Latin American Capital Markets

80 GEORG WITTICH, ETHIOPIS TAFARA, AND ROBERT J. PETERSONWebsites and Liability for Hyperlinked Information and CommunicationsSecurities laws impose liability for statements made to investors that contain a materialfalsehood or omit to state a material fact necessary to make the disclosure notmisleading. Issuers and intermediaries are responsible for the accuracy of statementsthey make, sponsor, or endorse, regardless of the medium of communication they use.However, in the Internet realm, the question naturally arises as to whether issuers andintermediaries should be held liable for false or misleading information contained onwebsites to which they have hyperlinks.For example, a broker-dealer may wish to include on its website hyperlinksto other sites that it believes might provide useful research tools for investors. Linksto well-known business news websites or information clearinghouses can provide invaluableassistance to investors deciding which securities to buy. At the same time, thebroker-dealer probably has no intention of scrutinizing these websites in any detailedlegal fashion. However an investor using the website could assume that the linkedwebsite was prepared by or at least authorized by the broker-dealer If one of theselinked websites contains an untrue statement that the investor relies on when purchasinga security, should the broker-dealer be held liable? And if the broker-dealer isdeemed liable, will this not simply deter broker-dealers from providing investors andthe public with convenient links to potentially useful news and research websites?In general, attribution depends on whether the issuer was involved in thepreparation of the hyperlinked information or has endorsed or adopted the information.One approach regulators may use to determine attribution in a way that promotesfull and accurate disclosure, without unnecessarily deterring website operatorsfrom including useful hyperlinks, would be to consider certain factors in determiningwhether an issuer or intermediary has prepared, endorsed, or adopted hyperlinkedinformation. Such factors may include the following:• The context of the hyperlink—what the website operator says about the hyperlink(that is, whether there is a disclaimer about the hyperlink or a statementendorsing the information)• Whether there is a clear and prominent indication that the viewer is leavingthe market participant's website• Whether there is framing and inlining (so-called inverse hyperlinking) thatmay lead a reasonable user to believe that the hyperlinked site is part of theoriginating operator's website• Whether the market participant has paid or otherwise compensated thethird party for posting the informationCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub