Your good client, Sam Beckett, General Counsel of PQL Corp, calls and needs quick advice. PQL has made a breakthrough discovery in the field of super string theory, and Sam asks if the company can announce this news on its website. Before you can utter the words “Form 8‑K,” Sam steps into the Quantum Leap Accelerator and vanishes.
Here’s what you would tell Sam, assuming he ever shows up in your zone of space/time.
Background to Regulation FD
First, a bit of background (just in case Sam has not leapt back in time to the year 2000, when the SEC adopted Regulation FD). Regulation FD was designed to curb perceived abuses relating to the “selective disclosure” of material non-public information (such as earnings results) by company officers and other representatives. Generally, under Regulation FD, a company must publicly disclose material non-public information that it provides to securities industry professionals (such as analysts) or shareholders. The SEC Staff C&DIs on Regulation FD are a very useful resource.
As with many things, timing is critical. The timing of public disclosure will depend on whether the selective disclosure was intentional or unintentional. For intentional disclosures, the company must publicly disclose the information simultaneously with (or prior to) the selective disclosure. Under Regulation FD, a selective disclosure is intentional when the person making the disclosure either knows, or is reckless in not knowing, that the information is both material and non-public. For unintentional disclosures, the company must publicly disclose the information as soon as reasonably practicable after a senior official of the company learns of the disclosure (but, in any event, within the later of 24 hours and the commencement of the next day’s trading on the NYSE).
There are also some important exceptions to the public disclosure requirement that frequently come up in practice. The Regulation FD disclosure requirements do not apply to disclosures made to people who owe a duty of trust and confidence to the company (such as attorneys, investment bankers or accountants) or disclosures to persons who expressly agree to maintain the information in confidence. The SEC’s position is that an oral agreement to keep information confidential is sufficient for these purposes, but the recipient of the information must expressly agree to keep the information confidential (see the Regulation FD Adopting Release at note 28; C&DIs 101.05 and 101.06). Disclosures made in connection with certain public securities offerings are also exempted (for example, disclosures in certain registration statements) but if the company is already public, many companies review the disclosures and behave as if Regulation FD applies. Similarly, although foreign private issuers are expressly exempted from Regulation FD, FPIs that are SEC registrants often choose to comply with Regulation FD.
How do companies disseminate information under Regulation FD?
Under Regulation FD, issuers must publicly disclose via Form 8-K unless they disseminate the information through another method (or combination of methods) of disclosure that is “reasonably designed to provide broad, non-exclusionary distribution to the public.”
What are those alternative methods? There are multiple answers to that question. Many companies follow Regulation FD literally, and use a Form 8-K, often in combination with a press release. In addition to ensuring that the information has been disclosed in an FD-compliant matter, using a Form 8-K doesn’t require the company to wait any period before the information can be disclosed in other forums, so long as the filing has been accepted for filing and is publicly available on EDGAR (see C&DI 102.03). But that’s not necessarily the only approach. For example, if a company wants to hold a conference call during which material non-public information will be announced, the company may choose to issue a press release announcing the date, time and means of accessing a conference call. If the call is generally accessible to the public, the company would take the position that the call complies with Regulation FD.
So, can Sam use the website?
Maybe. This can be done under some circumstances, but each company needs to consider whether its circumstances qualify.
When Regulation FD was adopted, the SEC made clear that merely posting information on a company website alone would not satisfy Regulation FD (see the Regulation FD Adopting Release, text at note 73). But, not unlike our time-traveling friend Sam, the SEC looked into the future and acknowledged that as technology evolved and the internet became more widely used, some companies whose websites are widely followed might be able to use their websites as an FD-compliant method of communication.
In August 2008, the SEC issued updated guidance in Release No. 34-58288 on the use of company websites to satisfy Regulation FD. In its discussion at Section II.A of the release, the SEC provides some of the factors for a company to consider (e.g., whether the company routinely posts information to the website and publicizes the website to investors). The SEC expressly did not, however, provide any bright-line rules on this question. So, you and Sam would at a minimum want to look at the guidance and decide if PQL’s website met these factors.
Since the guidance came out, some public companies have elected to use their websites as a means of disseminating information for purposes of Regulation FD. Companies adopting this approach typically notify investors and the market they intend to do so by adding language similar to the following in their Forms 10-K or press releases:
We intend to use our website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included on our website in the ‘Investor Relations’ sections. Accordingly, investors should monitor such portions of our website, in addition to following our press releases, SEC filings and public conference calls and webcasts.
At this point, many companies are still not completely comfortable that they could easily and clearly demonstrate that they satisfy the SEC guidance (particularly because of the absence of a bright-line test). Many companies accordingly choose to use website postings in combination with other FD-compliant methods. For example, prior to an investor conference, some companies furnish the slides for the conference on a Form 8-K. Other companies, however, issue a press release announcing that the investor conference will occur and that that the presentation materials will be available on the company’s website. Before a conference, these companies may file the press release on a Form 8-K and post the slides on their website to disseminate that information.