Special Report: The stock, the Web, the CEO and his lawyers

LONDON (Reuters) - As a CEO, David Bramhill could handle the online attacks on his looks and his character. “You get used to the personal stuff that goes up: ‘Fat bastard,’ etc.,” says the burly one-time boxer and oil industry veteran. “I don’t like it but I suppose being in the position I’m in, OK, they can take pot shots at me.”

A screen shows the home page of the Advanced Financial Network (ADVFN) website November 18, 2010. REUTERS/Simon Newman

But when the messages on internet bulletin boards became a concerted campaign of criticism against his oil and gas exploration company, Bramhill snapped. “When it comes to dishonesty, and not running the company the way it should be run, and spreading untrue rumors -- this is where we’ve got major, major issues,” a disillusioned Bramhill told Reuters in early September.

Bramhill’s experience is part of a bigger story of insults and untruths involving a clutch of firms listed on AIM, London’s junior stock market. According to the companies, they are victims of a kind of financial cyber-bullying in which discussions among investors on internet bulletin boards have turned abusive. Executives of the targeted companies, typically small and often in commodities, suspect an organized hand may be directing those behind the comments -- and then cashing in on the reaction.

The incidents expose a lack of effective regulation of investment chat boards as well as the huge impact anonymous posters can have on smaller companies and people’s lives. Soon after Bramhill spoke to Reuters, the 59-year old, who also received physical threats from people posting on investment message boards, announced his retirement.

The company he led, Nighthawk Energy, invested $30 million in its U.S.-based projects over the last financial year and was earlier this month rated a ‘buy’ by Goldman Sachs. Frustrated with a lack of action by Britain’s market regulator, which says such cases are difficult to police and a low priority, Nighthawk, fellow AIM-listed oil explorer Nostra Terra and several other small companies have considered legal action against message board-posters, who typically use multiple aliases to disguise their identity. In rulings that have emboldened the companies, Britain’s High Court granted orders to both Nighthawk and Nostra Terra this year giving them the right to order message boards to disclose the identities of those behind the disparaging remarks.

The issue is not unique to Britain. Companies in the United States have also complained about message board users, though there the right to free speech provides significant protection for posters. Not so in Canada, where last March small cap resources firm Farallon Mining Ltd won damages of $425,000 against a user of online site Stockhouse. It was the biggest defamation payout ever awarded against a single person in Canada.

“The bulletin board becomes the tail wagging the bloody company,” Bramhill says. “There was one particular theme of dishonesty in the company, of projects not being correct. We’re aware of all this stuff. It’s all a load of baloney and you try not to look at it but people send you it and ask, ‘What are you going to do about it?’”

Another executive told Reuters that his company has found one individual posting defamatory comments using 22 different aliases. “We believe there is a network behind it that’s trading and manipulating and they’re using him as the front,” says the executive, who spoke on condition of anonymity because the company is pursuing the investigation. “We want to get the bigger fish - otherwise we would have taken him down already.”


Investor message boards appeared in the very early days of the web and boomed among private investors working as “day traders” during the dot-com bubble of the late 1990s. The boards Nighthawk and Nostra Terra have focused on in their legal challenges are ADVFN, or Advanced Financial Network, and iii, or Interactive Investor. ADVFN is Europe’s biggest financial markets website with two million registered users and as many as 12,000 posts a day. iii claims 1.6 million users, and clocked up around 180,000 posts from over 9,000 contributors over the last month.

Neither board requires participants to reveal their real identity as they post, and it’s not difficult for a single user to create multiple aliases. ADVFN users can opt for what the site calls the “more refined environment” of premium boards at a cost of 5 pounds ($7.97) per month, or enter the fray of the much more popular free boards, which require a simple registration. Posts on message boards vary from the short and bitter (“I’m out”, to flag a stock sale) to mini-essays dissecting the minutiae of company statements. As with most internet forums, the grammar is dubious, insults are bandied freely and the messages are loaded with abbreviations and euphemisms that can be indecipherable to outsiders.

Because of their potential volatility, small companies in risky industries like oil exploration are a favorite topic. On the iii forum in October, for instance, Falklands oil explorer Desire Petroleum was one of the most talked about stocks. One evening posters speculated on the company’s drilling campaign, on which it was about due to report, through the night. “There were very strong bad vibes yesterday and I sold my last remaining DES,” said ‘Pro_S2009’ at 4 in the morning. His or her inclination proved far sighted. At 7 am Desire announced that a well was a ‘duster’ -- had no oil -- kicking off hundreds of accusatory messages, conspiracy theories and recommendations. “Stick your buy orders in very low,” said one. “The city insiders know the deal,” said another. Many were unpublishable.

