The following article contains Bre-X commentary that has legal implications with respect to possible actions against parties including brokers, analysts and the media (which would be novel, but maybe it can be explored). I'd originally written it at the request of some posters on the Winspear thread, but others were interested so I posted a version to my web-site. Now it's been suggested to me that I should bring it to the attention of any interested Bre-X watchers. It's long, so if it's not of interest to you, just skip it. Otherwise, read on...
Power to the people... on-line
Recently a few on-line posters contacted me looking for assistance in raising public awareness of their concerns about how management of a particular public company was behaving. The name of the company and the specifics of the activities in question is not material to the content of the following essay. Instead the important issues raised are about the power of the internet to unite shareholders to protect their own interests and of the current failure of the mainstream press to welcome this revolution. Particularly in the wake of the Bre-X Minerals Ltd. gold fraud, the traditional press, the print media especially, has run poorly researched stories warning, typically, "Investors can be burned by Internet stock tips." Maybe it's just not "news" to point out that more investors can be, and likely are, burned by stock tips appearing in their daily newspapers.
My response to the posters, who frequent the Silicon Investor web-site, follows (with minor changes made to tailor the letter for my own web-site):
While I'm presently committed to an investigation that has swallowed up May (and now June), I wanted to voice a few observations here, based upon my dealings with the media, should they be of any assistance. If it helps, that's a good thing, if it doesn't do anything for you -- well, just ignore it!
I fully support the power of the internet (which you're demonstrating) to make management of public companies more accountable to shareholders. The net, by bringing us all together, can even make the regulators and the press more accountable to public investors -- so this is all beneficial to creating a more level playing field. The Silicon Investor provides one of the best forums for stock market discussion and investor activism that exists. Sure there are stock touts here, and people playing games (long or short), but that's always present in the market. Those sort of things have always been present, but, prior to forums like SI, there was no real opportunity for average investors to organize and analyze such forces -- and then to act against them.
As one person who wrote me so succinctly described it, we are "empowered people using the net."
In the Canadian junior markets, at least, this is an age when the securities regulators and mainstream media have, for the most part, abandoned their watchdog roles. A clear-headed analysis of the Bre-X Minerals scandal can only point that fact out as being obvious. It's fortunate that SI and other forums exist to enable people to gain some control over their investment futures. But this appreciation of the electronic communications medium is not uniformly shared by those forces that are used to controlling the agenda. This is where I'm hoping that my experience may, in some way, assist you on this thread and others.
It's my observation that some members of the mainstream press, the print media in particular, distrust and even fear or loathe the internet and forums like SI. It's only natural in that mainstream journals have had a monopoly on the "news" and its dissemination for decades. Some reporters and publishers don't know exactly what is this thing, "the web", but they know it challenges their supremacy as a source of useful information. The net can reach farther, faster, than any newspaper or news program. Period. And there is a power elite that appears to abhor the concept that the public is capable of intelligently processing data through filters other than those which they are familiar with and/or control to some degree. There is a trickle down effect I've noted in news organizations that look forward to the potential marketing properties of the internet to promote their products (be they newspapers, magazines or other info sources), but, more so, dread the possibility that the internet will truly democratize the information age and make their present forms obsolete. And, on a smaller, more human, scale, anything new takes time for people to become comfortable and unafraid or trusting.
The net is in its infancy as being recognized for how it will shape the investment world. Its most significant power may well lie in the direction to which you are pointing right here on this thread. In the 1940s Edwin Sutherland coined the term "white collar crime" and noted how shareholders of public companies continue to be victimized because stockholders are "scattered, unorganized, and frequently cannot even secure access to the names of other stockholders." And the game has remained the same, with shareholders being "scattered, unorganized" until now -- and the popularization of the internet.
But this revolution isn't going to be popular with management of public companies or brokers or touts who, up 'til today, have had it all their way. Management of junior companies are used to controlling the agenda -- they can act as if they are managing private entities and, until the internet, it was very difficult for shareholders to organize and call for reform. Management of junior companies are used to having their stockbroker cronies or paid touts spread the word, often false, about what they've discovered or are developing. Of course, that carries on still with company web-sites and on-line touts, but SI and other forums enable people to balance the hype and official representations with independent and contradictory information. Plus, the fact that the "official" claims are posted in a form that can be archived and printed forces the companies themselves to be more accurate and forthright than they were when such data was transmitted primarily via the telephone or verbally through their broker advocates.
