Arrest Made in High-Tech Stock Hoax

The U.S. Federal Bureau of Investigation (FBI) arrested a 23 year-old California man on Thursday for issuing a phony Internet press release that sent high-tech firm Emulex’s stock plummeting by more than 60 percent last Friday.

Mark Jakob, a student at El Camino Community College near Los Angeles, is being charged with interstate wire fraud and securities fraud.

FBI spokesperson Laura Bosley told the E-Commerce Times that Jakob is suspected of making between $230,000 and $240,000 (US$) from stock trades he made around the time the bogus press release was circulating.

Quick Arrest

The phony news stated that the chief executive of Emulex (Nasdaq: EMLX) had resigned and that the company was revising its earnings report to reflect a loss instead of a profit.

Bosley said the quick arrest shows that “the FBI [has] the technology and the expertise to track people down. They are not protected by the seeming anonymity of the Internet.”

Friday’s Freefall

The press release was issued through Internet Wire, an online news service, and was picked up by such financial news services as Bloomberg and Dow Jones.

Internet Wire later said the release had appeared to be from the public relations agency that represents Emulex.

During a 15-minute freefall, the Emulex stock price fell to a low of $43 from the previous day’s close of $113.06. Nasdaq later halted trading on the stock.

The Costa Mesa, California-based Emulex lost more than $2.5 billion in market value before the hoax was discovered. The shares eventually recovered after the company denied the reports.

The stock was up 4 3/16 at 104 11/16 as of the close of trading Thursday.

Looking for the Source

According to published reports, Jakob was an employee of Internet Wire until mid-August.

The FBI reportedly traced the e-mail of the bogus release to a computer at the El Camino Community College library, where Jakob was seen working the night before the news was published.

Jakob apparently had invested in Emulex stock in “short sales,” which rely on a subsequent fall in price to earn a profit. Had the stock not fallen, Jakob reportedly stood to lose $100,000.

Emulex designs, develops and supplies fiber channel host adapters, hubs, ASIC and software products to enhance access and storage of electronic data and applications.

Moving at Internet Speed

The Emulex case increased concern about the accuracy of Internet news and the speed at which information travels on the Net. Authorities said they fear a rise in fake news cases as investors increasingly turn to the Internet for investment and financial information.

“Hopefully, this arrest will act as a deterrent for people who think they can do this over the Internet,” the FBI’s Bosley told the E-Commerce Times.

Not a First

Friday’s hit on Emulex was not the first time an Internet news hoax has sent stock shares falling.

In March, Lucent Technologies stock dropped four percent after a fake news release stating that Lucent would report lower earnings was posted on an Internet bulletin board.

In another case last year, a former employee at PairGain Technologies sent company stock soaring by more than 30 percent after he posted a fake Internet news story saying the company was about to be taken over.