Stock Chat

There are only two problems with Internet stock forums: false rumors and inconvenient truths.

One reason for the avoidance is uncertainty regarding the legal issues involved. “There has been a lack of guidance from the Securities and Exchange Commission,” says Proveaux. “Companies are flying blind.”

IR directors generally fear that responding to chat room threads opens up a Pandora’s box of disclosure troubles. “Once you start doing that, you get into issues of selective disclosure,” says Christine Mohrmann, investor relations director at Vanstar Corp., a technology services firm based in Atlanta. “And if you respond to rumors, you are expected to do it every time. It becomes an onerous task.”

Even Yahoo! Inc., which hosts a stock chat forum, doesn’t take part in the discussion of its own stock, even though rumors are started about the Santa Clara, California-based Internet media company practically daily. “Once you begin making comments, you might feel the need to respond to everything,” no matter how outlandish, explains Diane Hunt, director of corporate communications at Yahoo!. “You could really go down a rat hole.”

Some companies see opportunity in the chat rooms. Stephen Push, vice president of corporate communications for Genzyme Corp., in Cambridge, Massachusetts, logs on to Motley Fool and Silicon Investor from time to time to post news releases and field questions about the Cambridge, Massachusetts-based biotechnology company. “People have a lot of good questions, and I try to answer them the best I can,” says Push, whose efforts have scored big with investors who use the threads. “His input is unmatched by any investor relations person whom I have ever dealt with,” gushed Robert Floyd in a message posted on Silicon Investor. “He is one of the main reasons I have stayed with the stock.”

But if companies refuse to step into the Internet fray, how can they defend themselves against rumors and lies? One company, Presstek Inc., a Hudson, New Hampshire, printing technology company, is taking legal action. Presstek filed suit last year against three persons who allegedly made false and defamatory statements about Presstek on Motley Fool and Silicon Investor. The case was settled out of court this past February. (Settlement details are confidential.)

Most companies, however, are fighting misinformation with information. “Information reduces the risk of rumors,” says Jack Queeney of the Financial Relations Board, a Chicago-based investor relations firm. “The more companies make available, the less likely investors are to come to their own conclusions.” Vanstar, for instance, provides links from its home page to the SEC’s EDGAR database and to Vanstar’s stock quotes. The company has increased the information it puts on the Web site and updates it more often. Vanstar also invites individual investors to listen to its quarterly conference calls — a practice that should discourage chat room participants from reporting highlights of the call out of context.

Indeed, the most common form of abuse on Internet stock chats is the posting of partial or even altered press releases, says Queeney. His advice: Make it easy for investors to check press releases on the Web.

Whether Internet stock forums become a common way for companies to communicate with individual investors remains to be seen. One thing is certain: the chat rooms aren’t going away. Investors “prefer the agenda of their fellow traders to that of the press or company press releases,” says David Zgodzinski, an expert on Internet investment sites who writes articles for the Silicon Investor Web site. “They are increasingly skeptical of those sources.”

Zgodzinski predicts that the forums will continue to grow in importance: “In a few years’ time, there will not be an IR department anywhere that doesn’t at least look at what is being said.”

Preventive Measures

How companies can quash Internet rumors and lies.

  • Monitor Internet stock forums for abuse.
  • Report worst cases to site hosts and the SEC.
  • Provide links on stock forums to company Web site.
  • Provide more financial information on company Web site, including press releases.
  • Invite investors to listen in on quarterly conference calls.
  • Educate employees on disclosure policies.

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