By Joe Nickell
On August 5, 1997, a retired New York City cop named Riley G (his real name)
clicked into an obscure thread on the Silicon Investor Web site and posted a message.
In it, he alerted others of his ilk to "the possibilities here of making money." Market
makers, G asserted in a series of posts, had sold more shares of Olympus Ventures
than had been issued, and those who bought the remaining shares could sell them back
to the oversold brokers in what's known as a "short squeeze." For anyone confused by
the lingo, G made it plain: The stock, then trading for about two dimes per share, could
be driven up to US$400 to $500 per share. The crowd went wild.
"I just bought 3,000 shares to show my support," wrote one visitor. "Yes, I'm crazy
too. We're all crazy. Now let's make some money and be even crazier." By December,
there were more than 30,000 posts to the thread, but by then the tenor of many of
these had changed. The Securities and Exchange Commission suspended trading of
Olympus stock (by then renamed Rocky Mountain International), and when the SEC
halt lifted 10 business days later, Rocky Mountain itself refused to allow trading to
resume. G's promise of easy money went unfulfilled.
"What the Silicon Investor people did was not good for our company," says Rocky
Mountain CEO Gary Morgan, who believes that shorters, frightened by the possibility
of being squeezed, set out to harm the company's reputation.
Though this tale may not be run of the mill, stories like it are not uncommon. The
convergence of equity markets and the Internet has inspired a bum rush, and, as online
investment and trading scams increase in frequency and subtlety, the gatekeepers of
stock discussions such as Silicon Investor and The Motley Fool find themselves
pressed to become traffic cops, even censors.
Back in the day (1995, say), the grifters were relatively easy to spot. In August of that
year, for instance, the SEC filed a complaint against Daniel Odulo, who was offering
bonds via newsgroups for an eel-farming company called Golden Waters. Odulo
promised a "whopping 20 percent rate of return"; the SEC pointed out that such a rate
would be difficult from a company that didn't exist.
Lately, however, even the cautious can be tricked. Touted by SGA Goldstar Research,
an online newsletter, Systems of Excellence seemed a legit operation offering
teleconferencing technology. But in January 1997, a Virginia federal court sentenced
Systems of Excellence CEO Charles Huttoe to a 46-month prison term and fined him
$10,000 for securities fraud.
Thanks to what remains of the 1996 Communications Decency Act, BBS moderators
and webmasters are not liable if they too get duped. Yet few trust in the CDA, and few
have forgotten Stratton Oakmont Inc. and Daniel Porush v. Prodigy Services Co.,
a 1995 case heard in the Supreme Court of New York. Prodigy was found
responsible for posts made to its Money Talk threads.
"Any organized community has to have rules and regulations that people abide by, and
ours is no different," says David Forrest, community coordinator at The Motley Fool.
"We're not responsible for what someone else posts," but, he adds, "when we see
things that violate our rules, we remove them." Forrest notes that The Motley Fool
employs a full-time staff of 20 to monitor content and remove anything inappropriate -
which, to The Motley Fool, even includes discussion of stocks that trade for less than
$5 a share. Silicon Investor now also keeps an electronic eye out for trouble. The
company tracks the whereabouts of "problem users" on the site.
Ultimately, more rigorous methods of filtering will be necessary for the Motley Fools of
the world to gain and keep the faith of investors - particularly the wealthiest and most
conservative traders. The challenge is how to do this without stifling the unfettered
debate and dish that makes online forums exciting.
"There's always a possibility of further problems," shrugs John Keister, chief operating
officer at go2net, which purchased Silicon Investor this spring, "but I guess that's what
insurance is for."
As for Riley G, when he's not maintaining his Psychic Detective Web presence, he's
keeping his eye on Rocky Mountain. Says G, "I'm in this for the long haul."
- Joe Nickell (j@rox.com) resides in a Montana basement, where he coproduces
Rox, the first online TV series.
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