Re: 10/00 - eCompany Now: When the Buzz Turns Bad Online
When the Buzz Turns Bad Online
By: Ian Mount
Issue: October 2000
How to track down the slimebuckets who perpetrate message-board frauds, and make them say they're sorry.
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As general counsel for Skechers -- the publicly held Manhattan Beach, Calif., maker of trendy, thick-soled shoes -- Philip Paccione was accustomed to shareholders, employees, and others pointing him toward occasional negative postings on Internet stock message boards. But two postings on Jan. 18 couldn't be brushed off as typical potshots. First there was jlee_atx, who said that he'd spoken with Skechers CEO Robert Greenberg and that Greenberg had said the company might have to file Chapter 11. The only thing more bizarre was a message 45 minutes later from mweinberg_skx, claiming to be from Greenberg and acknowledging the "possibility" of bankruptcy. Both postings were phony.
Investing message boards have certainly broadened the availability of market information and opinion, but their unmediated nature means that lies, known as cybersmears, can be published as easily as truth. Ill-intentioned traders can hype a stock before selling it or vilify one they've shorted. And former employees with axes to grind can use their knowledge of a company's inner workings to mercilessly batter its shares. As more small -- and often less sophisticated -- investors have gotten into the market, the problem has grown. Along with those small investors, who are apt to make poor decisions based on false information, companies also lose, as they must deal with a rocky share price as well as analysts and institutional investors made skittish by bad investor vibes.
So what do you do when you believe the abuse has gone from harmless irritation to serious danger? Well, you could sue the little weasels. But before you do, determine just how serious a threat the negative postings are. "The worst thing you can do is overreact if there are one or two people out there who are flaming you and it only amounts to one or two postings every two weeks," says Katherine Delahaye Paine, president of Delahaye Medialink, a reputation management firm in Portsmouth, N.H. "Chat rooms are essentially like any other society. They're mostly self-regulating. The group itself will isolate the wackys."
You also need to determine your legal standing. It may hurt to see chat-room denizens refer to you as an idiot, but it's probably not much more than an opinion -- and therefore probably legal. Any forceful attempt to set the record straight runs the risk of being perceived as a bullying tactic; unleashing the lawyers on a message-board nimrod may well make him look like a martyr-and you like a petty overlord. "When you go down that path [and sue], two things happen," says Brandy Thomas, CEO of Cyveillance, an online intelligence gathering service in Arlington, Va. "You expend a tremendous amount of resources, and it begins to establish your reputation online." That said, some postings demand action. For instance, a reaction is almost always called for when someone is posting patently false information-such as bogus earnings reports.
So you've decided you've got to do something. There are two popular schools of thought on how to proceed. One school -- the pacifist school, you might call it -- advocates that chat rooms and message boards themselves are the "most effective vehicle" for rebutting falsehoods, as Paine puts it. She and others suggest posting links to statements, press releases, or analyst reports that refute the untrue statements.
The other school of thought on dealing with blatantly false or defamatory statements calls for launching a "John Doe" suit -- tracking down the perps and making them say they're sorry. (It's called "John Doe" because you don't know who the offenders are when you launch the suit; all you know are their chat-room handles.) That's what Paccione did, with the help of his lawyers at the L.A. office of Kaye, Scholer, Fierman, Hays & Handler. Paccione filed suit against jlee_atx and mwein-berg_skx-who turned out to be the same person-and proceeded to hunt him down. At the end of April, Paccione got what he wanted: a settlement and, more important, a statement from jlee_atx posted on message boards for 10 straight days apologizing for spreading "false and negative" information. (The size of the settlement is important here: Paccione typically demands just enough to cover legal expenses and remind the poster not to do it again, but not enough to bankrupt him-which wouldn't exactly be savvy PR. "I'm not trying to ruin anyone's life," he says.)
Here's how a "John Doe" lawsuit works. A company first files a lawsuit against the aliases of the offending posters. The court then issues subpoenas to the message-board proprietor (AOL, Raging Bull, Silicon Investor, and Yahoo are the most popular), who warns the poster and then, if he does not refute the claim and countersue, turns over the name of his Internet service provider. Another round of subpoenas gains the identity of the poster from the ISP, and then it's all a matter of legal negotiation. The Securities and Exchange Commission has jumped into similar proceedings as well; about 200 to 250 of the federal agency's employees dedicate some of their time to surfing the Web in search of stock fraud. According to John Stark, the head of the SEC's Internet enforcement office, the agency subpoenas user identities "almost daily."
Whatever approach you take, figure out a standard response to renegade posters and stick with it. "Precedent and consistency are big things on the Internet," says Cyveillance's Thomas. "When you start to become selective in what you [pursue] and don't [pursue], you undermine your credibility." Of course, all of this could perhaps be avoided if one indulges in a little of what Paine calls "proactive cyberimage management." Alan Meckler, CEO of Internet.com, an industry news portal, is one executive who does so. Each quarter he sets aside a several-day span during which he accepts questions from posters on his company's stock board on Yahoo. At night, he posts answers (which take about 30 to 40 minutes total to compose), a practice that can both counteract bad information and remind posters that he pays attention to them.
Still, when a proactive approach fails and something has gone too far, a successful lawsuit can be very satisfying both for the company and for message-board posters. After the chairman of Talk Visual, a Miami videoconferencing company, filed suit against several negative posters, the board was full of complimentary commentary. "I don't feel sorry for any of them," wrote one poster. "It's about time the worm got nailed," added another. Skechers investors similarly showed disdain for jlee_atx and pinochetta (another poster who posted apologies after being tracked down by Skechers). "Good riddance to the bad apples," posted elvis_pressly.
And though it can't be attributed solely to the perkier mood on the board, it's tempting to draw a relationship between the apologies and Skechers's stock price. Between April 14, when pinochetta posted his first apology, and July 31, Skechers's stock rose 97.6 percent.
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