Cybersmear' Suit Is Dropped Against Message-Board Critics Hitsgalore.com withdrew a $20 million lawsuit against five individuals who allegedly waged a "cybersmear" campaign on Internet message boards, abruptly ending one of the first suits ever filed by a company against its online critics.
Hitsgalore officials and their lawyers didn't
return calls, and its public relations firm
declined to comment. Hitsgalore operates
an Internet search engine in which people
pay to list their business and services.
The suit, which was voluntarily withdrawn by Hitsgalore in early April,
gained considerable attention when it was filed last June in U.S. District
Court in Tampa, Fla., as one of the first to pursue high-profile
message-board critics. The defendants named in the suit included noted
message board posters Janice Shell, an art historian in Milan, and "Mr.
Pink," the alias used by Daniel S. Loeb, a New York hedge fund manager.
In its suit, Hitsgalore alleged that message-board posters orchestrated a
"cybersmear" campaign intended to drive down the company's stock price
and were receiving compensation to depress the stock.
Ms. Shell says she was pleased that the suit had been dropped, but not
surprised. While the company alleged the defendants called its
management "criminals," she pointed out that regulatory filings prepared by
the company disclosed that Hitsgalore's chairman, Dorian Reed, once
served 10 months in a federal prison camp for wire fraud. "I don't know
why they got so upset," she says. "It wasn't like the information about his
record was a secret."
Mr. Loeb couldn't be reached for comment, but his lawyer, Larry Hoyle,
said that Mr. Loeb was satisfied with the outcome of the suit.
Hitsgalore's stock had been quoted as high 20 11/16 on the OTC Bulletin
Board on May 10, 1999. But the next day the stock plunged 72% to 5 7/8
after Bloomberg News published an article saying that Hitsgalore hadn't
informed shareholders that Mr. Reed had been sued by the Federal Trade
Commission in March of 1998 for falsely promoting a business opportunity
via junk e-mail prior to launching Hitsgalore. The article said Mr. Reed
was ordered by a federal judge in Baltimore to pay $613,110 back to
customers.
Hitsgalore said in the suit that the Bloomberg
article "served as a catalyst for the defendants
to perpetuate a nationwide cybersmear
campaign." In its annual report, filed July 1,
1999, Hitsgalore stated, "Mr. Reed says he
was unaware any case was pending against
him until stories appeared in the press." Suits seeking class-action status
were filed against Hitsgalore shortly after the article was published. Those
suits were dismissed in February.
In the days after the article, message-board posters mercilessly attacked
Hitsgalore. The company cited Ms. Shell calling Hitsgalore "a classic
pyramid scheme" in a message posted on the stock chat-site Raging Bull
(www.ragingbull.com). "How do you feel about con men?" she wrote in
posting cited in the suit. "That's what the FTC thinks Dorian ... Reed is."
In addition to being sanctioned by the FTC, in July 1993 Mr. Reed was
convicted of criminal charges of wire fraud brought by federal prosecutors
in West Palm Beach, Fla. One message board writer sued by the company
referred to this case in a posting, saying Hitsgalore was run by a "convicted
felon."
Mr. Reed was sentenced to 16 months at a federal prison camp, plus three
years of supervised release, for his role in devising "a scheme to defraud"
customers in a credit-card telemarketing operation.
The government said that Mr. Reed and his associates would lead people
to believe they would receive a Visa or MasterCard credit card at an
11.88% interest rate if they paid Mr. Reed's company a fee. But after
paying, customers received only pamphlets and a list of banks to contact to
apply for a card.
Upon Mr. Reed's release, he started a company in 1995 called Internet
Business Broadcasting, which later became Hitsgalore.
Hitsgalore had only $91,000 in cash as of Sept. 30, 1999, according to its
most recent financial statements, and the company's accountant, Moore
Stephens Lovelace, said there was "substantial doubt" the company could
remain in business unless it raised additional cash.
Hitsgalore said Feb. 22 that it had been "tendered" a $3.5 million check
from its lead investor, Life Foundation Trust of Scottsdale, Ariz., but that
money "is still in the collection process," according to Robert Thompson,
Hitsgalore's principal accounting officer.
Hitsgalore charges clients $99 a year to advertise on its Web site
(www.hitsgalore.com). The site attracted 34,000 last September,
according to PC Data Online, a Reston, Va. tracker of Internet traffic. No
current data on traffic to the site are available. In comparison, Web portal
Yahoo! had 36 million visitors last September.
Hitsgalore shares were quoted at 81 cents in afternoon trading Thursday." |
