PRACTICAL POINTERS FOR MANAGING
WEB SITES TO MEET '34 ACT RESPONSIBILITIES 
Web sites are a cost effective way to communicate with shareholders, analysts
and potential investors. Dissemination is instant and global, making worldwide
publicity at minimal cost a reality. Using a web site, a company can take its
road shows to dozens of locations at a fraction of the cost it would incur in
visiting invitees at multiple sites. Voting via the Internet speeds tallying
votes while decreasing costs.
On-line shareholder meetings widen participation without significantly
increasing expense. A company web site can provide numerous opportunities for
publicizing information about that company's products and services, and about
corporate developments. Potential suppliers, clients and customers can be
directed to the appropriate individuals to contact for questions, saving
company employee time and expense, thereby simultaneously increasing efficiency
and enhancing goodwill.
Each of these uses has enormous potential for fast, inexpensive and effective
communication. In connection with use for securities offerings and
communicating with current and potential shareholders and investors, however,
realizing this potential has risks. Most of these risks arise from the fact
that in the SEC's view, information posted on a web site is (unless designated
as archival or historical), continuous publication. In the absence of requiring
a password or taking other measures to limit access, such publication is also
untargeted. Missteps may subject a company to liability as a result of action
by the SEC. Company web sites are also likely to be perused by private
litigants and their lawyers, for example, in connection with pending or
contemplated shareholder derivative suits.
As a result, companies using web sites for securities offerings, for
communications with shareholders and potential investors, and for general
institutional advertising, need to educate themselves to the rules as they
apply to electronic communications, and establish and enforce guidelines to
maximize the likelihood that their web site publications produce the desired
results and minimize the risk that their web sites will support allegations of
securities law violations.
What to Post and When to Post It -
Understanding the Risks
Because placing information on a web site is publication and dissemination is
instant and global, any information placed on a web site is deserving of the
same level of review as that type of information receives in connection with
its traditional distribution. If traditional distribution is limited, unless
distribution from the web site is similarly limited, the information placed on
the web site deserves additional review, that is, the same level of review as
is given other information which is "made public".
If certain categories of information not subject to legal review are included
on a web site, the categories should be clearly defined and materials placed on
the web site in those categories (and without legal review) should fall clearly
within one or more of the defined categories. When feasible, it is advisable,
at least initially and until the parameters of various categories are clearly
established, for legal counsel to review all materials posted on a company's
Should a Company Post Its Press Releases?
Press releases are the traditional means of disseminating information by
publication. Posting them on a web site seems a natural way to enhance
dissemination; an effective alternative for small companies whose activities
are not regularly followed in the press, and a supplementary method for
disseminating information relating to companies whose activities are usually
covered in the press. When published in newspapers, the newspaper, not the
releasing company, determines whether or not the release will be published. If
it is published, dissemination generally occurs within a day or two of the date
of the press release. Thus, press releases disseminated in the traditional
manner have a limited "life". When posted on a company's web site, however, it
is the company, not a third party, which decides whether to publish, and there
is no inherent limit on the duration of dissemination. A press release will
remain on the company's web site until it is removed.
When considering whether to post a press release on its web site, the releasing
company, not a third party, makes the decisions - what to post, when to post
it, and when to remove it. With company control, comes the temptation to post
good news and not post bad news. Such a policy clearly risks violating federal
securities laws as well as rules of self-regulatory organizations (the New York
Stock Exchange and NASD).
A company has several choices in determining a policy regarding handling of
press releases. It may decide to post all its press releases, and leave them
posted for a specified period of time. If it chooses such a policy, it may also
decide to announce the policy on its web site. It may also provide an archive
of "old" press releases. Because the SEC takes the position that web site
posting is continuous publication, "posting and forgetting" may provide support
for unhappy investors' claims that the company provided misleading information
or that by posting information without provision for distinguishing historical
from current information, the company incurred an obligation to update and
failed to do so. It may be argued that dating all information is sufficient,
and it may be. Segregating historical from current information, however,
provides a company with an additional margin of safety, thereby reducing the
risk that outdated information will be reasonably relied upon by regulatory
entities, investors and potential investors, or other interested persons.
