libel and trade Welcome to the World Wide Grapevine
Internet bulletin boards are making it easy
for the public to engage in libel and trade on
insider information, while masking the culprits
and leaving the victims powerless.
TYLER HAMILTON
Technology Reporter
Saturday, May 6, 2000 Copyright The Globe and Mail
Cliff Horwitz has been publicly accused of rigging the market and participating in unreported insider
trading, but the head of SAMSys Technologies Inc. can't do much about it.
His accuser is what is known as a “poster” on an Internet bulletin board, hiding behind a veil of
anonymity and virtually unaccountable to the rule of law. Securities regulators admit it's a problem, but
nobody's quite sure how to solve it.
“I got a call from somebody who read a posting a couple of weeks ago who asked me if I was going to
do something about it, because it was absolutely inflammatory,” Mr. Horwitz says. “You sit back and
simply have to watch it and digest it.”
The effects of such attacks have been more than personally insulting. Mr. Horwitz believes
“destructive” comments made about his wireless technology company and its management
exacerbated market jitters that recently caused a proposed acquisition of British firm I2R Ltd. to fall
through.
Welcome to the jungle.
If 2000 is the year of the retail investor, then Internet “bull” boards hosted on Web sites such as
https://www.Stockhouse.com and https://www.SiliconInvestor.com have become their playground --
where the kids argue, kick sand, dig for dirt and ride the market swings. Indeed, many have the
influence to push the swing.
Some of the posters are bullies, striking fear or pumping enthusiasm into naive investors. Others are
downright liars, spreading rumors and making up stories that through any other medium would land
them in court. The rest are decent people looking for a little debate.
Forget the local pub, water cooler and golf course, where speculation is slow moving and the
gossipmongers have names and faces. The Internet has made it easy for the broader trading public to
engage in libel and trade on insider information, at the same time masking the culprits and leaving the
victims powerless.
“There's no way you could do this legally through a newspaper, so why the hell should you be able to
do it through an electronic publication?” asks Mr. Horwitz, adding that he's considered suing but
wonders how far that would get him. “I don't have a problem with criticism, what I do have a problem
with is defamation or blatant distortion of fact based on ignorance.”
A peek at one site reveals the influence of some posters. On Stockhouse.ca, a discussion group for
SKG Interactive Inc. had a frequent poster named Tipstotrust. SKG -- a former mining company listed
on the Toronto Stock Exchange and now operating as an Internet firm -- is a penny stock that
Tipstotrust continuously pegged as a $3, then $6, then $8 stock.
Some of the other posters accused Tipstotrust of pumping and dumping the stock with the help of
multiple on-line identities, while others would cling to every one of the author's words. Tipstotrust's
influence grew so strong that for several days in a row the poster would hold well-attended midnight
sessions to reveal the latest hot tip.
Colin McCann, an investigator with the enforcement branch of the Ontario Securities Commission,
says securities regulators across North America recognize that posters on Internet chat rooms often
cross the line between freedom of speech and breaking the law.
“We all know it's a difficult problem,” Mr. McCann says. “We are working all the time with agencies in
the U.S. to get behind the name and identity of postings. While we all agree it's something we're going
to work at, I don't think the mechanisms are in place yet.”
Meanwhile, the Web sites hosting chat rooms compare themselves to telephone companies -- they
admit they're the instrument of transmission, but assert they have no control over content.
“We're not publishers, we're a forum where people can express themselves,” says Nektarios
Boutsalis, director of bullboards at the New York office of Vancouver-based StockHouse Media Corp.
Stockhouse.com operates in Canada, the United States, Australia, Hong Kong and the United
Kingdom, and has quickly become one of the leading Web sites in this country for investor information
and chat rooms on the Internet.
Mr. Boutsalis says the site gets 3.6 million visitors a month, adding that it would take a court order to
force the company to violate the confidentiality of its users and turn over their names.
The more popular discussion groups on Stockhouse.com deal with micro firms that are usually
technology-related and have a small public float that's easy to manipulate.
“If a stock is moving for no apparent reason, that's one of the places you can check, the chat lines,”
says Branden Osten, an analyst with Sprott Securities Ltd. in Toronto. “It's easier to move stock with
low liquidity.”
That would make many of the companies on the Canadian Venture Exchange a natural target.
Over at the British Columbia Securities Commission, Langley Evans, deputy director of investigations,
says there are resources devoted to dealing with Internet-related securities violations. But they're no
match for the Internet, where tracking down the identity of users is like looking for a needle in a
haystack full of pinheads.
“It requires that court order,” he says. “But even then, we're not certain of absolutely confirming the
identity behind the postings.”
For one, many users of Internet bulletin boards register with fake names and provide e-mail addresses
that can also be obtained with inaccurate information. This makes it difficult for regulatory authorities
to trace a culprit's footsteps.
One trail that is left behind is an IP address, a special identifier attached to a user's computer when it
logs into the Internet. Both the U.S. Federal Bureau of Investigation and the RCMP have tracked the
movement of cyber-criminals by sniffing out their IP tracks.
“Everyone is traceable,” says Mr. Boutsalis, explaining that if the authorities really want to get their
target, they will, whether or not companies like StockHouse co-operate. “Just look at Mafiaboy from
Montreal.”
But what about public kiosks in libraries, which provide access to the Internet for any stranger? Or
privacy protection software, which adds yet another layer of anonymity on top of chat rooms?
Montreal-based software firm Zero-Knowledge Systems Inc. has a product called Freedom that can
turn any Internet user into a masked Lone Ranger. Even Tonto can't trace the tracks.
Michael Lobsinger, chairman and chief executive officer of Calgary-based software maker Zi Corp.,
says the type of postings appearing in Internet chat rooms has become a thorn in his side, to the
point where his company regularly monitors what's being said.
“I think the exchanges have to start dealing with these issues in defense of the companies,” Mr.
Lobsinger says. “There should be legislation, something that holds the individuals or the companies
posting the information responsible for misinformation.”
Legislation covering defamatory libel exists in the Canadian Criminal Code. In the area of insider
trading or stock price manipulation, both the BCSC and the OSC say they have no specific policy
relating to Internet chat rooms, but the issue is covered under broader policy objectives.
Mr. McCann of the OSC says there could be a move to make operators of bulletin boards more
accountable, but no legal challenge has yet been launched against them. The problem is that many
have operations that span several legal jurisdictions, requiring much co-operation between different
authorities.
And while current laws and regulations do give the OSC and police some power to respond, the layers
of anonymity built into the Internet make it difficult to gather evidence to justify a full-scale
investigation.
People have been caught, but such cases are few, largely because the resources needed to handle
every complaint simply don't exist. And the OSC itself admits it has never used a court order to get
the names of chat room participants.
Meanwhile, StockHouse isn't ignoring the issue. Mr. Boutsalis says the company is considering a
way of verifying its users, by making phone calls to their homes within a day or two of registering
on-line. This, he says, would add some degree of accountability to the posters.
“It's part of our plans to look at it,” he says. “The validation process is very important.”
Mr. McCann calls the plan a good idea. “It would be a good first step for them.”
End of article.
Michael
www.clickforme.com