United Airlines saw a 76 percent drop in its share price Monday, after it was reported that the company had filed for bankruptcy protection. The news story turned out to have been six years old and had been erroneously picked up by the Google News service. It was then posted to the Bloomberg Professional network. In the words of duckcommander80 from Yahoo Finance’s message board, who lost $19,000, “WHO THE HELL DO WE SUE???????”
It’s not clear. Potential targets include the Tribune Co. and one of its newspapers, the South Florida Sun-Sentinel (whose 2002 article triggered the sell-off Monday); Google (whose Google News service picked up the piece); Bloomberg; Income Securities Advisors (whose analyst posted the headline on the Bloomberg Professional network); and NASDAQ (which suspended trading at 11:30 a.m. but then refused to “bust,” or cancel, the trades that happened during the time people were acting on the misinformation). United has announced a full investigation but says it’s premature to discuss legal action. Spokeswoman Jean Medina said the stock drop “was a serious issue, and it’s what happens when people are careless and don’t check facts.”
Still, if it’s damages that United, or anyone else, is seeking, good luck. The law provides strong protections for Internet linkers, which seems to exonerate Google, Bloomberg, and Income Securities Advisors. The Communications Decency Act of 1996 unambiguously states, “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.” What about the original source of the news, the Tribune Co.? Yesterday it acknowledged that the link to the 2002 bankruptcy article was indeed pushed to the “most viewed” list on the Sun-Sentinel’s site, which caught Google’s eye. But despite this admission, the threshold for libel is pretty high. There has to be malicious intent, and mere negligence isn’t enough. Public entities like United (as opposed to private individuals) generally have an even higher threshold; reckless indifference is not enough.
The woes for United may have been exacerbated by “stop loss” orders, which automatically sell off a stock as soon as its price falls below a predetermined level. This innovation can create efficiencies, and investors (and their agents) can occasionally have a life rather than track their stocks 24/7. But it can also, as in this instance, create a huge volume of sell orders without the shareholders even knowing what’s going on. Although it’s hard to track down the numbers, it’s likely that United, with relatively low capitalization and high volatility, is of special interest to hedge-fund managers and day traders who are more likely to employ stop-loss orders. Combine that with quantitative trading; vendors serving the financial markets who provide text-based classification of the news; and other innovations, and you’ve got a market that functions with little human oversight.
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Explainer thanks Sandra Baron of the Media Law Resource Center, Patrick Carome at the law firm Wilmer Hale, and Andrew Lo of the MIT Sloan School of Management.