Anyway, I could write a book on this subject so I'd better get back to the matter at hand, that is how may your concerns be effectively transmitted to the mainstream media. What happened with the Bre-X coverage is helpful to understand in terms of the role of news reporters. The news that there were serious questions about the Busang gold content first appeared in North America on the internet. The print and mainstream electronic media followed. Bre-X management, such as David Walsh, then attempted to make the internet a scapegoat for his companies' problems.
During March and April 1997 Walsh and others spread preposterous claims about Bre-X (including b.s. that Bob Hasan, Indonesia's President Suharto and/or "smart money" was in buying up Bre-X shares at cheap prices -- with the obvious inference, that smart N.A. investors should be doing the same) -- this sort of nonsense was dutifully reported in the "responsible" (i.e. non-internet) media, particularly by newspapers in Calgary, Alberta. There were of course on-line touts spreading the same sort of hysteria, but they were open to contrary posts and flaming -- and, unlike the unassailable print reporters, the posts on SI lacked the influential weight.
Any of us that's spent much time on a discussion thread knows what its about -- some people are hyping positively, some negatively, and most are just searching for the truth in between and in the masses of intelligence -- of varying degrees of quality -- that collect here. But most on-line posters are already long, short or flat the particular stock under discussion and know enough not to base investment decisions primarily on the views of other posters. It's always enjoyable and satisfying to find people who like the same stock as you do, or even dislike the same stock as you -- that's the social element of the internet. But who among us really puts hard money down on something just because of someone else's view point here? The posters I've chatted with are looking for hard data, or at least data on which they can rely.
On-line stock talk is good, but it only goes so far unless it's backed up by something solid. In contrast, a newspaper has, for some, built-in credibility. So, for example, when the Calgary Herald tells its readers, as it did on March 27 1997, "Bre-X is not a hoax" -- there's a far greater danger that someone will actually invest real money in reliance on that statement, presented in black and white, as a fact, than there is of anyone rushing off to their broker after hearing a pitch on the internet. This should be obvious, but to hear some of the mainstream reportage in the wake of the Bre-X scandal, one would be led to believe that on-line stock players are a bunch of brain-dead lemmings who believe the last thing they're told by anonymous posters.
This situation may also change over time thanks to the internet, but one unfortunate market reality, up 'til now, has been that newspapers etc. rarely, if ever, get sued for publishing inaccurate, or false, positive stories about companies. There are, however, public company managers and promoters ever vigilant and ready to jump on the press, and in some instances sue, over statements and inaccuracies (real or imagined) that cast their company, or its stock promotion, in a negative light. There are even promoters like penny stock hustler Robert Friedland who successfully badger the press in an effort to get even the desired spin on a news story. But no one really takes the mainstream press to task for puff pieces, or glowingly positive coverage given to stock scams or companies whose management is abusing their power and not acting in the best interests of public shareholders. The public, in whose interest it is that the mainstream press do a better job of reporting, both positively and negatively, has been -- until now -- "scattered, unorganized".
In the case of Bre-X, it wasn't just the home-town hero complex in Alberta driving the Canadian press, as can be seen by the volume of erroneous and, often unattributed, misleading commentary that appeared in national newspapers during this period. This failure by the mainstream press to come to grips with the Bre-X scam once it began unravelling in 1997 capped its lengthier, incremental, failure to properly report on Bre-X and related entities since at least 1994. There are, of course, numerous contributory factors in the Bre-X scandal, still, it's undeniable that, had the mainstream press been more diligent in its reportage on the company, the background of its principals, the history of the Busang property etc., beginning in 1993/94, the fraudulent scheme could never had reached such a devastating level of financial magnitude.
Had appropriate independent research been carried out by members of the press during the ascent of the Bre-X scam, there would have been a far different base of discussion for those on SI or elsewhere on the net.
That's self-evident history now, but what is still evolving is how the forces that view the net and its public community with apprehension, distrust or fear are moving to shape the context in which the on-line forum is understood off-line.
Part of the Bre-X fallout has been the formalization of a myth that internet discussion groups negatively influenced investors' decisions i.e. played havoc with Bre-X share prices and made people do stupid things based on false information (hey, sort of like investing, long or short, after reading lies or misrepresentations printed in a newspaper or a report signed off by a spoon-fed brokerage house "analyst").
Beside the fact that no evidence has been presented, anywhere, that an on-line poster based their investment decision(s) primarily on internet talk, the cornerstone of the media Bre-X myth, the so-called "internet rumours" about the resignation of Freeport McMoRan CEO Jim Bob Moffett (which didn't happen), can be seen to fabricated by the failure, once again, of mainstream reporters to do independent research.
