What did MXNT pay for the retail furniture business that was not operating?
Anyone know anything about the business?
Where is it located?
Aug. 12, 1998
Investors Are Left Smarting
By 'Spammed' Stock Pick
By JASON ANDERS
THE WALL STREET JOURNAL INTERACTIVE EDITION
When Chris Johnson received an electronic-mail message on America Online promoting a new company called Maxnet Inc. as "the next Yahoo!" he thought it sounded too good to ignore. The stock was trading around $3 a share, but the e-mail quoted unnamed analysts who believed the stock could hit $50 a share.
Mr. Johnson, an insurance salesman in Gallatin, Tenn., immediately went on-line to do some research. He found a slick Web site at www.maxnet.com and descriptions of some products he thought looked promising. He also found an impressive client list that included Liz Claiborne, Norfolk Southern and Miami Children's Hospital.
The next day, he called his broker and bought 7,500 shares for $3.75 a share. "It looked like a great investment," he says. "And for a few days, it was."
But the company Mr. Johnson found on the Internet wasn't the one he bought stock in. And he wasn't alone.
Thousands of America Online users received the unsolicited e-mail message -- called spam in the on-line world -- promoting Maxnet Inc., a recently formed company based in Freehold, N.J., that is working on developing its only product, a Web site directory service called Webphonebook.com.
But the company that many investors believed they were buying into when they followed the spammed stock recommendation is actually Maxnet Systems Inc., a privately held network engineering company based in Dania, Fla., that often refers to itself simply as "Maxnet." It runs the Maxnet.com Web site, and says it has received 50 to 60 e-mail messages and phone calls from irate investors who were confused by the spam. Maxnet Systems continues to receive requests for investor information.
It's not clear how many people invested in Maxnet Inc. based on the e-mail tip, but the stock responded: In the three-day period that many investors say they received the e-mail tip, and subsequently bought the stock, trading volume increased to well over one million shares a day, from just 10,000 shares earlier. Maxnet's stock rocketed from around $1.50 a share to as high as $4.50 a share on the OTC Bulletin Board. But just one week after the e-mail was sent out, the stock had dropped below $1 a share. It was quoted late Tuesday at 63 cents a share.
The source of the e-mail -- like most spams -- couldn't be determined. Spams promoting stocks, and providing other types of advertisements, are common on America Online and elsewhere on the Net.
Izzy Goldreich, vice president of Maxnet Inc., says he wasn't aware of the e-mail message that the America Online users received, and says he hasn't received any complaints from investors. "My company has absolutely nothing to do with any bulk e-mails or spams of any kind," he says.
"I would be very surprised to find out that someone invested in our company based on an e-mail. I don't believe those people exist. Not in this day and age where everybody and their grandmother is so savvy," he says.
Confusion about the name Maxnet caused a stir between the two companies even before the e-mail incident. Officials at Maxnet Systems had warned Maxnet in the past about using its name. After the e-mail flap, Maxnet Systems filed a trademark infringement suit against the publicly traded company in federal court in Philadelphia.
The suit alleges Maxnet Inc. "committed acts of palming off and deceiving the public into believing that they were purchasing goods and services at or from [Maxnet Systems] when in fact it was the defendant that was providing the goods and services." The suit also alleges Maxnet Inc. uses the Maxnet name to "artificially and improperly bolster" its stock price. The suit doesn't mention
the e-mail.
Mr. Goldreich acknowledges that the company received a warning from Maxnet Systems to change its name several months ago, and says the company has been working on changing its name ever since. "You can't just wave a magic wand and change the name of your company," he says.
Henry Val, chief executive officer of Maxnet Inc., says the lawsuit was "nothing serious." He says that until the middle of last year, Maxnet did sell computer products and was in a business that could be viewed as similar to that of Maxnet Systems.
He says Maxnet is no longer in computer products sales, and earlier this year acquired two other companies that are the focus of its business: a furniture retailer and the Webphonebooks.com on-line directory service. Neither is operating yet or generating revenues, but Mr. Val says he expects Maxnet to have sales of $12 million to $15 million a year by the end of 1999.
