To all - yet another article about creeps on SI and other "message boards," and how companies are starting to deal with them.
December 16, 1998
Lawsuits Over Message Boards
Arouse Fears About Free Speech
By JOHANNA BENNETT
Dow Jones Newswires
NEW YORK -- When Legacy Software Inc. Chairman Michael Zwebner filed
suit recently over remarks posted on a popular Internet bulletin board, he
became the latest corporate plaintiff with a cyberspace complaint to trickle into
the legal system.
That trickle, however, is turning into a river.
As the Internet's popularity increases and concerns over stock fraud and
manipulation grow, courthouses nationwide will see a steady increase in the
number of lawsuits filed by corporations claiming to have been libeled or
defamed by remarks posted on Internet message boards, according to legal
experts.
Over the last two years, financial Web sites like The Motley Fool, Silicon
Investor and Yahoo! Finance have attracted thousands of investors who post
countless remarks on bulletin boards discussing hundreds of companies.
Corporate officials who once ignored those ramblings are now taking notice.
And they sometimes don't like what they see.
"You are going to see lawsuits whenever a company feels they have been
injured and have enough to take people to court over it," said David Loundy, an
Internet attorney with Davis Mannix McGrath in Chicago. "As more people go
online, there will be more lawsuits."
It's unknown how many companies have taken legal action against
message-board users. But this year alone, there have been at least a half dozen
cases, the first of which emerged about nine months ago, said David Sobel,
general counsel for the Electronic Privacy Information Center, an advocacy
group in Washington.
So far, suits have been filed by a major discount brokerage firm, E*Trade
Group Inc., as well as by ITEX Corp., Universal Foods Corp. and Cohr Inc.
Last week, Legacy's Mr. Zwebner joined the list, filing a lawsuit in a New
Hampshire federal court that accused 11 defendants -- eight of whom were
listed as "John Does" -- of deliberately posting defamatory remarks about him
on Silicon Investor's message boards. Among the remarks Mr. Zwebner
alleges are defamatory were messages claiming that Mr. Zwebner and his
brother were under investigation by the National Association of Securities
Dealers and the Securities and Exchange Commission.
"People, I think, are kind of emboldened to put out information they might not
otherwise because of the anonymity the Internet provides," said Charles
Solomont, Mr. Zwebner's attorney. "They feel they can just keep doing this
without any consequences. But at some point, there is a consequence,"
Mr. Solomont's statements echo a common criticism that many have levied
over the last year, as corporate America and federal authorities have struggled
to come to terms with what many see as a growing problem.
Message boards are widely considered a valuable tool for mom-and-pop
investors, providing small players with a way to exchange information. But
they also are used by unscrupulous market players bent on manipulating stock
prices.
A well-timed rumor or remark can wreak havoc, especially on a small
company, scarring its reputation, panicking shareholders and sending stock
prices tumbling out of control.
"It's something that many companies are struggling to deal with," said Henry
Carter, vice president of compliance for E*Trade.
For E*Trade, the lesson came last April when a prankster, known only as
"Paris," posted a bogus press release containing fabricated and far
lower-than-forecast second-quarter earnings on a Yahoo! Finance message
board. The message was so well-crafted that many investors took it for the
real thing, forcing company officials to post a reply on the same message
board.
The brokerage firm's actions were applauded by message-board operators,
many of whom claim that more companies should begin participating in online
discussion as a way of combating misinformation. But most companies frown
on corporate executives posting messages, fearing that a wrong move could
land the company in the middle of a shareholder lawsuit.
"It is such a new threat, and I am not sure companies know how to respond,"
Mr. Carter said. "Corporate officers in many companies don't know how
seriously to take these messages. It's a matter being debated internally in many
companies."
To a slight degree, Web chatter is regulated.
The National Association of Securities Dealers governs what stock brokers can
post online. And the Securities and Exchange Commission, always on the
prowl for signs of investment fraud, actively encourages companies and
investors to report message-board postings containing false or fraudulent
information.
Most mainstream message-board sites ban unsolicited commercial postings, as
well as profanity, blatant solicitation and impersonating other members. But
few actually monitor the accuracy of the messages posted on the boards.
Under federal law, message-board publishers aren't responsible for the content
of messages posted by users.
Of course, companies may find it hard to track down a message's author.
Federal law forbids message-board operators and Internet-service providers
from revealing the real names of their users, unless presented with a court
order or a subpoena.
That often forces companies into the courtroom.
Three months ago, ITEX, an Oregon online bartering company, filed suit
against 100 "John and Jane Does," for posting allegedly inaccurate and
defamatory statements on a Yahoo! Finance message board. Those remarks
included statements questioning ITEX's financial backing and a rumor that
senior ITEX executives were involved in a wrongful-termination suit.
After the lawsuit was filed, many investors posted angry messages criticizing
the company's actions, insisting that they are using the threat of legal action to
scare their critics into silence.
Free-speech advocates say that isn't a baseless fear.
Litigious companies may end up using litigation as a means of quelling criticism
and complaints from unhappy investors, said the Electronic Privacy
Information Center's Mr. Sobel. The only guard against the abuse is the
Internet's tradition of anonymity, he added.
"If anonymity is attacked, it will be a real chilling effect on people who think
they have important things to say about a potentially litigious company," Mr.
Sobel said. "It's important, whether it is a whistle-blower or just someone who
has something negative to say."
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