The Benefit of the Internet: The World Wide Web and the Securities Law Doctrine of Truth-on-the-Market

By Sobol, Robert Norman | Journal of Corporation Law, Fall 1999 | Go to article overview
Save to active project

The Benefit of the Internet: The World Wide Web and the Securities Law Doctrine of Truth-on-the-Market

Sobol, Robert Norman, Journal of Corporation Law

In today's society, with the advent of the "information superhighway," federal and state legislation and regulations, as well as information regarding industry trends, are easily accessed. A reasonable investor is presumed to have information available in the public domain, and therefore Whirlpool is imputed with constructive knowledge of this information. 1


The integrity of securities markets in the United States has long been enhanced by a regulatory system that mandates disclosure of material information by the large number of public companies that offer their securities for sale to the investing public. However, the market also has available to it a tremendous amount of information about such companies from non-company, or third-party, sources, including business news periodicals, newspapers, and investment analyst reports. The recent explosive growth in the availability of information over the Internet has led to, for the first time in the history of securities law, the widespread availability of a veritable treasure trove of public company-related information. Over the last few decades, courts in the United States have found that, in certain circumstances under a theory known as "truth-on-the-market," third-party sources of information may help absolve a company of securities law liability arising from misstatements made by the company or outright failures by such companies to provide material information. This Article sets forth the legal framework under which the truth-on-the-market doctrine has developed, describes some of the circumstances under which courts have addressed the doctrine, and examines how much "truth" is represented by such third-party, company-related information now widely available on the Internet's World Wide Web.


A. Issuer-Related Information Available on the Internet

Public companies have a duty to disclose information to the marketplace under the statutes, rules, and regulations of the U.S. Securities and Exchange Commission (SEC). These information vehicles include annual, quarterly, and current reports on Forms 10-K, I O-Q, and 8-K, respectively, and the various forms for registration statements,2 which are now available on the Internet via the SEC's EDGAR database.3 In these reports, issuers supply investors with historic financial information4 and also disclose, among other things, "trends, demands, commitments, events or uncertainties that are both presently known to management and reasonably likely to have material effects on the registrant's financial condition or results of operation."5

Issuer-related information on the Internet's World Wide Web includes: (i) company home pages with factual product information, marketing materials, financial information, press releases, and links to external, third-party sources of information;6 and (ii) thirdparty Websites7 that make available, either on the third-party site itself or through hyperlink, specific company news, generally relevant business and industry news, stock prices, financial information, analyst estimates and reports, SEC filings, regulatory agency and self-regulatory organization information,8 and extremely active message boards and chatrooms with postings by largely anonymous market participants.9

Approximately ninety-two million people in the United States over the age of sixteen presently have access to these sources of information on the Internet. I() An earlier version of a well-respected survey demonstrated that in 1998, twenty-two million people utilized the Web to access financial information to make investment decisions.11 Additionally, twelve million investors actually used the Web to purchase their investments.12

B. Efficient Market Integration of Information Disclosure

To understand why certain information is critically important to an assessment of securities law liability, it is first necessary to explain the way some commentators have described the effect such information has on particular aspects of that market, especially the setting of security prices.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

The Benefit of the Internet: The World Wide Web and the Securities Law Doctrine of Truth-on-the-Market


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?