SEC lets companies use Web to disclose data to shareholders

New guidance ends need to distribute investor information on paper documents in many cases

In a nod to the increasing importance of corporate Web sites and blogs, the US Securities and Exchange Commission last week agreed to let public companies disclose material information to investors on Web sites. Under the new rule, companies would not have to provide the same information on paper in most circumstances.

The SEC voted unanimously last Wednesday to issue new guidance for compliance with the Regulation Fair Disclosure (FD) rules - which require that all investors in a company receive material information at the same time to ensure fairness.

The new guidance, not yet published, will explain when companies can use the Web to provide "public disclosure" under Regulation FD, noted Kim McManus, special counsel in the SEC's Division of Corporate Finance, during an SEC meeting held to discuss the issue.

Under the new guidance, companies must consider whether their Web site is a "recognized channel of distribution" and whether the information is "posted and accessible" and, therefore, "disseminated," according to McManus. As part of that evaluation, companies must consider whether their Web sites are capable of meeting the simultaneous or prompt timing public disclosure requirements described by Regulation FD, McManus added.

"The use of electronic media is arguably superior to providing company information the old way," SEC Chairman Christopher Cox said during the meeting. "It can be presented in interactive formats to allow each individual to click through ... to the level that is appropriate to him."

Previously, the SEC allowed corporate Web sites to be used only as a part of the disclosure process. Last week's ruling allows corporate sites to be the sole means of disclosure, noted Dominic Jones, a blogger at Investors Relations Web Report. The most significant part of the ruling, he said, is that Web-based disclosure must no longer always be in a format comparable to paper-based information.

"That is a welcome clarification and could encourage companies to be more innovative and creative in how they present their disclosures online rather than merely dumping documents in PDF or image-based documents that mirror the printed documents," Jones noted.

The new policy cut also disclosure costs for many companies that pay wire services to distribute their disclosures, he added.

"It could also encourage companies to make investments to improve their investor relations Web sites and facilitate the use of blogs for communication and investors," Jones said. "Importantly, while the new guidance says that companies and their employees are liable for information they post on blogs and discussion forums (not really news), they have no duty to correct inaccurate information posted in comments on their sites by third-parties."

Michael Arrington, a blogger at TechCrunch, added that the decisions "could break the age-old shackles that bound businesses to traditional media and distribution channels" to satisfy full disclosure regulations.

"The SEC is taking the right steps to embrace the new tools and services that reach people in addition to wire services," Arrington wrote. "With the recognition of blogs as a viable form of disclosure, under certain circumstances of course, the SEC is officially recognizing Social Media and in a sense, socializing the rules associated with Regulation FD. I believe this new guidance only expands the ability to share information using a variety of approved channels. It will in fact, improve the infrastructure for investor and public relations by socializing the process to more effectively communicate with investors and the people who care."

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