Re: Net Firm Wins First Round In Battle With Online Critic
January 25, 2000
Heard on the Net
Net Firm Wins First Round
In Battle With Online Critic
By AARON ELSTEIN and JASON ANDERS
THE WALL STREET JOURNAL INTERACTIVE EDITION
A small Internet company has won an unusual early victory in its continuing efforts to silence a critic who has slammed the firm in hundreds of online message-board posts.
ZiaSun Technologies won a preliminary injunction against Floyd Schneider, a Saddle River, N.J., mortgage banker who uses the online aliases "TheTruthseeker" and "Flodyie." Mr. Schneider has been a vocal critic of ZiaSun and its management, and the injunction bars him from referring to
ZiaSun's officers as "criminals," and from posting false statements alleging criminal activities by the company.
In June 1999, ZiaSun sued Mr. Schneider and seven other message-board users in U.S. District Court in Seattle, alleging that they engaged in a "cybersmear" campaign to ruin the company. The case is expected to proceed to trial later this year. Mr. Schneider maintains that he has reported only the truth about a company that he believes has defrauded investors.
In her ruling on the preliminary injunction, U.S. District Judge Marsha J. Pechman said the court is "convinced that Schneider has posted false messages about ZiaSun on the Silicon Investor message boards ... Schneider's electronic
postings are also causing damage to ZiaSun."
Such injunctions are unusual in cases where freedom of speech is an issue, says Blake Bell, a New York attorney who specializes in online securities cases. "I'm frankly surprised a preliminary injunction was won in this case. This may be the first case of its kind where that has happened."
Judges generally are reluctant to grant preliminary injunctions because of concerns about violating First Amendment rights, he says.
Indeed, in her order, Judge Pechman acknowledged that the injunction could "unduly burden" Mr. Schneider's freedom of speech, but found that the harm his speech was causing ZiaSun outweighed those concerns.
The case has been closely watched on both Silicon Investor
(www.techstocks.com) and Raging Bull (www.ragingbull.com), two online stock-chat discussion forums where investors are locked in a heated debate over ZiaSun.
A number of companies have fought high-profile legal battles with their online critics. Legal experts say such cases generally are settled.
"It just doesn't make any sense," says Lyrissa Lidsky, a professor at the University of Florida College of Law who has studied so-called cyberlibel cases. "You never see
injunctions like this in defamation cases because it is generally regarded as prior restraint, and a violation of a constitutional right to freedom of speech."
In her ruling, Judge Pechman noted that "Mr. Schneider has not responded to ZiaSun's claims that his postings are untruthful, nor has he come forward with any evidence to support the statements made in his postings."
Mr. Schneider says neither he nor his lawyer appeared in court to contest ZiaSun's charges. He says he hasn't been following the case.
"I'm going to comply with what the judge says in the order," Mr. Schneider says. He says he will not post false messages about ZiaSun, but says he's not about to stop criticizing the company. Mr. Schneider says he plans on posting new information online in a few days that suggests ZiaSun officials misled shareholders overseas.
Mr. Schneider continued to criticize ZiaSun on Silicon Investor Tuesday. ZiaSun spokesman Mark Harris said the company is planning to file a motion of contempt over the posts. If found in contempt of the court order, Mr. Schneider could face fines, or be sent to jail.
ZiaSun, based in Solana Beach, Calif., is a holding company for a variety of Internet-related entities. Its primary holding, Online Investors Advantage, holds seminars around the country that teach investors sophisticated trading
strategies, such as options trading and how to interpret stock charts to anticipate market movements. ZiaSun's holdings also include an online brokerage, called Swiftrade, that specializes in trading for investors outside
the U.S. It also owns a variety of e-commerce sites targeted at Asian markets.
Until September 1998, ZiaSun was known as BestWay U.S.A., which marketed a machine that enabled people to bottle their own beverages.
The company reported earnings of about $1.5 million, or five cents per diluted share, through the first nine months of 1999.
But Mr. Schneider alleges that ZiaSun has used improper accounting to inflate its earnings, and says that former ZiaSun executives used a brokerage they controlled to improperly market BestWay shares to overseas investors.
Mr. Harris, the ZiaSun spokesman, denies the company has misled investors. He acknowledges ZiaSun is "having discussions" with the U.S. Securities and Exchange Commission regarding its accounting practices, but says the
discussions are "routine."
An SEC spokesman declined to comment on ZiaSun.
Write to Jason Anders at jason.anders@wsj.com and Aaron Elstein at aaron.elstein@wsj.com
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