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Antifraud, the Internet, Your Web Site, and the Blogosphere

SUMMARY: Since the 2000 Electronic Release, company Web sites have progressed to include blogs, shareholder forums and a variety of other information of interest to investors -- information produced both by the company and third-parties. The release of Commission Guidance on the Use of Company Web Sites in August 2008, revisited issues with respect to the application of the antifraud provisions of the Federal securities laws to company Web sites.

ARTICLE: With the rapid development of the Internet, company Web sites have become more sophisticated. Investors and potential investors can listen to company Web casts, chat with other investors and company executives, access interactive information, and be guided to a variety of other relevant and interesting information provided by the company as well as by third parties. While generally speaking, markets work more efficiently with increased disclosure of information, the Securities and Exchange Commission (the "Commission") recognized early on that the Internet, as an information delivery system, was a dual-edge sword: it has the potential to be a source of fraud as well as to deliver a wide range and volume of information.[1] 

To encourage the use of the Internet as an information delivery tool while protecting investors against fraud, the Commission, in 2000, issued systematic guidance on the electronic delivery of disclosure documents and company liability for their Web sites content.[2] Since the 2000 Electronic Release, company Web sites have continued to progress to include company-sponsored blogs and shareholder forums as well as a variety of other information of interest to investors information produced both by the company and third parties. With the release of Commission Guidance on the Use of Company Web Sites in August 2008, the Commission has revisited a variety of issues with respect to the application of the antifraud provisions of the federal securities laws to company Web sites.[3]
 

Is Your Information My Information?
 
Company Web sites often contain hyperlinks to third party Web sites. The Commission addressed the concern in the 2000 Electronic Release that a company may be liable for information on a third party Web site if the company provided a hyperlink to such Web site. The touchstone of the analysis for the Commission was whether the company had "adopted" the information on the third party Web site. In the 2000 Electronic Release, the Commission provided a nonexclusive list of factors that may be important in determining whether a hyperlink results in the company adopting third party information:
  • Context: does the company make any statements about the hyperlink or does the location of the hyperlink imply that the company is adopting the information?
  • Confusion: is it possible that an investor will be confused as to whether the information is the companys or a third partys?
  • Presentation: how is the hyperlinked information presented on the screen? Is it pulled onto the companys Web site? Is it clear that the investor is leaving the companys Web site?

[1] See Use of Electronic Media, Release No. 33-7856 (Apr. 28, 2000) [65 FR 25843] ("2000 Electronic Release"). See Securities Act Release No. 7233 (Oct. 6, 1995) 1995 SEC LEXIS 2662 (SEC 1995) [60 FR 53458].
[2] See 2000 Electronic Release.
[3] See Commission Guidance on the Use of Company Web Sites, Release No. 34-58288 (Aug. 7, 2008) [153 FR 45862].

This is an excerpt from a LexisNexis® Emerging Issues Analysis. Subscribers to lexis.com can access the complete commentary at LexisNexis® 2009 Emerging Issues 3449. Additional fees may be incurred.

Mr. Kardis, a partner at K&L Gates, LLP, has a broad range of experience in assisting clients with complex corporate, securities and financing transactions, especially transactions involving mortgage REITS and financial assets (such mortgage loans, servicing rights, auto loans, and SBA Loans), including public offerings (debt and equity), private placements, private equity, asset-back secured lending, joint ventures and other investment vehicles, mergers and acquisitions, asset-backed securitizations, going private transactions, REIT conversions, and debt offerings. He has represented several Wall Street investment banks, mortgage and specialty auto finance companies, REITs, broker-dealers and a variety of technology companies. Mr. Kardis also advises companies on compliance with Regulation AB and is a frequent speaker on Regulation AB matters.