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Wednesday, 07/18/2007 3:12:51 AM

Wednesday, July 18, 2007 3:12:51 AM

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Whole Foods Launches Probe Into CEO Mackey's Web Posts

July 17, 2007 4:58 p.m.

Whole Foods Market Inc.'s board of directors said today that it has formed a special committee to conduct an internal investigation into the anonymous online postings made by the company's chairman and chief executive officer, John Mackey, over a roughly eight-year period. Mr. Mackey apologized for his actions.

"I sincerely apologize to all Whole Foods Market stakeholders for my error in judgment in anonymously participating on online financial message boards," Mr. Mackey said. "I am very sorry and I ask our stakeholders to please forgive me."RAHODEB SPEAKS

• Rahodeb's Greatest Hits: Highlights from Mackey's online posts1
Postings by 'Rahodeb' on Yahoo:
• Rahodeb's farewell comment2 to the Yahoo message board for Whole Foods stock in August 2006.
• Rahodeb says the fundamentals of Wild Oats shares haven't improved3 and that its stock price had risen merely because of speculation of a buyout.
• Rahodeb lambastes a Yahoo user4 who claimed Wild Oats had been a takeover target at $14 to $16 a share.
• Rahodeb predicts that Whole Foods shares will one day trade at more than $8005.
• Rahodeb claims Whole Foods shares are undervalued6 and Wild Oats is overvalued.
Note: Whole Foods didn't authenticate each and every one of Rahodeb's postings as being from Mr. Mackey. But the company and Mr. Mackey confirmed that he made numerous postings under the name Rahodeb from 1999 to 2006.

• SEC Opens Inquiry Into Mackey's Web Posts7
• Page One: Whole Foods CEO Posted on Forums8
• MarketBeat: CEOs Who Blog9
• Whole Foods confirms10 that John Mackey used an alias in making comments about the company's stock on Yahoo's Web site.
• John Mackey's blog11
• Read the full text of the FTC complaint12 and the FTC document released July 1013.
• Whole Foods CEO Has Heated Words for FTC14
• CEO's Words May Cook Whole Foods15

The company also confirmed that the Securities and Exchange Commission had contacted the company about its informal investigation into the company. Whole Foods will fully cooperate with the probe, it said.

The board didn't elaborate beyond a news release issued today. The committee has retained the firm Munger, Tolles & Olson LLP to advise it during the probe.

For about eight years, Mr. Mackey posted numerous comments about the natural and organic food retailer on Yahoo stock forums using a pseudonym. In some of his postings, Mr. Mackey, the company's co-founder, lauded Whole Foods' stock, cheered its financial results and bashed a company Whole Foods has made a bid to acquire.

While it isn't clear that Mr. Mackey violated any laws in his postings, they have raised numerous legal questions. The SEC is likely to examine whether Mr. Mackey's comments contradicted what the company previously said, or if they were overly optimistic about the firm's performance. In addition, the SEC will likely look at whether the CEO selectively disclosed material corporate information -- that could violate a securities law passed in 2000 known as Regulation Fair Disclosure, which was designed to prevent executives from sharing information with favored clients or analysts.

Mr. Mackey's postings came to light as the Federal Trade Commission investigated the company's planned acquisition of Wild Oats Markets Inc. On July 11, Whole Foods said that among millions of documents it gave to the FTC were Internet postings the CEO made from 1999 to 2006. Mr. Mackey used the pseudonym Rahodeb, a rendering of the name of the CEO's wife, Deborah.

Whole Foods, of Austin, Texas, in February announced plans to buy Wild Oats, of Boulder, Colo., for $565 million, or $18.50 a share, creating a powerhouse in natural and organic food retailing.

The Federal Trade Commission sued to block Whole Foods' purchase of Wild Oats on June 6 in U.S. District Court in Washington, D.C. The government contends the combination would violate antitrust law by reducing competition and raising prices for consumers. It is narrowly defining the market that Whole Foods and Wild Oats operate in as "premium natural and organic supermarkets."

Mr. Mackey has said the government "has failed to recognize the robust competition in the supermarket industry, which has grown more intense as competitors increase their offerings of natural, organic and fresh products." A hearing on the FTC's request for a preliminary injunction to thwart the merger is scheduled for July 31.

Write to David Kesmodel at david.kesmodel@wsj.com16

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