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Among other provisions, the Electronic Signatures in Global and National Commerce Act, which President Clinton signed into law June 30, generally mandates that any federal or state law requiring a written document will be satisfied if the document’s information is embodied in an electronic format. SeeElectronic Signatures in Global and National Commerce Act, S. 761, 106th Cong. �101(a), Pub. Law. No. 106-229 (2000), available at Thomas Legislative Information on the Internet (“Thomas”), S. 761-Electronic Signatures in Global and National Commerce Act (Enrolled Bill) http://thomas.loc.gov/. In so doing, the act preempts inconsistent state law and prohibits the federal and state governments from denying legal effect to certain documents on the ground that either the document’s information is in electronic format or that the document is affirmed by an electronic signature. SeeThomas Legislative Information on the Internet, S. 761-Bill Summary & Status for 106th Congress. RELATIONSHIP WITH THE UETA The act’s mandate is intended to be an interim measure establishing a uniform national standard for electronic documents and signatures until the states adopt or enact the Uniform Electronic Transactions Act (UETA). SeeS. Rep. No. 106-131, at 3 (1999), available on Thomas in Committee Report-Millennium Digital Commerce Act. Preemption of state law continues only until a state has either adopted UETA or established a similar statutory scheme that is consistent with the act and does not accord greater legal status to written documents or signatures over their electronic counterparts. SeeS. 761, �102(a). Thus far, 18 jurisdictions have adopted UETA, and it is being reviewed by the legislatures of 12 others. [FOOTNOTE 1] While the act forbids states from denying legal effect to electronic documents and signatures, it does not require private contracting parties or state market participants to assent to the use of such documents and signatures. SeeS. 761, �101(b). Moreover, it does not apply to testamentary documents, portions of the Uniform Commercial Code, and other enumerated subject matter. SeeS. 761, �103. The act also has a special title dedicated to the law of insurance. SeeS. 761, supra, ��101(i), 201-02. The act expressly states that its mandate of medium neutrality applies equally to the practice of document retention. SeeS. 761, �101(d). It states that electronic document retention will satisfy any law mandating retention of a writing so long as the electronic document is accurate and remains accessible to all who are entitled to view or reproduce the document. SeeS. 761, �101(d)(1). In addition, electronic copies of a document will satisfy a law requiring an original copy. SeeS. 761, �101(d). To successfully avail oneself of the act’s provisions, a party should be aware of a few guidelines. First, permissible electronic documents must be capable of being accurately reproduced in the future. SeeS. 761, �101(e). In addition, if law requires that the document be verified, acknowledged, made under oath or notarized, the signature of the person authorized to perform such acts must be “attached to or logically associated with the … record.” SeeS. 761, �101(g). Parties must also follow the act’s guidelines on the use of “electronic agents.” SeeS. 761, �101(h). An electronic agent is a computer program or other automated process that independently takes some action without the immediate review of a person at the time of the action. SeeS. 761, �106(3). For example, electronic agents may be used to satisfy the mutual assent requirement in an electronic contract. Consequently, states may not deny the enforceability of transactions on the grounds that an electronic agent was used during the transaction’s underlying formation, creation or delivery. SeeS. 761, �101(h). Finally, the act notes that despite the fact that it permits electronic documents as a substitute for writings, parties must still comply with laws mandating that certain language be “posted, displayed, or publicly affixed” in a certain manner. SeeS. 761, �101(f). This mandate applies to notice, disclosure, warnings and other information required by law. SeeS. 761, �101(f). CONSUMER DISCLOSURES AND SEC RULE 160 One provision of the act addresses “consumer disclosures,” and it deserves special attention from the online securities community. SeeS. 761, �101(c). The provision articulates a detailed statutory scheme for when a party may use electronic disclosure to comply with consumer disclosure laws. SeeS. 761, �101(c). As a matter of statutory interpretation, it is unclear whether the term “consumer” as used by the act includes investors within its scope. The act defines a “consumer” as “an individual who obtains … products or services … for personal, family, or household purposes[.]” SeeS. 761, �106(1). Taken alone, it appears that this definition, and consequently the provision on consumer disclosures, would not apply to the securities market. However, on the other hand, the act specifically orders the SEC to promulgate a rule exempting one specific securities disclosure requirement from the scope of the consumer disclosure provision. SeeS. 761, �104(d)(2). This raises the question of why the act would exempt certain securities requirements from the scope of the consumer disclosures provision if the provision did not apply to securities in the first place. Consequently, it