United States: The SEC’s Long-Awaited “Internet Release” Answers Some Questions, But Leaves Others Untouched

After much public anticipation and internal deliberation, the Securities and Exchange Commission issued an interpretive release, entitled "Use of Electronic Media," addressing some issues that have arisen as issuers and market intermediaries increasingly use the Internet and other forms of electronic communication.¹ The release has three components. First, the Commission offers interpretive advice on electronic delivery of documents, issuer liability for the content of its Web site, and online offerings. Second, in a section entitled "Technology Concepts," the Commission discusses and requests public comment on "specific issues that may arise in the future."² Third, the Commission provides eight examples to illustrate its interpretations.

Many view the release as overdue. While there have been dramatic changes in technology and in the use of the Internet in the securities field, it has been several years since the Commission offered its views on how the securities laws apply to issuers and others when they use the Internet.³ Until now, the Commission’s only formal guidance in this area has been its 1995⁴ and 1996⁵ interpretive releases about satisfying delivery obligations by electronic means, and its 1998 interpretive release about using a Web site to market securities outside the United States.⁶

Some securities experts have criticized the Commission’s limited interpretations, and called for new rules to address the new environment.⁷ In April 1998, participants in the SEC’s Technology Roundtable called upon the Commission to update its interpretive releases on electronic delivery.⁸ When the Commission established and then expanded the Office of Internet Enforcement in its Division of Enforcement, some market participants grew concerned about the minimal guidance from the Commission.⁹ The Commission itself has long realized that more guidance in this area was necessary. In November 1998, the Commission promised to address technological issues involving offerings "in the near future,"¹⁰ and at the Commission meeting at which this latest release was approved, Chairman Levitt noted that "[t]he absence of up-to-date guidance in the electronic age has the potential to cause uncertainty and may impose unnecessary barriers to efficient employment of electronic modes of communication."¹¹

The new release is limited in four respects. First, it contains only interpretive guidance rather than proposed rules. Second, it addresses only some of the major issues involving electronic media. Third, rather than offering definitive interpretive guidance, the Commission emphasizes facts and circumstances analysis and non-exclusive lists of "relevant factors." Fourth, the release is somewhat restrictive in its interpretation of statutes, rules and no-action letters. The release does not represent a major departure from the Commission’s prior positions.

The Commission recognizes that the release is not as broad as many had wanted. In fact, during the Commission meeting,¹² Commissioner Unger stated that she "would have liked something that went much further." David Martin, Director of the Division of Corporation Finance, admitted that the release "does not address solutions in a number of areas." Commissioner Johnson explained, "in such a rapidly evolving area as the Internet, rigid guidelines can slow valuable innovation." He added, "[s]ometimes it’s better to allow market participants to experiment."

The limited scope of the release appears to reflect the difficulty of addressing the fast-moving and revolutionary changes in the means of conducting business brought about by the Internet and related technology. David Martin explained that "every piece of the analysis of what’s in this release and what is not in this release is taut with the tension that underlies the deliberations by the Commission in policy areas and that is, of course, the tension between investor protection on the one hand and facilitating capital formation on the other."¹³ Exchanges among the Commissioners during the meeting illustrate that tension. Two were focused on "harnessing the power of the Internet," while two others emphasized that computer access should not be a prerequisite to investing.

Since 1995, the Commission has permitted issuers and market intermediaries that meet certain conditions to satisfy their delivery obligations by sending documents electronically to securityholders. The 1995 and 1996 releases outline three non-exclusive factors that, if satisfied, constitute adequate delivery:

1. Investors must have notice that the information is available electronically;
2. Investors must have access to the electronic information; and
3. Issuers or intermediaries must have evidence of delivery.¹⁴

The new release elaborates on these three factors.

In its 1995 release, the Commission stated that one way for an issuer or intermediary to demonstrate that documents have been delivered electronically is to have obtained an informed consent from an investor to receive information through a particular electronic medium.¹⁵ The 1996 release specified that "broker-dealers may obtain consents manually or electronically."¹⁶ In the new release, the Commission states that a consent can be given by telephone if the issuer or market intermediary retains a detailed record of the consent, and the consent is "obtained in a manner that assures its authenticity."¹⁷

Responding to questions raised by the securities bar, the Commission states that an investor may give an intermediary "global consent" to electronic delivery of documents from multiple issuers provided that consent is informed. To facilitate an informed consent, the intermediary must disclose:

• the various types of electronic medium that may be used;
• the duration of the global consent;
• the scope of the consent (the types of documents it affects); and
• the fact that the investor can revoke the consent at any time.

