SEC Guidance: Company Internet Websites Can be Used to Comply with Regulation FD

The SEC’s recent guidance that company websites could be used to comply with Regulation FD resolved a question that the Commission had left open since adopting FD eight years.

Regulation FD is an issuer disclosure rule that addresses the practice of selective disclosure. It provides that when a company, or person acting on its behalf, discloses material, nonpublic information to securities market professionals, or company shareholders who may well trade on the basis of the information, the company must make public disclosure of that information. The timing of the required public disclosure depends on whether the selective disclosure was intentional or non-intentional. If the selective disclosure is intentional, the company must make public disclosure simultaneously, while for a non-intentional disclosure the public disclosure must be made promptly.

The company may make the required public disclosure by filing or furnishing a Form 8-K, or by another method or combination of methods reasonably designed to effect broad, non-exclusionary distribution of the information to the public.In the release proposing Regulation FD, the SEC said that a company's posting of new information on its own web site would not by itself be considered a sufficient method of public disclosure, but left open the idea that the advancement of technology may one day allow companies to use such a method. That day has now come.

In its 2008 guidance, the SEC said that, in view of the pervasive use of the Internet, posting of the selectively disclosed information on the Internet may be a sufficient method of public disclosure to satisfy the mandates of Regulation FD. The key here is that companies will need to consider whether and when postings on their websites are reasonably designed to provide a broad, non-exclusionary distribution of the information to the public.

To help companies, the SEC listed factors to consider, such as whether the company website is a recognized channel of distribution and whether the information is posted and accessible and therefore disseminated. As part of that evaluation, companies also need to consider their websites capability to meet the simultaneous or prompt timing requirements for public disclosure once a selective disclosure has been made. For purposes of Regulation FD, a posting on a blog by the company would be treated the same as any other posting on a company's web site. The company would have to consider the factors outlined above to determine if the blog posting could be considered public.

In addition to using websites to comply with the simultaneous and prompt public disclosure of previously selectively disclosed information, the SEC provided guidance on when information published on a corporate website could be considered public for the threshold purposes of Regulation FD. This is an important determination because if material information is already public it cannot be selectively disclosed by the company later in violation of Regulation FD.

The SEC has long held that, in order to make information public, it must be disseminated in a manner calculated to reach the market through recognized channels of distribution,; and investors must be afforded a reasonable waiting period to react to the information. Thus, in evaluating whether information is public for purposes of Regulation FD, companies must consider whether and when their website is a recognized channel of distribution and whether the posting of information on it will disseminate the information widely to the market with a reasonable waiting period for investors to react to the posted information.

The SEC set forth a laundry list of non-exclusive factors for companies to consider in evaluating if their websites are recognized channels of distribution and whether the corporate information is posted and accessible. An important threshold factor is whether the company tells investors that it has a web site that they should look at for information. For example, the SEC would consider if the company disclosures in its periodic reports and in its press releases that it has a web site for posting important information and gives the site’s address. Another factor looked at by the SEC is whether the company keeps its website current and accurate. Companies must also be aware of the extent to which their Internet infrastructure can accommodate spikes in traffic volume that may accompany a major company development.

More granularly, the SEC would consider whether the company prominently displays important information for investors on its website in a readily accessible location consistently used for such disclosures. Another factor is deciding if the information has been disseminated would be the company’s use of push technology, such as RSS feeds. The use of push technology is not determinative of dissemination, said the SEC, but it is a one factor to be considered.

The final element used to evaluate whether information on a corporate website is public for purposes of Regulation FD is whether investors have been afforded a reasonable waiting period to react to the information. What constitutes a reasonable waiting period depends on the circumstances of the dissemination which, in the context of company web sites, includes the size and market following of the company; the extent to which investor oriented information on the website is regularly accessed, and the complexity of the information. Similar to the dissemination test, the SEC will also consider the steps the company has taken to make investors aware that it uses its company web site as a key source of important information about the company.

Ultimately, however, determining whether there has been a reasonable waiting period is a facts and circumstances test. What may be a reasonable waiting period after posting information on a company website for one company may not be one for another company. For example, a large company that frequently uses its website as a key resource for providing information, has taken steps to make investors aware of this, and reasonably believes that its web site is well-followed by investors, may get comfortable with a waiting period that is shorter than a waiting period for a company that is not in the same situation.