is likely, though uncertain, that the general provisions on consumer disclosures apply to the securities market. While the act’s general mandate is to ensure that electronic and written documents are treated equally in the eyes of the law, the act envisions a separate, more detailed scheme for circumstances when existing law requires a party to provide written notice or disclose written information to a consumer. SeeS. 761, �101(c). In such circumstances, electronic notice or disclosure will only suffice as a substitute if the party obligated to provide written notice or disclosure complies with four requirements. First, the party must secure affirmative consent to electronic communication from the consumer. SeeS. 761, �101(c)(1)(A). Second, prior to consumer consent, the party must provide the consumer with a “clear and conspicuous statement” that informs the consumer of the following: (1) the right of the consumer to receive the communication in writing; (2) the right of the consumer to withdraw consent to electronic communication; (3) any consequences to the parties’ relationship that will result from such a withdrawal; (4) whether the consent in question applies to the current communication only, or all communications between the parties; (5) what the procedure is for withdrawing consent; and (6) how a written copy of the communication may be obtained after consent to electronic communications has been given, and whether a fee will be charged for the written copy. SeeS. 761, �101 (c)(1)(B). The third and fourth conditions to the use of electronic consumer disclosures address the system requirements of the subject technology. Prior to consumer consent, the obligated party must disclose to the consumer what computer software and hardware the consumer will need for the access, receipt and retention of the electronic disclosures. SeeS. 761, �101(c)(1)(C)(i). Furthermore, the consumer must electronically assent to electronic disclosures to ensure that the consumer knows how to reasonably use the hardware and software. SeeS. 761, �101(c)(1)(C)(ii). Interestingly, the act expressly states that a failure to obtain electronic assent may not form the sole basis of a court’s refusal to enforce an electronic consumer contract. SeeS. 761, �101 (c)(3). The act is silent as to the enforceability of transactions where other electronic consent requirements are not satisfied. In addition, the obligated party must notify the consumer of changes in system requirements if the change creates a “material risk” that the consumer may be prevented from accessing or retaining subsequent electronic communications that are within the scope of the consumer’s prior consent. SeeS. 761, �101(c) (1)(D). Such notice must also alert the consumer that the consumer may withdraw his or her consent without the imposition of a fee levied by the obligated party. SeeS. 761, �101(c)(1)(D)(i)(II). In addition, such notice must contain all information that was in the original “clear and conspicuous statement.” SeeS. 761, �101(c)(1)(D)(ii). Although the act is authoritative in ascertaining the appropriateness of electronic consumer disclosure, the act expressly states that its provisions have no bearing on the actual content or timing of the disclosure. SeeS. 761, �101(c)(2). Requirements addressing content and timing are still governed by existing law. SeeS. 761, �101(c)(2). Furthermore, the act makes clear that the legal effectiveness of consented-to prior electronic communications is not defeated by a consumer’s subsequent withdrawal of consent. SeeS. 761, �101(c)(4). As a separate matter, the act gives federal regulatory agencies with rulemaking authority the power to exempt specified records from the consumer disclosure consent scheme. SeeS. 761, �101(d)(1). Moreover, as briefly mentioned above, the act expressly directs the SEC to issue regulations exempting specified records from the consumer disclosure consent scheme that relate to the Investment Company Act of 1940. SeeS. 761, �101 (d)(2). To this end, the SEC published Interim Final Rule 160, effective July 27. [FOOTNOTE 2] The act required the SEC to promulgate rules exempting from the consumer disclosure scheme prospectuses used by registered investment companies solely for the purpose of “permitting supplemental sales literature to be provided to prospective investors.” SeeSecurities and Exchange Commission, Release No. 33-7877 (July 27) “Exemption From Section 101 of the Electronic Signatures in Global and National Commerce Act for Registered Investment Companies”, http://www.sec.gov/rules/final/33-7877.htm, �IA(Release). A stated intent of this exemption is “‘to clarify that documents, such as sales literature, that appear on the same [w]eb site as, or which are hyperlinked to, the final prospectus required to be delivered under the federal securities laws, can continue to be accessed on a [w]eb site as they are today[.]