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United Airlines Tallies Damage From False Stock Report

September 9, 2008 at 6:45 PM EST
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A 2002 news article about United Airlines filing for bankruptcy protection resurfaced erroneously on trading screens Monday -- and the company's shares quickly plummeted as a result. Business reporter Frank Ahrens of the Washington Post examines the mishap.
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JEFFREY BROWN: Six years ago, United Airlines announced it was filing for bankruptcy. Yesterday, an old article on the event resurfaced on the Web, and, taken as new, sparked a mass frenzy of selling on Wall Street.

Shares in United stock plunged 75 percent, from $12 to $3, in less than an hour, before recovering much of that by the end of the day.

Frank Ahrens, business reporter at The Washington Post, tried to figure out what happened. And he’s here with us now.

OK. So, how did this old story suddenly come back to life?

FRANK AHRENS, BUSINESS REPORTER, THE WASHINGTON POST: The simple answer is, it was a Google search. And Google discovered a six-year-old story on the Web site of a South Florida newspaper that did not have a date on it.

And, so, when Google found it, it applied the date of the search, put it on that story, popped it up on Google news. A human being saw it, took it as being a fresh story, “United Declares Bankruptcy,” punches it into Bloomberg. It hits Wall Street.

And, within a matter of minutes, more than 15 million shares had traded. And United Airlines, already shaky, had lost 75 percent of its value.

The bankruptcy search on Google

JEFFREY BROWN: OK. That's a great outline. Now let's fill in some of the details. Who is looking for -- who was it that was looking for it? It was a reporter for an investment group?

FRANK AHRENS: It's a small firm -- it's a small firm in South Florida called Income Securities Advisers. And they are essentially a news aggregator for news about distressed companies.

So, this reporter, as part of their daily job, I'm certain, typed into Google on Monday morning "bankruptcy 2008." Enter. Up came this story.

JEFFREY BROWN: OK. Now, why? Why did this story pop up on Google? I mean, this is part of the search mystery, that most of us don't know how it works.

FRANK AHRENS: Right.

JEFFREY BROWN: You did this all the time.

FRANK AHRENS: Mm-hmm.

JEFFREY BROWN: Why did this story come up?

FRANK AHRENS: It's because, when that story, after it was written six years ago and was put into the archives of this South Florida newspaper, it wasn't assigned a date of publication. The story had no date of publication.

Google crawls around. It's called a crawler. It crawls around, crawled around that site, saw it, saw story, bankruptcy, didn't have a date on it. Bang, put the date Sept. 6, 2008, on it, pops it up, pops up to the personal screen.

JEFFREY BROWN: This reporter -- OK -- so, it comes up to this reporter's screen. He sees it, but he doesn't realize that this is an old story.

FRANK AHRENS: Right.

The -- this reporter's boss said, it would be nice -- didn't want to blame the reporter that much, but it would be nice if the person had had sort of a larger awareness of what was happening in the world. United Airlines declared bankruptcy in 2002 and emerged in 2006.

So, it would be not unusual to think, wait a minute, haven't I heard about this before? But, no, saw the headline, "UAL Declares Bankruptcy." And then, this group, Income Securities Advisers, is a contributor to the Bloomberg Professional service, which are those terminals that Wall Street traders and journalists and so forth get. And there's constant information coming in throughout the day.

Headline spurs Wall Street frenzy

JEFFREY BROWN: All right. So, that's why it is important that it goes to Bloomberg, because, there, it gets seen by people who are trading a lot of money.

FRANK AHRENS: Exactly. That's, in many ways, the lifeblood of Wall Street.

JEFFREY BROWN: All right, now, one might think -- although one would be wrong to think, clearly -- that these guys on Wall Street, seeing this information, might at least stop for a moment and say, wait a minute. Bankruptcy?

FRANK AHRENS: Right.

I had -- I had drawn the metaphor that, if the financial markets are like a big body, with pores all over, this was a tiny virus that entered one of the pores, hit the bloodstream, and zoomed right to the brain.

But that assumes that Wall Street is the brain. And what happens is, things move so quickly, millions of shares in fractions of sections, that, if you see something like this and you're a trader, dump shares.

JEFFREY BROWN: But -- and, I mean, we see this every day, these big swings in the market. And we hear every day about how tightly wound it is.

This is a pretty extreme example.

FRANK AHRENS: It really is.

The president of this Income Securities Advisers said, it's pretty -- it's pretty worrisome that there would be such a knee-jerk reaction to just a headline. And that's exactly what came across.

I can see it. Here's a printout of Bloomberg from yesterday, the Bloomberg Professional service. At 11:02, "UAL Corp., United Airlines, Files for Chapter 11 to Cut Costs," following one minute later, "Shares Fall Following Headline of Chapter 11."

Preventative measures

JEFFREY BROWN: Now, I gather that, in this case, it doesn't look like this was a -- this was an accident. It does not look like this was a deliberate move by anybody. But it does suggest the possibility for mischief, does it not?

FRANK AHRENS: Oh, it absolutely does.

The president of this firm in Florida said, one of the many downsides of this is, it could provide a blueprint for somebody who wants to manipulate the system, somebody who wants to, as they say, short a stock, meaning betting that it will go down. And what -- and this exactly pushed -- maybe you could plant a fake story that would cause the stock to crash. And if you had shorted that stock, you could make a lot of money...

JEFFREY BROWN: Make a lot of money real quickly.

FRANK AHRENS: Right.

JEFFREY BROWN: Now, what are the players involved, Google, Bloomberg, others, what are they saying about that, how this happened, and what they might do to prevent it in the future?

FRANK AHRENS: I talked to Bloomberg yesterday. And I talked to Bloomberg again today.

And their position is, listen, this was not a Bloomberg News story. This was not done by a Bloomberg journalist. The people who subscribe to Bloomberg get -- as part of their package, they get stories from our journalists, but then they get lots of information from the outside.

And their position is not to edit any of the outside, what they call the third-party contributor information. And, so, in many ways, this can happen, if you don't take -- if you don't edit every single piece that comes in. The analogy they had used was, it's like a cable company carrying a show from a -- from a broadcast network, that it's your pipeline, but it's their content.

United Airlines looks for answers

JEFFREY BROWN: All right. Then, in the meantime, there is the company at the heart of this, United Airlines. In the end, what's the final tally or the result for the company?

FRANK AHRENS: Right. And where can they point? If they assess -- when I talked to them yesterday, they said they hadn't figured out yet if this will have -- in many ways, it was a paper loss. It blips down, blips back up.

JEFFREY BROWN: Right, real fast.

FRANK AHRENS: Right.

They weren't sure if it would have material long-term benefits. But, if it does, where do they look? Do they look at the Florida newspaper that failed to assign a date to the story? Do they look to Google? Google and "Tribune," which owns the paper, were sending me competing Web screen shots last night to say, OK, see here is the story 10:37 on Google. Ah, here it was at 10:15 on "Tribune." So...

JEFFREY BROWN: All right, very interesting, a little scary.

Frank Ahrens of The Washington Post, thanks very much.

FRANK AHRENS: Thank you.