A Cyberlaw Connection to the Bloomberg Fiasco:

There's an interesting little cyber-law connection to the Bloomberg f***-up that sent out the (false) news that United Airlines had entered Chapter 11, and that sent United stock tumbling in a matter of minutes on Monday (wiping out more than $1 billion in shareholder value in less than an hour before trading was halted).

According to the Int. Herald Tribune/NY Times,

"United blamed an old Chicago Tribune article that, it said, was posted on the Web site of The South Florida Sun-Sentinel newspaper. That article was picked up by a research firm, Income Securities Advisors, which then posted a link to it on a page on Bloomberg News, which sent a news alert based on the old article."

If United (or United shareholders) are thinking (as they may well be thinking) of suing Bloomberg for the damage, they will come up against an important little principle of US law that cyber-law folks are very familiar with but which may be unfamiliar to others. Section 230 of the Communications Decency Act, which was part of the Telecomm Reform Act of 1996, provides that

"No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider."

It's not the most artfully-drafted statutory section around (what exactly does it mean to "treat" an entity "as the publisher or speaker" of information?), but it has been interpreted -- somewhat controversially, but plausibly, in my own opinion -- to provide a near-blanket immunity for online information redistributors (like Bloomberg) from all liability arising out of that redistribution. (Important exception: the statute expressly provides that IP claims (e.g., copyright or trademark) are not affected by this provision). Bloomberg is clearly a "provider of an interactive computer service" (defined as "any information service, system, or access software provider that provides or enables computer access by multiple users to a computer server"), and the information that United had entered bankruptcy was clearly provided by "another information content provider" (defined as "ny person or entity that is responsible, in whole or in part, for the creation or development of information provided through the Internet or any other interactive computer service). So Bloomberg cannot be treated as the publisher or speaker of that information. I don't think we know for sure whether that would immunize it from e.g. Securities Act liability, for example -- but I'm pretty sure that it would.

Among the interesting things about section 230 is that it only applies online. That is, had Bloomberg published the same information via a hardcopy newsletter, they'd have a liability nightmare on their hands. But because it was online, they have sec. 230 to protect them.

Richard Aubrey (mail):
Sounds like Pump&Dump is okay, then.
9.10.2008 11:28am
I don't know if Bloomberg is safe. If they "sent a news alert" then they provided their own information. The link by the research service is "information provided by another information content provider" but anything Bloomberg did after that should incur liability.
9.10.2008 12:12pm
Adam J:
I don't really see how they have immunity- so anyone can redistribute an old article and represent it as being current news without risking liability?
9.10.2008 12:31pm
Here's a more complete quote explaining why immunity makes sense (legally):

Richard Lehmann, founder of Income Securities Advisers, said a reporter for his firm had discovered a link to the old Chicago Tribune article during a routine search on Google for information about bankruptcy filings in 2008.


The reporter included a link to the article in a summary of bankruptcy items posted to Income Securities Advisers' page on Bloomberg, which in turn sent out a news headline referring to the article.

Assuming that ISA are not agents of Bloomberg but rather an independent entity which is allowed to make its own posts on Bloomberg's site, then this is arguably a kind of situation that the CDA was supposed to cover. The problem is that Bloomberg is a news service and generates its own content too the ISA posting implicitly carried Bloomberg's imprimatur, but probably Bloomberg has a disclaimer somewhere on its site distinguishing its own content from that of others who also post there.
9.10.2008 12:43pm
Richard Aubrey: This doesn't mean that pump-and-dump is OK. Rather, it means that the message board on which fraudulent posts are made is not the responsible party.

While the deep pockets (Bloomberg) might not be liable here, this says nothing about ISA (who did actually post false material). I'm sure ISA (and possibly the Sun-Sentinel) will not be immune.
9.10.2008 12:50pm
Far be it from me to critisize the posting style of any of the bloggers here, but "f***" doesn't seem acceptable usage to me. I'd like to direct you to this stylistic guidline from EV:

Given that we have no hesitation about quoting material containing profanity, or using it as examples — for instance, I would never replace "fuck" in a quote with "f-word" or "f---" — we doubtless use many such words (though I'm pretty sure that you'll almost never see us use such terms in our own voice in anger).

Pseudo-Profanity should have no place in the English Language.
9.10.2008 1:06pm
Adam J:
Lior- I dunno, looks to me like Bloomberg might still be on the hook. The Sun is claiming the article was in their archive section, and clearly identified as being from 2002. Assuming this is true, I'd say Bloomberg is screwed, representing a 2002 article as current is pretty clearly not merely distributing "information provided by another information content provider."
9.10.2008 1:34pm
Richard Aubrey (mail):
I hope so. But the problem is that p&d is telling the unwary that a stock is terrific. Really, really hot. Just about to go nuts. Since p&d will, if it works, make the stock go nuts, that's not actually false.
What, exactly, is the crime here?

