"When It Comes to Promoters, Boards Say,'Reader Beware' THE WALL STREET JOURNAL INTERACTIVE EDITION"
By JASON ANDERS On-line discussion forums are coming under pressure from their users to rein in the hype that fills some message boards, especially postings that come from paid stock promoters.
Some discussion forums have responded by hiring patrols to keep an eye out for stock promoters, who have been hired by companies to create a buzz about their stocks, on-line and off. Other sites prohibit users from discussing the most speculative stocks where the problem is most prevalent. But for the most
part, message boards say, it's reader beware.
"We advise people to always do their own research and not believe things
they read on the boards," says Jill McKinney, Webmaster for Silicon
Investor (www.techstocks.com), one of the most popular on-line
discussion forums. "I think our users are intelligent enough to figure out
what to believe."
Silicon Investor won't take any action against
Daryn Fleming, a message-board participant
who is president of Wall Street West and
whose posts were the subject of a recent
Heard on the Net column. Ms. McKinney
says Mr. Fleming's postings are the first
Silicon Investor has had to deal with where it
appeared a user was paid to promote stocks.
Wall Street West issues research reports and "buy" recommendations on
companies, and promotes them on its Web site (www.wallstreetwest.com)
in exchange for compensation. Mr. Fleming promoted several of Wall
Street West's clients in Silicon Investor message boards, but didn't reveal
that his company was being paid to promote the stocks, and only
occasionally mentioned his affiliation with Wall Street West. He says he
made the posts as a private investor, and not on behalf of the companies
or Wall Street West.
In a post made late last week, Mr. Fleming wrote that he expected his
Silicon Investor account would be deleted, and the messages he posted
would be removed. But Silicon Investor says being a paid stock promoter
isn't against its rules.
"Paid promoters on TV and in newspapers, magazines and radio are no
better or worse than paid promoters on Silicon Investor," says Ms.
McKinney. "The difference is paid promoters on SI can be challenged.
The truth comes out in discussion forums, making forums the best medium
for the discourse of investment knowledge and wisdom."
Mr. Fleming, who has stopped posting messages on Silicon Investor,
declines to comment.
Users of Silicon Investor and other discussion forums have long
complained that paid promoters have been flooding some message boards
with hype.
"In the past year, I've noticed the hype has gotten really bad," says Colin
Cody, a message board participant who has been a member of Silicon
Investor since 1996. "You hear rumors all the time that certain people are
being paid to promote a stock. I think it's really difficult for a new user on
the boards. He doesn't know who to believe. If he jumps in too quickly
and doesn't do enough reading, he could get burned."
Silicon Investor, which hired a person full-time earlier this year to monitor
its discussions, says most of the complaints it gets from users are related to
message boards dedicated to stocks traded on the OTC Bulletin Board.
Many of these stocks are so-called microcaps, which typically have small
public floats of available shares and low share prices -- two things that
make them particularly vulnerable to someone looking to manipulate the
price of the stock. Such companies also are more likely to turn to a paid
stock promoter for exposure than are larger, more established companies.
Keeping paid promoters away from message
boards is nearly impossible, say those who
run the boards, because such users never
advertise the fact that they are paid to hype
stocks.
Still, the U.S. Securities and Exchange Commission says the laws
governing paid promoters still apply when those promoters venture into
on-line message boards and chat rooms. The SEC requires stock
promoters to disclose whether or not they are being paid, how much they
received and who they received it from.
"If someone is being paid to promote a company, the rules still apply when
they tout it on a street corner or a message board," says John Stark, the
SEC's special counsel for Internet projects. "In my opinion, every message
a promoter posts would have to include a disclaimer. It would have to be
clear to anyone reading that message that this was a paid promoter."
Many message board participants on the subscriber-based Silicon
Investor are critical of Yahoo! Finance (quote.yahoo.com), a free site
where it is easy to post messages under multiple anonymous usernames.
Like other forums, Yahoo says the high volume of messages posted each
day (it declines to release statistics) prevent it from monitoring everything
that is posted.
Still, the service has taken steps to clean up its on-line chatter. The site
recently removed all message boards it had created for OTC Bulletin
Board stocks. (Message board participants are still allowed to create
boards to discuss such stocks.) Yahoo hasn't had a case yet involving a
known stock promoter, but says it has rules barring such users.
"You can't post or transmit any form of advertising or solicitation, so being
paid to promote a stock wouldn't be allowed," says Michael Riley,
producer for Yahoo Finance.
After receiving complaints from users, Yahoo yanked some advertising off
its site and changed its guidelines. The site no longer accepts advertising
from companies that receive compensation in exchange for recommending
a stock. Other popular on-line sites say they don't have specific rules
about such ads. Silicon Investor has advertisements for Stock Genie
(www.stockgenie.com) and Stellar Stocks (www.stellarstocks.com), two
Web sites that promote stocks in exchange for compensation. Raging Bull
(www.ragingbull.com), a relatively new on-line discussion forum, says it
doesn't have any rules against accepting such ads.
It's unclear just how many paid stock
promoters populate message boards, but
discussion forum operators say the number is
probably far lower than users suspect. "There
is a popular conspiracy theory that anyone
who disagrees with you in a message board is
being paid to disagree with you. That's
absurd," says David Forrest, community
coordinator for Motley Fool (www.motleyfool.com), another popular
on-line investing site.
Motley Fool is taking one of the most aggressive approaches in battling
on-line hype. Twenty full-time "community strollers" patrol Motley Fool's
message boards on America Online and the World Wide Web (the two
systems are separate), looking for hypesters and rule violators.
"There is a difference between a paid promoter and an enthusiastic share
holder," Mr. Forrest says. "There's nothing wrong with being excited about
a stock. But if you're being paid to promote a stock, you're not really
contributing anything valuable to the discussion."
Mr. Forrest says Motley Fool hasn't had a case yet where it was clear
someone was being paid to post messages about a company, and he
attributes that to the work of the monitors.
"Our strollers also play devil's advocate. If someone is posting a lot of
really positive things about a company that appear suspect, one of the
strollers will post a message and ask specific questions. We get rid of a lot
of hype that way," says Mr. Forrest. Motley Fool also features "bad post"
buttons that make it easy for users to report posts that they find suspicious
or offensive. Mr. Forrest says all reports are investigated.
Motley Fool says its patrols allow it to control content better than some of
the other popular message boards. But Motley Fool only receives about
5,000 posts a day on its two message board systems -- well under the
12,000 a day Silicon Investor receives.
Motley Fool also doesn't allow discussion of stocks traded on the OTC
Bulletin Board -- a policy that Mr. Forrest says has "saved us headaches."
"Basically where at all possible, we want to avoid any appearance of
impropriety," he says. "Still, with so many messages there's only so much
anyone can do."
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