If a company decides to post some but not all releases, having objective
guidelines for determining which ones can reduce the likelihood that the
company will be accused of posting only "good" news and avoiding dissemination
of "bad" news, thus giving a false impression of what is happening in the
company. Content-related guidelines which fail to consider cumulative results
of their implementation may, over time, result in an inappropriately rosy (or
gloomy) picture of a company's status, thereby providing ammunition for
plaintiffs in shareholder derivative suits.
Whether a policy is established to post all press releases for a certain number
of days and then remove them, or the policy is to make a decision based on the
contents of each release, or other standards are established, with regard to
web site postings, it is incumbent on the company to establish some policy for
dealing with posting and removing or archiving press releases from the company
Resolving the issue by not posting any press releases may also have risks. If
and to the extent including press releases becomes standard either in a
company's industry, or for domestic companies of similar size, not posting
press releases may be seen as indicating there have been none. Thus, to the
extent their inclusion is expected, if they are not included, an affirmative
statement that as a matter of corporate policy the company does not post press
releases on its web site is advisable.
Whatever the specifics, having a web site requires a company to take
responsibility for posting information and for removing it in a timely manner
and according to methods which do not result in the removal itself creating
erroneous impressions and rumors.
Minimizing the Risk of Class Action Suits
Resulting from Web Site Postings Involving Financial Projections
When a company's stock price plummets unexpectedly, plaintiffs' counsel in such
suits is likely to scrutinize the allegedly offending company's web site for
misleading or inadequate information. Attention must therefore be given to what
such counsel is likely to find.
In recent years, companies have been encouraged by financial analysts and the
SEC to make financial projections. In some cases, projections are required in
connection with '34 Act reporting, as for example, to indicate the likely
outcome of existing trends.
In addition, investment analysts make projections based on company filings,
reports, meetings with analysts and press releases. Forecasts which turn out to
be erroneous, particularly forecasts which turn out to be overly optimistic,
may send the price of a company's stock plummeting, and give rise to
disappointed investors filing class action lawsuits.
The risks of web site publication thus include increased risk of shareholder
lawsuits resulting from publication of allegedly misleading or inadequate
information, particularly in connection with forecasts which turn out to be
overly optimistic. These increased risks may arise in several ways, including
intertwining of sales and financial information, intertwining of financial
information and analysts' reports, and failure to update information which has
become stale or inaccurate due to subsequent developments.
Often, a company will have its most recent SEC filings - reports on Forms 10-K,
10-Q and 8-K - on its web site. A company may also post its annual report,
often carefully not "filed" except for financial statements and Management's
Discussion and Analysis. Particularly when the annual report is more than six
months old, the CEO's letter to shareholders, and other semi-promotional
descriptions of the company's business and operations, may be overly optimistic
or, due to corporate or industry changes, inaccurate. Products may have been
withdrawn, line extensions may have been added, divisions may have been sold,
shrunk or acquired, etc. Including language that the information speaks as of
its date and advising web site visitors where additional materials may be found
is advisable as a reminder that the materials are dated and have limitations.
A web site that includes language separating promotional information from
straight financial information, and clearly distinguishes between them, will
have fewer risks than one which does not. Similarly, a web site which regularly
removes stale information and updates information on its site will increase its
accuracy and thus reduce the risk that its postings will be used against it.
Companies that are followed by analysts may wish to provide links to analysts
reports, particularly favorable analysts reports. Doing so, however, may be
seen as "adopting" those reports with which it links, thus placing the
company's imprimatur on their accuracy and providing a basis for plaintiffs'
lawyers to argue that the company is responsible for a favorable report by an
independent analyst, including any inaccuracies such report contains. Thus,
linking only with favorable reports is unwise.