The big audiences the sites attract have delivered good returns for a few. Cambridge graduate Tomas Carruthers founded iii in 1995 and floated it in 2000, when, like many internet stocks, its market value rocketed even though it made a loss. Sold to an Australian company for around 50 million pounds in 2001, it was eventually bought back by Carruthers and partners in 2004. ADVFN, which itself is listed on AIM, last year made a small profit on revenues of 8 million pounds. The company is founded and run by internet entrepreneur Clem Chambers, a self-styled market commentator and author of financial thrillers such as “The Twain Maxim”, a story of a shady mining promoter and a broker missing in the Congolese jungle, and financial investment articles and books such as the upcoming “101 ways to pick stock market winners with ADVFN”.

ADVFN declined to be interviewed for this article and did not answer questions sent in an email. A spokeswoman said: “Our bulletin boards are not part of our strategic outreach at the moment, as such we don’t have any material on these topics.”

At iii, Chief Technology Officer Tim Huckle said: “We operate and encourage a ‘neighborhood watch’ process on the boards, where the site users themselves police postings by highlighting those that are offensive or questionable.” Since August 2010, Huckle said, iii has required new users to ring a contact center that takes “the necessary steps to identify the user as far as possible”.

“We also have previously surveyed our user base about the use of (credit-checking) services to check identities through bank cards, whilst still remaining anonymous to other users. We are continuing to explore these and other ways in which we can check identities,” he added.

Alastair Fairbrother, a spokesman for the London Stock Exchange, said the bourse took the regulation of the junior market seriously and that AIM was designed to be a “fully functioning” market. “We’re very comfortable with the level of regulation and the model and it’s not something we’d be looking to change,” he said.


Working from her dining room in a garden apartment in the smart London suburb of Hampstead, Susan Marmor, a full-time retail investor since 2005 and regular poster on ADVFN, uses the boards alongside her own charts to decide which stocks to trade each morning. She thinks she can do a pretty good job of picking winning stocks. “In 2008 I just about broke even but every other year’s been stonking really,” she says.

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If Marmor’s home is her office, and she’s her own boss, her colleagues are the virtual contacts on the boards. Posting from breakfast until bedtime, Marmor and other home-based investors spend their day online discussing share prices, tick charts and company performance. “The bulletin boards fulfill the need to talk about what I do,” says Marmor, sitting at her dining-table and frowning as her PC monitor, swiveled to face her, beeps to indicate her stocks are headed in the wrong direction. “The biggest problem we have, all of us traders, is that our friends and family don’t want to talk about it. They glaze over with the sheer boredom of it. They’re not interested in talking about some gold miner in Tajikistan.”

Sometimes, though, it’s difficult even for an experienced trader like Marmor to sort the good information on the boards from the bad, and she questions whether the websites do all they can to protect honest traders from those with less scruples. “The problem is that on ADVFN it takes someone literally 10 minutes to set up another persona,” Marmor says. “They just don’t care. They just want to get as many people on there as possible. They like confrontation because confrontation brings people in. I know of one person who has been kicked off but every time he’s kicked off he comes back as someone else. It’s too easy to recreate yourself and be multiple personalities.

“You do feel sorry for those people who get sucked in to a story, or a ramp, or the pump-and-dump which goes on all the time.”


Manipulation such as ‘ramping’ or ‘pumping and dumping’ -- talking a share up to encourage buying and then selling off at a profit -- is as old as markets themselves. While it used to happen in the alleyways and pubs of capital cities like London and Paris, now it’s easier to get a story going online -- despite the fact that it’s as illegal on an internet message board as in the real world.

In Britain, this type of market abuse falls under the jurisdiction of the Financial Services Authority (FSA), the main financial regulator whose future has been uncertain since the Conservative party, the senior partner in Britain’s coalition government, vowed to abolish it in the run-up to the May election. FSA spokesman Christopher Hamilton says bulletin board market abuse is a low priority. The FSA cannot monitor the entire internet, he says, and relies on complaints from people who feel they have been at the sharp end of manipulation.

“You have to accept that there are various scales of market abuse,” says Hamilton. “Misinformation on the boards is at the bottom end and there is a priority of resources. (A prosecution) can take months, years. The focus is on deterrents.”

