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SEC Clarifies Hyperlink Responsibilities

Adoption of Text of Links Interpretation is Modified

By John M. Baker, Esq.


In the SEC’s interpretive release on use of electronic media earlier this year, it stated flatly that when an issuer embeds a hyperlink to a web site within a document that is required to be filed or delivered under the federal securities laws, the issuer should always be deemed to be adopting the hyperlinked information. Release No. 33-7856, 65 Fed. Reg. 25843, 25847 n.41, 25849 (Apr. 28, 2000).

Mutual funds are required to file all advertisements and sales literature, so the new interpretation severely restricted their ability to use hyperlinks, which are clickable links to web pages.

Now the SEC has released a clarifying interpretation that this view does not extend to a mutual fund’s responsibility for hyperlinks from fund advertisements or sales literature. Release Nos. 33-7877, IC-24582, 65 Fed. Reg. 47281 (July 24, 2000).

Although the SEC abandoned the flat rule of fund responsibility for hyperlinks in advertisements and sales literature(which was an inadvertent consequence of the earlier release), the use of hyperlinks in advertising is by no means in the clear. Instead, a fund will be deemed to have adopted the linked web page if it explicitly or implicitly endorses or approves the hyperlinked information under the analysis in the earlier release.

In addition, when a fund is in registration (as mutual funds generally are), if the fund establishes a hyperlink to information that meets the statutory definition of an “offer to sell,” “offer for sale,” or “offer,” a strong inference arises that the fund has adopted that information for purposes of Rule 10b-5.

The new SEC release also adopts Rule 160, which (consistent with existing law) permits a fund to provide supplemental sales literature electronically without first receiving the investor’s consent. New Rule 160 was mandated by the Electronic Signatures Act. The release notes that the SEC is continuing to consider the implications of the Act on securities transactions.

The new release is available in PDF or text format from the Federal Register web site (search for “Rule 160”) at http://www.access.gpo.gov/su_docs/aces/aces140.html or in HTML format directly from the SEC web site at http://www.sec.gov/rules/final/33-7877.htm

The release addresses the hyperlink issue in response to comment letters from the Investment Company Institute, http://www.ici.org/issues/electr_media_cvr.html and Fidelity Investments,http://www.sec.gov/rules/concept/s71100/gavis1.htm These letters in turn had directed the SEC to a 1997 NASD interpretation that allowed greater leeway in the use of hyperlinks, http://www.nasdr.com/2910/2210_01.htm

The release does not directly address the NASD interpretation but states that the SEC has asked the Division of Investment Management to consider providing additional guidance for determining when a mutual fund is responsible for third-party information to which the fund establishes a hyperlink.


Copyright 2000, John M. Baker, Esq., Stradley, Ronon, Stevens & Young, LLP, 1220 19th Street, N.W., Suite 700, Washington, DC 20036 – (202) 822-9611- Fax (202) 822-0140 This article was originally posted to the FundLaw List, http://www.egroups.com/group/fundlaw. To subscribe to FundLaw, send a blank e-mail to fundlaw-subscribe@egroups.com


Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.  


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