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Surfing the message boards

Web-savvy investors scour the Net for the "inside scoop" on their investments. But most information posted to message boards, experts warn, is worth about as much as you pay for it: nothing.


© St. Petersburg Times, published August 2, 1999

An online spat took place a few weeks ago at an electronic message board devoted to Danka Business Systems after a writer identified as SpouseEmployee suggested the St. Petersburg company was on the verge of bankruptcy.

"GET BACK TO WORK B--!!!" snapped a fellow poster, identified only as CRSO55. Another poster, using the alias IMATECH, piled on. "Go back to the hole you crawed (sic) out of," he snarled.

Forget clubby New York brokerage firms, densely written research reports and mounds of financial data. Today's investor wants the real info, and what better place to find it than on the hundreds of online investment message boards and chat rooms just a click away on the Internet?

Problem is, much of the information posted on message boards is worth about as much as you pay for it: nothing.

"I encourage investors to take what they see over chat rooms not with a grain of salt, but with a rock of salt," Arthur Levitt, chairman of the Securities and Exchange Commission, said in May.

Yeah, but what does he know?

The illusion of getting the inside scoop attracts hundreds of message-posters and thousands more readers to the Internet boards every day. Though none of the services that host the online discussions keep count of message board visitors, the sites draw millions of people each month.

Media Metrix Inc. reported that in June the popular Yahoo!Finance page attracted more than 5-million people; 1.2-million visited Motley Fool; Raging Bull and Silicon Investor each pulled in another quarter-million visitors.

One sign of the magnetism of message boards: On July 22, there were nearly 70 "posts" by 17 people on a Yahoo! board for PhyCor Inc., which has sued anonymous posters for libel. Among the messages was one by PHYC Fire Chief, a frequent poster.

"Stay away from this S-- stock! Be careful! Watch the intangibles! Some IDIOTS are posting here! I know everything!(hint) I am short PHYC!!"

Want to know what is happening with Republic Bancshares Inc., the St. Petersburg bank that lost millions last year on its high-risk mortgage business and couldn't find a buyer? Find Yahoo!Finance on the Internet, tap in Republic's ticker symbol, hit "messages" and read away.

"Fifteen days past quarter end and still no earnings," one board regular wrote on July 17. "What else would you expect from crap management at a second rate bank?" (Two days later, the company reported second quarter earnings of $3-million compared with a loss of $1.5-million a year ago.)

Want the latest scoop on the battle between management and a major shareholder at what was once Woolworth's? Tap in "Z" for Venator, the retailer's new name, and catch the latest mud-slinging.

"If Z really wants to succeed -- they need to purge the disease coursing through its blood stream," advised a poster in mid-July. "GET RID OF THE FORMER DEPARTMENT STORE EXECUTIVES WHO DON'T HAVE A CLUE."

And at IMC Mortgage Co.'s board on Raging Bull, a disgruntled shareholder had this online advice for the company's chief financial officer on July 22, as the stock dipped to 8 cents, down from $14 a year ago:

"Please do not call on us for a reference in applying for that McDonald's job," wrote the poster known as Tramoneys, "as we do not want to be responsible for the money that would surely be missing from the till at the end of the day."

Message boards have their fingers on the pulse of the masses. And from the tone of most boards, the blood pressure is rising.

On the board for Checkers Drive-In Restaurants, they are crabbing about burnt fries and lukewarm burgers. On Raymond James & Associates' board, they are slamming the brokerage firm's limited online trading program. And at Intermedia Communications Inc., even an improving stock price hasn't quieted the harping about how supposedly inept managers are forcing the smart folks to bail.

"I see this ship going DOWN, POOR Management," wrote a frequent poster who uses the alias CLECexpert. "We are all waiting until Jan 2000, when our options re-vested (sic) and then we are RUNNING away as fast as we can." Two days later, CLECexpert wrote: "Just resigned. see ya. good luck to all."

