Electronic bulletin boards carry corporate criticism
By Stacey Hartmann / Tennessean Staff Writer
Every so often, Bob Murray, vice president of communications for MagneTek Inc., checks on what the "gadflies" are saying on the Yahoo! message board dedicated to his company.
He characterizes most of what he reads there as "wild speculation." But he realizes the succession of messages on the unauthorized board represents a virtual conversation about the company -- one he doesn't want to ignore completely.
"It's a policy of MagneTek not to comment on rumors, so I don't respond to that type of material," said Murray, who occasionally responds to postings. "But a publicly traded company must conduct much of its business in the public light."
For Nashville-based MagneTek and other publicly trading companies, electronic message boards -- the virtual corkboards where individuals can post messages with anonymity -- pose new business and legal problems.
For example, Nashville-based restaurant company Shoney's Inc. recently became so concerned about postings on a Yahoo! message board dedicated to discussion of the company, it filed a lawsuit this month seeking the identities of three anonymous posters. It claims the posters' statements on the board, which has no connection to the company, were damaging.
Other cases are turning up nationally, including one in which Oregon-based barter club ITEX Corp. is seeking the identities of "John Does 1-100." Similar cases have been filed by Philip Services Corp., Raytheon Co. and Wade Cook Financial Corp.
The court battles pit free-speech rights in the Internet era against the rights of people and companies not to be unlawfully disparaged, especially with anonymity.
"You start from a context of two legitimate, yet sometimes irreconcilable competitive interests," said Robert E. Boston, a member of Waller Lansden Dortch & Davis. He manages the Nashville law firm's dispute resolution practice.
"The law requires a public company to disclose certain things, but not everything," he said.
But disgruntled people who want to exercise "not just their right to free speech, but their right to vent, will sometimes go too far," he added.
Yahoo! time
One of the more popular providers of message boards on public companies, Yahoo! emphasizes that the purpose of its boards, which have no connection to their subject companies, is to provide a place for opinions and comments. It allows those remarks to be posted anonymously.
Included in Yahoo! Web pages is an outline of rules and guidelines connected to the message boards. They prohibit defamation, vulgarity, threats and impersonation. They also admonish participants not to rely on the information, and Yahoo! makes no guarantee of confidentiality.
Even with the disclaimers, participants are flocking to the sites and, in some cases, contributing to often acrimonious free-for-alls.
While it's hard to characterize the people behind the postings, the boards are generally made up of investor types. Often they are "day traders," the people who ride stock gains and losses by the minute and turn over holdings rapidly to generate portfolio gains.
While many messages appear to be informative, others are mundane, senseless and time consuming.
Some participants expend much of their energy attacking other posters, sometimes using child-like arguments or foul language. Others champion the remarks of certain posters as reliable and valid.
Boston of Waller Lansden notes that his firm is now involved in two "John Doe" lawsuits brought by local public companies, although Shoney's is not one of them. He would not identify the clients, who filed in other jurisdictions.
"A company founder or a company CEO ... can be maligned to the point you will not recognize the person," Boston said. "I simply think that's unfair."
'John Doe' responds
Les French, an Oregon businessman identified as "John Doe No. 3" in the ITEX lawsuit, is counter-suing the company, alleging it went beyond protecting legitimate business interests to invade the privacy of those who created messages.
"I believe, as many of us believe, there were serious problems relating to their management," said French, an ITEX shareholder and former ITEX vice president.
"I've alleged publicly some pretty serious charges against them, including financial fraud," he said in an interview.
French, an Internet user since the mid-1980s and a frequent message-board participant, believes the cyberbulletins are a tremendous way for investors to get and share information.
It's up to the reader "to figure out what's right and what's not necessarily straight forward," he said. "But I think the key is people have to have that right."
French said he believes one of the purposes of ITEX's lawsuit was to "chill" conversation on its message board.
Already, the Shoney's court action appears, in at least one case, to have had that effect.
One of the John Does, who signs messages "truthdet," responded shortly after the filing of the suit with a message, saying: "You have gotten my attention. I hope I have gotten yours. ... This is my last post."
Companies wary
Kent Lillie, top executive at Nashville-based Shop At Home, believes problems on the message boards could be remedied if their administrators took it upon themselves to prohibit anonymous posts.
"I believe that this would return credibility and responsibility to Internet message boards," Lillie said.
An extreme solution might be regulation through legislative measures, Lillie said.
The U.S. Securities and Exchange Commission, which regulates the securities industry, is getting more involved in policing Internet fraud, which includes sham offerings and market manipulation through "cybersmears" or "illegal touting" of stocks.
Last July, the SEC formed an Office of Internet Enforcement. Three months later, it announced its first nationwide Internet fraud sweep, filing 23 enforcement actions against 44 defendants.
This past week, the SEC filed a complaint in federal court against Gary D. Hoke Jr. of Raleigh, N.C., alleging Hoke disseminated fraudulent statements concerning PairGain Technologies Inc. It claims that Hoke, under an assumed name, posted a message on a Web page falsely reporting that PairGain was being bought by an Israeli company.
With the Internet's ability to disseminate information faster than ever, corporate communications directors are finding it increasingly important to monitor the electronic avenues of information, including the message boards.
The boards of Internet-related companies tend to be especially active.
Shop At Home, a television and online shopping company, has averaged 70 postings a day on its board, which became active in late 1997.
Such volume is impossible to monitor closely, but Dawn Woods, the company's director of communications, said the lists are periodicly read over "to give us a feel for what investors are thinking."
But, she said, "I would advise anybody who is looking for information on a company from an investment perspective to be wary of those boards."
Murray of Magnetek, a manufacturer of electrical equipment, agrees. In the 15 months since the board on Magnetek became active, Murray has stepped in on a few occasions to correct misinformation.
Unlike most posters, he identifies himself.
Virtual gathering
When information about a troubled company is sparse, the boards can become a popular meeting place for affected parties.
Take Service Merchandise Co. Inc.
The Brentwood-based retail company has seen a tenfold increase in message frequency on its Yahoo! board since December, when concern grew over its financial stability.
Since then, as the company has cut jobs, closed stores, changed management and entered a bankruptcy reorganization, the board has become loaded with postings.
"We generally keep up with it and will read it from time to time," said C. Steven Moore, the company's general counsel and chief administrative officer. "But we don't have anybody whose job it is to monitor it very closely."
Moore is not extremely concerned about the Service Merchandise board, believing the unreliability of the information diminishes its importance. So far, the board has not raised any legal concerns.
"I want to make sure whatever is being posted out there does not include releasing nonpublic, material information, or anything that would affect or threaten an associate's safety," he said.
"Other than that, I think people pretty much have a right to talk as they see fit."
No substitute for research
A variety of Web sites provide message boards about public companies.
Those sites include Motley Fool at www.fool.com, Yahoo! at quote.yahoo.com and Silicon Investor at www.siliconinvestor.com.
Of those, the Yahoo! message boards are thought to be some of the most active when it comes to to publicly traded companies.
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