Re: 9/7/00 - [ZSUN] Fines 4 Online Posters For Not Answering Questions
Judge Fines 4 Online Posters
For Not Answering Questions
By AARON ELSTEIN
WSJ.COM
Four Internet message-board posters embroiled in a bitter defamation suit decided to shut up in court, so now they have to pay up.
A California state judge fined the four, who are among the most popular members of Silicon Investor (www.siliconinvestor.com), $18,967.50 for refusing to answer questions about their postings that a California businessman is a "criminal."
It appears to be the first time a judge has fined someone involved in a "cybersmear" case, lawyers say.
Judge Janis Sammartino didn't decide on the merits of Bryant Cragun's lawsuit against the posters. But because they produced "the same 'boilerplate' objection" in written answers to all questions from Mr. Cragun's lawyers, the judge ruled that "monetary sanctions are justified."
Floyd Schneider, a mortgage banker in Rochelle Park, N.J., says he and co-defendants Stephen Worthington, a San Francisco money manager, Michael Morelock of Greenwood, Ark., and George Joakimidis of Athens, Greece, will divide the fine amongst themselves and continue the fight.
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"We'll win this case in the end," says Mr. Schneider, who goes by the popular online screen name "The Truthseeker."
Daniel Pascucci, a lawyer for Mr. Cragun, says he is pleased with the ruling, which was issued Friday and posted on the Web site for the California Superior Court in San Diego. "We said, 'OK, you're all saying a lot of things, now go prove them,'" Mr. Pascucci says. "They haven't done it."
Mr. Worthington didn't immediately respond to e-mail messages Wednesday, Mr. Morelock declined to comment and Mr. Joakimidis couldn't be reached. Their attorney, James Shalvoy, declined to comment.
Charles Solomont, a Boston lawyer who has pursued several cybersmear cases, says he isn't surprised that the defendants have refused to cooperate. "It's typical that people in these cases don't think they'll get caught because they publish messages anonymously. And when their identities are uncovered they don't think they are any consequences for their actions," he says.
The case is a product of the Internet age. The defendants are some of the Internet's most outspoken critics of what they deem to be overvalued stocks, and their frequently-caustic remarks are closely followed by thousands of friends and foes. More than 100 cases have been filed around the country by companies who feel they are being unfairly attacked by these kinds of critics, but few have advanced in court so far or have been so contentious for so long as this one.
The fight began in the spring of 1999, when the four defendants started regularly posting messages on Silicon Investor about ZiaSun Technologies, a tiny Solana Beach, Calif., Internet-holding company where Mr. Cragun once served as president. ZiaSun emerged in late 1998 amid the mania for Internet stocks and online trading. Its largest holding is a Utah company called Online Investors Advantage, which offers seminars on sophisticated trading strategies to novice investors. Previously, the company had operated under another name and had been trying unsuccessfully to market a device that enables people to bottle their own soft drinks in grocery stores.
The online critics relentlessly criticized ZiaSun, alleging that Mr. Cragun had misled investors by marketing shares in ZiaSun's predecessor as an initial public offering when they were already trading. Mr. Joakimidis, the online critic from Greece, contends that he lost money on $377,300 worth of shares in ZiaSun and other tiny companies that he bought based on information provided by a brokerage firm allegedly controlled by Mr. Cragun. In a countersuit, he contends that the firm's officials "failed to disclose the true financial condition" of the companies. Mr. Cragun's lawyers deny the charges, and the case is pending.
Unlike many Internet start-ups, ZiaSun is profitable. According to its latest financial statements, the company posted a profit of $4.2 million, or 16 cents a share, for the six months ending June 30, compared to a profit of $1 million, or 4 cents a share, a year earlier. But investors haven't been impressed. ZiaSun's stock, which is quoted on the OTC Bulletin Board, traded for $3.06 Wednesday, down from $10.44 in mid-April, when the company and Stockreporter, a German stock promoter, both issued press releases saying ZiaSun stock was "tremendously undervalued" and worth $28.50 a share.
In a separate development, the Securities and Exchange Commission on Wednesday filed a civil case against Stockreporter's parent, World of Internet.com, and its owners, saying they failed to disclose the source or nature of their compensation. The SEC alleges that Stockreporter was paid 5,682 ZiaSun shares at $11 each to write the favorable report, but doesn't say who paid the shares. A ZiaSun spokeswoman says the company didn't pay Stockreporter or World of Internet.com for the report.
Fed up with repeated attacks from Mr. Schneider and others, ZiaSun had responded by suing them for defamation in U.S. District Court in Seattle in June of 1999. That case was dismissed in January because the judge ruled it had been filed in the wrong court. It since has been transferred to federal court in San Francisco, where it is pending.
Meanwhile, Mr. Cragun proceeded with his own case against four of the message-board posters in California state court, where he has sought to silence Mr. Schneider.
In January, he won a restraining order preventing Mr. Schneider from posting messages suggesting he has engaged in criminal activity. He also won a separate court order requiring Mr. Schneider to retract a report he published on the Internet recommending people sell their ZiaSun shares. Mr. Cragun contended that the report "may be false or imply false facts." Mr. Schneider maintains that his report was accurate.
Last month, ZiaSun filed a motion in federal court in San Francisco arguing that Mr. Schneider violated a federal court injunction, issued when its case was being heard in Seattle, that prohibited him from publishing "false statements" about ZiaSun. ZiaSun alleges in its motion that Mr. Schneider posted messages saying that the company engaged in "improper promotion techniques," among other things. "He was at first compliant with the court order, but has become less so," says Christopher Howard, a lawyer for ZiaSun.
A hearing on the matter is scheduled for Oct. 4 and Mr. Schneider says he plans to fight it. "If ZiaSun folks aren't aware of their improper promoting, they should ask the SEC," he says.
But in the meantime, Mr. Schneider, who has published something about ZiaSun on Silicon Investor or another message board, Raging Bull, almost every day since April 1999, says he will be stepping back a bit.
On Aug. 30, he went onto Silicon Investor to declare his "permanent retirement" from posting any messages about Mr. Cragun or the companies he is involved with and is focusing on his legal defense. "Further posting by The Truthseeker is no longer necessary," he wrote, although he has continued to publish messages about other subjects. He says he expects to resume publishing after his legal battles are over.
Mr. Worthington, believed to publish under the alias "Auric Goldfinger," has defended himself the most aggressively of all the defendants according to people involved in the suit. In that vein Auric Goldfinger published a lengthy statement Monday on Silicon Investor promising that the fight with Mr. Cragun would continue.
Write to Aaron Elstein at aaron.elstein@wsj.com
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