Internet Message Sparks Stock Slide
(08/27/98, 1:04 p.m. ET)
By Reuters
You can't shout "fire" in a crowded theater, but you can write "sell" on an Internet message board.
That's the costly lesson that seed company AgriBioTech learned this week when its stock fell more than 20 percent after someone posted negative comments about the company on a Yahoo message board.
The poster, who was identified only by a screen name, acknowledged at the bottom of the message that the damaging comments made about the company and its top executives were not true, but AgriBioTech said the rumors were enough to cause the stock to drop.
While freedom of speech protects the right to express opinions, it does not give people license to incite panic. Tuesday's comments about AgriBioTech caused the equivalent of a panic in AgriBioTech's stock and led to record trading volume of about 6.3 million shares, said John Francis, a co-founder and director of AgriBioTech.
Francis said the company's reputation was damaged by the comments made on the Internet, which the company has said repeatedly are false.
"When you have a force like an Internet where people can anonymously come out and say anything they want, that's an issue that is going to have to be dealt with," Francis said. "We live in a free society and we believe in the system. We think the system will ultimately prevail. Will we weather the storm? Yes. Is our credibility damaged? Yes."
The incident raised questions among investors and analysts about how Internet sites that deal with publicly traded companies are regulated. Users on one AgriBioTech message board called for more U.S. Securities and Exchange Commission oversight of Internet stock pages.
"I think this board and others should be a target for the SEC to begin investigations into these lies posted," one user wrote on an AgriBioTech stock message board Wednesday.
An SEC spokesman said the regulatory agency investigates allegations of fraud committed over the Internet or anywhere else, but would not confirm or deny the existence or nonexistence of any investigation into this incident. The agency offers a free guide on how to avoid investment fraud on the Internet.
"It is common to see messages posted online urging readers to buy a stock quickly that is poised for rapid growth, or telling you to sell before it goes down," the SEC said in its guide on cyberfraud.
"Often the writer claims to have inside information about an impending development or will claim to use an infallible combination of economic and stock market data to pick stocks," the SEC said. "In reality, the promoter may be an insider who stands to gain by selling shares after the stock price is pumped up by gullible investors, or a short seller who stands to gain if the price goes down."
AgriBioTech trades on Nasdaq, which said it does not confirm or deny investigations.
Mike Riley, producer of Yahoo Finance, which has thousands of message boards for discussion of publicly traded companies, said users need to make their own judgments on whether to trust information posted on message boards.
"They are an unmoderated public forum, and in any environment like that you've got to take with a grain of salt what you see there," Riley said. "Yahoo doesn't claim any responsibility for what is posted there, obviously the companies that are discussed don't, and its up to the individual to make a judgment about the veracity of the things that are said."
Thomas Smedinghoff, a partner at the Chicago law firm of McBride Baker & Coles and an expert on Internet law, said defamation is defamation regardless of the medium, but said Internet offenders often go unpunished because chat room operators can't always determine who posted messages.
"The law of defamation applies to me whether I write or whether I post or whether I say it on television," Smedinghoff said. "The impact is potentially much greater and much quicker [on the Internet], but the law is going to be the same."
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