To all - something of possible interest to all of us wild and crazy Silicon Investor types :
When It Comes to Promoters,
Boards Say, 'Reader Beware'
By JASON ANDERS
THE WALL STREET JOURNAL INTERACTIVE EDITION
On-line discussion forums are coming under pressure from their users to rein
in the hype that fills some message boards, especially postings that come from
paid stock promoters.
Some discussion forums have responded by
hiring patrols to keep an eye out for stock
promoters, who have been hired by companies
to create a buzz about their stocks, on-line and
off. Other sites prohibit users from discussing
the most speculative stocks where the problem is most prevalent. But for the
most part, message boards say, it's reader beware.
"We advise people to always do their own research and not believe things they
read on the boards," says Jill McKinney, Webmaster for Silicon Investor
(www.techstocks.com), one of the most popular on-line discussion forums. "I
think our users are intelligent enough to figure out what to believe."
Silicon Investor won't take any action against
Daryn Fleming, a message-board participant
who is president of Wall Street West and whose
posts were the subject of a recent Heard on the
Net column. Ms. McKinney says Mr. Fleming's
postings are the first Silicon Investor has had to
deal with where it appeared a user was paid to
promote stocks.
Wall Street West issues research reports and "buy" recommendations on
companies, and promotes them on its Web site (www.wallstreetwest.com) in
exchange for compensation. Mr. Fleming promoted several of Wall Street
West's clients in Silicon Investor message boards, but didn't reveal that his
company was being paid to promote the stocks, and only occasionally
mentioned his affiliation with Wall Street West. He says he made the posts as a
private investor, and not on behalf of the companies or Wall Street West.
In a post made late last week, Mr. Fleming wrote that he expected his Silicon
Investor account would be deleted, and the messages he posted would be
removed. But Silicon Investor says being a paid stock promoter isn't against its
rules.
"Paid promoters on TV and in newspapers, magazines and radio are no better
or worse than paid promoters on Silicon Investor," says Ms. McKinney. "The
difference is paid promoters on SI can be challenged. The truth comes out in
discussion forums, making forums the best medium for the discourse of
investment knowledge and wisdom."
Mr. Fleming, who has stopped posting messages on Silicon Investor, declines
to comment.
Users of Silicon Investor and other discussion forums have long complained
that paid promoters have been flooding some message boards with hype.
"In the past year, I've noticed the hype has gotten really bad," says Colin Cody,
a message board participant who has been a member of Silicon Investor since
1996. "You hear rumors all the time that certain people are being paid to
promote a stock. I think it's really difficult for a new user on the boards. He
doesn't know who to believe. If he jumps in too quickly and doesn't do enough
reading, he could get burned."
Silicon Investor, which hired a person full-time earlier this year to monitor its
discussions, says most of the complaints it gets from users are related to
message boards dedicated to stocks traded on the OTC Bulletin Board. Many
of these stocks are so-called microcaps, which typically have small public
floats of available shares and low share prices -- two things that make them
particularly vulnerable to someone looking to manipulate the price of the stock.
Such companies also are more likely to turn to a paid stock promoter for
exposure than are larger, more established companies.
Keeping paid promoters away from message
boards is nearly impossible, say those who run
the boards, because such users never advertise
the fact that they are paid to hype stocks.
Still, the U.S. Securities and Exchange
Commission says the laws governing paid promoters still apply when those
promoters venture into on-line message boards and chat rooms. The SEC
requires stock promoters to disclose whether or not they are being paid, how
much they received and who they received it from.
"If someone is being paid to promote a company, the rules still apply when
they tout it on a street corner or a message board," says John Stark, the SEC's
special counsel for Internet projects. "In my opinion, every message a
promoter posts would have to include a disclaimer. It would have to be clear
to anyone reading that message that this was a paid promoter."
Many message board participants on the subscriber-based Silicon Investor are
critical of Yahoo! Finance (quote.yahoo.com), a free site where it is easy to
post messages under multiple anonymous usernames. Like other forums,
Yahoo says the high volume of messages posted each day (it declines to
release statistics) prevent it from monitoring everything that is posted.
Still, the service has taken steps to clean up its on-line chatter. The site
recently removed all message boards it had created for OTC Bulletin Board
stocks. (Message board participants are still allowed to create boards to
discuss such stocks.) Yahoo hasn't had a case yet involving a known stock
promoter, but says it has rules barring such users.
"You can't post or transmit any form of advertising or solicitation, so being
paid to promote a stock wouldn't be allowed," says Michael Riley, producer
for Yahoo Finance.
After receiving complaints from users, Yahoo yanked some advertising off its
site and changed its guidelines. The site no longer accepts advertising from
companies that receive compensation in exchange for recommending a stock.
Other popular on-line sites say they don't have specific rules about such ads.
Silicon Investor has advertisements for Stock Genie (www.stockgenie.com)
and Stellar Stocks (www.stellarstocks.com), two Web sites that promote
stocks in exchange for compensation. Raging Bull (www.ragingbull.com), a
relatively new on-line discussion forum, says it doesn't have any rules against
accepting such ads.
It's unclear just how many paid stock promoters
populate message boards, but discussion forum
operators say the number is probably far lower
than users suspect. "There is a popular
conspiracy theory that anyone who disagrees
with you in a message board is being paid to
disagree with you. That's absurd," says David
Forrest, community coordinator for Motley Fool
(www.motleyfool.com), another popular on-line
investing site.
Motley Fool is taking one of the most aggressive approaches in battling on-line
hype. Twenty full-time "community strollers" patrol Motley Fool's message
boards on America Online and the World Wide Web (the two systems are
separate), looking for hypesters and rule violators.
"There is a difference between a paid promoter and an enthusiastic share
holder," Mr. Forrest says. "There's nothing wrong with being excited about a
stock. But if you're being paid to promote a stock, you're not really
contributing anything valuable to the discussion."
Mr. Forrest says Motley Fool hasn't had a case yet where it was clear
someone was being paid to post messages about a company, and he attributes
that to the work of the monitors.
"Our strollers also play devil's advocate. If someone is posting a lot of really
positive things about a company that appear suspect, one of the strollers will
post a message and ask specific questions. We get rid of a lot of hype that
way," says Mr. Forrest. Motley Fool also features "bad post" buttons that
make it easy for users to report posts that they find suspicious or offensive.
Mr. Forrest says all reports are investigated.
Motley Fool says its patrols allow it to control content better than some of the
other popular message boards. But Motley Fool only receives about 5,000
posts a day on its two message board systems -- well under the 12,000 a day
Silicon Investor receives.
Motley Fool also doesn't allow discussion of stocks traded on the OTC Bulletin
Board -- a policy that Mr. Forrest says has "saved us headaches."
"Basically where at all possible, we want to avoid any appearance of
impropriety," he says. "Still, with so many messages there's only so much
anyone can do."
Write to Jason Anders at: jason.anders@news.wsj.com
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