A global consent need not identify specific issuers covered.¹⁸

Given the significance of a global consent, intermediaries should take "particular care to ensure that the investor understands" its implications. One recommended "best practice" is to draw attention to a global consent by making it a separate section of an account opening agreement or a separate agreement. The Commission cautions that it would not consider a global consent to be informed if granting consent was a condition to opening a brokerage account unless all account transactions were to be conducted electronically or there was other evidence of delivery.¹⁹

In addressing the issue of access, the Commission states that issuers and intermediaries may deliver documents in PDF (portable document format), even though it requires special software, if they so inform investors when obtaining their consent, and offer the software and assistance at no cost.²⁰

The Commission offers further guidance on what has come to be known as the "envelope theory."²¹ The envelope theory is based upon the 1995 release, which contains examples of how an issuer can simultaneously electronically deliver (as if in a virtual envelope) sales literature and a final prospectus either by posting the documents "in close proximity to each other" on the same menu or by hyperlinking one to the other.²²

Because of these examples, some practitioners feared that the Commission would consider any document that was in close proximity to a prospectus on a Web site to be part of the prospectus. In response, the Commission now states that it would not necessarily consider such a document to be part of the prospectus unless the issuer "acts to make it part of the prospectus." For example, if a prospectus contains a hyperlink, the hyperlinked information would be deemed part of the prospectus. In such cases, the hyperlinked information must be filed with the Commission as part of the registration statement and becomes subject to Section 11 liability. In the opposite situation, where an external document contains a hyperlink to a prospectus, the Commission would not consider the information in the external document to be part of the prospectus.²³

The 1995 release also prompted concerns that the Commission would consider any information that was in close proximity to a prospectus on a Web site to constitute an offer to sell or another form of free writing that violated the securities laws. In the new release, the Commission responds that "the focus on the location of the posted prospectus is misplaced." The envelope theory is limited to delivery issues; it does not apply to the issue of free writing. "Regardless of whether or where an issuer has posted its Section 10 prospectus on its web site, the web site content must be reviewed in its entirety to determine whether it contains impermissible free writing."²⁴

The Commission asks for comment on whether it should permit an issuer or a market intermediary to satisfy its delivery obligations by simply posting required documents on its Web site. However, the Commission believes such an "access-equals-delivery" model is not yet appropriate because many people do not have "ready access to electronic media," and those that do may not all want their documents delivered electronically.²⁵

While the Commission "continue[s] to believe" that a prerequisite to electronic delivery of documents should be that each securityholder directly receives notice that electronic documents are available, the new release solicits comments on this requirement. The Commission is willing to dispense with the requirement if an issuer or market intermediary "can otherwise establish that delivery [of the documents] has been made." Notice cannot be accomplished by indirect means. For instance, a broker-dealer may not establish delivery by placing a notice on its Web site because the customer must pull down the message to access it. Likewise, notice is not directly received if a broker-dealer posts an alert to an investor’s particular account at the broker-dealer’s Web site unless the alert is "promptly forwarded directly to the investor."²⁶

The Commission recognizes that "obtaining investor consent poses the most significant barrier to the use of electronic delivery." However, the Commission refuses to endorse the concept of "implied consent," in which a securityholder would be deemed to have consented to electronic delivery upon failing to object in response to a notice that a particular issuer or intermediary intends to deliver documents electronically. The Commission expresses concern that "investors would be significantly and adversely affected by implied consent through their inadvertent failure to act." Countering claims that many investors do not respond to notices because they are simply inattentive, the Commission states that "in many circumstances" investors intentionally do not respond because they do not want electronic delivery.²⁷

The only context in which the Commission has accepted implied consent is where an issuer delivers documents to its employee-securityholders on a company E-mail system and those employees are expected to use their E-mail routinely.²⁸ The Commission expressly refuses to extend this interpretation to other situations, although it does ask whether there are other particular circumstances where it should permit implied consent.²⁹

While the Commission has placed conditions on electronic delivery, it has permitted issuers to deliver documents exclusively through electronic means where they offer securities only through electronic media.³⁰ While an issuer can ask an investor to agree to accept electronic delivery as a condition to participation in an offering, each investor still has the right to demand paper delivery.³¹ In the new release, the Commission asks whether this paper back-up requirement is necessary.³²

