The Wall Street Journal‘s great story about Whole Foods (WFMI) CEO John Mackey’s pseudonymous postings on stock-market chat forums — more than 100 posts from 1999 to August 2006 — naturally has everyone (including my editors) wondering: what exactly are the legal issues here?
I called some securities law experts, but they all seemed to think that the problem was a bit broader than that. It’s a control issue, they explained. The CEO is disseminating information that hasn’t been reviewed by either the general counsel or the board. If his comments move the market, he could be engaging in stock manipulation. If anything he says is materially misleading, he’s violating Section 10B of the Securities Exchange Act. If any material nonpublic information slips out, he’s violating Regulation FD, which forbids selective disclosures. If he’s ragging on a competitor’s CEO, he could inadvertently say something defamatory. If there are confidentiality agreements in place, he could be violating them.
“This episode raises more questions about his sanity than his criminality,” says Columbia Law School professor Jack Coffee. “He does not appear to have made any materially false statement . . . and he did not release material information. The real issue for the future is what his board should do. Can it have confidence in someone with judgment this poor?”
Mackey’s own account of what he did and why — “I posted on Yahoo under a pseudonym because I had fun doing it” — is contained in an FAQ on the Whole Foods site here.
One pretty good example of a Mackey chat-room post that might not have made it through a legal vetting process is the one found on page 4 of the Federal Trade Commission’s June 2007 brief seeking to enjoin Whole Foods’s $565 milion acquisition of competitor Wild Oats (OATS). In that case the FTC is trying to prove that the merger would “substantially tend to lessen competition” in violation of the antitrust laws. In a March 2006 chat-room post Mackey wrote, “Whole Foods says they will open 25 stores in OATS territories in the next 2 years. . . . . The writing is on the wall. . . . Whole Foods is systematically destroying their viability as a business — market by market, city by city.”
Of course, Mackey appears to have been so disarmingly candid even in his fully attributed statements in official settings, that his chat-room logorrhea might not end up making any difference. According to the FTC brief, he told his board of directors (in an evidently recorded or transcribed setting): “By buying them we will . . . eliminate forever the possibility of Kroger (KR), Super Value, or Safeway (SWY) using their brand equity to launch a competing national natural/organic food chain to rival us. . . . [Wild Oats] is the only existing company that has the brand and number of stores to be a meaningful springboard for another player to get in this space. Eliminating them means eliminating this threat forever, or almost forever.” I’ll bet a lot of antitrust regulators go their entire careers without being handed a smoking gun as hot as that one.
If you want to look at the Rahodeb emails yourself (that was Mackey’s nom de keyboard; it’s an anagram of his wife’s name, “Deborah”), I’ve done a casual search of the Yahoo Finance Message Boards and found about 151 of them, available here. It looks from context, though, like there would have been more if Yahoo’s archives went back further. [CORRECTION: Commenter KatLawson points out that there are at least 1,394 Rahodeb posts, and provides the appropriate search link.]
Though it’s hard for a reporter — or an antitrust regulator! — not to love a CEO as forthcoming as Mackey, we’ll have to see if Whole Foods’ board finds the trait as endearing.