One solution is to provide links to reports of all analysts who follow the
company, regardless of whether the reports are favorable or unfavorable, with a
caveat that such links are provided for the convenience of persons who may be
interested, that the reports are written by independent analysts, and that the
company takes no responsibility for such reports, including without limitation
any inaccuracies which they may contain. Another solution is to provide a list
of such analysts, but no links, again with warning language advising that the
company provides the information for convenience and takes no responsibility
for their accuracy. A third solution is to provide neither links nor a list. It
may however be difficult to prevent others from establishing links to a
company's web site. It is, therefore, advisable to disavow responsibility for
analysts' reports whether or not the company facilitates linking with them.
Where forward looking information is included on a company's web site,
inclusion of risk factors is also advisable. If, for example, a company posts
its10-K report on its web site, a reference or link to that section of the
report which discusses risk factors is advisable. Where the 10-K is not posted
but promotional information is, consideration should be given to including risk
factor information from the 10-K. Such a practice is particularly desirable
when a company's stock is known to be high risk, and the company anticipates
that it will appeal to people likely to learn about it through its web site
(e.g., "high tech" companies or others who initially offered their stock for
sale via a company web site, or anticipate doing so in the foreseeable future).
Recent informal statements by members of the SEC staff have indicated that
general references to risk factors stated in a 10-K may be insufficient to
bring a company within the "safe harbor" for forward looking statements.
Accordingly, companies should give careful consideration to the structure of
specific links and references. Making it easy to link to
specifically-applicable information can provide an additional margin of
"Chat Rooms," "Newsgroups," and Cyberspace
The generally-accepted response to whether a company should sponsor a "chat
room" for shareholders and prospective investors is a resounding, "No." Chat
rooms, which provide facilities for discussions in "real time" ("chat"), have
risks for the provider. If a company provides a chat room, case law indicates
that it may be safer not to monitor discussions, because monitoring may impose
responsibility for content, which a chat room sponsor cannot control until
after the fact. On the other hand, if a company does not monitor its chat room
content, it may find itself sponsoring discussions which disparage the company
or its products, or which is libelous, or otherwise unpleasant for visitors,
all of which may create ill will and reflect badly on the company.
Some unpleasantness can be eliminated by scanning for foul language (but never
underestimate the creative spelling abilities of determined users), but as a
matter of public relations, the risks of unmonitored chat are likely to be seen
Unlike chat in chat rooms, discussions in newsgroups do not occur in real time.
A newsgroup provides for submission of information to a site which "posts" the
information for visitors to see. Responses, if any, are sent to the site for
posting, and one follows a "thread" in lieu of having the real time discussion
which occurs in chat rooms. Newsgroups can be either moderated or unmoderated.
A "moderated newsgroup" is one in which the entity providing the site reviews
all messages prior to posting them. Such review provides the sponsoring entity
with an opportunity to eliminate materials which may be unfavorable, libelous,
or otherwise objectionable.
The advantage of a moderated newsgroup is that it can be used to respond to
visitor comments and queries in a controlled and pre-screened way without
revealing the wording of the original queries or the identity (and implicitly
the affiliation) of their authors. Such moderated newsgroups, however, impose
burdens and responsibilities on a the sponsoring entity. For a company,
balancing its own best interests, which means posting favorable comments, with
fairness to participants, who will want to feel that they have a fair "hearing"
regardless of content, is likely to prove difficult, and is fraught with perils
regarding timing and disclosure. Uncomfortable questions or unfavorable
comments which are not posted may give rise to further, and angry comments.