The Commission cautions that it is not developing special rules for Web site communications: "the federal securities laws apply in the same manner to the content of [issuer] . . . web sites as to any other statements made by or attributable to them."³³ Nonetheless, the new release does offer interpretive guidance regarding issuer liability for hyperlinked information and for electronic communications during a registered offering. The Commission also requests comments on three related issues:

1. Whether an issuer should be liable for outdated information that remains on its Web site³⁴;
2. Whether the Commission should provide guidance regarding issuers whose businesses are their Web sites (as opposed to a traditional company that uses the Internet as an ancillary tool), or regarding mutual funds that continuously offer and sell securities to the public³⁵; and
3. Whether the Commission should provide guidance regarding discussion forums, bulletin boards and chat rooms.³⁶

"Issuers are responsible for the accuracy of their statements that reasonably can be expected to reach investors or the securities markets regardless of the medium through which the statements are made, including the Internet."³⁷ If an issuer hyperlinks from its Web site to information on a third party site, the issuer may be liable under Section 10(b) of the Exchange Act for that third party information if the issuer either "involved itself" in the preparation of the information (a concept known as "entanglement"), or, explicitly or implicitly, endorsed or approved that information (a concept known as "adoption").³⁸

The Commission cites to a series of cases discussing entanglement, but declines to offer any guidance on that subject.³⁹ The release speaks to the adoption inquiry. During the Commission meeting, Michael McAlevey, Deputy Director of the Division of Corporation Finance, explained that whether an issuer has adopted a statement is a "very fact-intensive determination."⁴⁰ The new release offers some guidance on the subject, but the Commission insists, "[w]e are not establishing a ‘bright line’ mechanical test."⁴¹

According to the Commission, at least three factors are relevant in determining whether an issuer has adopted, and therefore may be liable for, the content of a third party Web site to which the issuer provides a hyperlink:

1. the context of the hyperlink;
2. the risk of investor confusion; and
3. the presentation of the hyperlinked information.

The Commission makes clear that these three factors are "neither exclusive nor exhaustive," and that any one factor may be determinative of the issue.

If an issuer hyperlinks from its Web site to information on a third party site, the issuer may be liable under Section 10(b) of the Exchange Act for that third party information. . . .

The Commission offers three examples to show how "what the issuer says about the hyperlink or what is implied by the context in which the issuer places the hyperlink" can be relevant to a finding of adoption. First, where an issuer embeds a hyperlink in a document that is required to be filed or delivered under the securities laws, the Commission will always find that the issuer adopted the content of the hyperlinked Web site. Second, when an issuer is in registration, there is a "strong inference" of adoption if the issuer establishes a hyperlink to information that constitutes an offer under Section 2(a)(3) of the Securities Act. Third, an issuer’s suggestion on its Web site that hyperlinked information supports the issuer’s own statements may indicate that the issuer has adopted the linked content.⁴²

The Commission advises issuers seeking to avoid adoption to take "precautions" to minimize investor confusion as to the source of information in a hyperlinked Web site. One way to reduce confusion is by installing an intermediate screen that "clearly and prominently" advises viewers who select a hyperlink that they are leaving the issuer’s Web site.⁴³ An issuer can also post a disclaimer, but the Commission warns that a disclaimer alone will not insulate an issuer from liability under Section 10(b) where "the relevant facts and circumstances otherwise indicate that the issuer has adopted the [hyperlinked] information."⁴⁴ If an issuer links to third party information by "framing" or "inlining," an investor could be confused about the source of the information because it may not be apparent that it was imported from another Web site.⁴⁵

As to presentation, the Commission appears to be concerned with more than merely how a hyperlink appears on a viewer’s screen. Certainly, if an issuer’s Web site contains multiple hyperlinks, but one is differentiated from the others (for example, because of its prominence, type font, size or location), investors may believe that the issuer favors and has adopted the information in the differentiated Web site. Other practices that suggest adoption include linking to a Web site containing information that is "not representative" of the "wealth of information" on a particular matter, or "selectively establish[ing] and terminat[ing] hyperlinks to third-party web sites depending upon the nature of the information" they offer about the issuer.⁴⁶

In 1999, the Commission amended its mergers and acquisition rules to liberalize restrictions on communications.⁴⁷ Under the new rules, an issuer can post information relating to a merger or other business combination on its Web site provided it files that information with the Commission pursuant to Rule 425.⁴⁸

