Feb. 18, 2014 — -- Investment research website and blogging forum Seeking Alpha is in hot water after an anonymous blogger revealed that billionaire David Einhorn was secretly buying up shares in a tech company.
Einhorn's Greenlight Capital filed a lawsuit against Seeking Alpha Inc. on Thursday with the Supreme Court of New York, hoping to reveal the identity of the mysterious blogger, who used the pseudonym "Valuable Insights."
In the lawsuit, Greenlight says the only people who know about its purchases of Micron's stock were "Greenlight's employees, legal counsel, prime and executing brokers, fund administrator, and other agents."
With a well-known investor backing Micron, the company's share price "rose immediately after Valuable Insight's posting," the lawsuit notes.
"Because this was the very time frame in which Greenlight was in the process of building its Micron position, it was forced to pay higher prices for its Micron securities," the lawsuit states.
Greenlight is alleging misappropriation of trade secrets, breach of duty of confidentiality, and aiding and abetting breach of duty of confidentiality.
The company argues in its lawsuit that Seeking Alpha is the only source known to Greenlight that can identify the identity of the blogger. On Nov. 21, Greenlight's legal counsel sent a letter to Seeking Alpha requesting the identity of the user, but was refused, the lawsuit states.
Seeking Alpha has stated on its website that it "holds anonymous contributors to the same compliance and biographical standards as contributors who write under their own name," and insists "on receiving the author's real name and contact information."
The Financial Industry Regulatory Authority and Securities and Exchange Commission warn investors generally against following advice from "pump and dump" schemes that try to manipulate stock prices online or through emails with false or misleading statements.
But in this case, Einhorn takes issue with the accuracy of this particular Seeking Alpha user.
Shiyan Koh, vice president of personal financial management at personal finance website NerdWallet, said there are some "great contributors" to Seeking Alpha, but she cautioned consumers about material on the site.
"Seeking Alpha's independent contributors who write their views have no obligation to consumers about whether that advice or recommendation is best for them and their situation," Koh said. "Consumers should take what they read with a grain of salt. They should definitely think about the extent to which that applies to their situation and the context of their full financial plan and picture."
Seeking Alpha calls itself a "platform for investment research" with insight by "investors and industry experts rather than sell-side analysts," according to its website. The company's editors choose articles for publication from those submitted by contributors, the website states.
"Our contributors receive direct payment for articles as well as exposure and customer lead generation," Seeking Alpha says on its site.
However, Seeking Alpha's "Instablogs" are blogs written by Seeking Alpha readers that are "not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles," the website states.
Jonathan Gasthalter, a spokesman for Greenlight Capital, declined to comment.
Other Seeking Alpha users have been the target of other lawsuits involving content on the website. In December, vending machine maker AVT Inc. filed a lawsuit against a Seeking Alpha contributor, served this month, for libel and other alleged actions for his suggestions that the stock was worth less than what it was trading for.
Shannon Illingworth, founder and chairman of AVT, Inc., said his company filed a civil action against the contributor, seeking damages resulting from multiple publications concerning the firm.
In 2011, Sino Clean Energy Inc. (SCEI) sued another Seeking Alpha user and 10 anonymous "John Does," accusing them of "manipulating the public market for SCEI stock for personal gain at the expense of SCEI and its shareholders." Sino Clean Energy withdrew its complaint in Sept. 2012.
Colin Lokey, director of contributor success at Seeking Alpha, declined to comment about Greenlight's lawsuit and the other complaints.