Carnegie International Sues Web Users Over Chat Room Messages
Baltimore, June 8 (Bloomberg) -- Carnegie International, a telecommunications holding company, has accused Internet users of posting defamatory messages about its executives to drive down the company's stock price and spark a lawsuit by shareholders.
A Carnegie lawsuit said the messages -- by a Texas businessman, a Maine lawyer and a California Internet user identified only as ''Indianhead'' -- claimed company officials engaged in insider trading with shares awarded under a bonus program. The messages also exhorted shareholders to consider ''a major class-action lawsuit,'' Carnegie alleged.
The Carnegie suit, which seeks more than $1.1 billion in damages, is one of the first in which a company has struck back at Internet surfers who use the World Wide Web to question executives' actions. Securities and Exchange Commission officials wouldn't comment on Carnegie's suit, although regulators are looking into similar allegations of stock manipulation through Internet chat rooms and message groups, said John Reed Stark, head of the SEC's Internet enforcement unit. ''We haven't brought a pure cyber-smear case as of yet, but we are very concerned about the issue,'' Stark said.
Complaints of false Internet messages have increased in the last year, Stark added. Last month, The M.H. Meyerson & Co. filed a nearly identical suit against Internet users who sent out messages accusing the brokerage's chief executive of stock manipulation, insider trading and money laundering.
Bonus Shares
In Carnegie's suit, filed in federal court in Baltimore on May 28, executives of the telecommunications and information technology holding company accuse officials of Ark Capital Inc. of intentionally publishing false and misleading statements about the handling of more than 1 million Carnegie shares.
In early May, the Owings Mills, Maryland-based company examined some of its accounting procedures at the SEC's behest and agreed to restate earnings for 1997 and 1998, according to a release. Trading in the company's shares has been halted while talks with regulators continue.
The earnings restatement meant that shares awarded to Carnegie executives and officers as part of a bonus plan had to be canceled, according to the suit. Carnegie officials agreed to relinquish the shares for no compensation, the suit said.
After the Carnegie executives and directors filed SEC reports noting they'd ''disposed'' of the stock for no compensation two days before the trading halt, messages were posted on Internet chat rooms about the bonus shares, the suit said.
Coincidence? ''Does it seem a little coincidental that these guys sold all their shares two days before a halt of trading?'' asked Kelley Allen, vice president of Corpus Christi, Texas-based Ark Capital in an e-mail. The two-person factoring company buys debts owed to other companies and then collects them.
Allen intentionally forwarded that false message to more than 300 Internet users in hopes of driving down Carnegie's share price, the suit said. Allen and Ark Capital officials also ignored Carnegie's demand that it retract the message and apologize, the suit added.
Allen refused comment on the suit today.
Carnegie officials also contend that Maine lawyer G. William Higbee sent out defamatory messages about the handling of the shares in hopes of whipping up a class-action suit against the company.
In response to Allen's message, Higbee asked: 'Has anyone heard when this will be resolved? No doubt the price will plunge if it ever reopens. Time to consider a major class-action suit.''
That message was sent ''for the sole purpose of reducing (Carnegie's) stock price and creating an environment to initiate a class-action suit,'' Carnegie's suit contends. 'Indianhead'
Higbee failed to return several calls for comment.
No Internet provider is listed as a defendant in the suit. One of the users sued is identified only as ''Indianhead,'' care of Yahoo! Inc.
Carnegie may have a difficult time proving that Allen and Higbee intentionally spread falsehoods about the company based on their misinterpretation of how the bonus shares were handled, said Charles R. Merrill, a Newark, New Jersey lawyer who specializes in Internet and e-commerce legal issues. ''Carnegie is going to have to do some uphill sledding to win this one,'' Merrill said. ''There doesn't seem to be much of a showing of intent to state a mistruth designed to hurt the company.''
If either Carnegie's or M.H. Meyerson & Co.'s defamation suits are successful, more companies will use them to strike back against Internet critics, said Louis Thompson, president and chief executive of the National Investors Relations Institute. ''These suits are designed more to discourage people from using the Internet to smear these companies than to recover damages,'' Thompson said. ''The idea is to put a stop to this kind of activity.''
Carnegie's shares were valued at 6 7/8 when they were last traded on April 30.
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