Two years ago, the Commission proposed lifting some restrictions on issuer communications during public offerings, but those proposals were part of the much-criticized Aircraft Carrier release. In the new release, the Commission indicates that it has not abandoned this aspect of the Aircraft Carrier.⁴⁹ Indeed, during the Commission meeting, David Martin indicated that the staff was "revisiting" this issue and might have a release on the subject before year-end.⁵⁰

Until the Commission takes further action, issuers in registration must follow the same rules for communication on their Web sites that they follow for their paper-based communications. Moreover, Section 5 limitations on communications by issuers in registration extend to any third party Web site to which an issuer has established a hyperlink.⁵¹ As the Commission said in its discussion of hyperlinks in the anti-fraud context, if an issuer in registration links to another Web site containing information that constitutes an "offer" under Section 2(a)(3) of the Securities Act, "there is a strong inference" that the issuer has adopted the hyperlinked information and that the information should be attributed to the issuer for purposes of Section 5.⁵² While there are safe harbors from Section 2(a) and Section 5(c) of the Securities Act for broker-dealers to publish or distribute research, the Commission notes that those safe harbors do not extend to issuers that wish to link to analyst reports.⁵³

Citing to releases dating as early as 1957, the Commission reiterates its long-standing view that a reporting company in registration should limit its public communications, on the Web or otherwise, to "ordinary-course business and financial information."⁵⁴ In its new release, the Commission extends these limitations to non-reporting companies that are preparing to go public. Moreover, the Commission announces that these limitations "may" apply even "more strictly" to a company in an IPO that "contemporaneously establishes a web site." When a new issuer does not have a history of regularly disclosing information to the market, even posting ordinary course business information on its new Web site may condition the market for a pending offering; investors unfamiliar with the company "may be less able" to distinguish those communications from offers to sell securities.⁵⁵

In July 1999, the staff issued a no-action letter to Wit Capital in which it outlined some permissible procedures for online public offerings.⁵⁶ Since the issuance of that letter, the staff has worked informally (rather than through the no-action process) on a case-by-case basis with various brokerage firms to help them each develop procedures that are permissible under Section 5. A number of brokers have asked the Commission to "make additional regulatory accommodations to facilitate online offerings."⁵⁷

The Commission explicitly refuses to "prescribe any specific procedures" for online offerings, at least for now.⁵⁸ During the Commission meeting, Deputy Director McAlevey explained that in drafting the release, the staff "decided not to fossilize staff or Commission positions in this area, recognizing that it’s rapidly developing, recognizing that we still . . . have a lot to learn about . . . how these procedures are being used." However, David Martin promised a "proposal" (presumably proposed rules) on the subject of online offerings by the end of the year.⁵⁹

The Commission expresses two concerns with online public offerings: "there may be insufficient information available to investors to enable them to understand fully" the process of offering securities online, and "investors are being solicited to make hasty, and perhaps uninformed investment decisions." Still, the only guidance the Commission offers is a reminder of "two fundamental legal principles" that "must underpin development of appropriate procedures for online offerings."⁶⁰ These principles are not new. First, like in a traditional offering, participants in an online offering cannot sell, or make contracts to sell, a security before the registration statement is effective. Likewise, they cannot accept offers to buy or receive any portion of the purchase price (i.e., deposits) until the registration statement is declared effective.⁶¹ Second, written offers generally cannot be made except by use of the prospectus until a final prospectus is delivered, but oral offers are permissible as soon as the registration statement is filed,⁶² as are offers in connection with business combinations.

The Commission makes two controversial points in the release relating to private offerings.

In 1995, the Commission stated that use of a Web site to solicit investors for a private offering would constitute general solicitation, which is not permitted under Regulation D.⁶³ However, in a 1996 no-action letter to IPONet, the staff permitted a registered broker-dealer and its affiliate to use a Web site to solicit potential investors in a Regulation D offering.⁶⁴

The new release limits the applicability of the IPONet no-action letter. The Commission restricts electronic offers to prospective investors with whom the issuer (or its intermediary) has a "pre-existing substantive relationship." In the past, the staff has only found such relationships to exist between an investor and a broker-dealer, primarily due to the obligations of a broker-dealer to deal fairly with its customers and to make suitable recommendations to them.⁶⁵ Nevertheless, the Commission does not categorically rule out the possibility that a Web site operator that is not a broker-dealer could have pre-existing, substantive relationships with prospective investors that would preclude finding a general solicitation. During the Commission meeting, Michael McAlevey indicated that the staff would continue to consider, through the no-action process, alternative procedures that satisfy the "pre-existing substantive relationship requirement."⁶⁶

The Commission explicitly refuses to "prescribe any specific procedures" for online offerings, at least for now.

