ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Saturday, October 26, 1996 TAG: 9610280052
SECTION: BUSINESS PAGE: A7 EDITION: METRO
DATELINE: NEW YORK
SOURCE: DAVID E. KALISH ASSOCIATED PRESS
WIRED chose not to bring its stock public amid controversy.
The stock deal is dead, but not the controversy.
In a novel twist to the debate over free speech, the Internet was abuzz Friday with speculation that Wired - one of the medium's hottest magazines - may have chatted too loudly over the Internet to tout a stock it planned to sell.
Wired magazine abruptly canceled what would have been its first-ever stock sale, blaming ``adverse market conditions'' in a filing Friday with the Securities and Exchange Commission, which regulates investment markets.
Investor demand was cool for the initial sale of stock to the public, or IPO. On Thursday, before scrapping the deal, Wired had cut the proposed price of the stock by 25 percent.
Behind the tepid investor response was skepticism that the money-losing publishing company will ever turn a profit. But a memorandum from Wired's chief executive on the stock deal - which recently found its way onto the Internet - has ``digerati'' wondering about another possible factor: Whether the publisher pulled the deal to avoid the appearance of wrongdoing.
Federal securities law bars companies from promoting their stocks in advance of a sale to the public. Wired spokesman Rick Rice said the offering was withdrawn only because of soft demand, not because of questions raised over the posting of a company memo on the Internet.
Rice said a recipient of the memo, not the company's chief executive, put the message on the Internet. He denied any attempt to hype the stock sale.
Meredith Cross, the SEC's deputy director for corporation finance, said the agency doesn't comment on any company's filings. But John Stoppelman, a Washington lawyer who is a former chairman of the SEC's task force on investigation rules, said the memo's Internet circulation was likely to get the notice of SEC regulators.
``You're dealing with a very conservative bunch who are very conservative in their interpretation of these rules,'' Stoppelman said.
``You have an archaic set of laws that was basically designed in the 1930s and you now have the Web.''
People logging on to a discussion group at The Well, the San Francisco-based Internet service where the memo surfaced, seemed in agreement Friday that the company had plenty of financial reasons to pull the deal.
The publishing company, Wired Ventures Inc., has never turned a profit amid heavy spending to create content for its ``Hot Wired'' electronic network and push into other ventures. It lost about $15 million on operations in the first half of 1996, more than the previous three years combined, according to the prospectus for the stock offer.
The cybernauts also said that the failed stock deal - the second time in four months that Wired has scuttled a planned public offering - has heightened the urgency for the company to restructure itself into a more profitable operation.
Beyond Wired's failed attempt to hitch its financial star on the Internet are broader concerns about how far ``Netizens'' should go in spreading information about pending financial deals.
The rule-breaking issue flared after Wired's chief executive, Louis Rossetto, wrote an internal memorandum that was sent electronically to employees of the San Francisco company in recent weeks.
In the memo, Rossetto spoke of his frustration with recent news stories on the company's flagging finances as ``at variance with the reality of the company we know.'' He went on to describe the company's accomplishments: increased ad pages at the magazine; heightened interest by cybersurfers in its Hot Wired electronic network, which lets people click through colorful graphics; chatlines; and its latest articles.
The e-mail was sent not only to current employees, but to infrequent contributors to the magazine not on the regular payroll. One, a writer based in New York, decided to post the memo on a message board at The Well, a popular on-line Internet service based in San Francisco with 10,000 subscribers.
The message board has an area devoted to discussion about Wired magazine, and soon Well subscribers were buzzing about the memo.
Gerard Van der Leun, the Well subscriber who posted the message, said in a telephone interview that he had no hesitation about spreading information he thought was pertinent about the stock deal.
``This letter is basically news,'' he said from his office at Penthouse magazine, where he is a senior editor. ``This is a very high profile IPO of a happening company - it's newstime. It was obviously blown out to everyone who's ever cashed a paycheck from Wired. Lots of people got it.''
Van der Leun, a published author who wrote ``Rules of the Net'' and is know for his wickedly sharp on-line wit, said he hasn't written for the magazine in several years and wasn't currently an employee.
He said he thought that speculation Wired may have broken the so-called ``quiet period'' rules ahead of a stock offer were ``nonsense.''
The company spokesman, Rice, said he did not know whether the Securities and Exchange Commission had contacted the company about the memo.
LENGTH: Medium: 93 linesby CNB