The Wall Street Journal Interactive Edition -- June 25, 1998
Shareholder Lawsuits Get Boost From Web Pages, Message Boards
By JOHANNA BENNETT
Dow Jones Newswires
NEW YORK -- Brad McNeely has never met face to face with any of his fellow Corporate Vision Inc. shareholders who are taking legal action against the company. Instead, he "chats" with them on the popular Internet message board, Silicon Investor, where three weeks ago he stumbled across a message from a disgruntled shareholder offering to hire an attorney to fight the company's plans for a proposed merger.
The 30-year-old North Carolina resident signed on as a plaintiff, as did more than 60 other investors. And the group and their Oklahoma attorney have carefully planned their strategy, using e-mail and the message board. "I don't think I would have known anything about what was going on without using the message board," Mr. McNeely said. "... This small group of investors got to know each other through the thread. We leaned on each other. We moaned and complained. ... If it wasn't for that, I don't think many of us would be participating in this lawsuit."
Shareholders organizing lawsuits against companies via an Internet message board is not the norm. But shareholder advocacy groups agree that Mr. McNeely and his cohorts are just the beginning. In the last two years, the Internet has become a popular way for individual investors to find information and research about an endless array of stocks. Now Web pages and message boards are proving to be just as useful in launching legal actions by shareholders against publicly traded companies.
Law firms, pension funds and shareholder-rights groups often use Web pages to disseminate information about court cases and class-action suits, usually to attract more plaintiffs or to scrounge up information. And apparently individual investors are also using similar tactics.
Fuming investors with shares in Halifax PLC, a British bank, have been rallied by a man in Brazil using a Web page entitled UNHAV -- United Halifax Victims. UNHAV claims to have 400 members in 55 countries. "I see more and more Web sites and more and more law firms going that route," said Chris Bohner, research analyst for the AFL-CIO's office of investment. "All aspects of the shareholder process are being handled over the Internet."
Elsewhere, Internet message boards and chat rooms provide a fertile recruiting ground for potential shareholder plaintiffs. The boards bring together people from vastly different backgrounds and places but who share a common interest, providing an easy and cheap way to find and talk to a company's shareholders. Message boards are accessible to anyone with a computer and an Internet connection, although some charge membership fees. And the Web sites that are popular among individual investors, including the Motley Fool, Yahoo! Finance and Silicon Investor, are visited by thousands of users daily.
For small investors attempting with limited resources to launch a grass-roots legal battle, the Internet is an invaluable resource, said Pat McGurn, director of corporate programs for the Institutional Shareholder Services, an advisory group for institutional investors. "Before the advent of the Internet, grass-roots legal efforts would have been impossible," Mr. McGurn said. "You would not have been able to even get a shareholder list. You would have had to sue the company and that would have been a substantial outpouring of cash. Now you have the Internet. ... There are so many chat rooms that coming into contact with people is not hard to do."
Just ask Keith Anderson.
The New Jersey resident and Corporate Vision shareholder posted messages on Silicon Investor, vowing to take legal action over a proposed merger with Western Oil and Tire Distributors Inc. that resulted in a 300-for-1 reverse stock split and dual overseas stock placements. A few weeks later, more than 100 disgruntled shareholders had contacted his attorney in Oklahoma.
A complaint filed in state court earlier this month listed 66 plaintiffs. A judge issued an injunction against the merger last week and ordered the company to hold a shareholder meeting later this month. The company responded by asking the court to reconsider its decision. "How else can we shareholders contact each other?" Mr. Anderson said. "This is what is scaring Wall Street so much. The fact that investors can contact each other."
It's not the only thing scaring some. While the Internet is a powerful tool for investors, time has also proven that it can be manipulated. "People should be very cautious," said Nell Minow, partner in Lens Inc., an activist money manager based in Washington. "Just like every place else on the Internet, there are people very excited to use the Internet to take advantage."
Jack Arnold, president of Corporate Vision and the company's sole board member, contends that less-than-selfless motives are behind the legal action against his company. "One shareholder can have a hidden agenda," Mr. Arnold said. "He can have an idea of what he would like to do. He can go to the Internet and try and block the deal."
Reform legislation passed in 1995 to reduce "meritless" class-action securities fraud lawsuits toughened provisions and standards for plaintiffs. Although a provision in the legislation requires a "lead plaintiff," initially intended to get law firms to find an institutional investor to lead the legal fight, some firms have taken to using the Web to recruit dozens of small investors and lump them together, Mr. McGurn said. "They can look like grass-roots movements," she added, "but they can be orchestrated by someone in a law firm." |
