SEC Investigates Mackey's Posts

MARK HAMSTRA

AUSTIN, Texas — The Securities and Exchange Commission has launched an informal investigation into the Yahoo! message board posts written by John Mackey, chairman and chief executive officer, Whole Foods Markets, based here.

In addition, Whole Foods said last week that its board of directors has formed a special committee to investigate the Web posts, which Mackey wrote over an eight-year span using a pseudonym, “rahodeb,” an anagram of Deborah, his wife's name. The board has retained Munger, Tolles & Olson to advise it during its investigation.

Mackey last week issued an apology for his actions, calling them an “error in judgment” and asking stakeholders to “please forgive me.”

In part because Mackey concealed his identity as a company insider, some observers said he may not have violated securities laws prohibiting the selective disclosure of information by company insiders. It was not clear whether readers of the posts could infer that he was a company insider, however, which could affect the SEC's investigation, one former SEC attorney told SN.

Also, Mackey stated in a post on his company's website that he did not reveal any proprietary information.

“It's not clear whether he revealed any information that was not otherwise available,” said Peter Henning, professor of law at Wayne State University Law School, Detroit, and a former attorney with the SEC. “It was more of his opinion, or else it was based on a company release and he would give rahodeb's opinion.”

Seeking to penalize Mackey for expressing his opinion could be seen as an attempt to prohibit free speech, Henning said, and could “scare” the SEC away from pursuing the case too aggressively.

“I suspect the FTC investigation here is designed to send a message to others to be careful,” he said.

In the informal investigation, Henning said, the SEC will likely request documents from the company and interview Mackey himself, but it does not have the power to subpoena unless a formal investigation is launched.

Henning pointed out that the SEC could also be seeking to determine whether or not Mackey tried to manipulate the stock price of either Whole Foods or Wild Oats. That could be difficult to prove, however, because the SEC would have to show that Mackey's actions in the posts actually did have an impact on the stocks' prices.

Whole Foods in February announced that it had reached an agreement to acquire Wild Oats Markets, its Boulder, Colo.-based competitor, which Mackey had often derided in his Yahoo! posts. The Federal Trade Commission has challenged that merger on antitrust grounds, and a hearing is set for next week. Mackey's secret Yahoo! identity was revealed through the FTC's investigation.

Some analysts have told SN in recent weeks that they do not believe Mackey will be able to remain as the company's CEO in the wake of the revelations.

“I've never seen anything like this before, and hopefully never will again,” said one analyst, who asked not to be identified. “I don't think shareholders are going to stand for this.”

Employees, too, may find the posts disturbing, the analyst added.

Henning said that even if Mackey is not penalized by the SEC, or perhaps receives only a small fine if he is found to have selectively disclosed information, company executives should be discouraged from such activities.

“If he had asked the general counsel, ‘Can I make anonymous posts on a Yahoo! bulletin board?’ the general counsel had better say, ‘Not in a million years,’” Henning said. “When they found out about it, I suspect the general counsel almost had a heart attack.”