Risk & Compliance

Communications: GE Sheds Light on Warning Rumors

More companies are being forced into the awkward position of commenting on untruths.
Joseph McCaffertyNovember 22, 2000

More and more, chat room and E-mail rumors are forcing companies to do something they hate to do—respond. General Electric Co. was forced today to undress rumors that it was planning to issue a profit warning that it would fall short of fourth quarter earnings estimates.

“Responding to an outrageous rumor this morning of a potential profit warning, nothing could be further from the truth. Our operations continue to run at a record pace. We remain very comfortable with analysts’ consensus estimates for both fourth quarter and total year 2000, which will deliver earnings per share of $1.27, up 19 percent over 1999,” vice president of investor relations Mark Vachon said in a statement.

It was unclear where the rumor originated, but it was repeated in several chat rooms, including the Yahoo message board on General Electric.

Companies are increasingly backing away from the position of not responding to rumors, and speaking out to deny them. The action puts them in a difficult position the next time rumors surface, because some investors will consider silence as a confirmation of the rumored information.

But investor relations officers are feeling a greater need to dispel rumors because of the speed at which they travel online. Gossip is also more likely to create moves in the stock price than in the past. In early trading, shares of GE were down $1.50 on the warning rumor. The stock recovered slightly when the company issued the denial, but fell again by mid-day.

Earlier this month, software giant Oracle Corp. responded to seemingly absurd rumors that CEO Larry Ellison and CFO Jeff Henley were leaving the company. The rumor pushed the stock from over $32 per share to under $27. After the company dispelled the hearsay, the stock recovered to over $29.

Fraudsters and rumormongers are also becoming increasingly bold in their attempts to drive down the price and make a quick profit. Investor relations departments are still shaking from the Emulex hoax, when a college student sent a false press release over a wire service he used to work for. The fabrication caused the market cap of Emulex Corp., a Costa Mesa, Calif. technology equipment supplier, to fall by $2.5 billion in one day.