The whole smear
Cybersmear campaigns can get you where it hurtsâ€"stock prices. But keeping too tight a grip might be painful too.
Unlike cybersquats and meta tags, cybersmears, antidomains, and Web hoaxes don't assume your identity or steal your name. They just bash it. The quickest of them all, cybersmear campaigns, can bring a company to its knees within just hours, shaving billions off of its market value.
The typical cybersmear campaign affects microcap stocks, companies with market values of no more than $500 million. Because they're thinly traded, these stocks are easily manipulated. Stock jockeys either pump and dump a stockâ€"fabricating a company's "virtues," then selling the stock at its inflated priceâ€"or badmouth the company when they hold a short position so they can sell its stock at a profit when the price falls. This is securities fraudâ€"and the slurred company isn't alone in its desire to get to the bottom of it. When the Securities and Exchange Commission sniffs a chat room scam, it launches its own civil investigation and works closely with the U.S. Attorney's Office and the FBI to issue warrants and bring criminal charges (the SEC itself can file only a civil suit).
Microcap stocks aren't the only ones getting burned. But simple nay-saying in a chat room isn't enough to move a larger company's shares dramatically; that takes more elaborate Internet scheming. In April 1999 an employee at PairGain Technologies tried to counter criticisms of his employer by concocting a story of its buyout by an Israeli company. Gary Dale Hoke wrote a fake press release and posted it on a Web page he designed to look like the Bloomberg site. Hoke used a Yahoo message board to direct investors to the bogus information. Many bought the fake story and PairGain's stock. Before truth prevailed, PairGain's price soared 31 percent. By the end of the day, though, it plummeted back to where it had begun.
In a similar hoax, Emulex saw more than $2 billion lopped off of its market value in about 15 minutes. "Every minute it was dropping $10, $20," says Robin Schnug, the company's manager of public relations. At first the employees at Emulex had no idea why the stock was plummeting. Then somebody in the office checked the Web and found that the company was under siege: Internet Wire and Bloomberg inadvertently posted a bogus press release attributed to Emulex stating that its CEO was resigning and the company was under SEC investigation. Though the stock largely recovered by the end of the day, many investors took big hits, losing an estimated $50 million.
Before the smear campaign against Emulex, the electronics company didn't monitor the Internet. It still doesn't. The company sees no need to search the Web for consumer complaints or trademark infringement because it doesn't depend on its trademark or consumer sentiment to sell its Fibre Channel host bus adapters and hubs.
Though it does care about its stock price, Schnug says Emulex ignores disparaging chat room banter about the company and its officers. "It's almost like being a public figure," says Schnug. "You're open for people to scrutinise you and make those types of comments, and you're not going to make everybody happy all the time, so why buy into their game?"
That's a wise move. Though companies may want to keep tabs on message board and chat room blather, too closely monitoring forums on sites such as Yahoo and Raging Bull may actually make a company responsible for the information in them, says Blake Bell, senior knowledge management counsel at law firm Simpson Thacher & Bartlett and editor-in-chief of online newsletter CyberSecuritiesLaw. If a company establishes a presence on a forum either by linking to it or consistently monitoring it, the SEC may reasonably expect that company to refute all false claims that appear there. Companies should also refrain from responding to allegations in these chat rooms. If they reveal material informationâ€"news that could affect the stock priceâ€"when responding to a cybersmear, they may run afoul of the SEC's Fair Disclosure regulation. "The best thing to do is ignore it," says Bell.
FRIENDS - Regarding Corporate America, think you will enjoy the first 3 chapters of my upcoming book, I LEAP OVER THEIR HEADS!, regarding General Electric (GE) and their reprehensible behavior. You can read them by going to www.edwardbaskett.com.