NetCurrents (fka NTCS)

[PappaJohn]

Web Watchdog NetCurrents
Discovers Trouble at Home
By Aaron Elstein
WSJ.com

Like a professional tattletale, NetCurrents Inc.'s business is to notify other companies when they are the subject of rumors and unfounded allegations on the Internet. But now NetCurrents is fighting statements made in its virtual backyard.

The Burlingame, Calif., company is suing two former top executives who allegedly posted "false" and "defamatory" statements about NetCurrents on a Web message board.

The suit, filed Monday in Los Angeles Superior Court, alleges that the company's former chief operating officer, Victor Holtorf, and a former sales executive, James Maloney, were among those posting defamatory messages on a Yahoo! message board. NetCurrents contends their statements were intended to "frighten and intimidate shareholders into selling their shares," depress the company's stock price and cause employees "to turn against present management so as to create an opportunity for Victor Holtorf to gain control of management."

NetCurrents seeks unspecified damages and an injunction to halt the defendants from posting further "false" messages. Mr. Holtorf, who lives in San Mateo County, Calif., according to court documents, and Mr. Maloney of San Francisco, couldn't be reached, and court officials said they didn't know who is representing them.

NetCurrents Chairman Irwin Meyer said his company filed the suit to protect its reputation as a pioneer in the fast-growing business of monitoring message-boards for corporate clients.

"We were asked, 'How can we be in the business of monitoring for others and not address our own problems?' " he said during a conference call with investors Tuesday to discuss third-quarter earnings. The company has "gathered sufficient evidence to support our claims" by using its "proprietary technology" and is prepared to fight the case "to the fullest," Mr. Meyer said.

NetCurrents competitors include several closely held companies, such as Internet Crimes Group, Princeton, N.J., eWatch, owned by the New York press-release distributor PR Newswire, CyberAlert of Stratford, Conn., Cyveillance of Arlington, Va., and MindfulEye of Vancouver, British Columbia.

Even the U.S. government is getting involved in Web surveillance. In August, the Securities and Exchange Commission awarded employee-owned Science Applications International Corp., San Diego, a $4.9 million contract to develop software to detect online fraud.

This long list of watchdogs underscores the growing popularity of online stock message boards. Much of what is said in these forums are opinions and speculation, but rumors sometimes emerge that affect stock prices and offend company managers.

"More and more companies are looking to outside firms to take the temperature of the boards," says Blake Bell, a New York lawyer who tracks defamation cases involving the Internet. "It is a growth business."

David Sobel, general counsel at the Electronic Privacy Information Center in Washington, says companies are wise to monitor the Internet to correct inaccurate information. "If they're doing surveillance with the idea of retribution, however, that's a different matter," he says.

NetCurrents, whose clients include software-giant Oracle Corp. and Internet service provider EarthLink Inc., uses its proprietary software to measure "combined overall Internet sentiment" by scanning 63,000 Web sites, including message boards run by Yahoo, Raging Bull , Silicon Investor and The Motley Fool . In an interview earlier this month, Mr. Meyer says his company notifies clients when materially false information is published but ignores posts that are purely personal, such as those that insult top executives.

When Oracle's stock fell 29% earlier this month on false rumors that its chief financial officer was leaving and Chairman Lawrence Ellison had died, NetCurrents quickly notified Oracle, which promptly denied them and minimized the damage to its share price, Mr. Meyer said.

Oracle spokeswoman Jennifer Glass said she learned about the rumors from inquiring reporters before hearing from NetCurrents. Still, she says, the service is useful. "They send us a report every month telling us what people on the boards are saying," she says. "It's good to know."

NetCurrents remains unprofitable. On Tuesday, it posted a loss of $1.9 million, or seven cents a share, compared with a loss of $813,000, or seven cents a share, in the year-earlier period, when it had fewer shares outstanding. Revenue nearly quadrupled to $477,000.

At 4 p.m. Wednesday, its stock was unchanged at 97 cents on the Nasdaq Stock Market, far from its 52-week high of $11.94 in March.

Nonetheless, Mr. Meyer was optimistic about his company's prospects during Tuesday's conference call, saying there is ample demand for its services.

Meanwhile, his company has begun a legal battle against Mr. Holtorf, who was president of privately held Infolocity Inc., which merged last December to form NetCurrents.

Mr. Holtorf served as chief operating officer at NetCurrents until Sept. 1, according to court documents. At that time, he allegedly was posting messages online, saying that Mr. Meyer was "spending money illegally and frivolously ... [and] deceived the public and investors by keeping its true expenditures hidden." NetCurrents also alleges that Mr. Holtorf made false and disparaging statements about the company at an October meeting that he initiated with investors who own 1.7 million NetCurrents shares.

And the company says Mr. Holtorf has been "causing general confusion" among employees by showing up at its offices and telling some people that he was planning to oust management and gain control of NetCurrents.

Write to Aaron Elstein at [e-mail]

http://public.wsj.com/sn/y/SB97431135999605777.html