Those deterrents include civil prosecution, which could lead to a fine or a ban. But the FSA has so far levied just one fine for direct bulletin board market abuse -- in 2005, when a man who owned shares in a small company, Trafficmaster, read the minutes of a management meeting in his friend’s kitchen and posted details on ADVFN.

In response to a Freedom of Information request submitted by Reuters, the FSA said it had not launched any investigations into possible market abuse on investor internet bulletin boards over the last three years. It also said it could not say how many of the market abuse complaints or requests for investigations that it has received since the start of 2008 related to bulletin boards.

“Whilst there have been no formal investigations launched into bulletin boards, the FSA does routinely look at them and other internet sites during the course of our work on market abuse,” the watchdog said in an email sent to Reuters.

Internet-based market manipulation is very difficult to prosecute, the FSA’s Hamilton says. Hundreds of factors can affect a share at any time and making a direct link with online chatter is tough. Posters can also easily hide behind online aliases.

Rumors regularly circulate that company executives themselves even post comments. U.S. regulators investigated Whole Foods Market CEO John Mackey for anonymous comments posted on a Yahoo forum from 1999 to 2006, in which he championed his company and disparaged a rival. Mackey conceded he had written the posts, but said he was simply defending his company against Whole Foods Market bashers. Ultimately, regulators decided to take no action.


Two things about London’s AIM market make it even easier to prime the message boards for a profit: it has much weaker company disclosure requirements than Britain’s main stock exchange, and it allows individual investors to ‘short’ stocks -- sell shares they don’t yet own at the current price in the hope of buying them more cheaply later to complete the trade, and profit from the decline in price. Shorting is infamously open to abuse: a trader who sells short can spread negative rumors about a company to try to force the shares lower.

Nighthawk may have been a victim of this. It floated on AIM in 2007 with a market value of just under 40 million pounds, raising 10 million pounds through a placing of shares at 25 pence each. Investors were lured not only by flagship projects in Colorado and Kansas but also by Bramhill’s reputation as the operator behind successful resource companies such as Pan Andean, Oil Quest, Cambridge Mineral Resources and Hereward Ventures, where he had roles as director, managing director and CEO. Peaking at 116 pence in 2008, the stock became one of the most actively traded on AIM.

Then the financial crisis hit. “It wiped a lot of people out,” Bramhill recalls. “Then things started accelerating on these boards ... serious abuse and threats and untruths about the company.”

By the summer of 2009 the volume and negativity of the postings had intensified. The main message board dedicated to Nighthawk on ADVFN, which has seen about 100,000 posts since it was set up in March 2007, counted around 7,000 posts in June 2009 alone. Posters claimed Nighthawk had failed to find oil at its wells in Kansas and was set to have assets seized by U.S. authorities because of unpaid bills -- neither of which were true. At first, the Nighthawk share price showed signs of recovery, before slumping to 31 pence in mid-July, 2009. The stock price has continued to decline, and Bramhill announced his departure on September 29 2010. One post on ADVFN said: “Guess that what some folks wanted, right? Probably sick of all the abuse...”

Bramhill has not been the only target. Nostra Terra’s Chief Executive Matt Lofgran, one of AIM’s youngest chief executives at 34 years of age, recalls a similar experience. “At one point they insinuated I was a drunk driver,” says Lofgran, who states categorically that he has never had a conviction for drunk driving. “It’s not really what you want for a CEO of your company.”

Tom Kelly, chief executive of fellow oil explorer Empyrean Energy, says he too is monitoring the situation after a series of what he calls “damaging remarks” on the boards. “AIM enables investors to short,” says Kelly. “You can’t do that with junior stocks in places like Australia. It’s something for regulators to be aware of -- if they see the need to regulate that would be welcome. I’m all for free markets and information but we must have some protection for small investors.”


Steve Davies is just one such small investor. A regular user of the boards since he developed a passion for investing in small cap companies after retiring, Davies lives in Cyprus and says he generally enjoys taking part in the daily banter on the boards and learns things on them he wouldn’t read elsewhere.

But he also knows a takedown when he sees one, and he watched in horror as the attack on Nighthawk unfolded. “The allegations that were being made by four of five posters or one person with multiple IDs were extremely well written, they drove the price down massively,” Davies says. “Whoever was making those postings knew they were complete falsehoods, but they were making very sophisticated, backed up statements.

