A reason to always go to the source and not rely on a stranger's 'links' (The most disturbing part of the story is that a money manager in Boston actually uses Yahoo! message boards for his DD):
False Buyout News on Internet Sends PairGain Shares Soaring
By MARK MAREMONT
Staff Reporter of THE WALL STREET JOURNAL
In the age of the Internet, financial-news hoaxes aren't what they used to
be.
They're more elaborate.
At 9:27 EDT Wednesday morning, investors scanning Yahoo! Inc.'s
finance message boards were jolted by a posting headlined, "BUYOUT
NEWS," announcing that PairGain Technologies Inc. had agreed to be
acquired.
"Just found it on Bloomberg" -- the provider of news and financial data --
the message read, helpfully providing an electronic link to what appeared
to be a news article on a Web site identified as Bloomberg.com. The
detailed article said PairGain, a Tustin, Calif., maker of communications
gear, had agreed to be acquired by Israel's ECI Telecom Ltd. in a deal
valued at as much as $1.35 billion. PairGain's shares took off on heavy
volume on the Nasdaq Stock Market, and rose 32% at one point to
$11.125.
Shortly thereafter, when investors
began to learn that the "news article"
was bogus, the stock fell, closing at
$9.375, still up 10% for the day, on
volume of 13.7 million shares, up
from the stock's daily average of 2.1
million. Bloomberg News, which is
owned by Bloomberg LP, put out a
news story in late morning saying
that it had run no such article on its
newswire, and both companies later
denied there was any such deal.
What made the hoax so convincing
is that the page that purported to
contain the Bloomberg article was so authentic-looking that it included
working electronic links to real Bloomberg News pages, a banner
advertisement, and a color background that exactly matched the one that
viewers of Bloomberg's "Top Financial News" site normally see.
The hoax "was masterfully done," says Charles W. McBrayer, PairGain's
chief financial officer. Aside from some subtle clues, he added, "You'd
swear on your mother it was a Bloomberg Web site."
Indeed, one Boston money manager, who asked not to be named, says he
purchased the stock on the strength of the initial Yahoo posting, but only
after "verifying" it by clicking over to the bogus Bloomberg site.
The fictitious news story may be the most sophisticated example yet of
investors being duped by false or misleading postings on the Internet. In
most prior cases, however, the misleading messages were contained in
ordinary postings on the Internet bulletin boards or in chat-room
discussions. Duncan King, a spokesman for the Securities and Exchange
Commission, says he isn't aware of another case involving a completely
fictitious Web page mirroring a news site.
A Bloomberg spokeswoman declined to comment beyond the company's
own news articles, which had said "Bloomberg News didn't write the story
and it never appeared on Bloomberg's site." Asked about the fake Web
page, the Bloomberg spokeswoman said: "They obviously copied our
Web page. It's not hard to do."
The SEC spokesman wouldn't comment on whether the agency is
investigating this particular incident.
The incident highlights how cheaply and easily programmers can pull off
Internet hoaxes using widely available technology and the anonymity
afforded by the online world. "In the old days you would have had to put
out a mockup of The Wall Street Journal," says the SEC's Mr. King.
"Now there is definitely technology out there that makes it easy for
fraudsters to make believable-looking announcements." The SEC has
repeatedly warned investors not to trade securities based on Internet
postings made by anonymous people.
In the case of the PairGain hoax, the first bogus posting on the Yahoo!
Finance site was made by someone using the screen name "staceyITN."
Twelve minutes later, "LReynolds54" posted a portion of the fake release
on the message board.
Just after 10 a.m., another message-board participant called the story
"bull," doubts echoed by others soon after. At 11:40 a.m., Bloomberg
itself labeled the story a hoax, and PairGain finally put out a news release
denying it at 1:58 p.m.
Mr. McBrayer, PairGain's finance chief, says he assumes the hoax was
perpetrated by somebody who bought stock the prior night, and sold it
soon after the fake announcement. "If you're going to go to this much
trouble, you might as well make money on it," he says. PairGain has
contacted both the SEC and Nasdaq regulators, Mr. McBrayer adds.
Investors could be forgiven for being fooled. To the untrained eye, the fake
Bloomberg news story looked like the real thing, even including the names
of real executives and authentic-sounding technojargon common in such
stories. Mr. McBrayer says rumors about the Israeli firm buying PairGain
have circulated for two years, making the report that much more credible.
But there were several subtle flaws in the hoax. The story didn't contain a
per-share purchase price. It also concluded with "safe harbor" language
used by companies to protect themselves against lawsuits, which is typical
of corporate press releases but not of Bloomberg News articles. In
addition, one of the many electronic links on the fake Web page took the
viewer to the Lycos Inc. site on which the page was created, not to a real
Bloomberg site.
A Lycos spokesman confirms that the fake Bloomberg page was created
on its Angelfire service, and says Lycos removed the Web page
Wednesday morning after being contacted by a Bloomberg attorney. The
Lycos spokesman wouldn't reveal the name of the person listed as the
purported creator of the page because of its privacy policies, and says it's
possible the perpetrator provided a false name. He says his firm would
cooperate with regulators if asked.
Mike Riley, senior producer of Yahoo! Finance, says his company isn't
responsible for postings on its message boards, which he calls "an
unmoderated forum" for users to exchange information. He says Yahoo
doesn't encourage people to trade solely on message-board information,
noting that the company provides other tools for investors to use, including
stock quotes and news feeds.
Nevertheless, he says impersonating a news organization does violate
Yahoo's policies, and that Yahoo removed at least one of the bogus
messages Wednesday.
On the Internet, he adds, "at some point it's buyer beware. People have to
be smart enough not to trade on anonymous postings." |
