A fake news article that caused Twitter stock to spike briefly Tuesday is underscoring concerns that a flood of new Web domains could empower fraudsters.
The bogus article, made to look almost exactly like a Bloomberg News story, claimed that Twitter was in buyout talks for $31 billion. The story caused Twitter's stock to shoot up more than 8 percent before falling back down. Whoever created the site could have profited by buying Twitter stock and then selling before the price fell, a scheme known as "pump and dump."
The article used a bloomberg.market Web address, while real Bloomberg stories use bloomberg.com. According to the Whois domain registry, the site was created four days ago by an anonymous group with a P.O. Box in Panama.
The ".market" domain is just one of hundreds of new Web address endings authorized last year by the Internet Corporation for Assigned Names and Numbers, or ICANN, a nonprofit group that manages the Web's address system. A company called Rightside Registry bought the rights to oversee the .market domain. ICANN plans to allow a total of more than 1,300 new such "top-level" domains within a few years.
Tuesday's incident is only the latest example of readers and investors being fooled by fake news articles using unusual or confusing domain names. A site using the address "nytimes.com.co" posted numerous bogus stories, and a fake press release in 2012 claiming that a small Wi-Fi company called ICOA had been bought by Google also caused a spike in the firm's stock price.
ICANN has come under fire from some business groups and U.S. regulators, who warn that the domain expansion makes it harder to tell real and fake websites apart. Those critics said the confusion over Tuesday's news article confirms their fears.
"You can't totally lay the blame at the feet of ICANN, but it's clear that the unnecessary explosion of [top-level domains] makes it easier for criminals and other malefactors to defraud honest consumers," said Jon Leibowitz, a partner at the law firm Davis Polk. "ICANN needs to do a better job of insisting that registrars ascertain the legitimacy of folks they register, and do it beforehand, rather than after a major problem like this."
As chairman of the Federal Trade Commission in 2011, Leibowitz had warned ICANN that the wave of new domains could lead to abuse.
Brian Winterfeldt, a partner at the law firm Katten Muchin Rosenman, explained that whoever created the fake Bloomberg website likely committed copyright infringement and trademark infringement. Bloomberg could have bought Bloomberg.market itself to prevent the fraud, but defensively buying sites for hundreds of new domains can be prohibitively expensive.
"ICANN should be doing more to prevent this kind of fraud"¦ given the risks to consumers, businesses, and general Internet users," Winterfeldt argued.
ICANN has a procedure for brand owners to demand that an infringing site be taken down. And by Tuesday afternoon, Bloomberg.market was suspended. But by then, the damage had been done.
A (real) Bloomberg article reported Tuesday that the Securities and Exchange Commission is investigating possible market manipulation, although an agency spokesman declined to comment.
ICANN also declined to comment. The group has argued that .com is overcrowded, and that the domain expansion will allow for more innovation and diversity on the Internet. The group has also claimed that, while its job is not to police online content, it has appropriate safeguards in place to protect intellectual property rights.
Josh Bourne, the president of the Coalition Against Domain Name Abuse, which advocates for several large brand owners, said ICANN's domain expansion isn't really to blame for Tuesday's scam. After all, fraudsters have been creating fake .com websites for years, he noted.
"Beyond consumer awareness, brands, not ICANN, are responsible for policing the use of their trademark online. It's a huge job though, and brands need help," he said, arguing that Congress should increase penalties for cybersquatting.
He also suggested that the incident could prompt Bloomberg to actually take advantage of ICANN's domain expansion. The media company has already bought the rights to .bloomberg, although it has so far barely used it. Because only Bloomberg has control over the domain, readers could trust that anything posted under .bloomberg is authentic.
Rightside, which is responsible for .market and dozens of other new domains, defended the Internet expansion in a blog post late Tuesday. Taryn Naidu, the company's CEO, said he worked with Bloomberg to shut down the fake site.
"The new [top-level domain] program has tremendous potential to advance the internet and in such a short time we've already seen so many inspiring examples of passion and innovation at work," he wrote. "The positive opportunities created by the new TLD program far outweigh the few isolated negative cases."
—This article has been updated with the response from Rightside.