SEC Interested in Web Musings of Whole Foods CEO

By Carrie Johnson
Washington Post Staff Writer
Saturday, July 14, 2007

Securities regulators have launched an informal investigation of Web postings by Whole Foods Market chief executive John P. Mackey, after revelations that the maverick leader opined about the company and its rivals in anonymous stock chat rooms for years, according to people familiar with the inquiry.

Mackey has attracted heightened attention recently as his Austin-based natural food grocery chain fights to proceed with a merger with competitor Wild Oats Markets while dealing with an antitrust challenge by the Federal Trade Commission. Earlier this week, in a footnote to the court filings, FTC lawyers revealed that Mackey had used the moniker "rahodeb," an anagram of his wife's name, Deborah, in dozens of messages over seven years in a Yahoo-operated Internet chat room devoted to Whole Foods.

The new government inquiry, an early-stage investigation by the Securities and Exchange Commission, was reported on the Web site of the Wall Street Journal last night. A spokesman for the agency declined to comment. The sources who confirmed the investigation spoke on condition of anonymity because the inquiry was in preliminary stages.

Kate Lowery, a spokeswoman for Whole Foods, said the company had not been contacted by the SEC.

Mackey issued a statement on the Whole Foods Web site earlier this week responding to the uproar and saying he sometimes played "devil's advocate" in the chat rooms. "Rahodeb's postings therefore do not represent any official beliefs, policies, or intentions by either Whole Foods Market or by me," Mackey said. "At no time did I reveal any proprietary information about Whole Foods."

Corporate lawyers and former SEC officials disagreed about whether Mackey may have broken laws with his postings, which at times denigrated the performance of Wild Oats and predicted rosy prospects for Whole Foods.

To proceed, authorities would need to prove that Mackey intentionally tried to manipulate his company's stock price or that of a rival by posting the messages, which requires a high evidentiary bar, said a former SEC general counsel, David M. Becker. It remains unclear whether Mackey disparaged Wild Oats online after he began negotiations to buy the company.

Investigators also were likely to consider whether Mackey's statements were false, and whether a reasonable investor would have relied on them.

"Would a reasonable investor want to know that the CEO was posting" the comments, said Barbara Black, University of Cincinnati securities law professor. "This may go more to an investor's assessment of the CEO's judgment, rather than the substance of the message."

Legal analysts noted that regulators might examine whether Mackey's online musings ran afoul of "fair disclosure" rules requiring dissemination of important information to all investors.

"The problem with allowing this kind of behavior is that it gives the company no ability to consider what's being said and whether it's accurate and complete," former SEC chairman Harvey L. Pitt said.

Corporate management experts said that Mackey's unusual statements could lead consumers to look askance at the Whole Foods brand.

"This company in particular has held itself to higher standards," said Jeffrey A. Sonnenfeld, a dean at the Yale School of Management. "Any employee at Whole Foods would be fired for doing the same thing. We certainly have come very close to the brink in terms of violating securities laws. . . . These questions are close enough that they deserve investigation."

© 2007 The Washington Post Company