With e-delivery in the news – specifically the SEC’s proposed Regulation E-Delivery – I’ve been reminiscing about the days in the mid-’90s when I worked in Corp Fin’s Office of Chief Counsel and I used to provide guidance to folks about how to read the SEC’s 1995 and 1996 interpretive releases when it came to applying the federal securities laws to activities on the Internet.
My favorite interp was always the last FAQ in the 1996 release. That FAQ #7 states: “An investment company produces both an electronic version (such as a CD-ROM) and a paper version of its prospectus. Each version contains all information required by, and otherwise complies with, the applicable form and all other applicable provisions of the federal securities laws. The electronic version contains a movie that does not appear in the paper version. Each version of the prospectus indicates that there may be other versions of the prospectus and, if the issuer determines to make such other versions available, provides information on how to obtain such other versions.
The paper version does not include a summary or transcript of the movie in the electronic version. Both versions of the prospectus are filed with the Commission as part of the company’s registration statement, or separately pursuant to Rule 497.
The use of either version of the prospectus to satisfy delivery requirements would be permissible. The issuer (or other party to whom the law assigns the responsibility) remains responsible for ensuring that each version satisfies applicable statutory requirements.”
Note that FAQ #7 mentions investment companies but the SEC’s guidance equally applies to public companies. And Corp Fin – at least back then – would consider the principles of this guidance to apply to disclosure documents beyond a prospectus. Meaning that companies could file and deliver different versions of a proxy statement if it so choose to do so – so long as each version fulfilled the legal requirements set forth in Schedule 14A, etc.
Why would a company decide to do this? To tailor disclosure to a type of investor would be one example. One version for retail investors; another version for more sophisticated investors. Or one version for long-term holders and another version for investors who flitted in and out of a company’s stock.
To my knowledge, no company has ever created two versions of the same document. Well, not exactly. As a Corp Fin staffer, I did work on the Form S-1 for Ameritrade’s IPO and there was a CD-ROM attached to the prospectus – so that perhaps some investors received a prospectus with the CD-ROM attached and some did not. But this did not fall within the confines of FAQ #7 because the company did include a transcript of the CD-ROM as an appendix to the prospectus (see the pics below) so that all investors received the same information. This happened in 1997.
Why hasn’t a company done this? Because disclosure documents are compliance documents first and foremost – and marketing documents second. Drafting two SEC compliant documents to meet a single disclosure obligation theoretically would create more work – and more potential liability – in a way that doesn’t outweigh the benefits available.
Still, I always thought there might be unique circumstances where it made sense to do so – but either those circumstances don’t exist or people haven’t been aware of the possibility to create two versions of a document as the SEC’s Internet guidance really isn’t something that many people focus on these days. Understandably so.
Whether FAQ #7 survives the adoption of Regulation E-Delivery is unknown. Note that the SEC’s original guidance in 1996 was not a rulemaking but an interpretation. Arguably meaning that companies always had the option to create two versions of a disclosure document unrelated to whether an “electronic” version was involved (so long as each version was compliant with the regs).
If you want to get into the weeds on the various “first time this type of thing happened” when the Internet initially became widely available to the masses, I drafted the Corp Fin section of this 1997 Report to Congress about technological advances and their impact on the securities laws…
Authored by
Broc Romanek