Answering questions may involve making statements before a company wishes to do
so. A company can decide when to send out press releases, but faced with
newsgroup queries, it may find itself having to choose between responding to
queries and sending out press releases prematurely, or appearing to ignore
queries and generating ill-will. Answering queries on an individual basis, as
is customarily done by old-fashioned customer service replies, is a more
limited response, and less likely to generate continuing discussion, than
posting responses. Under most circumstances, the risks of undertaking the tasks
of sponsoring a newsgroup far outweigh the possible benefits, and companies are
therefore well-advised to avoid shouldering the burdens of sponsoring either a
"chat room" or a moderated (or unmoderated) newsgroup.
Companies may, however, find they must deal with cyberspace rumors originating
from chat rooms and newsgroups sponsored by others. Market rumors are not a new
issue. With the rise of investor-oriented web sites and Internet chat rooms and
newsgroups however, rumors may move quickly through a much broader community
than in the past. It may, therefore, be advisable for a company to keep itself
apprised of what is being said about it in chat rooms and newsgroups.
At the same time, corporate employees and others who have inside information
about a company's products or services, or confidential legal, financial or
other material information, need to be aware that disclosure of such
information by actively participating in a chat room, newsgroup or other type
of cyberspace forum is a violation of confidentiality obligations, and can do
serious damage to the subject company, as well as the disclosing person's
career. Corporate policy should include a reminder that corporate employees
must maintain confidentiality regarding employment-related information, limit
their participation in chat room and newsgroup discussions to companies other
than their employer and its clients, customers, suppliers and others about
which they have confidential information. With regard to chat room and
newsgroup discussions involving their own company or its customers, suppliers
or others about which they have confidential information acquired in the course
of their employment or professional capacity, company policies need to make
clear that employees and other insiders may monitor discussions about such
companies; but they should not participate in such discussions regarding
activities in their respective companies or those with whom it has
relationships, lest they find themselves the source of rumors or improper
In addition to reminding those with confidential information of the risks of
online disclosure, a company may wish to provide guidance for responding to
situations in which a company employee whose affiliation is or may be known to
other online discussion participants is asked for information. Traditionally,
publicly-trades companies refer inquiries from the press and investors and
potential investors to a designated person or department for reply.
Implementing that policy in connection with real time chat may however be
inadequate to squelch such rumors at an early stage. Accordingly, a company
will want to consider how it wishes to instruct its employees regarding the
appropriate response to market rumors in a chat room, balancing the goal of
stopping rumors as quickly as possible with the need to have consistent and
knowledgeable responses to market rumors, which may or may not reflect
cyberspace rumors. Typically, a corporation's standard corporate response to
inquiries about rumors is either, "no comment" or, more categorically, "As a
matter of corporate policy, we do not comment on market rumors." Whether
persons other than those designated to communicate with the press and inquiring
investors will be instructed to respond to market rumors in online chat rooms
is an issue which companies will, increasingly, need to consider in connection
with formulating corporate guidelines and policies for employees.
Brokerage Firm Chat Rooms
Unlike companies offering products or services, brokerage firms, particularly
if they offer on-line trading, may find that they must offer a chat room in
order to compete. (Newsgroups present similar problems, and the conclusions in
this section apply to all types of on line discussion arrangements, whether
implemented as chat rooms with real time discussion or newsgroup discussions in
which comments and responses are followed by following discussion threads.)
Also unlike other types of organizations, broker-dealers are obligated to
report complaints in accordance with governing self-regulatory organization
and therefore, broker-dealers must make arrangements to maintain records of
"chat" and monitor their chat rooms. Broker-dealers are also at risk that their
chat rooms will be used to tout a stock or manipulate its price, giving them a
second reason to monitor their chat.
There are some practical steps which broker-dealers can take to reduce their
risks and the burdens of monitoring. For example, they can require that chat
room participants identify themselves and sign an agreement that outlines their
responsibilities. They can, and will in general, want to prohibit their own
brokers from participating in the firm's chat room to avoid the appearance of
having special information or touting or soliciting. Such a non-participation
policy also avoids problems arising from the requirement that written
communications with clients must be precleared.
