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The article:
By JAMES McNAIR
Herald Business Writer
The news of CHS Electronics' imminent takeover broke quietly on the Internet, on
the stock message boards of Yahoo.com and Techstocks.com.
Citing an unnamed source at the Miami company, International News reported
March 24 that CHS' board of directors was mired in daylong meetings, pondering
its future course. It quoted analysts from Interlink Research and Pineview
Brothers. One ventured that a takeover would be CHS' ''best solution,'' while the
other shared rumors that CHS was ''in talks'' with a competitor.
The story was a hoax, planted by a prankster hiding behind an Internet alias.
International News doesn't exist, nor do Interlink Research and Pineview Brothers.
And CHS, whose stock price could have used a boost, wasn't bought out.
Fabricating news to push up the price of a stock is old hat, but technology now
makes it possible for authors of bogus information to reach audiences on an
unprecedented scale. News stories, newsletter items and cleverly disguised
''confidential'' memos are all fair game in the surge of investment quackery. The
preferred venues are Internet message boards, where gabby investors and
short-sellers share news, sling mud and, sometimes, tell lies.
''We're working on an increasing number of what we call impersonation cases,''
said John Reed Stark, chief of the Securities and Exchange Commission's Office
of Internet Enforcement. ''People are either impersonating someone who works at
the company, an analyst who follows the company or a legitimate news agency.
I've seen people on message boards saying they worked for the SEC.''
One of the most spectacular charades occurred on April 7, when a message
posted on the Yahoo! board for PairGain Technologies offered an electronic link to
a news item on the Bloomberg News Web site.
The story said PairGain, a telephone equipment maker in Los Angeles, was the
target of a $1.35 billion takeover bid by ECI Telecom Ltd. Trading in PairGain
stock jumped to seven times its normal volume, and the share price soared 32
percent. Then came the disclosures that sent the Pamplona-style rush in the
opposite direction.
The original story was a fake -- as was the Bloomberg News site itself. The
alleged culprit, a 25-year-old engineer at PairGain's office in Raleigh, N.C., was
indicted on five counts of securities fraud. He pleaded guilty last month and faces
10 to 16 months in prison.
Yahoo!, which runs some of the busiest stock message boards on the Internet,
forbids its registered users from engaging in fraudulent activity. If a company or
investor reports a post containing blatant disinformation, Yahoo! will delete it. If
the police, a regulatory agency or a lawyer comes waving a subpoena, Yahoo! will
disclose the identity of the person posting the message.
''We don't go through and actively police messages, but when something that
violates our terms and conditions comes to our attention, we remove the item and
revoke the user's posting privileges,'' said Mike Riley, senior producer of Yahoo!
Finance.
Trolling the Net
The SEC itself now trolls the Internet looking for chicanery on the part of stock
promoters, online newsletter publishers, rogue stock market players and anyone
else trying to manipulate stock prices through deceit. Stark said his office
receives 200 to 300 e-mailed complaints a day (help@sec.gov) and has filed
cases against hundreds of people and companies, in spite of their screen-name
cloaks.
''The important thing that people should understand is that we've generally been
able to track people down, through everything from basic detective work to
Internet protocol tracing,'' Stark said. ''It's difficult not to leave a trail.''
The Yahoo! message containing the fake CHS Electronics takeover story was just
one of several blatantly bogus items posted on that message board in March.
Other messages proclaimed CHS' forthcoming acquisition by Seagate, Merisel
and Ingram Micro, all of which drew hoots of disbelief from the board's regular
denizens. One of the rumor-mongers was Abby Joseph Cohen -- not the famed
Goldman Sachs market prognosticator, but, according to a scant user profile, a
54-year-old man in New York.
CHS, which has more than enough real-world problems to deal with, seems to
tolerate the message board nonsense. Other companies go to great lengths to
snuff it out, employing private investigators and attorneys.
Harbor Florida Bancshares, a bank in Fort Pierce, filed a lawsuit last Tuesday
against one of its Yahoo! message board detractors. The defendant, still known
only by his Yahoo! user name, maytricks99, suggested in May that Harbor
Florida would be bought for three times its stock price. The company accuses
maytricks99 of breaking federal securities laws and seeks unspecified damages.
Some use the fax
The Internet isn't the only haunt for concocters of financial news bulletins. An
SEC lawsuit filed July 14 accuses a Miami company, The Globus Group, of plying
the trade by fax.
According to that lawsuit, Globus and its principal, Bruce A. Gorcyca, alias
Anthony DiMarco, faxed what appear to be confidential insider tips -- some on the
letterhead of Merrill Lynch, Prudential Securities and Citibank -- to countless
unsuspecting people.
One of the letters, a confidential letter ''From the desk of Lawrence J. Hirsch'' and
bearing the Merrill Lynch logo, speaks of a $30 million Navy contract awarded to
La Jolla Diagnostics and Hirsch's likelihood of making ''a few million dollars'' on
the stock. Scribbled on the side of the letter is the note, ''Bill -- PLEASE get this
to my brother ASAP. Thanks -- Alex.''
Leslie Nanasi of Hallandale said his daughter received that fax at her home in
March 1997. She didn't invest, but he did, to the tune of $12,000.
''The very next day, it (La Jolla's stock price) was down from 2 1/2 to 1 1/2 and
then it went down to less than a dollar,'' Nanasi said. ''It was definitely a fraud.''
La Jolla never received the Navy contract. Its shares today have a bid price of 10
cents.
Thomas Noonan, president of Union Financial Corp. in Fort Lauderdale, said his
fax machine used to hum steadily with such spam.
''I tried to find the number of the person who was sending these things and
wasting my fax paper,'' Noonan said, ''but they always come in anonymously and
you have no way of tracking them down.''
Noonan would not have been surprised had he unmasked his tormentor. Gorcyca
is a former IRS agent who was convicted in 1984 and put on probation for five
years for taking bribes. He is currently facing felony charges in Miami-Dade
County of writing bad checks in a 1997 computer purchase.
Gorcyca could not be reached for comment.
Dan Shea, regional director of the SEC's Denver office, which filed the case
against Gorcyca, said the agency will ask U.S. District Judge Alan Gold in Miami
to order fines and a return of any illegal profits. On Friday, Gold issued a
preliminary injunction and extended an asset freeze against Globus and Gorcyca,
who didn't show up in court.
The next time the fax machine cranks out a confidential stock tip, Shea says,
you should throw it away.
''One thing this case should indicate to investors is don't buy on a hot tip,'' he
said. ''You'll get burned. Always do your own research.''
e-mail: jmcnair@herald.com |
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