‘” SeeRelease, �IA (quoting 146 Cong. Rec. H4359 (daily ed. June 14) (statement of Rep. John D. Dingell, D-Mich.). To appreciate this exemption, one must first be aware of its regulatory history. Under the Securities Act of 1933, a party may not communicate a prospectus for a registered security to a potential investor unless the prospectus complies with the requirements of � 10 of the Securities Act. SeeRelease, � IA (citing 15 U.S.C. �77e (b)(1)). Moreover, the term “prospectus” includes within its scope any “offer to sell,” and existing law has required that an offer to sell must comply with the requirements of �10. SeeRelease, �IA (citing 15 U.S.C. ��77b(a)(3), 77b(a)(10)). There is a limited exception, however, allowing “supplemental sales literature” to be used after the date of the registration statement if it is accompanied or immediately preceded by a prospectus complying with � 10. SeeRelease, �IA (citing 15 U.S.C. �77b(a)(10)(a)). Investment companies, such as those involving mutual funds, often take advantage of this exception, since they are continuously offering to sell funds’ shares. SeeRelease, �IA (citing 15 U.S.C. �77e(b)(1)). SEC interpretations of law existing prior to the act allowed investment companies to post supplemental sales literature on their web sites without first obtaining investor consent to receive an electronic prospectus. SeeRelease, �IA (citing Securities and Exchange Commission, Release No. 7856 (Apr. 28) and Securities and Exchange Commission, Release No. 7233 (Oct. 6, 1995)). The act and Rule 160 are intended to clarify that investment companies may still follow this procedure without first having to obtain investor consent in compliance with the act’s consumer disclosure consent provision. SeeRelease, �IA. As a reminder, the SEC release embodying Rule 160 points out that the exemption applies only if the investor has reasonable access to the electronic prospectus. It is important to analyze Rule 160 in the context of its larger scheme. According to the act, any law that requires a writing can be satisfied by an electronic communication. However, in the event that a writing is required by a compulsory consumer disclosure obligation, the act only allows electronic communications as a substitute if the obligated party complies with the act’s consumer disclosure consent scheme. In the case of supplemental sales literature, compliance with the consumer disclosure consent scheme is not required. APPLICABILITY TO FEDERAL AND STATE REGULATORY AGENCIES As a final note, the act articulates specific mandates applicable to federal and state agency rulemaking. The act first states that it does not interfere with any federal or state agency requirements that documents be filed with the agency in a specified format. SeeS. 761, �104 (a). However, despite the fact that the act does not obligate the agencies to accept electronic filings, it expressly reminds the agencies that they are under a continuing obligation to comply with the Government Paperwork Elimination Act. SeeS. 761, �104 (c)(2). Moreover, the act does not give the agencies authority to reimpose a requirement that a specified document be in writing. SeeS. 761, �104(c)(1). The act does, however, permit agencies to promulgate regulations designed to interpret the act’s application to the agencies’ fields of regulation. SeeS. 761, �104(b). Such regulations must meet the following five requirements: (1) the regulation must be consistent with the act, (2) the regulation must not add to the requirements of the act, (3) the regulation must have a substantial justification, (4) the regulation must not impose an unreasonable cost on the use of electronic communication, and (5) the regulation must not “accord greater legal status” to written communications and signatures over their electronic counterparts. SeeS. 761, �104 (b)(2). Agencies are also authorized to mandate performance standards designed to ensure the integrity, accuracy and accessibility of electronic documents. SeeS. 761, �104 (b)(3). Finally, agencies may bypass the act’s provisions if national security or law enforcement presents a compelling government interest. SeeS. 761, �104(b)(4). The SEC has formally announced that it does not yet express any view on how the act will affect the rest of the federal securities laws. SeeRelease, �IA. However, it is currently considering the implications of the act on the law of securities transactions. SeeRelease, �IA. It is hoped that the SEC will release some clear-cut guidance in the near future on how to apply the act to the securities regulation setting. Sarah Hewitt is editor-in-chief of the eSecurities newsletter and a partner in the New York office of Brown Raysman Millstein Felder & Steiner LLP. ::::FOOTNOTES:::: FN1 SeeUETA Online, “What’s Happening to UETA in the States,” http://www.uetaonline.com/hapstate.html. The following 18 jurisdictions have adopted UETA: Arizona, California, Florida, Idaho, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Minnesota, Nebraska, Ohio, Oklahoma, Pennsylvania, South Dakota, Utah and Virginia. See id.As of Aug. 1, it has been reported that UETA legislation has been introduced in the following 12 jurisdictions: Alabama, California, Colorado, Delaware, District of Columbia, Hawaii, Michigan, New jersey, North Carolina, Rhode Island, Vermont and West Virginia. See id. FN2 SeeSecurities and Exchange Commission, Release No. 33-7877 (July 27), available at Securities and Exchange Commission, “Exemption From Section 101 of the Electronic Signatures in Global and National Commerce Act for Registered Investment Companies, http://www.sec.gov/rules/final/33-7877.htm. [hereinafter "Release"]. Pursuant to the act’s requirement that the SEC issue a rule within 30 days of the act’s enactment, Rule 160 was released without prior publication and public opportunity for comment. See id.�IB; S. 761, �101(d)(2).

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