The April Fools' stock hoax and the FBI

All these pranksters wanted to do was raise an alarm about Net investing. So why are they being investigated and sued?


David Zgodzinski
May 5, 1999 8:00PM (UTC)

Here's a little number that looks promising: Webnode.com. You read about the company on a hot investment discussion thread at Silicon Investor. Click over to the Webnode site and you find a Business Wire press release explaining that the company has been given a contract from the government to raise $4 billion to fund the creation of the "Next Generation Internet." Webnode will raise the money by selling 40 million Internet "nodes" for an initial price of $100 each.

Sounds fabulous -- the old Internet is slower than your bathtub drain. You missed out on Yahoo, Amazon and eBay, but you're not going to miss out on this.

Advertisement:

Then some of the claims posted to the board begin to sound just too outlandish. You notice the date on the press release, April 1, and it hits you: Webnode is a prank.

You may feel stupid and a bit pissed off. At least you didn't lose a cent. And next time you see a great new investment idea on the Net, you may think a little bit harder.

That's not where the Webnode story ends, though. The FBI was called in to investigate and the perpetrators of the prank are being sued. A few days afterwards, another Internet stock hoax involving an actual public company called PairGain caused its stock price to gyrate wildly. The FBI has arrested a suspect.

These kinds of stories make for readable headlines, and they stoke fears that innocent investors are flocking online to be met by packs of market wolves, eager to shear them. Has Internet stock fraud run amok? Is there such a thing as an innocent stock prank on the Web? And should the FBI be investigating April Fools' jokes?

Webnode had the look and feel of a hot new Internet stock. Around 4,800 visitors flocked to the Web site on April 1. Janice Shell, one of the April Fools' "company's" creators, describes the enthusiasm: "We got about 1,400 e-mails. I read maybe the first 800 e-mails before lapsing into catatonia. Although people were given a comment box, hardly anyone bothered. They just wanted to reserve nodes or receive info about the forthcoming private placement." On April 2, Webnode's three creators -- who'd become friends on Net stock discussion boards -- posted a page owning up to their stunt.

And there the saga would have quietly ended -- but for one detail: Business Wire was none too happy. Since 1961, the company has been disseminating company press releases to news organizations. The perpetrators of the Webnode hoax had filled in the application, sent in the press release, paid for it and had it sent out on the Business Wire network. They also posted the release at the Webnode site.

Advertisement:

After receiving a phone call warning of the hoax, Business Wire contacted the creators of Webnode. "We asked them to delete the press release and they refused," says Cathy Baron Tamraz, a senior vice-president at Business Wire.

Jeffrey Mitchell, one of the creators of Webnode, says they didn't refuse, but that it took them a few hours to get around to pulling down the press release. Instead of taking it down altogether, however, Mitchell and his cohorts decided to change the "Business Wire" header to "Bidness Wire."

Business Wire demanded that the complete press release, which had been composed by the Webnode pranksters, be struck from the site. "They were giving us a very hard time," says Baron Tamraz. The Webnoders eventually relented on April 18, replacing the original release with a page poking more fun at Business Wire.

On April 22, Business Wire contacted the FBI and notified them about the Webnode hoax. Two days later the company filed suit against the three creators of Webnode -- the first time in its history that Business Wire has sued anyone for fraud.

Advertisement:

The climate for the Webnoders may have turned more hostile in the wake of another, more serious Net investment hoax on April 5 -- one that involved a real stock and real money. A fake Bloomberg news release announcing a takeover was posted on a free Web hosting service about PairGain Technologies, a telecommunications equipment maker. A few users on the investment board at Yahoo talked up the story, mentioning the press release and the stock popped 31 percent in one day before the hoax was exposed. Bloomberg sued the anonymous perpetrators. Soon afterward, the FBI arrested the initiator of the stunt, an employee of PairGain, and charged him with criminal fraud.

Did the PairGain incident have any influence on Business Wire's decision to sue the Webnode pranksters? Baron Tamraz says, "Not really. But the incident does point out the dangers of Internet fraud ... They're giving the Internet a very bad name."

But the hoaxsters themselves argue that they were doing the opposite -- trying to educate a gullible public to be more wary about trusting ill-founded or bogus stock tips on the Net. They made their humorous point, and those who fell for it learned a lesson without losing money.

Advertisement:

Who are the Webnode Three? They're the sort of people you increasingly find on the Net's investment forums -- informal watchdogs who've developed a taste for lifting the lid off investment scams to see what scurries out in the light.

"I hate cockroaches," says Bill Ulrich, a Web designer who put together the Webnode.com site. "And I like to step on them." Ulrich says he tends to invest in larger technology companies, and remains skeptical but curious about new ventures: "My parents lost money on a scam stock deal, and I guess that's made me aware of what can actually go on out there."

Jeffrey Mitchell runs his own software company. When he first became involved in online investment discussions, he joined a thread led by "a hypester who attracted a huge audience that hung on his every word," Mitchell says. "Problem is, this hypester made the mistake of promoting a stock, that he claimed had a 'fully automated' solution to curing Y2K. As a programmer, this didn't make any sense and, not knowing any better, I called him on it. It became apparent that he was posting under numerous names to con people into thinking he had public support and that people were making a killing off his stock picks. I guess it just wasn't in my nature to sit back and let people whom I considered cyberbuddies get scammed."

Advertisement:

Janice Shell, an art historian who resides in Milan and lives on the Silicon Investor threads, has paid her dues with incompetent brokers, painful margin squeezes and taking pills on speculative stocks. She's quite happy, now, to point out to others the error of their ways.

"I'm a research scholar by profession, so digging for information and then interpreting it is something I know how to do, and genuinely enjoy doing. I'd like to help educate investors to the dangers of scamsters and hypesters -- help them learn how to do real due diligence. But I have no particular sympathy for nasty and belligerent longs [people who own a stock] who do nothing but scream that we're evil because we think the company they're invested in has got some problems."

There is a small but active coterie of whistle blowers on the stock threads who seem to get their kicks by outing scam artists. Somehow, the invisible hand of the Net gathers such individuals and forms complex new compounds capable of conjuring up something like Webnode.

Call it open-source investment investigation: Without them, the investment forums might actually become the dens of iniquity they are so often portrayed to be.

Advertisement:

David Zgodzinski

MORE FROM David Zgodzinski

BROWSE SALON.COM
COMPLETELY AD FREE,
FOR THE NEXT HOUR

Read Now, Pay Later - no upfront
registration for 1-Hour Access

Click Here
7-Day Access and Monthly
Subscriptions also available
No tracking or personal data collection
beyond name and email address

•••





Fearless journalism
in your inbox every day

Sign up for our free newsletter

• • •