YOUR
CORPORATE REPUTATION ONLINE
Bruce D. Fischman
OVERVIEW
The Internet has become a milieu for torching reputations of even the most respected companies. Some companies are taking aggressive stands to defend their online reputations and fight back.
THE INTERNET
The Internet is really a collection of individual computer networks functioning as one because of certain accepted electronic protocols. Unlike the media of press, radio and television it is, for the most part, self monitored. This, combined with the development of easy communication forums, has led to the ability to ruin reputations at the speed of cyberspace. Bulletin boards are coming online in increasing numbers. They allow posters to anonymously publish messages about public companies and their officers without regulation resulting in vicious defamatory attacks. Some companies are now fighting back by unmasking these posters and proceeding against them in court and at the S.E.C.
DEVELOPMENT OF THE MESSAGE BOARDS
Interactive computer services capitalized on the passage of the Communications Decency Act in 1996. The Act immunized providers from liability for defamatory information posted on their networks by third parties, including their subscribers. This created the opportunity to attract advertisers to their services by providing the public with free registration and access to their business bulletin boards. The more controversy that is on the boards, the greater the viewer traffic that visits the boards. The greater the viewer traffic, the greater the advertising revenue. The providers received a federally protected disincentive from policing their boards.
The most active business boards are: YAHOO; MOTLEY FOOL; RAGING BULL; SILICON INVESTOR; GO NETWORK: INDIVIDUAL INVESTOR; FREE REALTIME; REALIZE; and CLEARSTATION. Each board provides similar rules and registration requirements: name, occupation, birth date, current e-mail address. Most boards contract with their members concerning member conduct on the boards. This includes the prohibition against registering by use of false information, as well as the prohibition against the use of unlawful, harmful, defamatory, vulgar, abusive, harassing, obscene, libelous, hateful, racially or ethnically objectionable language in their postings. Unfortunately, due to the Act, the board providers do not enforce their contracts.
WHO ARE YOUR ANONYMOUS POSTERS?
Employees, Competitors, Stock Manipulators, Past and Present Shareholders, Recreational Users and Safety Threats are all posters on the business bulletin boards.
Employees are using the boards to vent discontent with their employer, disclose proprietary information or even post in an effort to promote the company. Each creates serious problems. Appropriate policies and procedures for use of telecommunications equipment on and off premises and for nondisclosure of company finances, business plans and activities are essential. Employees often disclose inside information out of anger or ignorance of applicable securities regulations. Even positive posters employed by the company may be manipulating the market by disclosing information not available to the public in reply to a defamatory or negative poster. Currently, Internet surveillance is one of the highest priorities at the Securities and Exchange Commission resulting in many enforcement actions for stock touting and stock manipulation.
Competitors have found what they believe to be a safe harbor for the commission of trade libel. Posting false and negative information about a competitor on the boards may cause a stock drop, employees to leave, difficulty with acquisitions, decrease in sales resulting from a tarnished market image, and otherwise damage the reputation of the officers and directors of a company.
Stock manipulation, according to the general counsel of one major Internet provider, is standard operating procedure. It's a double-edged sword, because the boards are a unique medium where the average investor can find out information. The flip side is that the stocks are subject to manipulation. The Director of Enforcement at the SEC is quoted as saying: Once they get a cheap stock, they have to manipulate it, and the best way to manipulate it is to quickly spread false information. Touting and trashing a company with false facts or the omission of material information, may amount to manipulation. Shorting a stock, in combination with harmful board postings intended to cause the stock to drop, are becoming routine. Over 100 SEC investigators are checking the boards on a regular basis looking for manipulation. Additionally, trade libel litigation can be an effective way of dealing with such abuse. Since companies are not justifiably relying on the board postings to purchase their stock, securities litigation would generally be available only to individual or institutional investors who purchase the company's stock, relying, in part, upon the false information posted on the boards.
Past shareholders, present shareholders and recreational users are the
most common posters on the boards. Often, these posters express opinions
that may not be accurate, but are clearly understood by board readers
as opinion. These posters usually become overly enthusiastic after a significant
drop in a company's stock. However, when their words elevate to defamation
or trade libel, they are exposed to damages under the laws of most states.
