Internet trading has put the knee-jerk reaction back in vogue. With company news moving around the globe at the speed of electrons, the rewards for those who act quickly on it can be high. For instance, investors who caught the news of Aastrom's mid-February acquisition by Geron Corporation early could have bought Aastrom stock for $4.00 and sold it the next day for $7.50. At the same time, Geron's stock rose 26% to a 52-week high of $59.625.
This deal made sense. Geron has certainly made some shrewd acquisitions in the past. Aastrom, despite its rather distressed stock price, has been at the forefront of replacement cell culture technology. But in this instance, we can be fairly sure that the market's immediate reaction was not based on such deep considerations, or indeed, on any considerations beyond the offer of $11.79 a share that Geron was making for Aastrom, a price nearly three times recent trading levels.
The only catch was that there was no deal. Geron was not making an offer of any kind for anybody. The “news” of the merger had been planted on the Aastrom web site by hackers. The hoax was discovered fairly rapidly and trading in the two companies was quickly halted by the Securities and Exchange Commission.
Righteous indignation erupted. The hackers were branded “ruthless.” The SEC is likely to instigate an enquiry into the scam. There were calls for tighter controls on the publication of price-sensitive news through the electronic media. Companies will no doubt respond to such calls. Investors might be more secure as a result. But, then again, they probably won't.
For a start, the internet is not the source of the danger. Misinformation is misinformation whether it is conveyed by email, fax, telephone, or casual conversation. The internet accelerates transmission and extends reach. Tightening security is doomed to fail because fraudsters are, almost by definition, out of reach and able to surprise and, more importantly, the demand for corporate news—whether true or false—will remain equally voracious. Enhanced security will make corporate electronic information more reliable. But it will also prompt smarter fraudsters to find other, richer routes to investors' wallets.
If there is a solution to corporate misinformation, it must lie in the approach of investors. Investors who expect others to protect them from misinformation are in real danger. There is no excuse for not being well informed. Corporate web sites are only the most visible tip of the plethora of real information on biology and biotechnology companies. Investors owe it to themselves to understand how life sciences businesses work. Equally, they need to “engage skeptical mode” and to grade both the quality and content of the information they collect. Creating a more critical investor community will not eliminate fraud, but it will reduce the demand for it.