That said, I haven't seen any p&d in my inbox in several years.
Something must have given the guys religion.
9.10.2008 2:14pm
David Schwartz (mail):
Bloomberg is the author of the news alert, and made the discretionary decision to send it out. If it was deceptive, they have no shield from liability for it.

I agree that the law is poorly drafted. What it should do is immunize automated processes (like forums, search engines, and the like) but leave liability for human action, especially quintessential publisher actions that increase the ability of incorrect information to do harm (like issuing an alert).

As for p&d, one could imagine a p&d that was not deceptive. But most p&d's claim the stock is about to go nuts for some reason other than the p&d itself. ("I hold 25,000 shares of P&Q marketing. I've just spammed thousands of people with this message, telling them that I've spammed thousands of people. This will likely make the stock go up for a day or so. So buy quick, sell quick, and be part of the bubble that will make some of us, and especially me, rich. You want to buy first and sell first so hurry!")
9.10.2008 3:45pm
Richard Aubrey (mail):
Yeah, some other reason. But never specified.
9.10.2008 4:22pm
I'm not familiar with the law on this topic. Do reporters take on hundreds of millions of dollars of liability for making a little mistake like overlooking a date in an article they write? If it was an intentional false statement then I could understand the liability, but just a mistake? It doesn't seem to me that the cause of the price collapse was actually the reporter but rather the sellers who didn't verify the bad information.
9.10.2008 8:36pm
Richard Aubrey (mail):
The market is made up of seasoned, canny professionals. You absolutely cannot stampede those guys.
We pay huge amounts of money to fund managers, four-fifths of whom can't beat the S&P500.
These guys are as cold-eyed, thorough, show-me as NYT editors.
It's just this lemming thing...I don't know where it comes from.
Of course, once the slide starts, does standing firm on the correct information really make sense?
Our economy depends on this process, you know.
9.10.2008 8:58pm
Obviously I don't expect every stockholder to diligently research every news report before selling. And I wouldn't suggest that an investor who knew the truth should take a beating while the misinformed cut and run. But the fact that the market system is unstable in the face of factual errors isn't the reporters fault. The reporter didn't set things up that way. The reporter didn't force those sellers to act on unverified info. Everyone knows that reporters are human and make mistakes. It's chilling to free speech to make reporters responsible for hundreds of millions in damages for a small mistake.

Another thing is that no real wealth actually got wiped out, it was only transferred from some people to other people (unless the company goes bankrupt because of this). So for the overall economy I don't see this as a big problem.

Are lawyers held to this high a standard? If a client relies on a lawyer's accidental misinterpretation of a law, is the lawyer liable for the damages? I'm not talking about a grey area of interpretation or opinion, I mean a flat out statement to the client that the law is something when actually the law is obviously something else.

Is there a difference in liability if the information is given away free or if it is sold?
9.11.2008 2:01am
: "Another thing is that no real wealth actually got wiped out, it was only transferred from some people to other people (unless the company goes bankrupt because of this). So for the overall economy I don't see this as a big problem."

True, it's not as though there was a hurrican or flood which caused destruction, and hence a reduction in wealth. But there may be legal liability though "no real wealth actually got wiped out, it was only transferred from some people to other people." If a pickpocket were to steal a gold watch from you, it wouldn't be the same as if your watch had fallen into the ocean and was lost. In the latter instance, there would have been a loss of "real wealth," whereas in the former it would only have been a transfer of "real wealth" from you to the pickpocket, and the overall economy would not care. (If you went out and bought a replacement gold watch, that might be good for an economy that can do with some stimulation at the moment.)

Reasoner: "If a client relies on a lawyer's accidental misinterpretation of a law, is the lawyer liable for the damages? I'm not talking about a grey area of interpretation or opinion, I mean a flat out statement to the client that the law is something when actually the law is obviously something else."

In a word: YES.
9.11.2008 2:32am
Update: the WSJ website is now reporting that the story first appeared on Google News, when the bot didn't parse the date on the story correctly. Bloomberg only picked it up later.
9.11.2008 2:32am
If it turns out that the law doesn't provide a shield against liability for Bloomberg, ISA, or whomever might get tagged with legal responsibility, then who might be able to successfully sue and what measure of damages?

Can United Airlines prove that it was injured by the drop in their stock price that corrected itself fairly quickly? What skin did United have in this game, it's reputation, which was more vulnerable because it had been in bankruptcy and it isn't robustly healthy now? How much might they realize?

Those who sold United stock after it dropped so precipitously and before it came back up? Not those stockholders who "slept" through it, never aware that this was happening, right? It seems unlikely that anyone would have a claim against their broker for failing to investigate, panicking, and selling them out at a loss.

Is Bloomberg's somehow a dangerous business, or are they pretty well shielded from liability for this and whatever else might arise? What they do doesn't expose them to libel lawsuits like those that newspapers and other publishers have to worry about, does it?
9.11.2008 2:45am
duglmac (mail):

Wasn't it Bloomberg that accidently posted the Steve Jobs' Obituary a few weeks ago? If so, is there a trend here?
9.11.2008 2:06pm