Corporations may recover damages suffered as a result of false statements
or omissions of material fact, which tend to prejudice them in the conduct
of their trade or business, which deter third parties from doing business
with, investing in, or otherwise associating with their business. Additionally,
an officer or director may individually pursue actions for false statements
or omissions of material fact, which tend to damage the reputation of
said person.
Safety threats comprise a relatively small but emerging group of posters on the boards. These individuals gain power from easy and anonymous access to an inexpensive and widely disseminated communications forum. They are unstable, harassing and may pose a danger to life and limb. They may also pose a risk of danger to the physical property of the company. Also included in this category is extortion, stalking, and electronic civil disobedience. A safety threat typically gives notice to their targets by use of the Internet bulletin boards. They view the boards as a way to communicate with their target executive without interference from secretaries or other screening procedures. Corporate security, police enforcement, injunctive actions and prosecution under laws protecting individuals from harassment by communication may be effective in combination to restrain these individuals. It is interesting to note that although the policies and procedures of the boards prohibit such activities, boards are very slow to delete these types of postings, if they do so at all.
CORPORATE AMERICA IS FIGHTING BACK
Cyber-sophistication is not something CEOs are generally known for. Many are just beginning to become comfortable with a keyboard and Internet surfing. Hiring a cyber sleuth, and preferably one that has the legal credentials to enforce a solution, is the procedure being adopted by officers, directors and their companies throughout the country.
REMOVING THE MASK OF ANONYMITY
Discovery of the true name and address of the poster causing the harm is the first step in the process. Computer analysis of the properties of transmissions, combined with the subpoena power of Courts willing to compel online boards to disclose electronic information and registration data on their posters and readers, will often times reveal the perpetrator. This process is multilevel and usually requires many rounds of subpoenas and electronic data analysis to circumvent the careful and designed efforts of some posters to remain undetected. The providers, who take a position that they have the Constitutional obligation to protect the identities and First Amendment rights of their subscribers and posters, often resist. Credibility and relationships with these providers, as well as successful efforts to compel their action in legal proceedings, has enabled this writer to determine the names and addresses of violators in almost all cases to date. Additionally, the firm is currently developing programs to counteract anonymous remailer services.
PROCEEDING AGAINST THE PERPETRATOR
Upon discovery of the name and address of the poster, the Company must determine if the poster is an employee, competitor, stock manipulator, past or current shareholder, recreational user or a safety threat. The first step is to check with human resources. They will usually be able to pull an employment file matching a current or past employee. If no information turns up, check with development and operations. They will assist in determining whether the individual is known to work for a competitor or a company involved in an aborted acquisition. Shareholders can sometimes be profiled by checking with the company's stock transfer agent or registrar, or whichever officer in-house handles shareholder lists. If no clear profile can be developed at that point, have your Internet litigation counsel employ a private investigator to discover the profile and motives of the poster. This is extremely important in stock manipulation and safety threat cases.
PROVEN SOLUTIONS IN THE CYBER-BATTLEGROUND
Monitor the boards or employ counsel to monitor the boards. Identify problematic postings at the earliest possible time. Depending upon the nature of the posting, communicate with the bulletin board and ask them to immediately remove it. In almost all cases, they will ignore this request since they are federally protected. Employ counsel or a third party to reply to the postings with only publicly available facts. All postings should be cleared first with Internet litigation counsel. The individual posters are counting on the design of cyberspace to hide their identity and allow them to perpetrate their crime. Unmask the perpetrator. Contact the S.E.C., if appropriate, in conjunction with counsel. Depending upon the profile of the poster, a cease and desist letter can be sent along with a draft of a complaint, or the complaint can be filed without demand. Cooperate with the press through counsel. Positive press articles, confessions by the perpetrators, as well as judgments against perpetrators will discourage others from similar postings on company boards.
Copyright
© 2000 The Fischman Law Firm, P.A.
All Rights Reserved
Bruce D. Fischman is the President of the Miami, Florida
law firm of The Fischman Law Firm, P.A. 3050 Biscayne blvd. Suite
600, Miami Florida. Phone No. (305)576-5522, Fax No. (305)576-7079, E-Mail
bruce@fhdlaw.com. The firm specializes
in cyber-litigation on behalf of many public companies.
