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An Uninterpretive Interpretive Release: Corporate Web Sites and the Antifraud Provisions (Part 2)

By J. Robert Brown

On Friday, the Commission issued its much awaited  interpretive release containing guidance on the use of company websites.  Most of the "interpretation" was common sense applications of Regulation FD and the antifraud provisions, neither novel nor particularly useful but relatively harmless.  In some places, however, the Commission confused the analysis and made matters more, rather than less difficult for lawyers trying to ensure compliance with the securities laws.

Take the discussion of the republication problem.  Unlike hard copies, which become stale automatically over time, web disclosure that has been drafted long ago can still be current.  Everytime an investor hits the web site and reads the disclosure, he or she may well rely on the information.  As long as it remains on the page, therefore, the information is effectively republished.  

In the interpretive release, the Commission noted that it does not believe that "companies maintaining previously posted materials or statements on their web sites are reissuing or republishing the materials . . . just because the materials or statements remain accessible to the public."   Fair enough, although no serious securities lawyer would take the position that the posting of materials always, irrespective of the circumstances (including positioning on the page and legends), automatically results in republication.  

The observation suggests that republication is the exception but the remaining tone of the release suggests otherwise.  The release went on to note that that "where it is not apparent to the reasonable person that the posted materials or statements speak as of a certain date or earlier period" then "we believe" that the materials should be moved to a section "identified as historical" and on "a separate section of the company's web site." 

In other words, if the disclosure is not written in a way that telegraphs it's limited time span, it will in fact be republished.  This is another way of saying that date specific material is not republished, date unspecific material is.  Why is this important?  Because the Commission provides only one solution to the republication problem, moving the material to an archived section of the web site.  The solution is limited and potentially misleading. 

First, archiving materials is not a silver bullet.  Even when this is done, reliance does not automatically cease.  This is particularly true if the material is archived shortly after posting.  Take for example the speech of the CEO who makes projections for the year.  Moving it within a few weeks from the main page to an archive will probably not end reliance.

Second, the focus on location obscures the more important solution.  In fact, the best way to avoid republication is through careful drafting.  In other words, materials on the web ought to state that they are current as of a time certain or contain legends indicating that they speak as of a specific time.  Routinely taking these steps will reduce investor reliance, whether or not ultimately moved to an archived section of the web site.

Full post as published by The Race to the Bottom on August 04, 2008 (boomark / email).