While the Commission requires that a relationship be "substantive," it apparently does not insist that the relationship be long standing.⁶⁷ The staff in the IPONet letter permitted a broker-dealer to use the Internet to solicit "previously unknown prospective investors" provided that they did not have access to private offerings until they established accounts with the broker-dealer and the broker-dealer determined that they were either accredited or sophisticated investors.

The Commission’s second controversial point was that, to a large extent, only registered broker-dealers could use the Internet in private offerings. In effect, the Commission warned operators of private offering Web sites that they might be required to register as broker-dealers under Section 15 of the Exchange Act. Such Web site operators may be effecting, inducing or attempting to induce the purchase or sale of securities, which would make them broker-dealers within the statutory definition. The Commission notes that there is a difference between securities that are exempt from registration under the Securities Act, and exempt securities for which sellers are not required to register as broker-dealers under the Exchange Act.⁶⁸ In fact, "broker-dealer registration generally is required to effect transactions in securities that are exempt from registration under the Securities Act."⁶⁹

Anticipating claims that the Commission is reversing the staff’s position in its no-action letters to Lamp Technologies, which found "no general solicitation" when a non broker-dealer Web site operator solicited prospective investors for exempt hedge funds, the Commission states that the Lamp letters did not address the registration issue.⁷⁰ In fact, the Commission takes the unusual step of formally requesting the Division of Market Regulation to consider whether a Web site operator conducting the activities described in the Lamp letters is required to register as a broker-dealer.⁷¹ Hinting that this issue might be ripe for enforcement action, Michael McAlevey stated at the Commission meeting that there would be a "coordinated effort" between the Division of Corporation Finance and the Division of Enforcement.⁷²

The Commission has been cautious in its response to the new electronic securities market, answering some questions but leaving many unanswered. For those who are disappointed by this release, there is hope. During the Commission meeting, Chairman Levitt pledged that the Commission is "committed to proactively addressing" these issues. David Martin promised to present one or more proposals for Commission consideration "by the end of the year." Director Martin specifically intends to address online offering procedures. Other issues that he considered "fair game" for action this year include communications during the offering process, roadshows, and general solicitation.⁷³ Public reaction and response to this latest release may affect the timing and the nature of the Commission’s future actions.

1Release No. 33-7856 (Apr. 28, 2000) (the "2000 Release"). The term "electronic media" is not defined in the release, but it commonly refers to the Internet, electronic mail, CD-ROMs and other means of electronic communication. See Release No. 33-7233 (Oct. 5, 1995) (the "1995 Release").

2Comments are due on or before June 19, 2000.

3 SEC staff has issued a number of no-action letters addressing various aspects of the use of the Internet in delivering documents, offering and selling securities and related issues.

4 1995 Release, supra note 1. This release addressed electronic delivery of documents by or on behalf of issuers and third parties making tender offers or soliciting proxies.

5Release No. 33-7289 (May 9, 1996) (the "1996 Release"). This release addressed electronic delivery of documents by broker-dealers, transfer agents and investment advisers.

6Release No. 33-7516 (March 23, 1998). See also Release No. 33-7759 (Oct. 22, 1999), which addressed cross-border tender and exchange offers, business combinations, and rights offerings.

7One former Director of the Division of Corporation Finance criticizes the Commission’s failure to adopt new rules that "reflect the special nature of electronic communications." Instead, "[t]he Commission has addressed the use of electronics principally in terms of procedure, principally in the context of mandated disclosures, and by analogy to paper . . . [an approach that] may lead to the unintended result of limiting the use of the Internet in ways that the Commission eventually may not want to endorse, or in ways that fail to serve the public interest." Linda C. Quinn and Ottilie L. Jarmel, Securities Regulation and Electronic Media: An Overview, SECURITIES IN THE ELECTRONIC AGE: A PRACTICAL GUIDE TO THE LAW AND REGULATION (Glasser LegalWorks, 2d ed. 2000), p. 1-13.

8"Roundtable Participants Call on SEC to Continue to Address Technological Issues," Securities Regulation & Law Report (BNA), Vol. 30, No. 16, Apr. 17, 1998, pp. 589-90.

