SEC Regulation of Corporate Web Sites Communications & Technology Law Section of the Colorado Barr Association Novem

1. SEC Regulation of Corporate Web SitesCommunications & Technology Law Section of the Colorado Barr AssociationNovember 5, 2008 J. Robert Brown, Jr. Professor University of Denver Sturm College of Law www.theracetothebottom.org http://www.law.du.edu/index.php/profile/jay-brown

4. SEC Regulation of Corporate Web Sites • Why do we care? • Electronic dissemination represents revolutionary change in the dissemination of information and must be addressed by laws adopted in the 1930s • Dissemination of required information to shareholders and investors over the Internet is quicker and more cost effective • The Internet is universally available, cost effective, and particularly valuable for smaller companies that might not have access to the national press or wire services

5. SEC Regulation of Corporate Web Sites • Internet use is widespread • Approximately 80% of investors in mutual funds in the United States have access to the Internet in their homes • Electronic access is already common. All companies must make their Commission filings electronically through EDGAR system and the information is available on a real time basis at www.sec.gov. The SEC has proposed rules that would require some portions of the filings to be interactive • A 2002 study by the SEC revealed that approximately 83% of companies with a public float of at least $ 75 million (other than registered investment companies) provide some form of access to their Commission filings through their Web sites, a percentage that is likely higher today

6. SEC Regulation of Corporate Web Sites • Proxy Disclosure on the Internet • Proxies and annual reports may be distributed electronically without prior consent of shareholders under the notice and access model • Electronic posting of proxy materials is now mandatory. The company must send a notice to shareholders at least 40 calendar days before the shareholder meeting date indicating that the issuer's proxy materials are available • Early data suggests that the use of notice/access is causing a drop in the voting percentage of retail shareholders. See www.theracetothebottom.org/shareholder-rights/e-proxies-and-the-need-for-access.html

7. SEC Regulation of Corporate Web Sites • Regulation but not regulation • Companies must disclose their Web site addresses in annual reports on Form 10-K and state whether their Exchange Act reports are available on their Web sites • Comply or Explain: If the filings are not available, the company must explain the reasons why not and whether the reports will be provided free of charge upon request • Companies must make their Exchange Act reports available on their Web sites as a condition to incorporating by reference previously filed reports into certain prospectus

8. SEC Regulation of Corporate Web Sites • Companies must post on their Web sites, if they have one, all beneficial ownership reports filed by officers, directors and principal security holders under Section 16(a) of the Exchange Act • A company may provide its audit, nominating or compensation committee charters on its Web site as an alternative to providing them in its proxy or information statement • A company may disclose a material amendment to its code of ethics, or a material waiver of a provision of its code of ethics, by posting the information on its Web site rather than filing a Form 8-K • A company may provide information regarding board member attendance at the annual shareholder meeting on its Web site rather than in its proxy statement

9. SEC Regulation of Corporate Web Sites • Regulation FD • Requires simultaneous disclosure to the market whenever material nonpublic information is disclosed to market professionals and shareholders • Question as to whether posting on the corporate Web page constitutes market disclosure

10. SEC Regulation of Corporate Web Sites • Depends upon whether: • The company Web site is a recognized channel of distribution, • Posting of information on a company Web site in a manner making it available to the securities marketplace in general, and • There has been a reasonable waiting period for investors and the market to react to the posted information

11. SEC Regulation of Corporate Web Sites • Webcasting as a means of public disclosure • Earnings releases and shareholder meetings • Provide sufficient notice of webcast, including time, date, content, and instructions on how to access the call • Make the call open to the universe. All investors must be able to listen in either by telephonic means or through Internet webcasting

12. SEC Regulation of Corporate Web Sites • This does not mean that the public must be allowed to answer questions • Post on The Race to the Bottom about the 2008 Exxon-Mobile shareholder meeting: http://www.theracetothebottom.org/shareholder-rights/exxon-and-the-shareholder-meeting-the-results-are-in.html

13. SEC Regulation of Corporate Web Sites • Conclusion: • Carrot and stick approach • Much of the advice in this area is of questionable value since it is too dependent upon the facts and circumstances • In the future, there will either be mandatory requirements for web pages or safe harbors that make them all but mandatory

14. SEC Regulation of Corporate Web Sites • The antifraud provisions of the federal securities laws apply to company statements made on the Internet in the same way they would apply to any other statement made by, or attributable to, a company • Rule 10b-5 makes it unlawful to "make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading"

15. SEC Regulation of Corporate Web Sites • Statements on the Web Site must, therefore, be accurate and complete • Statements on the Web Site should receive the same level of care and scrutiny as any other public disclosure • Three unique issues: (1) Republication; (2) hyperlinks; and (3) the renewed importance of the buried footnote doctrine

16. SEC Regulation of Corporate Web Sites • Republication • The antifraud provisions apply at the time of posting • If a company affirmatively restates or reissues a statement, the antifraud provisions apply to each restatement • This creates a duty to update the statement • Merely leaving something on the web site can have this effect

17. SEC Regulation of Corporate Web Sites • Solution • Careful drafting (specifying that material speaks as of a specific time period) • Move to a separate section of the company's Web site containing previously posted materials or statements • Update constantly

18. SEC Regulation of Corporate Web Sites • Hyperlinks • Companies often link to materials on other web sites • Analyst reports • Magazine articles • Liability can arise as a result of explicit or implicit endorsement of the contents • Commission sometimes describes hyperlinked material as “in the same envelope”

19. SEC Regulation of Corporate Web Sites • Solution • Avoid selective linking where possible; link to everyone in a category, irrespective of content • Rely on third parties to provide the materials that are the subject of a link • Provide an explanation for the link that is content neutral

20. SEC Regulation of Corporate Web Sites • Buried Footnote Doctrine • Under this doctrine, a court would consider disclosure to be false and misleading if its overall significance is obscured because material information is "buried," for example, in a footnote or appendix • Can arise for material difficult to access because it is “buried” on the Web site

21. SEC Regulation of Corporate Web Sites • Excessive number of hyperlinks to get at information • Poorly marked pages and links • The separation of related information

28. SEC Regulation of Corporate Web Sites • Conclusion • Day is coming where corporate web sites will be required and all SEC filings and other public communications will be required to be posted • For now, companies need to give web site disclosure the same level of attention it gives any other market disclosure • Keep them current • Make sure they are well designed • Have in place policies designed to ensure that they remain accurate and complete

29. SEC Regulation of Corporate Web Sites • Useful Sources • Commission Guidance on the Use of Company Web Sites, Exchange Act Release No. 58288 (August 7, 2008) • Internet Availability of Proxy Materials, Exchange Act Release No. 55146 (Jan. 22, 2007) • Selective Disclosure and Insider Trading, Exchange Act Release No. 43154 (August 15, 2000) • J. Robert Brown, Jr., THE REGULATION OF CORPORATE DISCLOSURE, Chapter 9: Electronic Communications