Telling his boss that he was "going to make some money," a Cincinnati investment adviser Tuesday announced a bogus, $6.8-billion offer to buy Dayton Hudson, the giant Minneapolis-based retailer.
The hoax caused Dayton Hudson's stock to gyrate wildly, and some in the Wall Street community fretted about abuse of financial information services that play a vital role in many investment decisions.
The adviser, identified as P. David Herrlinger, 46, was subsequently fired by his employer and taken by his wife to a hospital for an examination. An attorney representing him said the false bid reflected Herrlinger's medical problems, which he did not identify.
The bizarre chain of events began when Herrlinger called Dow Jones News Service on Tuesday morning to say that he represented Stone Inc., an investment firm that supposedly was offering to buy Dayton Hudson stock for $70 a share, or about $6.8 billion. He told Dow Jones that Stone was a private investment firm that included members of the wealthy Stone family of Cincinnati.
After calling back Herrlinger to confirm his identity, Dow Jones reported the offer on its "broad tape," which is followed closely in brokerage houses across the nation. The news service is operated by Dow Jones & Co., which also publishes the Wall Street Journal and Barron's.
News of the purported bid stunned Dayton Hudson, which has been trying for several days to mount a campaign to defend itself against an expected hostile takeover bid from Dart Group of Landover, Md.
As a result of the hoax, the company's shares traded heavily throughout the day, selling for as low as $52.75 and as high as $63. The issue closed in composite trading at $53.125, down 87.5 cents a share. With 5.5 million shares trading hands, the issue was the second-most active on the New York Stock Exchange.
Within hours of the report by Dow Jones, it became apparent that the bid was bogus. Dow Jones and other news services moved later stories reporting that Herrlinger's boss had fired him. And Anthony Covatta, an attorney for Herrlinger who was acting as his spokesman, confirmed that the offer was not bona fide and said Herrlinger's unusual behavior "came up relatively suddenly."
"You don't have a business story here, you have a medical story," said Covatta, who is also a neighbor of Herrlinger. "This is not one of your cagey Wall Street guys trying to pull a scam."
At one point during the day, before he went to the hospital, Herrlinger gave an interview to a Dow Jones reporter at his Cincinnati home, admitting that he had never spoken to Dayton Hudson or lined up any financing for an offer.
"An offer is really an intangible thing," he was quoted as saying, adding that he did not own any Dayton Hudson stock but was interested in the company because "it's an undervalued stock and a good value."
In mid-afternoon, Herrlinger's wife, Helen, drove him to Good Samaritan Hospital in Cincinnati, where he was admitted Tuesday evening.
Richard Miller, president of Capital Management Corp. and Herrlinger's boss, said in a telephone interview that he had overheard Herrlinger talking to the Dow Jones News Service.
"The phones started ringing almost immediately. I questioned him, and he said: 'We're going to make some money.' And I said: 'Not on my time.' He insisted on going through with it, so I fired him and asked him to leave."
Miller described Herrlinger as "a great employee, very stable, solid and a good worker. I couldn't have asked for a better employee." He said Herrlinger joined Capital Management after 10 years as a securities analyst at a Cincinnati bank.
(Capital Management Corp. in Cincinnati does not appear to be related to any major investment companies with similar names in the Los Angeles area.)
Asked what Herrlinger's motivation might have been, Miller said: "I wish I knew."
Miller said at first he thought the offer might have been legitimate because Herrlinger is related to two wealthy families. His wife's family, the Eustises, have had several businesses and at one time owned a brokerage in Cincinnati called George Eustis & Co., which was sold a number of years ago.
A generation ago, Miller said, the Herrlinger family owned a paper company in Troy, Ohio, that was later sold. "David and his family had some money from that transaction," he said.
The hoax called into question Dow Jones' method of verifying information called in to it.
Dean Rotbart, a former Wall Street Journal reporter and columnist who now runs a New York-based newsletter about financial reporting, said the service is under "tremendous competitive pressure to get the news out first."
"I have always felt that there's a tremendous vulnerability for all the wire services," he said. "In this case, the Dow Jones service might have been embarrassed, but what if it had been real? It's a tough, tough call."
The service keeps a running account of how many stories it reports ahead of competition such as Reuters financial news wire, Rotbart said, recalling that "if we missed a big story by more than seconds, somebody had to stand to answer for it."
Paul E. Steiger, a deputy managing editor of the Wall Street Journal who responded to a reporter's questions Tuesday, said the news service follows a prescribed procedure when a tip is phoned in:
"We verify that the person we're talking to is, indeed, that person," Steiger said. "There are a variety of ways of doing that. Typically, we will call back the employer's offices and talk to the person again."
The report of the Herrlinger bid was filed through the paper's Pittsburgh-Cincinnati operation to the news service's New York headquarters, Steiger said, adding that he was not certain which of the two bureaus Herrlinger had phoned. The news service reported that it first confirmed his identity and then talked with him again before publishing the story.
Steiger defended the policy. "A wire service, like a newspaper, has got to make its best judgment about what's newsworthy. That's what we did. We followed up quickly with as much additional information as we could muster."
Trading in Dayton Hudson stock was halted by the New York Stock Exchange after initial reports of the bid moved on the Dow Jones News Service. The exchange then contacted Dayton Hudson, which said it had not received an offer.
But trading continued unabated on the Boston Stock Exchange and in the national over-the-counter market, where it hit the $63 high for the day. At least 72,200 shares of the stock changed hands on the Boston exchange at prices in the low $60 range.
For about 90 minutes, order imbalances prevented the New York exchange from resuming trading. When Dayton Hudson shares reopened at 11:35 a.m. EDT, the price had jumped to $59.
A spokesman for the New York Stock Exchange said it plans to conduct an analysis of trading in Dayton Hudson to determine how much stock was traded and when and who the traders were before and after the trading halt. He said the process will be completed in about six weeks, when the exchange will decide whether to initiate a formal investigation or to turn the case over to the Securities and Exchange Commission.