Ground-breaking Settlement With Internet Company Requires Clear Disclosure To Investors Of Web Site Traffic Measures
Attorney General Spitzer announced today that he has reached a ground-breaking settlement with theglobe.com ("TGLO"), which requires the company to fully disclose to potential investors the methodology used to determine how it measures the volume of traffic on its web site. TGLO is a network of online communities that allows users to publish their own material online and share common interests with other users.
The settlement follows an investigation by the Attorney General of statements made by TGLO in its May 1999 secondary public stock offering regarding the number of users visiting the network. In the stock prospectus, TGLO prominently displayed the number of "unique users" that had visited its network, without adequately explaining how it defined the term or identifying any limitations on the accuracy or reliability of this Internet measurement, or "metric." The number of user visits is an important figure because the amount advertisers will pay for space on a web site depends upon the site's popularity. Thus, the number of unique users directly affects the revenues of a company such as TGLO through the sale of advertising space on its web pages.
Less than four weeks after the secondary stock offering, TGLO, on its own initiative, issued a press release stating that the true number of unique users was, in fact, lower than the 10.2 million number contained in the prospectus for the secondary offering. The price of the stock remained relatively unchanged after the announcement.
"When a company like TGLO depends heavily on advertising revenue, statistics that reflect Internet traffic represent critical information for investors deciding whether to invest in the company," Spitzer said. "If publicly-traded companies want to report 'unique user' measurements to investors, they must also tell investors that the Internet industry has yet to establish universal standards for collecting and calculating such measurements, which are as important to web sites as Nielsen ratings are to TV networks."
The settlement requires TGLO in the future to provide clear and conspicuous disclosure in public documents of: (1) how any metric referred to in the documents was generated, (2) which population was studied to create the metric, and (3) any accuracy limitations of the metric. These disclosures will be made at every point in the text where the metric in question appears. TGLO will also pay $100,000 for the costs of the Attorney General's investigation.
Concerning the settlement, Attorney General Spitzer stated, "We are pleased with the outcome, which reflects that the company reported the discrepancy on its own initiative and cooperated during our investigation. We encourage such affirmative responses by industry members when a problem is detected."
The investigation was handled by the Attorney General's Investor Protection and Internet bureaus.