Re: 7/13/00 - [IFMX] Informix Goes After Source Of Leak on Message Board
July 13, 2000
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Informix Goes After Source
Of Leak on Message Board
By AARON ELSTEIN
WSJ.COM
Informix is suing an anonymous message-board poster for leaking sensitive information about the company's financial outlook days before it warned investors that second-quarter earnings would fall short of expectations.
The software maker, struggling since 1997 to recover from an accounting debacle, says it believes that a "current or former employee" posted the remarks on a Yahoo! Finance message board. The posting said the company "will fall short" of projections, though it didn't specify which projections or by how much the company would miss them.
Informix, Menlo Park, Calif., seeks unspecified damages in a suit filed June 30 in California Superior Court in San Mateo County. It alleges the poster violated an agreement that requires employees to protect confidential information.
"We are not concerned with whether the message is accurate or not," says Informix's attorney, Daniel Bergeson. "We are concerned that a breach of contract appears to have occurred."
Though message boards are infamous sources of hoaxes and false information about companies, occasionally a nugget of accuracy emerges. In May, for example, a poster on Yahoo said that Arrowpoint Communications would sell to Cisco Systems for $135 a share the evening before the deal was announced at exactly that price.
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To guard against the dissemination of false information or leaks of accurate, confidential information, "Large companies have become more vigilant monitoring message boards and seeking to identify the posters," says Michael Allison, chief executive of Internet Crimes Group, a Princeton, N.J., firm that monitors message-board activity for companies and law firms.
But some call these file-and-seek expeditions troubling. "Larger companies are showing a disturbing trend to file frivolous suits to uncover their critics," says Megan E. Gray, a Los Angeles lawyer who has defended many parties in these so-called cybersmear suits.
Mr. Bergeson, the Informix attorney, says the firm has subpoenaed Yahoo to request that the Santa Clara, Calif., company turn over information that would identify the anonymous poster. A spokeswoman at Yahoo declined to comment, except to say that Yahoo's policy is to notify a poster about a subpoena 15 days before turning over any information.
The anonymous message about Informix's future, posted June 27, proved prescient. On July 3, Informix warned that it expected to fall short of analysts' earnings estimates for the second quarter, triggering a 37% decline in Informix shares that day. On Wednesday, its shares closed up 3/16 to 4 7/16 on the Nasdaq Stock Market.
The company said in its July 3 announcement that it expected to report net income of one to three cents a share for the second quarter, well below consensus estimates of 12 cents a share. It also said that it expected revenues of $240 million to $250 million. Analysts had anticipated revenues of around $285 million.
It was the second difficult quarter in a row for Informix, which was forced by its accountants in 1997 to change the way it recognized revenue from software sales. That led the company to restate earnings for 14 consecutive quarters from 1994 through the second quarter of 1997.
This January, the Securities and Exchange Commission, which investigated Informix's accounting practices, determined the company had overstated revenue by $295 million and inflated earnings by $244 million between 1994 and the first quarter of 1997, and its former employees had violated federal antifraud laws. The company settled without admitting or denying the SEC's findings.
It cost the company $142 million to settle the shareholder suits that ensued after the restatements.
The company posted a loss of $23 million, or eights cents a share, in the first quarter this year, but some analysts said they thought the company's outlook was improving, thanks to a new management team and a series of acquisitions. "Pieces are in place for an acceleration in revenues tied to new businesses," wrote an SG Cowen analyst in April, rating the stock a "buy."
Chase H&Q, which in an April report also rated the stock a "buy," observed that "total revenue [was] light," but that "shouldn't overshadow tangible progress on new products."
But the message-board poster, who referred to the company's stock-ticker when he identified himself in his message as "the voice of nonmanagement IFMX employees," presented a rather different picture in the June 27 message.
The poster said that the company "will fall short of the 290mm to 300mm they are projecting," apparently referring to the company's revenue outlook. The poster added that it is "Dexmier's pride that prevented him from guiding expectations lower," referring to Informix's president and chief executive, Jean-Ives Dexmier.
Write to Aaron Elstein at aaron.elstein@wsj.com.
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