For those who missed the Bre-X action, in late session trading on the TSE on April 23 1997, Bre-X stock briefly spiked from the $3 range to a high of $5.75 then fell back. The next day, one of Canada's national business papers reported, as fact, that this activity had been caused by "internet rumours" that Moffett had resigned -- the inference being that he had fallen on his sword after falsely smearing Bre-X's good name and therefore it was, as the Calgary Herald earlier stated, true that Bre-X was not a hoax. (One irony being that on-line "rumours" can be documented and tracked since they have physical form as data -- making it impossible for there to exist, on-line, untraceable rumours such as those which are created and passed through verbal campaigns in the physical brokerage or investment community).
The newspaper failed to identify the on-line source of these "internet rumours" -- a clear clue that the writer knew little about the medium. After stating that these "internet rumours" had affected the stock market this way, the newspaper named only one source, and it was a crony of Bre-X's chief David Walsh! -- the same David Walsh who for weeks had been among those trying to blame his companies' troubles on the rest of the world. And even though a minute-by-minute breakdown of Bre-X share-trading, correlated with the Bre-X-related posts we can all read here on SI, shows that this on-line community didn't raise the Moffet rumours until after the stock had made its up and down move, the "internet rumours" myth took root in the imagination of the mainstream media.
Market momentum following rumours in the brokerage community carried Bre-X stock to its intra-day high a scant two minutes after the first of the on-line questions about a Moffet rumour was posted. The initial poster explained that he picked up the talk from a Nesbitt Burns broker's office. By the time any discussion of the Moffett rumours going around the brokerage community occurred in this on-line forum, the price/volume move was over. Not only did internet posters obviously not precipitate the Bre-X spike on April 23, once the Moffett rumour did surface on SI it was quickly debunked by posters -- again demonstrating the value of a forum such as this which enables the scattered and unorganized to become gathered and organized.
So where does this all lead? To the point that those who contacted me about this company and its management recognize -- the internet is empowering for individual investors -- and to the point I'm hoping to make -- that not all in the mainstream press appreciate, or want to recognize, this empowerment.
Wayward management of public companies don't like the power it gives shareholders to make them more accountable. Directors, promoters etc. know how to control, or at least operate comfortably with, the mainstream press, but not the internet. The mainstream press, for its own reasons, is most comfortable with the status quo. And so the myths created about the internet may be used by such forces as a means to deny its legitimacy and/or to demand greater regulatory control of the medium. Rather than address the serious problems of public company management abuses, or the lack of independent and analytical reporting on the junior stock markets by the press, there'll be a call for market regulators to crack down on the internet. After all, don't you know it was internet chat groups that caused the Bre-X stock to go up and down based on false rumours? And so on.
Whether or not the mainstream press will ever be comfortable with such a free and public information forum as the internet is one question. For the present the more material question, and the one that I've been asked by shareholders, is how to get your message out to the regular press. I would say, just be mindful of the building legacy of distrust that the traditional press holds for the internet, and then look out for those reporters who are less ignorant of the medium itself.
Generally, a journalist who writes regularly about the web should be in a better position to understand the issue(s) you're raising about investor empowerment possible via the net than would a straight mining or stock market reporter. Each of the major newspapers in this country has one or more people on its writing staff who are net-savvy. Some have written reasoned pieces in their papers trying to point out that the net does not influence stock prices in the way that their journalistic counterparts are claiming. But things like the Bre-X/Moffett myth/smoke-screen have been overpowering.
But if news organizations are to become better educated about the net and its real value, the bridge may most easily built with some of these net-friendly reporters. Just read the coverage of Bre-X or other stock stories that have involved on-line elements and you'll see which reporters have an ignorance of the medium and even a bias against it and groups like those on SI. Another possible route may be through an on-line news service, such as Canada Stockwatch, which, due to the nature of its own enterprise, is already alive to the issues you're raising. I expect that a news organ like Stockwatch, which has covered countless junior stock stories over the years, would be more interested in the internet implications of what you're doing than in the specifics of the share option re-pricing mechanism which is at the root of investor concerns. By appealing to the differing interests of the mainstream press and on-line news services you can, hopefully, further your objective of making company management more accountable. And the lessons learned in this particular case can be used across the board as shareholders in other companies get organized on SI and elsewhere on the net.
After all, you're paying for all of this -- and finally there's a powerful tool to help make your concerns be heard. |
