Kardis on the Information Superhighway and Fair Disclosure


Can the internet handle important tasks like "fair disclosure?" With the release of Commission Guidance on the Use of Company Web Sites, the Securities and Exchange Commission (Commission) has proclaimed that some company Web sites are capable enough to handle the responsibility and some are not. In this Commentary, Phillip J. Kardis II discuses the Commission’s additional guidance on the use of company websites in meeting Regulation FD disclosure requirements. He writes:
 
     In 2000, the Commission adopted Regulation FD "to promote the full and fair disclosure of information by issuers." At heart, Regulation FD sets forth rules prohibiting the selective disclosure of material non-public information to certain prohibited persons ("Regulation FD Persons"), and if such disclosure is made, the procedures for issuers to quickly make such information available to the public. Earlier that same year, the Commission had issued guidance on the electronic delivery of disclosure documents and company liability for their Web sites content. In the 2000 Electronics Release, the Commission recognized the potential of the Internet but expressed concern that many investors lacked adequate access to the Internet. That lack of access concern was also present in the Regulation FD Adopting Release when the Commission stated that the posting of new information on the company’s Web site would be insufficient to meet the public disclosure requirements of Regulation FD but could be part of an effective disclosure regime if coupled with other disclosure methods. The Commission, however, did hold out the possibility that the evolution of and increased access to the Internet might make the use of a Web site as the sole method of Regulation FD disclosure permissible. Eight years later, the Commission decided the evolution has reached the point that Web site disclosures may, in certain circumstances, be sufficient for Regulation FD purposes.
 
     To answer the question of whether posting information on your Web site is sufficient to make the information public such that a subsequent disclosure of the information to Regulation FD Persons is permissible as well as whether a company can satisfy Regulation FD’s "public disclosure" requirement by posting the information to its Web site, the Commission has adopted a three-part test. First, your Web site must be recognized by the public as a channel of distribution. Second, putting information on your Web site must disseminate the information to the securities market. Third, you must wait a reasonable period for the market to react to the newly posted information before you discuss the information with Regulation FD Persons.
 
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     You may be well known, but can you deliver the goods? According to the Commission, whether a well-known Web site can adequately disseminate information for Regulation FD purposes depends on "(1) the manner in which information is posted on a company Web site and (2) the timely and ready accessibility of such information to investors and the markets." In addition to the factors that make your Web site well known, other factors the Commission points to include: is the Web site easy to navigate, is the information accurate, and are "push" technologies such as RSS used. In the end, the litmus test for how well your Web site disseminates is whether information [disclosed only] on your Web site is picked up by the media.
 
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