This morning, a press release hit the wires of PRWeb, a paid press release distribution site, saying that Google would be acquiring the tiny company ICOA Wireless for $400 million. ICOA's stock, which trades at fractions of a penny, briefly quadrupled in price after the press release hit. Media outlets (including our own Gizmodo) reported the story as fact, and investors immediately piled in. But very shortly after the release hit the news, it was denied by both parties, and outed as a fake. How did this happen?
Pretty easily, at least on the scammer's end. It's not hard for anyone to write up and place a press release on the wires. Arik Hesseldahl speculates that this was a planned effort by a financial schemer to momentarily pump up the price of ICOA's stock, in order to make a quick killing before the news was debunked. Quite an easy way to make a pile of money, aside from the fact that it's illegal. Here's the reality: although TechCrunch's Darrell Etherington immediately posted the news as fact, and was subsequently forced to post an embarrassing retraction, it's not really his fault. If he had not done it, someone else would have minutes later. For very sector-specific business news of this nature, it's completely routine to write up and publish quick stories off of press releases as soon as they're released, and then fill them out with quotes from the various companies involved later. This is business news. Speed is important. This is standard operating procedure, in many precincts of the media, most of which consider a press release to be an official company statement that meets standards of publication. And once the news hits the media, well, the investors out there consider it to be verified, and they pile in. It's a simple two-step process with no failsafe mechanism at all.
We don't blame the individuals involved here (except for whoever posted the fake release). We blame the system. And frankly, this system ain't changing any time soon. So how to prevent something like this from taking your reputation, or, even worse, your investment? Well, a couple things. First of all, common sense. The release said that Google was paying $400 million for a company with a market cap under $1 million. That should raise some red flags, to put it mildly. (I mean, the "In the News" section of ICOA's website has no news newer than 2006. The CEO's direct phone number is on the website. Do the math.) And the release itself was only two paragraphs long, with no PR contact information—odd, for news of a Google acquisition, which the company would know damn well would be big news, bringing a flood of media calls.
Second—and this one goes out to the investors who immediately snapped up ICOA stock upon its first mention on TechCrunch—verify some shit before you put your money into it. I mean, as a web journoblogger, I can understand full well how a web journalist could write a throwaway blog post based on a press release that looked like news. That's just a single bad morning in the life of a web journoblogger. But I cannot understand how a professional investor could sink thousands upon thousands of dollars into a hot stock deemed hot solely because some web journoblogger read a press release that said so. There's money involved in that, for chrissake! Do your homework! And no one will feel sorry for you when you lose that money, because you were only trying to quickly profit on the most basic kind of hectic, momentary stock market gold rush that may divert some cash into the pockets of a few people who were quick enough to push a button, but will not fundamentally bolster or reinforce our national economy. There is no sympathy to be found there. You were greedy, you did not do your research, and you got burned. Boo hoo.
It's foolish to expect the fundamental state of affairs here to change. What's called for is simply media literacy. If you read a quickie blog post based solely on a brief press release, do not assign it the same weight as a lengthy Wall Street Journal investigative story. And if you're enough of a gambler to place bets on these things, accept that you'll sometimes lose.