STAR TELECOM SUES DETRACTORS
Company, CEO targeted on Internet
7/12/99
By RHONDA PARKS MANVILLE
NEWS-PRESS STAFF WRITER
Chris Edgecomb, chief executive of STAR Telecommunications in Santa Barbara, watched in horror last year as someone impersonated him on the Internet, used a digital name nearly identical to his and, he says, lied about the company -- even falsely reporting his resignation.
If that weren't bad enough, other anonymous critics entered the fray in response to the false Edgecomb postings, and accused the CEO of engaging in unethical and illegal business practices.
As the stock continued its downward trend in 1998, one critic purportedly made personal threats against Edgecomb and suggested he knew where Edgecomb lived. Several message senders said they were going to manipulate the stock and profit off its crash. Another accused Edgecomb, a newlywed, of having an affair with a well-known male entertainer.
Edgecomb wanted it to stop. But how?
The company issued a memo, warning investors that false statements were being made about Edgecomb and the company. But the cyber-assaults continued. So STAR filed lawsuits in Santa Barbara Superior Court against those it labeled as unethical detractors, alleging fraud, trade libel, violation of electronic communications privacy, and unfair trade practices.
The $600-million long-distance carrier tracked down several defendants using subpoenas served on Internet provider Yahoo!, which was ordered to reveal their identities. Several defendants, listed in the suit by their cryptic cyber-names, remain unknown, however.
In a series of out-of-court settlements in the past two weeks, three defendants reportedly have agreed never to post another message regarding STAR Telecom on any Internet search engine, and they must issue apologies and pay small fines to charities.
"People think they can go and say whatever they want with impunity," said STAR attorney Peter Umoff, of the firm Seed, Mackall and Cole.
"They think they are hidden and protected and they are not. We will find them. Everybody has a right to their opinion, but what you don't have a right to do is mount personal attacks on people, to make false statements about them, or to issue misinformation to manipulate stock."
In settling the case, defendants Steven Bruce, who allegedly impersonated Edgecomb, Jeremy Coon and Don Doney of Wisconsin, have not admitted to any wrongdoing. The lawsuits do not say where Bruce and Coon reside, and their attorneys were not available.
Several critics are believed to have had short positions in STAR stock, meaning they had the potential to profit if the stock went down, sources said. The motivations of others are unclear.
Some of the critics focused on Edgecomb's high-profile spending, most notably his $5 million wedding last year at El Capitan, which featured music by Rod Stewart and Jay Leno as the emcee. He's also known for throwing lavish New Year's Eve parties for the Dream Foundation at his Hope Ranch estate, complete with free food, drink, music and professional fireworks.
The STAR case raises interesting questions about the rights of companies to protect their reputations against what they regard as false, harmful attacks, and the rights of Internet chat room enthusiasts to engage in anonymous, freestyle commentary about anything they choose. Several similar cases have emerged in recent months around the country, in which firms subpoenaed Internet providers to discover the true identities of people posting comments.
There are concerns that such lawsuits will have a chilling effect on Internet free speech.
Catherine Starr, a Santa Barbara attorney representing the defendant Doney, said her client meant no harm when he logged on and accused Edgecomb of "setting us up for an insider share dump on innocent retail investors."
Doney, she said, doesn't own STAR stock and is not a former employee, so his motivation for the comments are unknown.
"In a chat room, you just jump into the conversation," she said. "He had no hard feelings against STAR and meant no malice. How would you feel if you made comments in a chat room and you ended up in a complaint?"
The postings mentioned in the lawsuit were made on the "STRX Message Board" managed by Yahoo! It is a site where anyone can air opinions about the company.
Bruce was accused of impersonating Edgecomb by using the online name of CEO_Chris, while Edgecomb himself uses the name CEO Chris, without the underscore.
While the lawsuit accused Bruce of attempting to manipulate STAR stock, it is impossible to know what effect his alleged messages actually had. STAR's stock reached a high of about $27 per share in March 1998 and began a downward slide that started months before any cybersmears began.
The closing price of the STAR on Friday was $8.44, up 12 cents.
According to the lawsuit, Coon worked for the hedge fund Weintraub Capital Management of San Francisco, which was also named in the suit. The firm reportedly settled out of court for an undisclosed sum, as did Coon, who reportedly attributed his behavior to an illness.
The lawsuit contends Coon sent one ominous message, directed at Edgecomb, which said, "Where you live right now is a beautiful place. You wouldn't want to jeopardize being forced to relocate by doing something rash."
"The threatening comments, the false statements, they have no place in this discourse," Umoff said. "Do you ignore it or take it seriously? In today's climate, you almost have to take it seriously."
Cyberspace legal expert Eugene Volokh, a professor at UCLA, said the cyberspace frontier is raising new legal issues as cases such as STAR's wend their way through the courts.
Government cannot restrict the right to free speech, he said, but the law does make it possible for companies to issue subpoenas and track down the people who make false statements.
"You have a right to know who these people are," Volokh said, and once that happens, they can be sued for fraud and defamation, as STAR has done.
In the same arena, STAR last month filed in Santa Barbara Superior Court another cyber-lawsuit, this time to track down whomever is flooding the company with derogatory e-mails about an employee. That case is pending.
STAR had profits last year of $13.5 million on $595.5 million in sales. The company's first quarter, ended March 31, with losses of $7.5 million, reflecting additional personnel expenses of expanding in Europe.
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- Jeff
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