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Biomatrix case exercises - student module  (Page 3/21)

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    Cybersmear

  • From April 1999 to August 2000, three individuals posted over 16,000 messages critical of Biomatrix in a financial discussion forum provided by Yahoo. Using 23 pseudonyms, they made several unsubstantiated claims:
  • that Synvisc produces harmful side effects
  • that Biomatrix covered up negative financial and product information
  • that Biomatrix and its corporate officials had connections to the Mafia
  • that the publicly announced friendly merger between Biomatrix and Genzyme was a ruse and would never take place
  • that the CEO of Biomatrix was under investigation by famous Nazi hunter, Simon Wiesenthal, for crimes committed in Germany during the second world war
  • that a top level Biiomatrix corporate officer routinely sexually harassed employees

The outcome

All of these claims were successfully refuted during legal proceedings initiated by Biomatrix. Yet this false information may have had a negative impact on the financial well being of the company. During the period in which the messages appeared in Yahoo, Biomatrix stock dropped from 35 to 21 dollars per share. Other factors may have contributed to this loss. (Biomatrix mentions difficulties with FDA regulations and protecting its patents in its report to the Security Exchange Commission.) But Biomatrix took direct legal action to stop the flow of negative information, find those responsible, and seek compensatory and punitive damages. They initiated a John Doe lawsuit that asked the court to subpoena Yahoo to identify the authors of the defamatory messages. Yahoo complied revealing two former Biomatrix employees, Raymond Costanzo and Ephraim Morris. A third participant, Richard Costanzo who was Raymond's twin brother, was also identified. These three, who called themselves the BXM Police, failed to substantiate the claims they made in their 16,000 messages. Biomatrix legal counsel petitioned the court for summary judgment. On August 2, 2000, the court found Costanzo, Costanzo, and Morris guilty of defamation.

Biomatrix chronology

Case events from April 1999 to January 2001
Biomatrix chronology
Date Event Actors
April 1999 through August 2000 Posting of anti-Biomatrix messages Richard Costanzo, Raymond Costanzo, Ephraim Morris
April 1999 to July 2000 Biomatrix Shares drop from 35 to 21 Caused by BXM Police?
March 2000 Announcement of Genzyme's intention to buy Biomatrix for $245,000,000 Biomatrix and Genzyme Top Management
June/July 2000 Initiation of John Doe Lawsuit Plaintiffs: Biomatrix, Balazs, and Denlinger
July 2000 Court subpoenas Yahoo for identities of message posters (BXM Police) Plaintiffs: Biomatrix, Balazs, and Denlinger
August 3, 2000 Summary Judgment against Raymond Costanzo, Richard Costanzo, and Ephraim Morris Plaintiffs: Biomatrix, Balazs, and Denlinger
November 7, 2000 SEC approval of Genzyme plan to purchase Biomatrix Genzyme and Biomatrix Top Management plus SEC
November 7, 2000 Biomatrix stock rises from $19 to $19.94
January 3, 2001 Yahoo alters bulletin board policies

    Materials used in compilation of case summary and chronology

  1. "Superior Court of NJ Awards Biomatrix Summary Judgment Against Libelous Posters on Internet Message Boards. Press Release from Biomatrix issued August 2, 2000. http://biz.yanoo.com/prnews/ooo803/nj_biomatr.htm.. Accessed August 11, 2000.
  2. Beth Healy, Globe Staff. (8/22/2000). "Three Face Stock Scam Complaint False Net Postings Allegedly Targeted Genzyme Affiliates: State files Complaint Against 3 in Genzyme Case" The Boston Globe .
  3. Headline: "Three Charged with Online Stock Manipulation of N.J. Company Mass. Officials say negative messages damaged Biomatrix stock." American Lawyeer Newspapers Group. Inc., New Jersey Law Journal, 8/28/00. Access through Lexis-Nexis Academic Universe 9/21/00.
  4. Public Citizen. "Brief of Amici Curiae Public Citizen and the American Civil Liberties Union of New Jersey" Dendrite International, INC., v. John does Nos. 1 through 4 and Does 5 through 14, inclusive. Superior Court of New Jersey apppelate Division Docket No. A-774-00. http:..www.citixzen.org/litigation/briefs/defendwebamicus.htm Accessed 6/30/00
  5. Biomatrix,INC., Janet L. Denlinger and endre A. Balazs vs. John Does I-VIII inclusive. John Doe proceedings against Biomatrix defamers to persuade court to subpoena Yahoo.
  6. Biomatrix, INC. Janet L. Denlinger and Endre A. Balazs, Plaintiffs, vs. Raymond V. Constanzo, Richard Constanzo, Ephraim Morris, Defandants. "Brief in support of motion for partial summary judgment as to defamation against defendants. Provides legal arguments of defamatory materials, evidence of harms done, and responses of BXM Police under question.
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Source:  OpenStax, Business ethics. OpenStax CNX. Sep 04, 2013 Download for free at http://legacy.cnx.org/content/col10491/1.11
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