Chip Babcock Communiqué

Chip Babcock Communiqué Blogging and the Securities Exchange Commission

Last summer the SEC issued an interpretive guideline (SEC Release No. 34-58288) regarding companies hosting or participating in blogs or electronic forums. The commission stated two bright line interpretations: (i) the antifraud provisions of the federal securities laws apply to blogs and to electronic shareholder forums and; (ii) companies can not require investors to waive protections under the federal securities laws as a condition to entering or participating in a blog or forum. But it appears that the SEC is prepared to look as well at the blogs of individual employees to determine "whether an individual is acting on behalf of a company" which, it says, will always be determined by looking at the "facts and circumstances."

This policy has serious implications for individual employee bloggers and their employers. Will a company risk going through the expensive "fact and circumstances" determination every time an individual blog has a comment that might, in the view of a regulator or investor, implicate the antifraud provisions of the securities law? If the company is willing to take the risk, will the employee blogger speech receive any constitutional protection in enforcement proceedings or private lawsuits, or will it be tested under the more stringent standards of Rule 10 (b) (5) or other anti-fraud provisions of the securities laws?

There are no easy answers to these questions, and it is far too early to tell how companies, the SEC and potential plaintiffs are reacting to these measures. It is obvious, however, that this can't be good for individual employee blogs. Companies might well amend their policies to ban individual blogs, reasoning that they could create unintended liability for the business. Companies might decide that since there is a potential for liability anyway, then greater scrutiny of the individual blogs might be in order. In either case, Internet speech by employees will be less free.

All this raises the specter of indirect suppression by the government of important speech. If this interpretative guideline triggers a corporate response banning employee blogs, public dialogue will suffer.

— Chip Babcock is a partner at Jackson Walker. He can be reached at cbabcock@jw.com.