Oct. 4 (Bloomberg) -- CNN's plunge into online citizen- journalism backfired yesterday when the cable-news outlet posted what turned out to be a bogus report claiming that Apple Inc. Chief Executive Officer Steve Jobs had suffered a heart attack.

Apple shares fell as much as 5.4 percent after the post on CNN's iReport.com and rebounded after the Cupertino, California- based company said the story was false. Atlanta-based CNN, owned by Time Warner Inc., disabled the user's account and said it tried unsuccessfully to contact the individual.

The event underscores the need for news organizations to verify content generated by users before it is published, William Grueskin, dean of academic affairs at Columbia University Graduate School of Journalism, said in an interview from New York. CNN competitors Fox and MSNBC also have added interactive features to stretch resources and follow their audience to the Web.

``It can be a very powerful influence when harnessed the right way, but sometimes it goes awry as it clearly did in this case,'' Grueskin said. ``News organizations are really getting squeezed and so it's incumbent on them to be looking for ways to engage citizens in the process.''

The Securities and Exchange Commission's enforcement unit is trying to determine whether the posting was intended to push down Apple's stock price. CNN is cooperating with the probe, Jennifer Martin, a spokeswoman for the network, said in a telephone interview. She declined to say whether CNN provided the user's IP address to the SEC.

CNN describes iReport as a place for ``unedited, unfiltered news'' and said it ``makes no guarantee about the content or coverage.'' The site was started in August 2006 as part of CNN.com and became a standalone Web site in February.

MSNBC.com has a citizen-journalism site, FirstPerson, and Fox News.com's is called UReport.

Stock Declines

The ability to publish unconfirmed material on the Internet can have a far-reaching impact.

In June, Yahoo! Inc. shares surged after a technology blog said acquisition talks with Microsoft had resumed. The report was later contradicted by CNBC and the shares gave back most of the 11 percent gain.

A six-year-old article on the 2002 bankruptcy of UAL Corp. appeared on the Web site of the South Florida Sun-Sentinel, was picked up by a Google Inc. search agent and mistakenly presented as a new story by a trade publication.

The Income Securities Advisors Inc. summary appeared on the Bloomberg terminal before the item was corrected. The airline's shares plunged as much as 76 percent before recovering most of the loss on Sept. 9.

Extending Coverage

IReport has at times aided CNN's coverage. In the April 2007 shootings that killed 32 at Virginia Tech university, the network used cell-phone video of police and audio of gunfire that was posted by a graduate student, Jamal Albarghouti.

CNN has also broadcast users' videos of California wildfires and Midwest floods.

Yesterday, Apple went into freefall after the iReport post said Jobs, 53, had a heart attack and was hospitalized.

Henry Blodget, the former Merrill Lynch & Co. Internet analyst who is now a blogger, drew attention to the iReport story by posting an item on his Silicon Alley Insider Web site.

In an e-mail, Blodget said he decided to write about the report before Apple responded to his inquiry. He said the report was already circulating in the tech community and he considered the story ``the first significant test-case for citizen journalism'' -- one that failed, he said in an updated blog post.

No Review

After Apple spokesman Steve Dowling said the iReport post was ``not true,'' the shares recovered some. They closed down $3.03, or 3 percent, to $97.07 in Nasdaq Stock Market trading.

Concern about Jobs's health has weighed on Apple stock this year, contributing to a 51 percent decline since December. Jobs had surgery four years ago to treat pancreatic cancer and appeared visibly thinner at a company event in June, sparking speculation he was ill.

CNN has no plans to review its procedures for placing content on the iReport Web site, Martin said. User-generated information is vetted before it is broadcast on CNN, she said.

``IReport.com is an entirely user-generated site where content is determined by the community,'' Martin said. ``Based on our terms of use that govern user behavior on iReport.com, the fraudulent content was removed from the site and the user's account was disabled.''

Apple's CEO told members of the company's board in July he is cancer-free and dealing with nutritional problems after his cancer surgery, which can lead to weight loss, the New York Times reported, citing people close to Jobs.

In August, Bloomberg News inadvertently published a draft of an obituary for Jobs. The item wasn't meant for publication and was retracted.

To contact the reporter on this story: James Callan in New York jcallan2@bloomberg.net.

Last Updated: October 4, 2008 00:00 EDT