Publications

Websites have become an increasingly popular marketing tool and medium for the distribution of company information. Though the information is generally aimed at customers, when a company is publicly traded, existing or potential stockholders also have access to the information, which may include financial data, stock prices, links to analysts’ reports and SEC filings. When investors access such information, legal issues abound, as outlined below.

Updating the Site

Though publicly-traded companies should update their websites for a variety of good business reasons, they also have a duty to correctly state, and update, information and may be liable under federal and state securities laws for misstatements or omissions anywhere on their websites. There are several preventive measures a company can take to minimize liability. Periodic review of all company communications on a website enables a company to correct, update, and delete information. Companies should also date each website alteration and press release posted. Dating puts a viewer on notice that a disclosure may no longer be accurate or relevant. The use of disclaimers on all dated press releases, analysts’ reports and articles may also limit liability.

Updating is particularly critical when a securities offering is being conducted or contemplated. The SEC may review the website, and inaccurate information could delay the offering or raise the possibility of an enforcement action. Since web postings are continuously republished to the general public, updating the posting is an issue of special significance. Where updating is sporadic, a “last updated” line should be included for each segment of the site, or updating should be expressly disclaimed.

Links to Analyst Reports

Hyperlinks to analyst reports are another common feature on public company websites. While some companies only list the names of analysts who cover their stock, other companies include telephone numbers and addresses. However, when a company provides hyperlinks, it may be subject to liability for information contained in the reports. Direct links to reports could be interpreted as an extension of a company website to the content of the report, apparently creating an endorsement by the company of the analysts’ projections. Under this theory, federal securities fraud claims may be brought against a company for inaccurate or misleading statements in the reports.

The safest and easiest way for a company to limit liability is to avoid direct links, thus building a firewall between the company and the reports. For example, a company may provide a list of analysts that publish reports on the company, without providing a link to their homepage. However, if a link is used, an “exit notice” should be included to inform the viewer that he is leaving the company site.

Another option is to list all analysts known to be covering the stock. Excluding analysts with negative outlooks on the company may expose the company to claims that it is distorting the information mix made available to the investing public. Where all known analysts are included, a disclaimer on the site stating that the company does not endorse the accuracy or completeness of the reports is advisable. Such a disclaimer may contain the following language:

All press releases, articles, and analysts’ reports and other information contained in, or linked to, this website were to the best of our knowledge timely, complete and accurate when issued. However, the passage of time can render all things stale, and we are not responsible for mis-impressions which may result from the reading of dated material. All viewers should carefully check the dates of issuance of the press releases, articles, reports and other items contained in, or linked to, this website.

A company should also include a disclaimer that the reports are by independent analysts and that the company takes no responsibility for their contents. Disclaimer language should be carefully crafted, and something like the following may be appropriate:

Links to the analyst reports listed below are a service to those interested in this information. We do not endorse these reports and can make no guarantee as to their accuracy or completeness. Users visit the analysts’ websites at their own risk. Those interested in investing in our company are directed to the materials filed by us with the SEC.

However, despite disclaimers, a company may be liable if it directs investors via a hyperlink to analysts’ reports or news stories that it knows, or is reckless in not knowing, are inaccurate.

Disclaimers on Predictions
Companies often include language on their website predicting future events, such as sales or profitability goals. However, a company may be held liable if the court finds that an investor reasonably relied on these statements. To limit liability, predictions should include a forward-looking statement disclaimer. Disclaimers generally include cautionary language informing the reader of the uncertainties inherent in such predictions and the important factors that could cause actual results to differ from those predicted. Generally, every press release and speech contained on a home page should include relevant and cautionary language. The cautionary language should be at the same site containing the communication, rather than at a hyperlink, since investors may not take the trouble to click on a hyperlink to the cautionary language. If properly worded, such a disclaimer may help limit a company’s potential federal and state securities law liability.

Below is one example of disclaimer language for forward-looking statements:

Certain information included in this press release is forward-looking and is subject to important risks and uncertainties that could cause actual results to differ. Actual results could differ materially based on numerous factors, including . . . These forward-looking statements represent our best judgment as of the date of this release based in part on preliminary information and certain assumptions which management believes are reasonable. We disclaim any obligation to update these forward-looking statements.

Password Protection
Some of the liability concerns inherent in maintaining a website are caused by the site’s continuous accessibility to the general public. Using a password-protected portion of the site for particularly sensitive information may help alleviate this problem. Password protection allows all viewers access to general information about the company, while limiting access to privileged information. For example, underwriters have begun to use protected sites to permit carefully screened investors to access stock promotion materials. All visitors to such a site are pre-approved and are issued passwords in advance.

Practice Pointer
Companies with websites should consider forming a disclosure compliance committee to address issues relating to liability. The Committee should develop and oversee general company practices and policies regarding website disclosure. The Committee should also identify important information as it develops, determine materiality and appropriateness of disclosure, provide a mechanism for coordinating public disclosures, and prohibit the abuse of confidential information.