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Reuters
May 24, 2001

Web firm dispute reopens news hoax concerns
By Daniel Sorid

NEW YORK, May 24 (Reuters) - Business Wire, one of the largest distributors of corporate announcements, has been snagged by a bitter internal conflict at a tiny New York technology company in a dispute that rings of the press release hoax last year involving Emulex Corp.

On Monday, San Francisco-based Business Wire published a statement from Streamedia Communications Inc., whose stock is traded on the Nasdaq for just 23 cents, declaring the ``expiration'' of its chief executive's term and the return of its one-time chairman.

Business Wire published a second release on Wednesday from the company, a Web services provider, claiming the first release had been unauthorized and contained ``significant misrepresentations of important facts'' concerning Streamedia.

The first release was authorized by Streamedia's former chairman, Gayle Essary, and the second by the chief executive, Henry Siegel.

On March 12, Streamedia released a statement that said its board had terminated Essary as director and vice president of the company, effective March 9, ending his involvement with Streamedia.

Business Wire President Larry Lokey said it has now banned the company from its service until the power struggle between Essary and Siegel has been settled. It is also investigating the matter, Lokey said.

But the fact that two contradictory releases from the same source remain on the record has troubled some experts on the media.

``It sounds like there should have been a lot more security at that level,'' Sreenath Sreenivasan, a professor of new media at the Columbia University Graduate School of Journalism, said. ``You expect it to be true if it's on a press release.''

Meanwhile, Lokey said Business Wire has policies in place to keep illegitimate releases off its wire, but that it cannot, ultimately, be held responsible for the absolute veracity of each release.

``We provide the rough news,'' he said. ``The news media then receive it and then they verify it.''

But even a single false press release can have brutal consequences, as the Emulex scandal showed.

In August of last year, a 23-year-old college student staged one of the largest Internet financial hoaxes by issuing a false press release over Internet Wire, a minor player in the distribution of media releases.

The stock of Emulex, a technology company traded on the Nasdaq, tanked after the release was picked up by several news wires, and many investors took major losses as a result. The student, Mark Simeon Jakob, netted hundreds of thousands of dollars in profits.

The student pleaded guilty to manipulating the stock in December.

But the scandal led to questioning about the validity of the system of issuing press releases through third parties. News wire services and other media outlets rely on press releases as a major source of news, and investors regularly buy and sell stock based on a media release's statement.

In the Streamedia dispute, the Monday press release from the company stated that Essary ``has returned'' to facilitate an ongoing merger ``following the expiration of the term of Interim President/CEO Henry Siegel.'' That press release was written by Essary.

Siegel, who in a recent company filing to U.S. regulators was listed as the CEO, said Essary lacked any authority to speak for the company in a press release. Essary, in an interview, said he was authorized to issue the release.

Business Wire's Lokey summed it up this way: ``It's the 'he said, she said' type of thing. We are a middle man carrier.''