July 9, 2007

John Mackey, the CEO of Whole Foods, using the name Rahodeb (his wife’s name, Deborah, backwards), posted over 1,000 messages in chat rooms that were dedicated to stock trading. During the period that Mr. Mackey was posting messages, Whole Foods stock quadrupled in value. The messages were flattering to Whole Foods (even to Mackey himself, with one posting reading, “I like Mackey’s haircut. I think he looks cute.”[1] The postings were also negative about Wild Oats, a company Whole Foods was trying to acquire even as the anonymous postings continued. On February 24, 2005, Mackey posted the following, about Wild Oats CEO Perry Odak, “Perhaps the OATS Board will wake up and dump Odak and bring in a visionary and highly competent CEO.”[2] He was particularly active during that time frame, having posted 17 messages on September 5, 2005 and another 17 on November 11, 2005, with plenty of postings on the days in between.[3] Referred to as “sock-puppeting,” it is a common practice for online identities to be concealed in order to praise, defend, garner allies, and a host of other functions accomplished more effectively when identity is concealed.

When his identity was discovered, he apologized and halted the postings. The apology came just six days after the first reports on Rahobed’s identity were reported in the Wall Street Journal. The Federal Trade Commission has collected the postings he made to show that to allow the merger with Wild Oats would reduce competition in the marketplace. The identity of Rahodeb became public after the FTC filing.

The following are excerpts from the FTC’s filing:

“You must not patronize any of WFMI’s stores. Tattoos (sic), piercings, unusual dress and interesting haircuts are everywhere in the stores. In comparison, Mackey looks like a model for Brooks Brothers.”

“I don’t see any harm to Whole Foods by having employees or executives contribute to public boards such as this provided they do not disclose private information that would harm the company competitively or lead to illegal insider trading.”[4]

John Coffee, a securities law and corporate governance expert and professor at Columbia law school, said, “This evidence raises more doubts about his sanity than his criminality. The merger is a major business strategy, and he’s undercut it with reckless, self-destructive behavior. It’s a little weird, like catching him as a Peeping Tom.”[5]

A crisis communication expert said, “It’s more of an embarrassment than an issue of profound ethical and legal consequence.”[6]

Professor Jeffrey A. Sonnenfeld of YaleUniversity had a different take on Mackey’s behavior. He notes that today’s corporate officers are the most controlled, in terms of public relations as well as securities law disclosure limitations. As a result, they “want to release and spout off, and they somehow think this is a forum where they’ll be held less accountable.”[7]

When Mackey’s identity as Rahodeb was revealed, the following postings could be found on Yahoo message boards:

“In light of this news, perhaps the name of the company should be changed to Whole Foods Bazaar.”

“What a hoot! It’s so Nixonian. Maybe he needs some animal fat in his diet. I’ve known vegans who suffered from teeth and gum disease; now we know a vegan who’s suffering from ‘foot and mouth’ disease.”[8]

Where do you come down on this issue?

Do you think this was insider trading? Was this fair to do on Mackey’s part?

What about sock-puppeting in general? Is it ethical?

[1] Andrew Martin, “CEO of Whole Foods Extoled His Stock Online,” New York Times, July 13, 2007, pp. C4,

[2]Id.

[3] Greg Farrell and Paul Davidson, “Whole Foods’ CEO Was Busy Guy Online,” USA Today, July 13, 2007, p. 4B.

[4] David Kesmodel, “Whole Foods Sets Probe as CEO Apologizes,” Wall Street Journal, July 18, 2007, p. A3.

[5]Id.

[6]Id.

[7] Brad Stone and Matt Richtel, “That Hand That Controls the Sock Puppet Could Get Slapped,” New York Times, July 16, 2007, pp. C1, and C4.

[8]Id.