It began early Sunday morning, Sept. 7, 2008, when somebody searched the archives of the South Florida Sun Sentinel (Fort Lauderdale, Fla.) and clicked on an old article from the Chicago Tribune about a company called UAL’s 2002 bankruptcy filing. Within 36 hours, the archived story about United Airlines’ parent company had been aggregated by Google News, picked up by a private financial news company in Florida, and distributed to stock traders on Wall Street by Bloomberg, sending the embattled airline company’s stock into a free fall.
Nasdaq quickly stepped in to stop trading and Bloomberg pulled the old story and ran a correction, but not before nervous investors dumped millions of shares of UAL stock and caused the company to shed more than $1 billion in value in less than 15 minutes, Forbes.com reported Sept. 8, 2008. The “debacle,” as Forbes called it, left angry investors and UAL executives calling for a Securities and Exchange Commission (SEC) investigation and embarrassed news organizations pointing fingers at each other in an effort to redirect blame.
The problem started when the Google News “crawler,” an automated program that searches 7,500 Web sites every 15 minutes for stories, discovered a link to the 2002 story on the Sun Sentinel’s “Most Viewed” list on its home page, The New York Times reported September 14. The Sun Sentinel explained that the story, which was not dated, could have made it on the list after a single click because of low traffic volumes on early Sunday mornings.
The Google crawler appended the current date to the story, which was Sept. 6, 2008 in California where it was still late Saturday night, and posted a link on the Google News site.
On Monday morning, a researcher for Investment Securities Newsletter, a Florida-based investment news company that provides content for Bloomberg, ran a standard search for “bankruptcy 2008,” the Los Angeles Times reported September 9. The search revealed the 2002 story with Google’s modern date.
The researcher wrote a new headline and published the article to Bloomberg’s investment news service at 10:53 a.m. Eastern Time Monday, the Forbes.com report said. By 11:06 a.m. UAL’s stock had dropped 70 percent of its value and Nasdaq suspended trading.
“This is what happens when everything goes on autopilot and there are no human controls in place or those controls fail,” Yahoo!’s then-head of media, Scott Moore, told The New York Times. Yahoo! runs the most popular news site on the Web and is Google’s main competitor.
Officials from the Tribune Company, which owns the Sun Sentinel and the Chicago Tribune, also blamed Google’s automated news crawler for the problem, The New York Times report said. The officials said they had discovered the potential problems with Google’s news searches “months ago” and asked them to fix the problem.
But Google argued that the real problems were the failure of the Tribune Company’s newspapers to properly date the article and the appearance of the article on the “Most Viewed” list after a single click, The New York Times reported. The article’s appearance on the list made it appear to the crawler to be news. “[I]t was a new item that said, ‘Hey, look here,’” Google spokesman Gabriel Stricker said in the Los Angeles Times story.
Frank Ahrens, a business reporter for The Washington Post, said in a September 9 interview on PBS that some of the blame should also lie with the Florida researcher who published the story on Bloomberg’s news service. Ahrens pointed out that UAL’s 2002 bankruptcy and its emergence from Chapter 11 four years later were both widely discussed in the business press.
“So, it would be not unusual to think, wait a minute, haven’t I heard about this before?” Ahrens said.
Ahrens also said that the “knee-jerk” reaction from Wall Street was worrisome and the whole incident could serve as a blueprint for short sellers looking to turn a quick profit.
Short selling describes a process whereby investors who think the price of a certain stock is too high sell shares they do not actually own intending to buy shares when the price drops to cover their earlier sales. If the price drops substantially, investors who are short stand to make large profits.
Following the UAL model, a person could short a stock and then publish false information about that company and wait for the price to drop. Such actions are prohibited by SEC regulations.
Ahrens said it appeared the UAL story was the result of an honest mistake, but The New York Times reported September 14 that the SEC had nevertheless begun an investigation into the incident.
Two similar incidents involving false reports of Apple CEO Steve Jobs’ death occurred six weeks apart in late August and early October 2008. The August incident occurred when Bloomberg accidently published its file obituary on Jobs while the organization was in the process of updating it. In October, a poster to iReport.com, a CNN-owned citizen journalism Web site, falsely reported Jobs was dead, briefly sending Apple’s stock price into a nosedive.
According to an Oct. 3, 2008 report on the Wired Blog Network, experts suspected the iReport.com incident was the work of a short seller engaged in securities fraud.
“It’s unlikely that anybody does this for kicks,” said Scott Vernick, a partner at the law firm Fox Rothschild in Philadelphia in the Wired report. “People generally do this kind of thing because they have a position in the stock and they want to see it go one way or the other.”
– Michael Schoepf