Disclosure via the Internet: Electronic Delivery of Mandated Disclosure Documents

Abstract

This article is directed to public companies that want to use the Internet for disclosure purposes. Because electronic media — including Internet Web sites — potentially allow for the rapid dissemination of information to investors and financial markets in a more cost-effective and widespread manner than traditional “paper-based methods,” issuers and other market participants have been requesting guidance from the Securities and Exchange Commission (SEC) on how to deliver mandated disclosure documents (e.g., annual reports and proxy statements) via electronic media in compliance with existing federal securities laws. The SEC has yet to promulgate a comprehensive set of rules and regulations to govern the electronic delivery of documents to the public. However, in an effort to respond to inquiries and to offer guidance to issuers (including corporations and mutual funds) and other market participants (including broker/dealers) with respect to the electronic delivery of man- dated disclosure documentation (e.g., Annual Reports and Proxy Solicitation Material), the SEC has issued two inter- pretive releases. In its October 1995 inter- pretive release, the SEC stated that “delivery of information through an elec- tronic medium generally could satisfy delivery or transmission obligations under the federal securities laws.” But simply posting a mandated disclosure document to its Web site does not satisfy a com- pany's disclosure obligations because it is not proper to presume that everyone has access to the Internet. The SEC's test is whether such distribution results in the delivery to the intended recipients of sub- stantially equivalent information to inves- tors as they would have had if the information were delivered to them in paper form. The SEC identifies four guidelines for effective electronic delivery — rather than paper delivery — of mandated disclosure documents in compliance with the securities laws.