Sick of rumormongers, South Florida companies fight back online, in court
Published Sunday, March 21, 1999, in the Miami Herald
BEA GARCIA
"Since last October, the SEC has been targeting Internet stock ''touts,'' or promoters, who pump up the value of a stock, but don't disclose that they are being paid to promote the shares. Touting, by itself, isn't illegal, but any compensation, whether it's cash or shares, received for promoting a stock must be disclosed."
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For individual investors, the Internet provides access to a trove of information -- stock quotes, company documents filed with state and federal regulators, analytical research and databases with news and press releases.
But there is also a wealth of misinformation online.
Cruise the message boards on Yahoo! or The Motley Fool and you can find off-color remarks about a company executive or statements clearly meant to drive up or blast a company's stock price. The online messages are signed by such folks as ''Viper,'' ''Ice,'' ''Mr. Pink,'' ''GotBurned2'' or ''Delusional5.'' The names alone should set off the alarm bells.
Sure, seasoned investors could be savvy enough to differentiate between a thinly veiled come-on for a scam and a serious discussion of a company and its products. But novice investors are definitely at a disadvantage.
Among the most vexed by the proliferation of online rantings and ravings are company executives and their investor relations staffers.
Last week, the South Florida chapter of the National Investor Relations Institute held a meeting to help members come to grips with this problem. The title for the evening's session was a good indication of just how frustrated these folks feel: ''Nasty Rumors and Gossip: How to Counteract the Nuts of the Internet.''
During Miami Subs' search for a merger partner, which was disclosed publicly, its president Don Perlyn told the NIRI group that the company was a prime target for online rumormongers.
''Let's see what the yahoos have to say this morning'' became his daily refrain. After he read the postings, his blood would boil.
''It's illegal to shout 'fire' in a movie theater. Yet, anyone can go on the Internet and yell 'Sell, sell, sell,' '' Perlyn says. ''Doing business legitimately isn't enough anymore. Now you have to watch your back.''
Perlyn chose not to jump online to counter the rumors and misstatements. He thinks company information should be broadly distributed, where it has a chance to reach as many shareholders as possible.
But other firms have chosen to fight back.
Glenn Canary, director of investor relations for Claire's Stores in Pembroke Pines, said he has gone online twice to correct statements ''that were so absurd'' he couldn't resist.
James Alexander, who started Ewatch with this brother in 1994 to troll the Web for corporate scuttlebutt, warned the investor relations professionals gathered at the Riverside Inn in Fort Lauderdale last week that responding to online gossips gives ''instant credibility.''
However, a response lets the online community know a company is monitoring what is said about it in cyberspace. ''You can use the Net to create a dialogue with your customers and shareholders.''
Some angry companies are going to court. We're seeing a proliferation of ''John Doe'' lawsuits around the country. One was filed by Technical Chemicals & Products in Fort Lauderdale last week.
Companies can pinpoint the lies and rumors online. But because the postings are almost always anonymous, the suits are demanding that Web hosts such as Yahoo! reveal the identify of the folks in chat rooms and on message boards who are posting the misleading statements.
Alexander pointed out that various courts have already ruled that online services such as Yahoo!, Prodigy and America Online aren't responsible for the information posted on their Web sites. These online services, the court decided, are like the telephone companies -- they just carry the messages.
Trying to suppress the ''Mr. Pinks'' and ''Vipers'' of the Web is keeping the Securities and Exchange Commission's CyberForce unit of 125 extremely busy these days. This group does nothing but troll the Internet for online investment fraud.
Last month, the agency charged nine people and four companies, alleging they ran scams that deceived investors around the world by fraudulently promoting stocks using Internet junk mail, online newsletters, message board postings and various Web sites.
The SEC charged that the people involved, including one current and two former stockbrokers, promoted more than 56 publicly traded companies and received more than $450,000 for their services. However, they never disclosed that they were paid to promote these companies, which were mostly small with low-priced, thinly traded stocks.
Since last October, the SEC has been targeting Internet stock ''touts,'' or promoters, who pump up the value of a stock, but don't disclose that they are being paid to promote the shares. Touting, by itself, isn't illegal, but any compensation, whether it's cash or shares, received for promoting a stock must be disclosed.
However, promoting a stock for a fee is exactly what Gerard Jennings does. He bills his Lantana company, Emerson Gerard Associates, as doing target marketing the online investors. Says so right on his business card.
He goes online and posts information about a client and its products, usually using a condensed version of a press release or data taken from the company's Web site. Jennings says he discloses that he is working for the company and is being paid.
The morale here for investors and companies alike is be wary.
If a salesman came to your door, called himself Mr. Pink, and told you about a great stock, would you run out and buy it?
Probably not.
So why pay attention and follow his lead if he is posting on an Internet bulletin board?
TIPS ON AVOIDING ONLINE
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Several pages on the Securities and Exchange Commission's Web site provide excellent information for investors about online fraud as well as tips on how to stop it and hopefully avoid it.
The SEC advises investors to look for these telltales signs of online investment fraud:
Be wary of promises of quick profits, offers to share ''inside'' information, and pressure to invest before you have an opportunity to investigate.
Be careful of promoters who use ''aliases.'' Pseudonyms are common online, and some salespeople will to try to hide their true identity. Look for other promotions by the same person.
Words like ''guarantee,'' ''high return,'' ''limited offer,'' or ''as safe as a C.D.'' may be a red flag. No financial investment is ''risk free'' and a high rate of return means greater risk.
Watch out for offshore scams and investment opportunities in other countries. When you send your money abroad, and something goes wrong, it's more difficult to find out what happened and to locate your money.
If a company is not registered or has not filed a ''Form D'' with the SEC, call your state securities regulator.
Remember, if it sounds too good to be true, it probably is!
Find out more on www.sec.gov/consumer/cyberfr.htm.
SOURCE: SEC Web site (www.sec.gov/consumer/b-alert.htm)
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