Stocks of larger, legitimate companies have also gone on wild rides thanks in part to Internet chat groups. The market value of Iomega Corp., a San Mateo, California, computer storage company, skyrocketed 500 percent in three months, to $7 billion in May 1996, aided by an Internet-fanned frenzy. As the stock ran up, short-sellers jumped into the discussions. Eventually Iomega’s market value fell to just under $2 billion, where it stands today. (Iomega is still one of the most talked-about stocks on the Internet — for good reason, given disappointing performance and the departure of its CFO.)
More recently, much of the Bre-X Minerals gold scandal played out over Internet stock forums. Investors argued the merits of the Canadian company’s claim to have struck gold in Indonesia, while news reporters watched the boards for the latest developments. And Internet stocks themselves have been subject to volatile swings, partially propelled by discussion groups.
Volatile swings are produced not only by short- sellers and imaginative investors. The Internet provides a convenient vehicle for employees who, for whatever reason, want to share their insider’s perspective with the world. At LCC, Trish Drennan spends an hour each week on the Internet combing through dozens of messages on her company, looking not only for rumors and misinformation but also for abuse of the forums by employees.
“They don’t get it,” says Drennan of employees who discuss the company in online forums. “They don’t think what they know [about the company] is material information, but often it is.”
The employee who speculated on LCC’s first- quarter earnings wasn’t the first LCC worker to post sensitive information on an Internet stock forum. A few months earlier, CFO Richard Hozik had called a companywide meeting to discuss the departure of CEO Piyush Sodha. Hozik spoke in detail about company matters. To Drennan’s horror, shortly after the meeting an employee, using the name Joe Engineer, posted the details of Hozik’s discussion on the Yahoo! message board.
“What boggles my mind is that more of this wasn’t explained in the official press release” about Sodha’s departure, the employee wrote, seemingly oblivious to the sensitive nature of the information. Today, LCC’s lawyers have joined Drennan in monitoring the Internet forums.
Employee breaches on the Internet underscore the need for companies to educate their workforces about dealing with sensitive information. “You can’t stop them from using the sites and posting information,” says Terry Proveaux, director of the Center for Investor Relations Education, in Washington, D.C. “But you can educate them on the meaning of material information.” At LCC, Drennan has launched a two-day training session for all employees, not just top managers. The session covers business ethics, reporting of business information, material nonpublic information, and dealing with sensitive information.
Monitoring Internet forums is one thing, participating in them another. In a survey of more than 200 companies by the National Investor Relations Institute, 9 out of 10 respondents said they did not participate in the forums.