Techies began talking to each other online in the 1980s through electronic bulletin boards, simple computer networks linked by phone lines, usually run by a geek in a bedroom. With the advent of the Internet and cheap access service, everybody got connected. And Web sites, anxious to build loyalty, invited surfers to stay and talk about anything from Beanie Babies to breast cancer to their investments in Ebay Inc.

With the stock market and day-trading soaring, investment message boards have sprouted on dozens of Web sites. Skimming the offerings is like eating popcorn: addictive but not nutritious. And though they aspire to be bastions of free speech, boards often seem dominated by the rantings of people with too much time on their hands.

Most sites do little monitoring of their boards and simply encourage posters to report offensive or unlawful messages, which may then be deleted. Raging Bull, which has 2,300 boards, allows participants to set an ignore function that will delete a specific poster's messages. At Motley Fool, which has five "strollers" patrolling 4,000 boards, participants are invited to hit a frowny-face symbol to report a problem post or commercial spam.

"We don't have a big problem with rotten posters," said Julie Lewis, spokeswoman for Motley Fool, which marked its 1-millionth post for the year in late July. "Our readers have to register to be involved and they want good, important information. It's an educational tool."

Tony Panaccio, managing director at Hill & Knowlton Inc. in Tampa, advises corporate clients of the public relations firm to cope with anonymous tirades on message boards through investor hotlines and up-to-date Web sites. He thinks the online discussions are the ultimate expression of democracy.

"It's what the Founding Fathers were thinking about when they drafted the Constitution," Panaccio said. "The connotation used to be that if you weren't an MBA or a financial analyst, you had no business talking about money. But business is built on the investment of everyday people. We vote with our dollars. And individual human beings have an effect on the course of economic world markets."

Indeed they do. In April, an employee of PairGain Technologies Inc. posted a fake news report on the Yahoo! board, saying the California company was going to be acquired by an Israeli firm. The stock gained 31 percent within hours.

While PairGain was an extreme case, message boards are rife with efforts to manipulate stock prices. Short sellers who borrowed stock and sold at a high price want to drive the share price down so they can cover their position. Buyers who got into a depressed stock at a higher price want to push the price back up again. And everybody brags about being a big winner.

"I have already doubled my position once and will double again at $20 if I get the chance," a poster on the TECO Energy Inc. site said in mid-July when the stock was selling for less than $21. "Hope I don't get the chance . . . but if someone is silly enough to dump this stock at $20, I will gladly buy some more."

On Tropical Sportswear International's board, one participant had a suspiciously quick change of heart about the stock. On July 17, the investor was gung-ho on the Tampa apparel manufacturer. "This is a long term money maker right now," wrote the poster known as ez074094. "I think it is an excellent buy and a real bargain . . . you should get as many shares as you can afford!!! you will not be disappointed!!!!!!!!!"

Three days later, after Tropical's shares had risen just 37 cents, ez074094 wrote, "Actually I dumped all my shares of TSIC today" in favor of a penny stock he said had "skyrocketed 100% and 35% in the last 2 days."

"Buy at your own risk . . . make money at your own risk . . . enjoy," he wrote in a so-long-suckers postscript.

Though the Internet sites, the SEC and common sense tell readers to be skeptical of every word they read by anonymous posters, the warning is too often ignored. At the University of Iowa School of Business, professors were stunned by the results of an experiment using students on mock message boards.

The researchers set up an experiment using business students designated as buyers and sellers of investments. As on the message boards, the buyers received information from sellers on computer screens, but couldn't verify the accuracy of the reports. In some cases, sellers, who knew the true value of the investment, could exaggerate or even lie. Buyers only knew when sellers were allowed to lie, not whether they would lie.

"We found people are very much taken in by what should be non-credible communication," said Robert Forsythe, the economics professor who co-authored the study. "It affects what people are willing to pay for these items, and there can be unbelieveable movement of stock on the vaguest information. And people aren't just gullible once. They're repeatedly gullible."

