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Public Company Web Sites: A Marketing Tool Subject To Securities Laws

By Laureen K. Kuzur

Following the enactment of the Sarbanes-Oxley Act, disclosures by public companies via their Web sites are increasingly required or encouraged. With the implementation of these new rules and the growth of the Internet, investors, as well as prospective investors, increasingly are relying upon a company's Web site for investment information. Public companies should recognize the value of their Web sites as marketing and investor-relations tools, subject to the boundaries of applicable legal standards and constraints.

The Securities and Exchange Commission (SEC) has stated that “[t]he federal securities laws apply in the same manner to the content of [companies'] Web sites as to any other statements made by or attributable to them.” For example, Web site content that is inaccurate or misleading may cause the company to be found liable to an investor who incurred a loss by buying or selling the stock of the company in reliance upon such content. Additionally, companies and their officers may be held criminally liable for misleading or false information posted on the company's Web site. Last year, the CEO of eConnect was sentenced to over 8 years in federal prison after pleading guilty to three counts of securities fraud and one count of criminal contempt. The SEC had charged eConnect and its CEO with securities fraud in connection with a scheme to artificially inflate eConnect's stock price using, among various techniques, false statements posted on its Web site. According to the SEC, during the period when the false statements were posted on the Web site, eConnect's stock increased by over 500%.

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