SEC Issues Guidelines on Public Companies' Net Use

WASHINGTON (04/26/2000) - The U.S. Securities and Exchange Commission has released new guidelines aimed at reducing the uneasiness public companies' feel over their use of the Internet to disseminate information.

Some companies have been skittish about how federal securities laws apply to the content they provide at their Web site, including content that can be accessed at their site through a hyperlink. Specifically, the concern is over their liability for any misrepresentations or omissions contained on the third-party Web site.

The new guidelines approved unanimously by the commission yesterday seek to reduce the uncertainty and remove some of the barriers to using the Web to disseminate information to investors, the SEC said in a fact sheet about the new guidelines.

The commission confirmed that hyperlinked information on a company's Web site could be attributed to the company, but that it would depend on the circumstances. For example, if a company explicitly or implicitly endorses the information that is hyperlinked, it would raise a question about the company's adoption of responsibility for that information.

The commission also specified that the context of the hyperlink, the chance that investors could be confused by the information and the presentation of the hyperlink, are important factors that must be considered in determining whether a company can be held responsible for the information in the hyperlink.

The new guidelines address three other points: electronic delivery of documents for investors, online offerings and technical concepts to facilitate regulatory action in the future.

In an effort to clarify several issues that arose after previous guidance on the use of electronic media, the SEC guidelines say that companies can send documents electronically to investors if the investors consent and the consent is "obtained in a manner that assures its validity and a record of the consent is obtained."

Another clarification permits brokers and banks to deliver documents electronically in portable document format (PDF) as long as investors are adequately informed of the requirements to download PDFs and are provided with the necessary software and assistance to do so.

The guidelines also discuss the legal principles that have shaped the commission's views on evolving practices for conducting online registered offerings, saying it will develop detailed procedures after further study.

Under the technical concepts point, the commission requests comment on a number of issues, including whether a requirement to deliver disclosure documents could be satisfied by posting the document on an Internet Web site, and whether investors could be sent documents electronically if they do not explicitly reject electronic delivery.

The SEC can be found on the Web at http://www.sec.gov.

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