Forsythe said the experiment changed his attitude about the need for government regulation of the message boards. "Before, I would have said that what the SEC does doesn't matter because why waste time regulating something only a fool would believe?" he said. "We found that's not true."

So far, the SEC has resorted to strong talk and heavy scrutiny rather than formal regulation. John Duncan, an SEC spokesman, said the agency is focusing on paid promoters who use the boards and their own Internet sites for pump-and-dump schemes involving penny stocks.

In October, the SEC filed charges against 44 promoters, including Inc., a Florida company and its owner, Sarasota resident Steven A. King. King's lawyer, Burton Wiand in Tampa, said his client's company, which promoted microcap stocks through e-mails to subscribers and on its Web site, was in full compliance with SEC regulations. A motion to dismiss the lawsuit is pending; the site has since closed, though Wiand said it did not shut down as a result of the SEC's action.

Duncan said the SEC will continue to keep an eye on the boards, but that participants often do a good job of self-policing. "They're more than willing to let the SEC know if they're seeing shady dealings on the Internet," he said. "They view it as their community."

In trying to reach as many eyeballs as possible online, Duncan said, fraudsters also inadvertently reach SEC regulators, sometimes allowing them to stop the fraud before it happens. "Electronic messages are much easier to track than a phone call," said Duncan, who said it took the SEC only a week to find the engineer who perpetrated the fraud at PairGain.

Several companies have discovered it is easy to uncover the identities of message board posters. In more than a dozen lawsuits, these companies have subpoenaed Internet service providers such as MSN and America Online for posters' names, then sued them for libel.

In a high-profile case last fall involving HealthSouth Corp., the chief executive unmasked and sued a former employee who had boasted of having an affair with the executive's wife. The suit was dropped after the poster apologized and most of his postings were removed from the Yahoo! board.

Most companies prefer to ignore the boards, even while monitoring them closely.

"I don't think it's worth getting into a dialogue with these people," said Lawrence Silver, spokesman for Raymond James. He said the St. Petersburg company considered tracking down the source of false information on the board in February, but decided against taking legal steps.

"But if they libeled us to such an extent that it caused damage to our stock price or some other way, then we'd probably take actions," Silver said.

Louis M. Thompson Jr., head of the National Investors Relations Institute, a trade group representing 2,600 companies, said he advises companies to have a consistent no-comment policy about market rumors, regardless of their source.

Nonetheless, many companies work to nip rumors before they start, especially when they start within their walls. About one-third of NIRI's members said in a June survey that they have policies forbidding employees from participating on the company's boards, either at work or at home. Thompson brushes off a suggestion that such policies trample Constitutional rights to free speech.

"Lots of times, employees only have part of the picture," he said. "There are no First Amendment issues when it comes to company information."

Not all companies agree. Neither Raymond James nor Tampa's Intermedia, which has its share of critical employees on boards, has a policy prohibiting participation.

"We're pretty Net-centric here and trying to restrict our workers from using something that's a resource would be counter to what we believe in," said Curtis Lightburn, Intermedia's vice president of investor relations.

Lightburn expects message boards to keep humming as long a day-trading is hot. But as long as serious investors and financial analysts ignore the postings, so will he.

"Analysts recognize the source, merit level and impact level of things being discussed on the boards," Lightburn said. "In the year I've been here, I've yet to receive a call or comment about the boards from an analyst."

Michael Baker, a health care analyst at Raymond James, compared online message boards to flashy tabloid newspapers.

"People are always interested in getting the buzz, seeing what's under the sheets," said Baker, who added he surfs them only occasionally. "If a stock gets hit big-time for no apparent reason, I might check the boards for rumors. But that happens infrequently."

Nor is Baker worried that amateur online stock analysts will push him out of a job any time soon. "I spend my time talking to a company's customers, competitors and industry personnel," he said of his research reports. "We have industry contacts and those are relationships you develop over time. And my name is on my reports."

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