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SEC Announces the Imminent Release of Guidance on the Use of Websites for Corporate Reporting Purposes

By IBLS Editor

The United States Securities and Exchange Commission (SEC) is on the brink of issuing guidance to publicly trading companies that wish to disclose their corporate reports by posting them on their respective Websites. Under the new guidance, documents reported by means of posting the information on the Web will have the same legal force as documents transmitted via traditional paper reports or via PDF reports on EDGAR. At the same time, the guidance will provide specific requirements that companies will have to meet to comply with Regulation FD.In a speech delivered on behalf of the SEC on July 30, 2008, Kim McManus, Special Counsel at the SEC's Division of Corporation Finance, stated that the SEC will issue an interpretive release that will provide specific guidance to companies that wish to use their Websites for the purposes of reporting company information as required under the Securities Exchange Act of 1934 and Regulation FD promulgated thereunder.

The SEC outlined four broad topics that will be addressed by the guidance. These include,

1) when the information posted on a company Website is deemed public information;

2) the duties and liabilities of companies posting information on their Websites, including information regarding third party liability for the posting of links to outside party Websites;

3) the types of controls and procedures that companies must follow when posting information on the Web; and

4) the required format for information posted on a company Website; with the caveat that information posted on company Websites does not need to be in a printable format unless otherwise required by the SEC.

The SEC"s announcement has been welcomed by many companies, which are eager to minimize the expenses posed by traditional reporting mechanisms. Among the major proponents of the reforms was Sun Microsystems, whose executives have publicly described the current SEC reporting mechanisms as anachronistic.   Among the major opponents of the reforms is Business Wire, which provides company news reports and serves as a disclosure vehicle, by means of EDGAR and CEDAR. Following the SEC's statement, Business Wire issued a preliminary statement deploring the use of Websites for reporting purposes on the grounds that Web postings alone are not a substitute for secure and simultaneous push delivery of material news to the public.

Regulation FD contains provisions mandating the disclosure of "material information" simultaneously by all companies and in accordance with specific guidelines. It came into effect in October 2000. Until the SEC's recent announcement regarding the possibility of allowing companies to post information via their proprietary Websites, Regulation FD stipulated that all public information provided by the companies must be transmitted by traditional means such as paper reporting or PDF reporting on EDGAR.

Many commentators have noted that the move to allow corporate reporting on companies' Websites is not as drastic as the announcement that such reporting will not need to comply with a printer-friendly format. This means that companies will have greater leeway, creatively and technologically speaking, as to the methodology for presenting their public reports.

John White, the director of the SEC's Division of Corporation Finance, stated that the new guidance was intended to promote "more innovation, more creativity, more use of interactive technology on company websites and that they become more user-friendly for investors," as reported on the IR Web Report on www.irwebreport.com.

Although more specific guidelines will be provided in the final guidance, the SEC indicated a number of compliance requirements that will apply to companies that report information via their Websites.  The most important of these requirements are that:

1) the company Website constitutes a "recognized channel of distribution;"

2) the posting of information on the company Website must disseminate the information in a manner that makes it available to the securities marketplace in general; and

3) a sufficient waiting period must be allotted for investors to react to the posted information.

Generally, it is expected that large disclosing companies with popular Websites should not have a problem to comply with the above guidelines.

The SEC recently announced that it will be issuing specific guidance to allow companies to file public documents via their respective Websites. The guidance will explain what form such Web reports should take in order for them to be in compliance with Regulation FD. Many reporting companies have welcomed this announcement. A notable exception is Business Wire, which operates EDGAR and CEDAR.

 

Full post as published by IBLS Internet Law Blog on September 08, 2008 (boomark / email).