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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?

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By David Zgodzinski

May 5, 1999 | 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.

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.

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."

 Next page | Was Webnode fraud or an educational program for gullible investors?



 

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