As reported here, Whole Foods founder and CEO John Mackey admitted yesterday to anonymously posting messages about Whole Foods and its rival, Wild Oats, on Yahoo’s stock forum. This revelation comes following a Federal Trade Commission suit to stop a pending merger between Whole Foods and Wild Oats over antitrust concerns.
Several reports have indicated the SEC is conducting its own investigation into whether Mackey violated securities laws with the postings. The mere use of a pseudonym on a website by a company’s CEO is not a violation of securities laws; however, the securities laws are implicated if the postings are used to selectively disclose material non-public information in violation of Regulation FD or to commit fraud. Professor J. Robert Brown of the University of Denver Sturm College of Law offers further explanation here regarding potential violations by Mackey.
Brown concludes that any Reg. FD violation will depend on (a) whether the information disclosed was material, (b) whether Whole Foods knew about it and failed to disclose the information to the entire market, and (c) whether posting on a forum accessible by the entire market is selective disclosure. It will be difficult to prove a Reg. FD violation on these facts.
And, Brown asserts any allegation of fraud will depend on showing Mackey made materially false or incomplete statements. This will be difficult to show because statements made by an unidentified contributor to a message board are likely not considered material by a reasonable investor.
