A publicly traded Internet company in Portland, Oregon, is suing 100 "John Does" for allegedly posting inaccurate and defamatory statements about it on a Yahoo Finance message board.
Earlier this year, numerous messages posted on the Net's leading portal site criticized ITEX, which operates an online trade center that lets users buy goods and services with cash or through a barter system.
One Yahoo visitor called the company's management "blind, stupid, and incompetent." Another post questioned ITEX's financial backing, and one floated the rumor that "senior executives may be party to a wrongful termination lawsuit."
Now ITEX wants those message board users held liable for their comments, which the company claims are false. The case involves a range of legal issues from freedom of speech to manipulating the stock market and protecting online privacy.
With online trading on the rise, more investors are using the Net as a sounding board to complain about executives at public companies, to challenge statements made by firms about their revenues and investments, or to share hot stock tips.
Brokers' online posts are regulated by the National Association of Securities Dealers Regulation. And the Securities and Exchange Commission patrols for fraud, and has filed charges against online newsletter publishers who allegedly profited from stock they inflated with upbeat news.
However, most Net users can freely post random and anonymous remarks about companies, and if people trust their online comments, the stock price could be sent on a roller-coaster ride.
ITEX is hoping to track down anonymous users of Yahoo Finance message boards through its lawsuit. But the company's lawyers may have more luck finding a needle in a haystack than turning up the true identities of Yahoo message board users who go by the screen names "Investor727," "colojopa," "Orangemuscat," and the like.
"What our general counsel has basically said is that, 'A John Doe does me no good until I know who the John Doe is,'" said Stephen Pearson, a member of ITEX's legal team.
"We are going to sue the users to attempt to identify who these individuals are," he added. "The statements made are defamatory, which is not protected speech, and it harms the company and our shareholders."
But even if Yahoo is ultimately forced by a court to reveal the registration information of the anonymous defendants, that still might not uncover their true identities: the only data Yahoo has that might lead back to users is their email addresses--and those could be forged.
"We'll only give up information on a user when we are legally required to do so through a subpoena. It has happened, but it is rare," said Mike Riley, producer of Yahoo Finance. "All that information is pretty much voluntary."
If ITEX can't find out the real identity of the "John Does," it probably won't sue Yahoo, either. According to the so-called Good Samaritan provision of the Communications Decency Act, interactive computer services can not be "treated as the publisher or speaker" of the content posted by a third party.
"We look at our message boards as an unmoderated public forum," Riley added. "But it goes without saying that if you don't know someone, you should take what they have to say with a grain of salt."
Savvy investors probably don't take blind tips from unknown Net users, who could be anyone from a disgruntled employee to a scam artist trying to drive a stock price up or down to turn a profit. However, high-tech firms seem especially vulnerable to the online buzz about their stock or company.
"High-tech stocks tend to be more volatile, and that presents opportunities to exploit them with misleading information," said Tower Snow, a securities attorney with Brobeck, Phleger & Harrison.
Legal experts agree, however, that lawsuits aren't the most effective way to challenge information spread in online investor forums. "Most public companies, rather than engage in litigation--which is costly and disruptive--are opting instead to make sure they have very open, active lines of communication with financial press, general press, and large institutional investors," Snow added. "If they are responsive to all inquiries, then they aren't particularly vulnerable to rumors on the Net and elsewhere because they are continuously updating the market and public about developments that are affecting them."
Moreover, lawmakers and regulators should not try to stifle speech in online financial forums to curb misinformation, said Michael Overly, special counsel to the information technology group at the firm Foley & Lardner.
"One of the big features of the Net is it provides people with a means of expressing their opinions--and anonymity can be required to express those opinions," he said.
Instead, companies should monitor information they see on the Net and report potential fraud to the SEC, he noted.
"This has become such a concern for many businesses that they constantly patrol the Net looking for references to their companies on Web pages, message [boards], and news reports," he added. "Businesses that don't at least think about the impact of this information are doing their shareholders a disservice."
The SEC says it has to the tools to stop online stock manipulation, but not every person who criticizes a company based on accurate information or his or her opinion.
"The commission will bring cases that allege market manipulation and we've done that long before the Net came along," said John Heine, a spokesman for the SEC. "You have to show that the misinformation was part of an attempt to defraud people involved in the markets."