Monday, July 16, 2007

SEC Opens Informal Inquiry Of Whole Foods CEO Postings - WSJ.com

The WSJ and CNBC are reporting that the SEC has opened an informal inquiry into the online postings of Whole Foods CEO John Mackey about his company, and his competitor.

As mentioned earlier, Mackey has allegedly been posting comments on the Internet about his company and Wild Oats, a competitor, and he did so using a pseudonym. The postings have become important, as Whole Foods is attempting to purchase Wild Oats.

The postings provide fodder for an interesting number of securities law questions, but those are merely questions, not necessarily violations. For example, the SEC is reportedly looking at potential violations of Reg FD, or whether Mackey's comments contradict public comments from the company, or disclosure of confidential information.

But all of this speculation about the investigation overlooks an important point in the story thus far - Mackey posted using a pseudonym. He did not say who he was, and apparently gave no indication that he was in any way connected with the company. To those reading the internet forum where he posted, he was simply another interested user of the board.

It is therefore going to be unimportant, and meaningless, if Mackey posted information that contradicted information released by teh company. No regulator is going to seriously argue that the fact that some guy named "rahodeb" contradicts a press release from the company on an Internet discussion forum. Even the most gullible Internet user knows, or should know, that "rahodeb" knows nothing more than they do about the stock or the business of the company.

Which raises the question - can glowing comments by an anonymous interest posters be the basis for liability for the poster, and how far does that liability reach?

We know the answer for those who attempt to manipulate the price of a security - the answer is yes. Using any device to manipulate the price of a security violates 10b-5. But Mackey is not (yet) accused of attempting to manipulate the stock, and thus far, no one has indicated that anything he said was false.

We will keep an eye on this, because the questions, and answers, will change as the facts come to light. For example, today the WSJ reports that "rahodeb" commented on the company's financial projections that has not been disclosed, saying that eh company projected 12 billion dollars in sales for 2010, and added that he wouldn't be surprised if the number ends up being closer to 14 billion dollars. Depending on what else was said, and if this was in fact the posting, there could be a violation of Reg FD, if readers could figure out who the poster was.

Or, was he simply attempting to manipulate the price of the stock?

Interesting case.

The WSJ has collected some of "rahodeb's" posts here. The posting are still available on the Yahoo! board where the topic has, predictably, caused a raging debate.
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