Mr. Johnson, the Tennessee insurance salesman, says he was "completely shocked" to discover that Maxnet Systems Inc. wasn't a publicly traded company, and wasn't the company he had purchased stock in.
Mr. Johnson watched his investment steadily dwindle in value in the days after the e-mail announcement. When it became clear to him that the stock wasn't going anywhere near the $50 a share the spam had suggested, or even near the price he bought it at, he sold all of his shares for 59 cents each.
"For about four or five days I just couldn't sleep. My wife kept asking me what was wrong. I hadn't told her that I had bought the stock. It was hard telling her I took a $23,000 loss," he says.
Mr. Johnson says Maxnet was the first stock he ever bought based on an e-mail tip, and says it will certainly be the last. "I got had here. And I think somebody knew exactly what they were doing," he says.
Maxnet Systems says the confusion over the stock has damaged its reputation. "Anybody who lost money and thought they bought our company is certainly going to have a negative feeling about us," says Tom Dresser, CEO of Maxnet Systems. He says Maxnet Systems plans to go public in the next few years, and is worried that investors will be scared off by this incident.
Connie Ewing, a homemaker in Dayton, Ohio, purchased $10,000 worth of Maxnet stock the day after she received the Maxnet spam. Her stock is now worth about $1,500. "I figure I've already lost $8,500. I may as well wait for a miracle," she says.
Maxnet Systems has been putting irate callers in touch with Ms. Ewing, who is considering a class-action suit on behalf of those who were duped by the e-mail. "But who do you sue? Who do you go after?" she says. More than a dozen investors have contacted her, she says.
Kristophe Karami, a college student in Massachusetts, bought 120 shares at $4.22 a share, and sold a week later at 84 cents a share. "I think this was very deceptive. I saw the spam, and just instinctively went on-line and typed in maxnet.com. I think they knew people would do that," he says, of the people behind the e-mail.
Jack Burroughs, a retired teacher in Santa Rosa, Calif., says he bought 100 shares "to keep up with all the Internet action" for $3.75 a share, and sold a short time later at 60 cents a share. Rollie Axt, a retired police officer in Pewaukee, Wis., bought 500 shares at $3.75, and is still holding onto them. "I've already lost most of it. What can you do?" he says.
Several Maxnet investors question how a stock with a name so similar to another company could be permitted to trade on a stock exchange. But a spokesman for the National Association of Securities Dealers, which runs the OTC Bulletin Board service where Maxnet is traded, says the organization only verifies that a company isn't duplicating a ticker symbol already in use.
For its part, America Online says several users have complained about the Maxnet spam, and says it is investigating those complaints. AOL says its volume of users makes the service a frequent target of spam, and says it does seek to take action against people who send unsolicited e-mail to its users. But a spokeswoman says it is often very difficult to determine the source of such messages.
Six thousand of the e-mail messages were sent without permission through the Internet mail servers of Fluent Communications Inc., a corporate communications company based in Seattle. "This was clearly very damaging for us, because if we get a reputation as a spam mailing house, our customers like Microsoft and Oracle are not going to touch us," says David Townsend, chief information officer for Fluent.
Mr. Townsend says a loophole found in the software that runs many Internet mail servers allows unauthorized messages to be sent through them. He says Fluent has since upgraded its servers to new software that prevents such use.
Under new state antispam laws in Washington, junk e-mailers can be forced to pay Internet service providers up to $1,000 for each piece of unauthorized e-mail they send through the service's servers. "Someone owes us $6 million, and we'd like to have it," Mr. Townsend says.
A few days after the e-mail message went out, and as its stock price was beginning to drop, Maxnet issued a press release in which it said it "maintains its corporate policy not to comment on any joint ventures, licensing agreements or other Internet rumors." Mr. Goldreich is quoted in the release as saying, "Last week's record trading is a sign of support for the company's new strategy and a vote of confidence by shareholders that Maxnet can take a market position
in the Internet industry."
Mr. Goldreich, in an interview, attributed the stock's recent drop in price to the "unpredictability of the market." He says neither he nor anyone associated with Maxnet has sold any stock.
"No offense, but if somebody invests without doing any investigatory work at all ... I don't know what to tell you, but you should not be investing money," he says. |
