Public Company Information Delivery

Companies, Investors and the SEC Strive to Keep Up

This article originally appeared in Inside INdiana Business on October 10, 2008.

For those like me who tend to be somewhat challenged when dealing with rapidly changing technologies, ponder for a moment about how large companies, institutional investors and government are also trying to keep pace. To be sure, the pace of change is increasing as companies, investors and government regulators embrace – or at least accept the reality of – access to information at company Web sites and the growing use of SMS or text messaging, RSS feeds, message boards and blogs.

Just recently, the SEC released interpretive guidance regarding how public companies provide information to the public and the investor community over the Internet. The SEC also has announced that its EDGAR on-line filing system will be replaced with a successor system called IDEA (for Interactive Data Electronic Applications). Among other attributes, IDEA will allow investors to have access to financial data in a new format known as XBRL (for Extensible Business Reporting Language). If adopted in final form by the SEC, the new requirements would become mandatory for certain large public companies as early as December, 2008. By presenting the information in "tagged" format (think of special barcodes), investors, analysts and others will be able to more easily extract and analyze financial information from company reports and more quickly compare those financial results with other companies. In other words, the SEC is moving away from a "fill out these reports or forms precisely in the format we give you" toward an approach that could be fairly described as "we understand and we will work with you to so that you may provide information in an electronic and more user-friendly format."

These developments follow the 2007 "notice and access" SEC rules that allow companies to provide proxy materials to investors by posting the materials on their Web sites and providing notice that such materials may be obtained on-line.

For securities lawyers, investor relations officials and regulators, these technological advances raise as many potential concerns as benefits. The recent SEC release provides important guidance to companies that want the public coming to their Web sites for information (and not simply send folks to EDGAR or to other third party sites) but without increasing potential exposure under securities laws. Important SEC messages include:

Ÿ Information posted to a company Web site will likely be deemed to be publicly available for Regulation FD purposes provided that the company satisfies the Web site awareness, standard practice, basic format and waiting period considerations included in the SEC release. This will be very helpful when dealing with the typical "selective disclosure" admonitions of Regulation FD.

Ÿ While the anti-fraud provisions of the securities laws will continue to apply to information posted to the Web site, steps may be taken to manage risk including the separation of dated information into an archive or similar section. The SEC understands the potential argument that such information is being continuously issued or released by such companies simply because the information remains accessible to the public.

Ÿ Hyperlinks may be included, but the SEC suggests certain steps to head off assertions that the company has directly or indirectly "adopted" any or all information accessed via the hyperlink. For example, companies may want to include exit notices that the reader must acknowledge when leaving the company's Web site (although the SEC understandably warns that the mere use of an exit notice or disclaimer will not necessarily provide meaningful protection). The practice of only including links to favorable articles or analyst reports is also suggested to be a bad idea.

Ÿ Summary information about the company and its financial results may also be included with appropriate safeguards such as "alert" language, explanatory language and references to publicly available information that has been filed with the SEC (including risk factors and forward-looking information disclaimers).

Ÿ For interactive Web site features such as message boards or stockholder forums, the guidance confirms that the company will not be held responsible for third party postings and is not required to respond to or correct any incorrect information or misstatements made by others. Another bad idea is encouraging employees to participate in such forums or prepare blog entries and then argue that they are just speaking for themselves and not the company.

Time will tell whether companies, the investor community and regulators will take full advantage of these technological advancements. Or, will challenges, regulatory actions and lawsuits chase companies back into yesterday's disclosure regime?

At the very least, this recent SEC guidance should help companies look to the future and utilize these new information delivery tools while taking appropriate steps to minimize risk. The information delivery benefits simply are too great. Stay tuned for further developments, particularly from the SEC as there is no doubt that the information age is here.

Joseph DeGroff, Partner, Ice Miller LLP

Joseph DeGroff is a partner in Ice Miller's Private Equity and Venture Services Group. His primary areas of practice include venture finance transactions, general business laws matters, federal and state securities law and mergers and acquisitions.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.