Because of the problems which may arise when brokers participate in chat rooms,
broker-dealers will generally prohibit their own brokers from participating in
their chat rooms, and use independent people not otherwise involved in the
brokerage business to monitor their chat rooms. The firms do, however, need to
train these monitors to ask questions likely to expose stock price manipulation
attempts. They will also want to obligate monitors to report potentially
libelous or otherwise unacceptable communications. Finally, broker-dealers need
to make arrangements to monitor the monitors to assure they are doing their
Broker-dealers will also want to post disclaimers to remind people that the
source of chat room information is not the firm, is not controlled by the firm
and may not even be known to the firm, that the information in the chat room
may be false or inaccurate, and that investment decisions should not be made
solely on information obtained through chat room chat.
Web Sites Require Management - Start a
Having a web site requires on-going attention to its contents, whether changed
or unchanged. We live in a dynamic world. Information on a web site is
continuously disseminated. Companies which have web sites which disseminate
inaccurate, incomplete or inadequately current information can expect to find
themselves at greater risk of suffering challenge from disappointed
shareholders, prospective shareholders, and dissatisfied clients and customers
than companies which actively and thoughtfully manage their web sites to
provide timely information to interested visitors.
Some Non-Securities Law Risks
Able management of corporate web sites includes being aware of not only
securities law issues, but marketing issues, customer relations issues and
other legal and related concerns. Confidential information which becomes
available on the Web, and thus the Internet, is no longer confidential. Trade
secret protection is not available to information once it is available on the
Internet. On the other hand, publication on the Internet does not mean that
copyright protection is lost. Copyright laws apply when copyrighted materials
are made available on the web. Thus, permission to incorporate copyrighted
materials of others as a part of a company's web site may have to be obtained.
Where a web site includes an interactive facility enabling visitors to ask
questions about a company's product or services, good customer relations
requires that the company respond promptly to queries and complaints posted at
its site. If a company cannot respond promptly, it may be better not to provide
the facility and avoid the ill will resulting from long delayed responses to
questions and comments. Two weeks between the time a query is sent via U. S.
mail and the time an answer is received seems reasonable. Waiting two weeks for
a response to an e-mail query may not.
Some Thoughts on '33 Act Risks
When a company is in the process of making a public offering of securities,
risks may arise with regard to the availability of certain materials on the
company's web site as well as the timing of disclosures. Having certain
materials available on a web site may cause them to be included as part of
informational presentations to prospective underwriters, thus exposing the
company to liability for web site contents. The SEC has provided some
guidelines regarding this issue, including discussions in its "aircraft
carrier" release. While the guidelines are in the formative stage, special
attention needs to be paid to assure that improper materials are "scrubbed"
from a company's web site before, during and immediately after a public
offering of the company's securities.
Where the offering is made abroad, but not in the United States, other issues
arise in connection with the extra-territorial effect of a web site. The SEC
has provided guidelines for use of web sites to offer securities off-shore.
"Procedures reasonably designed to avoid targeting the United States" include a
"prominent disclaimer" indicating that the offer is directed only to persons
outside the United States and procedures designed to guard against selling or
making services available to U. S. persons. Clear guidelines, however, remain
to be articulated in several areas. For example, we have, to date, little
guidance as to whether, and if so, to what extent, a U. S. parent company of a
foreign subsidiary is responsible for monitoring the contents of the
subsidiary's web site. Release No. 34-39799 specifically states that the SEC is
"not addressing the circumstances under which a U. S. court could exercise
personal jurisdiction over a non-U. S. person with respect to that person's
offshore Internet offer." 
U. S. regulators are seeking a balance between effective protection of U. S.
investors when information which would constitute an "offering" in the U. S. is
made available from a non-U. S. web site which can be accessed by U. S.
investors, and recognition of and respect for the difficulties of
extra-territorial application of U. S. law. Foreign regulators face comparable
challenges. Both U. S. and foreign regulators, however, take the position that
when a company uses its web site to further fraud or stock price manipulation,
the fact that a company's web site is accessible to visitors from a given
country is sufficient to provide a basis for that visitor's country's
regulators to take disciplinary action.
