Brokerage files Net defamation suit
By Bloomberg News
Special to CNET News.com
May 20, 1999, 1:10 p.m. PT
WASHINGTON--The M.H. Meyerson brokerage is suing several Internet users on allegations they posted defamatory messages about the company in an attempt to drive down its stock.
The messages, by unnamed individuals using aliases such as "TheDaytrader2000" and "j454545j," accused the brokerage's chief executive, Martin H. Meyerson, of stock manipulation, inside trading, and money laundering, copies of the Internet messages show. The suit also names Yahoo, alleging the top Internet search service failed to remove offensive messages from one of its message boards when asked to do so.
The Securities and Exchange Commission wouldn't comment on Meyerson's allegations, though the agency is investigating other similar allegations of possible stock manipulation by users of Internet chat rooms and message boards, said John Reed Stark, head of the SEC's Internet enforcement unit.
"Anytime you spread false information on the Internet, driving the stock up or down, it raises serious questions of possible market manipulation," Stark said in an interview.
An increasing number of companies have been complaining to the SEC about allegedly false Internet messages, Stark said. QUOTE SNAPSHOT
Perhaps the only other company suit alleging defamatory Internet messages was filed by Presstek, a printing-equipment maker, in September 1997, he said. That complaint was settled in February 1998.
The suit by Meyerson, a 130-broker firm based in Jersey City, New Jersey, alleges that as many as seven of the accused Internet users were short-sellers, or investors who use borrowed stock to bet that a security will fall. Short-sellers, competitors, and disgruntled employees can benefit from a stock's decline, while investors and promoters can profit from its rise.
The suit, filed in New Jersey state court in Hackensack, alleges that the unidentified Internet users defamed the company with their messages between February 1 and March 12. It also accuses them of breaking their contract with Yahoo by harassing Meyerson.
Using a Yahoo message board about the brokerage, Internet user j454545j wrote, "Hellooo Marty!!!! Nice pump and dump operation you got working"; TheDaytrader2000 wrote, "MHMY [Meyerson's ticker symbol] a freaking scam!!! Money laundering scums!"; and Zzz138 wrote, "I will cautiously short this stock."
The complaint, filed in March, could spur other companies to file complaints against Internet users who spread false information, said Louis Thompson, president of the National Investor Relations Institute.
"The smaller-cap companies especially have been agonizing over this," said Thompson, whose group consists of investor-relations officers with more than 2,000 publicly traded companies. "The most effective deterrent is for people to realize they can't hide on the Internet."
Meyerson has identified some of the Internet users after issuing subpoenas to America Online and other Internet service providers, said Meyerson attorney Edward Tishelman, a partner with Hartman & Craven in New York. The firm intends to name the users in future court filings, he said.
Seesawing stock
Meyerson's stock, which closed at 3.44 on February 1, rose to as much as 21.88 on February 4 after the company issued a press release saying it intended to start offering Internet brokerage services, possibly by the end of the year. It fell to as low as 4.5 on March 5 amid the Internet message traffic that's at issue in the suit. The company's shares fell 0.19 to 8.06 in trading today.
CEO Meyerson said in a court filing that he sold hundreds of thousands of his own company shares after the stock rose the week of February 1.
"Those sales were to diversify the percentage of our net worth, which was tied to the value of our stock," Meyerson said in the court document. "We were not manipulating the upward and downward movement of the stock price of shares of M.H. Meyerson."
The Meyerson firm had $240,000 in net income in the fiscal year ended in January on revenue of $33.9 million.
A Yahoo spokeswoman said the company wasn't aware of the suit and typically doesn't comment on such complaints.
"We don't monitor all of the message board traffic," said Yahoo spokeswoman Diane Hunt. "It would be impossible to. We try to cooperate when we're contacted."
Who's to blame?
Yahoo is unlikely to be found liable for messages on its sites, because Internet services were given protection from some suits in a 1996 federal law and have won support in the courts, said Ethan Caldwell, general counsel of Go2Net, which owns the Silicon Investor message board site.
"I would be surprised if Yahoo is named for anything other than identification purposes," Caldwell said.
The accused Internet users can defend themselves by arguing the messages were true, said Charles R. Merrill, an Internet law expert with the McCarter & English law firm in Newark, New Jersey. They also are likely to respond that Meyerson could have responded to the messages on the Internet if the firm thought they were inaccurate, he said.
Meyerson will have to show that its reputation or company has been damaged by slanderous Internet messages, Merrill said. It also will have to demonstrate that the Internet users at issue borrowed the firm's stock at the time they were posting the questionable messages and thus had a financial interest in seeing it go down, he said.
The SEC has charged 83 companies and individuals with Internet securities fraud in three crackdowns since October. Most recently the agency announced May 12 that it was filing 14 cases alleging that firms or individuals made outrageous profit promises to investors about securities being sold through the Internet.
Copyright 1999, Bloomberg L.P. All Rights Reserved.
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- Jeff
P.S. Normally I try not to post entire articles, but I found the whole thing "on target", so, thanks in advance to Bloomberg for being cool about that (gg). |
