these requirements, the release provides a 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.
But not everyone is thrilled. Some observers say that only the cr??me de la cr??me of corporate society will benefit from the new guidance.
Off the Radar
Anderson points out that only reporters and analysts consistently track Web site information, and they only do that for large companies. Thus, small companies may not be able to meet the requirement for disseminating information to the marketplace with Web postings alone.
"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.
Anderson is not convinced that ordinary investors commonly check company Web sites.
To meet the dissemination requirement, "companies are going to have to show that their sites are regular sources of information for investors," he says.
It remains to be seen 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 inform investors, analysts and media that the information is on the site by means of prominent displays on the home page or the use of push technologies such as RSS feeds.
"Companies that 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.
Jeffrey Coopersmith, a partner at DLA Piper, 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 the SEC's desire to incorporate 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 can arise because the relevant portions of company Web sites sometimes come under the purview of the investor relations department.
"The point is that either an 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.
And just when they do, it's likely that things will change again. Although the release became effective in August, the SEC is seeking comments on it through early November.
"The comments will impact future guidance, which I believe will come much, much sooner than the eight-year wait we had this time," Richman says.