A Summary of '34 Act Risks
Most of the risks in violating '34 Act restrictions and requirements spring
from the fact that information placed on a web site is instant, global and
continuous publication. If information is not yet timely for release, special
care must be taken to avoid inadvertent posting. Premature posting may be
merely embarrassing, but it may also have more serious consequences, as for
example, destroying a "quiet period" in connection with a securities offering,
thereby requiring that the offering be delayed. If information is intended for
a limited audience, steps to limit access must be taken. Password protection,
for example, may be used to assure that only authorized persons attend an
on-line road show or shareholders meeting. If information is posted without
attention to its removal or identification as historical, it may create an
obligation to update and provide a basis for claims that the posting company is
providing misleading information.
Chat rooms and newsgroups raise additional challenges. Corporate employees need
to be reminded that confidential corporate information may not be disclosed in
the course of chat. Broker-dealers which determine they must offer chat room
facilities need to remind their brokers that they may not participate in the
company's (or another's) chat room (or may do so only under prescribed
conditions - a riskier course), and make provision for monitoring to assure
compliance with disclosure obligations regarding complaints and minimizing
risks of touting and stock price manipulation by others.
The following check list is intended as a starting point, to be expanded as
experience indicates additional issues and concerns need to be addressed.
Establish guidelines for posting and removing information from a company's web
site, or make provision for archiving or otherwise distinguishing historical
from current information.
Avoid posting only "favorable" information. Selective disclosure may result in
providing an inaccurate picture of the company.
Implement web site disclosures in a manner which avoids incurring a duty to
update information. Utilize disclaimers and establish procedures for timely
removal or archiving.
Separate promotional and financial information.
Avoid linking with analysts reports. Whether or not a list of known analysts is included, include a conspicuous a disclaimer to assure that web site visitors are advised that reports by analysts are independent of the company and that the company takes no responsibility for their accuracy.
- Review your web site regularly from the point of view of a shareholder derivative (plaintiffs') lawyer.
- If the web site includes forward looking information, identify it as such, include appropriate disclaimers, refer the web visitor to risk factors, and make sure the referenced risk factors are available at the web site, by linking if reasonably convenient.
- If offering stock from a web site, assure that all requirements of such offerings are met. If offering services, assure that all requirements relating to such offerings or providing of services, e.g. limited access and permission to deliver required information electronically, are met.
If the competitive situation permits, avoid sponsoring a chat room. If the
competitive situation requires making a chat room available, make arrangements
for monitoring by appropriate persons, train them to monitor skillfully, and
establish procedures for monitoring the monitors
The opportunity for assuring instant dissemination of accurate information
relatively inexpensively makes it likely that the use of corporate web sites
will increase. The challenge for corporate and securities lawyers, and more
generally, companies and corporate issuers and underwriters, is to utilize the
expanding potential of web sites wisely and well.
1999, Micalyn S. Harris. All rights reserved. Originally prepared in connection
with a course on Basic Securities Law Concepts for the General Practitioner,
New York State Bar Association, New York, NY, April 29, 1999. Printed by
SEC Releases 33-7233, 34-36345 of October 13, 1995 and 33-7288, 34-37182 of May
15, 1996 regarding electronic distribution of proxy materials. Electronic
voting, governed primarily by state law, is permitted by both New York and
e.g., Item 303 of S-K, and instructions for Managementís Discussion and
e.g., NASD Rule 3070(c) and NYSE Rule 351(d).
, NASD Conduct Rule 2210, record keeping requirements under Rule 2210(b) and
principal review and approval requirements under Rule 2210(c) of the NASDR.
, SEC Rel. No. 33-7516, 34-39799.
Rel. No. 34-39799, at p. 2.