SEC Votes to Provide New Interpretive Guidance Regarding Corporate Websites

Introduction

The Securities and Exchange Commission voted on July 30, 2008 to provide updated guidance regarding the application of the federal securities laws to public company websites. The Commission’s Interpretive Release has not been published yet; as such, the discussion below is based on statements by Commissioners and Staff members at the July 30 Open Meeting at which the Commission approved the interpretive guidance. Upon publication of the Commission’s Interpretive Release, we will provide a more complete description of the Commission’s guidance and its practical implications.

Summary of the Interpretive Guidance

The statements of the Commissioners and Staff members at the July 30 Open Meeting indicated that the Commission’s interpretive guidance is intended to increase the use of public company websites as a means to disseminate information to investors and encourage the use of interactive means for communications between companies and their investors.

The Commission described the Interpretive Release as presenting principles-based guidance that will address the following four areas:

• the application of Regulation FD to information posted on a company’s website;
• the application of the liability standards of the federal securities laws to information posted on a company’s website;
• the application of the “disclosure controls and procedures” standards in the Sarbanes-Oxley Act to information posted on a company’s website; and
• the need for information presented on a company’s website to be presented in a “printer-friendly” format.

Each of these areas is discussed in more detail below.

Guidance Regarding Regulation FD

Regulation FD -- in Rule 100 -- requires that registrants provide public disclosure of information whenever an issuer, or any person acting on its behalf, discloses any material non-public information regarding the issuer or its securities to specified categories of persons. Regulation FD -- in Rule 101 -- then clarifies that this “public disclosure” requirement may be satisfied by furnishing that information on a Form 8-K with the Commission or by disseminating that information through “another method (or combination of methods) of disclosure that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public.”

In a significant break from prior Commission positions, the new guidance will clarify the manner in which information that is posted on a company’s website will be considered “public” for purposes of Regulation FD. This will be significant to companies, as it will provide comfort that information posted on a company’s website will:

• be “public” and, as such, subsequent disclosure of that information would not constitute disclosure of material non-public information; and
• be considered “public disclosure” for purposes of the alternative public disclosure provision of Regulation FD.

In assessing whether information on a company’s website is “public” for purposes of the application of Regulation FD and, as such, subsequent disclosure of that information would not constitute disclosure of material non-public information, companies must consider whether and when:

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

Similarly, the new guidance will provide that, for purposes of determining whether website disclosure is an appropriate public disclosure alternative to the furnishing of the information on a Form 8-K, companies will need to consider whether the company’s website is a “recognized channel of distribution” and whether the information on that website is “posted and accessible” and, therefore, “disseminated.” As part of this evaluation, companies also will need to consider the capability of the company’s website to meet the simultaneous or prompt timing requirements for public disclosure under Regulation FD.

It is anticipated that the guidance will include non-exclusive factors for companies to consider in assessing these conditions. These factors will be of central importance, as the terms “recognized channel of distribution” and “posted and accessible” will require further clarification.

At the July 30 Open Meeting, John White, Director of the Commission’s Division of Corporation Finance, expressed his view that the guidance will result in the filing of fewer Forms 8-K for purposes of complying with Regulation FD.

Guidance Regarding the Application of Liability Provisions to Electronic Disclosures

The new guidance also will clarify the liability framework of the federal securities laws for certain types of electronic disclosure, including:

• Previously posted or archived information -- guidance regarding the means by which, for purposes of the anti-fraud provisions of the federal securities laws, previously posted materials or statements on company websites would not, without more, be considered re-issued or re-published each time that they are accessed and would not be subject to a duty to update;
• Hyperlinks to third-party information -- guidance regarding the manner in which companies can link to third-party information or websites without having to “adopt” that information for liability purposes (this guidance suggests, among other things, explaining the context of the hyperlink to make clear why the hyperlink is being provided, being aware that certain means of providing hyperlinks to specific third-party information may indicate that the company has a positive view or opinion about that information, and using other methods to denote that the hyperlink is to information from a third party, rather than the company);
• Summary information -- guidance regarding the appropriate means to include summaries of information on company websites under the anti-fraud provisions of the federal securities laws, including methods to highlight the summary nature of the information provided; and
• Blogs and electronic shareholder forums -- guidance regarding how the anti-fraud provisions apply to statements made by the company (or by a person acting on behalf of the company) in blogs and electronic shareholder forums, including the absence of company liability for statements by third parties on such blogs and forums, and the absence of a company duty to monitor or correct information posted by third-parties (in this regard, the guidance will clarify that 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).

Guidance Regarding Application of “Disclosure Controls and Procedures” Requirements

The new guidance will clarify that information posted on a company’s website would not generally be subject to requirements under the Sarbanes-Oxley Act relating to a company’s “disclosure controls and procedures.” However, if the information is included on the company’s website to satisfy an obligation under the federal securities laws, those requirements likely will apply to the inclusion of that information on the website. Because information on a company’s website would remain subject to liability under Exchange Act Rule 10b-5, the guidance likely will advise companies to adopt appropriate controls and procedures regarding the posting of information on their websites.

Guidance Regarding the Formatting of Website Information

The new guidance will clarify that information posted on a company’s website need not satisfy a “printer-friendly” formatting standard, unless such a standard is explicitly required by SEC rules. Rather than focus on the “printer-friendly” nature of posted information, the guidance likely will advise companies to focus on the readability of that information.

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This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Martin Dunn, an O’Melveny partner licensed to practice law in the District of Columbia, Su Lian Lu, an O’Melveny counsel licensed to practice law in California and New York, and Rebekah Toton, an O’Melveny associate licensed to practice law in Texas, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted. Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding our conduct under New York's Code of Professional Responsibility to O’Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, NY, 10036, Phone:+1-212-326-2000. © 2008 O'Melveny & Myers LLP. All Rights Reserved.