“We know this because the price absolutely bottomed, and then obviously that person started buying in big time, and they went straight back up again the next day -- and they made a complete killing and never posted on the board again. We never heard from them.”

Nostra Terra CEO Lofgran said the most aggressive poster about his company had over 20 different aliases. “He’d sit there and have conversations with himself so there would be the appearance of a whole horde of people all up in arms. It’s a mob. Let’s go lynch these people!” he says.

That may all be true, some regular board users point out, but companies also blame the boards to cover up their own shortcomings. One-time Nighthawk investor John Douce, a retired civil engineer, sympathizes with Bramhill but is skeptical about suggestions the boards were to blame for the company’s share price collapse. “David Bramhill has suffered personal abuse, stalkers, anonymous letters to his house, false reports to the police and all of those sort of things. That should be dealt with by ordinary laws,” says Douce, who spends several hours a day glued to his computer screen. “But the share price decline leads one to believe all is not well on planet Nighthawk.”

Sitting perched over his computer in his semi-detached home in east London, Douce concedes that the tone of the messages helped inform his decision to sell his Nighthawk shares. “It caught fire. I realized the way it was going. It just got angrier and angrier, more aggressive, and I thought ‘I’m out’.

“Companies may well say that their price has been affected (by negative postings) but I don’t really think that has been the prime cause of the company being undervalued. It may have been that has drawn attention to an overvalue, and I think that happened with Nighthawk.”

Douce reckons all companies -- not just Nighthawk -- can avoid becoming targets by being more transparent with shareholders. “Companies must be willing to be more open in terms of answering genuine questions,” he says. “Instead of just saying everything is wonderful, they should perhaps issue more information, not just the bare minimum.”

Bramhill’s successor as Nighthawk chief executive, Tim Heely, denied the share price decline represented fundamental problems with the company. “I appreciate that view, it’s quite an entertaining view but it is incorrect,” he told Reuters. “Our strategy ... is to turn this company around from an operational sense and drive the share price forward from that.”


Given the reluctance or inability of the regulator to intervene, companies in Britain have begun to turn to the courts to seek redress against abusive posters. Britain has some of the strongest defamation laws in the world, with the burden of proof on the defendant. “The first thing we check is where the website is registered. If it’s in the U.S. we can’t do anything,” says Michael Coyle, Director of UK internet law specialists, Lawdit, referring to freedom of speech protection. In the UK, on the other hand, “defamation can be used very powerfully. Solicitors take cases on a no-win, no-fee basis.”

To bring such a case, though, companies need the identity of the person posting, and only a fraction of commentators use their real names. Because websites protect the identities of their subscribers -- many cite data protection laws and their own privacy policies -- knowing who to go after has been difficult. That’s why Nighthawk and Nostra Terra used the courts to force ADVFN and iii to hand over details they hold on record about users. The tactic -- applying for a so-called Norwich Pharmacal order, named for a 1973 judgment which found that the Norwich Pharmacal Company was entitled to be told the identity of those whose illegal activity was hurting its business -- is now being considered by an organization representing hotels and guesthouses, for potentially defamatory reviews online.

Just getting the order can cost thousands, if not tens of thousands of pounds, says Paul Chamberlain, solicitor with media lawyers Davenport Lyons. Even then it might yield only an email address, which will require another order to force the email provider to release records. “You’re incurring significant costs to get involved in litigation even before incurring the significant costs of litigation,” Chamberlain points out.

Despite those hurdles, Nostra Terra’s Lofgran says he remains as determined as ever to face his tormentors down. But a spokesman for Nighthawk Energy said the company had decided not to pursue legal action against posters following Bramhill’s decision to retire. In September, Bramhill had railed against the injustice of the attacks. “I’m a relatively rich guy and my reaction was to say: ‘To hell with this...’ Why should I be subjected to it? Somebody said ‘I’m going to come down and put a shotgun to your mouth’ and yet they allow this... It is shocking.”

Davies, the Cyprus-based investor, believes self-regulation is the best way forward. “I think it’s the responsibility of the people who use the board to report to the company that this has happened so the company can take action,” Davies says. “I can’t see how the board can monitor every single post.”

In Hampstead, Marmor says people should do their own research, be careful, and stay wary of the boards. Then she looks at her monitor and smiles: “Finally! I get a ping to the upside!”

Edited by Sara Ledwith and Simon Robinson