Whole Foods Market Inc. confirmed late Tuesday on its website that the Securities and Exchange Commission had contacted the company and is probing CEO John Mackey’s financial message-board postings about Whole Foods and Wild Oats Market, a rival chain the company is trying to acquire.
The postings drew wide attention last week when they cropped up in a lawsuit by the Federal Trade Commission that aims to stop Whole Foods from buying Wild Oats for anti-trust reasons. The suit included information about his postings, written under the name “rahodeb” (a scrambled version of “Deborah,” his wife’s name), that called Wild Oats stock overpriced and predicted it would fall into bankruptcy.
Whole Foods also said Tuesday that it would form a special committee to conduct an internal investigation into Mackey’s postings on the Yahoo! Finance message boards.
Meanwhile, Mackey was contrite. “I sincerely apologize to all Whole Foods Market stakeholders for my error in judgment in anonymously participating on online financial message boards. I am very sorry and I ask our stakeholders to please forgive me,” Mackey said.
Securities experts have been confounded by the question of whether Mackey’s online actions were legal. Many have concluded that it would be hard to prove that he was intentionally manipulating a rival’s share price when he posted pointed comments about the rival online.
The SEC will likely investigate whether Mackey violated Regulation FD (fair disclosure), which says that when an issuer discloses “material nonpublic information” to people who might trade on it, they must make public disclosure of that information. Since Mackey posted his comments under a pseudonym, it’s unclear whether he should be considered to have been writing on behalf of the company or if other investors would have been inclined to trade based on his messages.
As Mackey’s “error in judgment” occurred online, blogs and message boards have been alight with chatter on the situation.
“He did not say who he was, and apparently gave no indication that he was in any way connected with the company,” wrote Mark Astarita, a securities defense attorney, on SECLaw.com . “To those reading the internet forum where he posted, he was simply another interested user of the board.”
Some on the Yahoo! Message boards were less forgiving, clearly feeling duped by Mackey’s moniker. “I remember ‘rahodeb’ and his negative postings back then,” wrote
Suzy Witten, a Wild Oats shareholder between 1999 and 2003, who uses the screen name ‘pandavoine’.”There should clearly be a class action lawsuit against Mackey by OATS shareholders. As well as SEC action.”