9"SEC Forms New Enforcement Unit to Combat Fraud Occurring on the Internet," Securities Regulation & Law Report (BNA), Vol. 30, No. 31, July 31, 1998, p. 1153.

10Release No. 33-7606 (Nov. 3, 1998) at n. 327.

11Open Commission Meeting, April 25, 2000 (the "Commission Meeting"), Opening Statement of Chairman Arthur Levitt.

12Commission Meeting, supra note 11.

13Id.

141995 Release, supra note 1, Section B and C; 1996 Release, supra note 5, Section A.

151995 Release, supra note 1, Section C.

16 1996 Release, supra note 5, at n. 23.

172000 Release, Section II.A.1. As Examples 1 and 2 of the 2000 Release illustrate, authenticity is reasonably assured if the investor uses a personal identification number for a mechanical consent system, or consents during an oral conversation with a familiar broker.

18Id. Section II.A.2. Examples 3, 4, and 5 of the 2000 Release illustrate certain of these criteria.

19Id. The 1995 Release gave five examples of acceptable evidence. See 1995 Release, supra note 1, Section II.C.

202000 Release, Section II.A.3 and Example 5.

21The Commission discusses this issue in the context of public offerings, but notes that its discussion "applies by analogy to all documents required to be filed or delivered under the federal securities laws." 2000 Release, n. 38.

221995 Release, supra note 1, Examples 14 and 15.

232000 Release, Section II.A.4 and Example 6.

24Id. Section II.A.4 and n. 45.

25Id. Section II.D.1.

26Id. Section II.D.2.

27Id. Section II.D.3.

28Id. n. 106. See also 1996 Release, supra note 5, Example 1.

292000 Release, n. 106.

30See 1995 Release, supra note 1, at n. 27.

311995 Release, supra note 1, at n. 27; 1996 Release, supra note 5, at n. 17.

322000 Release, Section II.D.4.

33Id. Section II.B.

34Id. Section II.D.5.

35Id. Section II.D.6.

36Id. Section II.D.7.

37Id. Section II.B.1 (footnotes omitted).

38Id. Section II.B.1. If an issuer is found to have endorsed or adopted a third party statement, the next inquiry in a fraud analysis is whether the requisite elements of a fraud claim (including materiality and scienter) are present. The Commission explains that this inquiry is better left to the courts. Id. n. 55.

39Id. n. 53 and 55.

40Commission Meeting, supra note 11.

412000 Release, Section II.B.1.

42Id. Section II.B.1.a.

43Id. Section II.B.1.b.

44Id. The Commission seeks to correct the "erroneous impression" created by its prior statements about the effectiveness of issuer disclaimers regarding hyperlinked information. These statements should not be read to suggest that an issuer can use a disclaimer as a shield against liability under Section 10(b) and Rule 10b-5. Id. n. 61.

45Id. Section II.B.1.b.

46Id. Section II.B.1.c.

47See Securities Act Rules 165 and 166.

482000 Release, n. 62.

49Id.

50Commission Meeting, supra note 11.

512000 Release, Section II.B.2; see also id. n. 10 (defining "in registration").

52Id. Section II.B.2.

53See id. n. 66.

54The 2000 Release recites several examples of what ordinary-course business and financial information "may include." The list does not appear to be exhaustive, but merely offers specific examples that were blessed in these prior releases. Id. Section II.B.2 and n. 67.

552000 Release, Section II.B.2.

56Wit Capital Corporation (July 14, 1999). The staff has indicated that the Wit Capital letter does not describe all permissible procedures.

572000 Release, Section II.C.1.

58 Id.

59 Commission Meeting, supra note 11.

60 2000 Release, Section II.C.1.

61 Id. (citing Rule 134(d) under the Securities Act).

62Id. (citing Sections 2(a)(10) and 5(b) of the Securities Act).

63 1995 Release, supra note 1, Example 20.

64IPONet (July 26, 1996).

65 2000 Release, Section II.C.2.

66Commission Meeting, supra note 11.

67The Commission also notes that there are other ways to demonstrate an absence of general solicitation besides showing a "pre-existing substantive relationship" with investors. 2000 Release, n. 86.

68Id. n. 91 (citing Section 3(a)(12) of the Exchange Act).

69Id. Section II.C.2.

70Id. n. 88 (citing Lamp Technologies, Inc. (May 29, 1998) and Lamp Technologies, Inc., (May 29,1997)).

71 Id. n. 94.

72 Commission Meeting, supra note 11.

73 Id.