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Business Lawyer



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As use of the Internet and other new technologies in securities continues to expand, the U.S. Securities and Exchange Commission and self-regulatory organizations (SROs) within the securities industry have continued their efforts to adapt their existing regulations to these developments. Although regulators in the United States have provided guidance to market participants on many issues, many other important questions under U.S. securities law remain unanswered.

Guidance regard to securities law in other jurisdictions is almost non-existent, though transnational organizations, such as the International Organization of Securities Commissions (IOSCO), are working to remedy this situation. I

n 1997 and 1998, the SEC staff issued several releases addressing issues raised by the use of the Internet and other electronic securities markets. These included releases authorizing changes rules to facilitate the use of the Internet or other electronic media in communications with investors. In a release regarding its plain English initiative, the SEC provided additional guidance on the use of the Internet in connection with disclosure documents. In a March 1998 release, the SEC rendered advice regarding the use of the Internet in offshore securities market activities. During 1997 and 1998, the SEC issued a series of no-action letters providing guidance on such issues as the use of an issuer's Internet address in a registration statement, the transmission of public offering road shows over the Internet or through other electronic media, the use of Internet sites to market private placements, the use of Internet bulletin board services to facilitate trading in unregistered securities, and the use of credit cards as a form of payment for securities purchased over the Internet. With regard to secondary market operations, the SEC also issued a proposed rule on regulation of exchanges and alternative trading systems, and an interpretative release regarding electronic trade confirmation services.

Although the SEC has provided extensive guidance on certain issues, many important questions about the impact of the Internet on securities law remain unanswered. For example, online chat rooms are an established institution on the Internet. Such chat rooms, however, have often been connected with many cases of fraud and market manipulation. The status of chat rooms offered by Internet brokerage services, rather than independent third-party service providers, has not yet been clarified by the SEC. It is possible that the brokerage firm might be exposed to liability if a brokerage-firm-sponsored chat room were used in a market manipulation scheme, even though no Internet service providers have similarly been targeted by the SEC.

Similarly, many corporate counsel confront issues about the use of the Internet in investor relations that have not yet been addressed by the SEC. In the private litigation context, it remains to be seen what standard will be applied should an investor seek remedies based on a material misstatement in a corporate web site as opposed to mandatory disclosure materials



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