Guidance Provided For Disclosures On Corporate Websites

by Mike Godfrey, for LawAndTax-News.com, Washington

01 August 2008

The Securities and Exchange Commission (SEC) voted unanimously on Thursday to provide new guidance to public companies about how to comply with the securities laws while developing their Web sites to serve as an effective means for disseminating important information to investors.

Issued in the form of an interpretative release, the SEC's guidance provides helpful information for companies considering providing investors with interactive content on their websites, as well as summary information and links to third-party information.

The SEC's guidance addresses a recommendation made by the SEC's Advisory Committee on Improvements to Financial Reporting in its February 2008 Progress Report for the Commission to provide clarity on issues and questions that arise in connection with SEC rules against selective disclosure of material nonpublic information.

The Internet has changed significantly since 2000, when the SEC last issued extensive guidance on the use of websites and electronic media.

"The last time the SEC issued guidance in this area, the idea of 'social networks' hadn't yet been developed, and creating a social network where shareholders could meet and exchange views was barely imaginable," commented SEC Chairman Christopher Cox, who went on to state:

"Ongoing developments in technology have increased both the markets' and investors' demand for more timely company disclosure on the Web, and in turn, raised new securities law issues for public companies to consider. The guidance issued today clarifies the rules of the road so investors can gain — quickly and in a cost-effective manner — the benefits of Internet disclosure of the latest information on the companies they own or are considering buying."

Chairman Cox added:

"I'd especially like to thank the Advisory Committee on Improvements to Financial Reporting, led by Chairman Bob Pozen, for encouraging the Commission to focus its attention on this important issue."

John W. White, Director of the Division of Corporation Finance, explained:

"The Commission has long recognized the vital role of the Internet and electronic communications in company disclosures to investors and the markets. I believe this guidance, which will assist companies in their compliance with the federal securities laws, will encourage further disclosures on company websites. Special thanks to the Advisory Committee on Improvements to Financial Reporting for their work on this matter."

The SEC's guidance is divided into four parts:

  1. The guidance clarifies how information posted on a company Web site can be considered "public" and provides guidance to help companies comply with public disclosure requirements under Regulation FD.
  2. The guidance clarifies the liability framework for certain types of electronic disclosure, including how companies can provide access to historical or archived data without it being considered reissued or republished every time it is accessed. It provides guidance on how companies can link to third party information or websites without having to "adopt" that content for liability purposes. It provides guidance on the appropriate use of summary information in the context of the securities laws' antifraud provisions. It also clarifies that the antifraud provisions apply to statements made by the company (or by a person acting on behalf of the company) in blogs and electronic shareholder forums, and companies cannot require investors to waive protections under the federal securities laws as a condition to enter or participate in a blog or electronic shareholder forum.
  3. The guidance clarifies that information posted on company websites would not generally be subject to rules under the Sarbanes-Oxley Act relating to a company's "disclosure controls and procedures."
  4. The guidance clarifies that information need not satisfy a "printer-friendly" standard, unless other rules explicitly require it, that could restrict creative Web enhancements that incorporate interactive and dynamic design features.

The SEC's interpretive release will be effective upon its publication in the Federal Register.

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