Davis Polk & Wardwell Newsflash

SEC Adopts Guidance on Use of Corporate Websites

July 30, 2008

At an open meeting this morning, the SEC voted to issue an interpretive release containing guidance on the use of corporate websites as a means of disclosing corporate information.  The SEC has not yet published the interpretive release but is expected to make it available shortly.

According to the SEC's press release and statements made by the SEC staff and Commissioners at today's open meeting, the interpretive release will:

Assist Companies in Using Website Disclosure to Meet Regulation FD Public Disclosure Obligations

Regulation FD provides that when a company discloses any material nonpublic information about the company or its securities to certain persons such as analysts or investors it must also make public disclosure of the information.  In order to constitute “public disclosure” under the rule, the information must be either furnished or filed on a Form 8-K or disseminated through a method of disclosure that is “reasonably designed to provide broad, non-exclusionary distribution of the information to the public.”  Historical statements made by the SEC staff have indicated that it would not generally view information disclosed on a company’s website, without more, as being public information or publicly disseminated.  More recent statements, however, like those made by Chairman Cox in an exchange on the Sun Microsystems CEO’s blog, have suggested that the SEC might be backing away from this position and warming up to the idea that information on a company’s website might in fact constitute public information or public disclosure for Regulation FD purposes.

The interpretive release seems to document this change in position by clarifying how information posted on a company’s website can be considered public for Regulation FD purposes and whether a company’s posting of information to its website, in and of itself, constitutes broad, public dissemination for purposes of Regulation FD.

Specifically, the interpretive release is expected to provide that companies should consider the following factors in determining whether information is public for purposes of the applicability of Regulation FD to subsequent discussions or disclosure:

  • whether and when a company website is a recognized channel of distribution;
  • whether and when posting of information on a company website disseminates the information in a manner making it available to the securities marketplace in general; and
  • whether and when there has been a reasonable waiting period for investors and the market to react to the posted information.

The interpretive release will also describe non-exclusive factors, such as the timing, manner and accessibility of the information, that companies should consider in order to determine whether the above conditions and the general public dissemination requirements have been met.

According to the statements of the SEC Commissioners and staff at the open meeting, the guidance is principles-based and does not provide any “brightline tests” in recognition of the fact that the use of electronic media is changing constantly and a brightline test that works today may not work tomorrow.  While this approach and rationale make sense, it also provides corporate issuers less certainty when making decisions about whether, how and when to disclose information on their websites.  Therefore, as a practical matter, issuers may continue to be hesitant to fully utilize their corporate website as a means of disclosing and exchanging information.

Clarify a Company’s Liability for Certain Types of Electronic Disclosure

The interpretive release will also contain guidance regarding a company’s liability for certain types of information posted on or accessible through the company’s website.  Specifically the interpretive release will:

  • Provide that for purposes of the antifraud provisions of the federal securities laws, previously posted materials or statements on company websites would not, without more, be considered reissued or republished each time that they are accessed and would not be subject to a duty to update.
  • Provide that a company website can contain hyperlinks to third-party information without the company necessarily “adopting” the third-party content for liability purposes.  The interpretive release will also outline certain items that the company should consider in order to avoid liability for the third-party content.
  • Discuss liability issues that may arise through the use of company-sponsored blogs or forums. 
  • Describe techniques that can be used to highlight the summary nature of certain information posted on a company’s website in light of anti-fraud concerns.

Clarify that Corporate Website Information is not Generally Subject to Disclosure Controls and Procedures or Required to be Printable

The interpretive release will also clarify that information posted on a corporate website is not generally subject to the disclosure controls and procedures rules mandated by the Sarbanes-Oxley Act and does not generally need to be presented in a printable manner.

The guidance in the interpretive release will become effective upon publication in the Federal Register

We plan to distribute a more detailed memorandum once the SEC publishes the interpretive release.  In the meantime, please do not hesitate to call your Davis Polk contact with questions. 

See the SEC press release describing the SEC’s adoption of guidance on the use of corporate websites.

See the SEC staff statement regarding the guidance on the use of corporate websites.

Davis Polk & Wardwell