Spugs future is looking dimmer each day. The continued surveilance of the message boards has sent many of the touters to the underground where they are not quite as effective, thankfully.
The History of Silicon Investor
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To: +Josef Svejk (607 )
From: +Jeffrey S. Mitchell
Monday, Feb 22 1999 1:24PM ET
Reply # of 610
Stemming the Tide of Touts on Stock Message Boards
By MICHELLE LEDER
<snip>
As stock message boards grow in popularity -- well over 30,000 messages are posted
on the four largest boards on a typical day -- pressure is mounting on several fronts to
rid the boards of people who use them to illegally tout stocks and spread false
information.
The Securities and Exchange Commission has defined such touting as lying about
companies, lying about one's independence from a company or failing to adequately
disclose the nature, source and amount of compensation one receives from a company.
<snip>
He is not alone in such concerns. To track down flagrant abusers of the message
boards, the SEC is increasing the number of subpoenas it issues to board operators,
allowing it to try to tie a posting to an e-mail address. Though the commission declined
to say how many subpoenas it was issuing, board operators say that they have become
much more frequent and that the SEC is requiring a quicker response.
Companies fearing possible stock manipulation have raised their own complaints with
securities regulators and board operators. But executives at the four largest boards --
Yahoo Finance, Silicon Investor, the Motley Fool and the Raging Bull -- worry that in
the frenzy to eliminate abuse, legitimate investors will face restrictions on what they can
say on the boards.
"Anyone who looks at the boards knows that there's some manipulation involved," said
Ethan Caldwell, the general counsel for Go2net Inc., the Seattle-based parent of Silicon
Investor, whose boards average 15,000 postings a day. "It's a double-edged sword,
because the boards are a unique medium where the average investor can find out
information. The flip side is that the stocks are subject to manipulation."
But distinguishing between manipulation and the innocuous musings of an enthusiastic
investor can be difficult. Though rules vary from board to board, few messages are ever
removed.
In fact, of the four largest board providers, only the Motley Fool even monitors its
boards, never mind screen them for accuracy, which all four regard as impossible.
Instead, the board providers rely heavily on self-policing, with participants complaining
to the board operator and the SEC when they think someone is trying to manipulate a
stock.
<snip>
Much of the problem lies in the anonymity provided by the message boards. With little
effort, people can create several identities on the boards and keep changing their names,
often bouncing from board to board. If someone is suspected of manipulating a stock on
a board, the SEC can issue subpoenas, but even if it can obtain a user's real e-mail
address, investigators must still match the user's postings to sales activity.
"Once they get a cheap stock, they have to manipulate it, and the best way to
manipulate it is to quickly spread false information," said Richard H. Walker, director of
enforcement at the commission, describing its Internet surveillance as "one of the highest
priorities." During a single day in October, in its first sweep in this area, the commission
filed 23 enforcement actions against 44 individuals accused of touting stocks.
A spokesman for the SEC said the commission would also investigate message-board
users who spread negative rumors.
Enforcement actions can include formal charges, fines and bans on future trading. The
SEC can sue in federal court or bring an administrative proceeding; in either case, the
accused can mount a defense.
After the October action, complaints to the SEC about message-board activity rose
from about 120 a day to as many as 400, then receded to about 200 to 300. About
120 investigators actively surf the Internet, looking for abuse on the message boards,
Walker said.
The SEC and most companies tend to ignore so-called chat rooms -- which can also be
filled with rumors -- because the real-time talk on such sites is quickly erased. "We
consider the worst threat the posting on the bulletin boards, because it stays up there
virtually forever," said Michael D. Allison, chief executive of International Business
Research in Princeton, N.J., a corporate investigations firm.
<snip>
Some companies try to press their cases with the SEC John Stark, director of Internet
enforcement for the commission, said the number of calls from corporate
investor-relations officials about message boards has gone from several a month to
several a day. Some companies appeal directly to the message boards, though they are
rarely successful.
"We get a ton of requests from corporate officers and even corporate counsel to
remove messages," said Caldwell of Go2Net. "And we tell them in as nice a way as we
can that we have no way of knowing if the information is true."
<snip>
Full link: search.nytimes.com.
- Jeff
P.S. I left a bunch of stuff out for copyright reasons. It's well worth reading the actual
article.
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